With higher shipping costs, IKEA considers moving more production to Turkey

Sweden’s flat-pack furniture giant IKEA is planning to move more production to Turkey to minimise problems with global supply chains and increased shipping costs, the company’s chief financial officer for Turkey said.

Products it expects to make and then export from Turkey, including armchairs, bookcases, wardrobes and kitchen cabinets, are currently shipped thousands of miles from east Asia to Middle East or European markets.

“Due to shipment problems we faced during the (Covid) pandemic, we are attempting to have more manufacturing in Turkey,” chief financial officer Kerim Nisel told Reuters, declining to estimate how much capacity might be moved.

“We all saw in the pandemic that diversification is so important,” Nisel said. “It might not be a good strategy to produce items in one country and then try to transport them all around the world”.

The company has seven stores in Turkey and already exports three times as much as it imports into Turkey, where it currently produces textile, glass, ceramic and metal products for global export.

Nisel said the cost of a container from east Asia had leapt to $12,000 from $2,000 before the COVID-19 outbreak last year. “It is more rational to have them manufactured closer to where they are sold. That’s why we want to have them manufactured in Turkey”.

IKEA’s move follows similar steps by other European brands such as Benetton, which is bringing production closer to home by boosting manufacturing in Serbia, Croatia, Turkey, Tunisia and Egypt with the aim of halving production in Asia.

The outlook for Turkish furniture makers

Furniture Industry Businessmen Association (MOBSAD) President Nuri Gurcan told Bloomberg HT (link in Turkish) in March earlier this year that they are having difficulties sourcing foam, MDF, metal and glass, which are the main raw materials of furniture.

“The difficulty of sourcing raw materials as well as the exorbitant prices of the raw materials will be reflected in the prices in the coming days,” Gurcan said. “There will be an increase of 20-25 percent in prices. In the past because of the same reason there was a price increase of 10-15 percent. The manufacturer can’t make money and how much longer can he keep it up when he can’t make money? It will definitely be reflected in the prices in the next season.”

Gurcan mentioned that in addition to sourcing raw materials they are suffering from price increases: “One of the main components of furniture making, foam, is now 150% more expensive. When we ask why they tell us that foreign makers are working at a reduced capacity. They make excuses that they are working at 50 percent capacity,” adding that “This has really affected the sector and continues to do so. We also have big problems with glass and metal. Those materials have also been selling at seriously increased prices.”

The MOBSAD president went on to say that if the problem with raw materials continued in the furniture sector production in Turkey may come to a standstill. “Consider this an SOS. Urgent precautions need to be taken,” Gurcan said. “Otherwise we may come to the point of closing down factories. We need to reach raw materials somehow; perhaps the taxes on raw materials should be reduced. We need to be able to import raw materials; as an association we are looking into where we can source materials.”

Another article in Bloomberg HT (link in Turkish) from August of this year reports that particle board MDF prices have gone up by 10 to 15 percent.

President of Modoko, a shopping complex for home and office furniture, Koray Caliskan said producers wanted to lower demand in Turkey and thus kept raising the prices monthly; if the prices were to continue through the end of the year, the production capacity would go down by 35 percent and there could be company closures up to 35 percent.

In June last year, home goods were recorded as having gone up 25 percent compared to the same period last year. Moreover, prices for steel and wood, raw materials for furniture, have gone up 100 percent since the beginning of the year.

Caliskan protested the monthly price increases for MDF at 10-15 percent, saying “Compared to last year this time, prices of MDF have increased by 40 to 60 percent in US dollars. In terms of inflation… furniture is in the second highest increase.”

Caliskan accused MDF importers of producing and importing enough for the Turkish market but increasing prices constantly. “They sent China fibreboard and MDF in the past months. We are having a very difficult time in the Turkish market. The export of fibreboard and MDF should be banned immediately. Sending one of our biggest competitors, China, raw materials and victimising local producers is a great injustice.”

Turkey’s Competition Authority has fined (link in Turkish) MDF and particle board makers in the country in April 2021 for conspiring to fix prices and thus breaking the law. Eleven firms were fined a total of 271 million Turkish lira (approx $ 33,089,100).