A fragile “recovery” and logging capacity
Whether you live in New York, Los Angeles, Washington D.C. or in the more suburban or rural parts of our country, our attitudes are formed both from what we see and by those around us. There are many distinct divides: urban/rural, private enterprise/government, liberal/conservative, apathetic/active, all of which influence our thinking.
While the popular media and government’s prattle on about the “recovery” the past four or five years, and certainly things are far better than in November of 2008, however the “recovery” scenario is being greeted with something short of enthusiasm by much of America.
How does that relate to our world and the business of logging?
You can gain an insight by reading a report recently published by the Wood Supply Research Institute (WSRI) titled: Wood Supply Chain Analysis 2013.
First, some background on WSRI, “...WSRI is a joint project of professional loggers, forest landowners, wood consuming mills, educators, and manufacturers that facilitates and funds research to promote and improve efficiency in the wood supply system.”
Their research data was gathered from the seven wood producing areas of the United States with the primary question being, “Does the wood supply system have sufficient capacity to meet the anticipated growth in harvest demand over the next five years?”
The WSRI study covered several issues but the ability to harvest sufficient volumes to fill the anticipated market demand was both the thrust of the study most relevant to loggers. And for the first time in our memory the study states, “...One important interpretation of this analysis is to understand that wood suppliers will need to have a reasonable investment environment to be willing to spend capital to expand operations on a timely basis. Based on our findings, we recommend that the end-user community evaluate the magnitude of change in demand within its respective procurement basins. If appropriate actions are implemented, the industry can take full advantage of the favorable business cycle.”
Reasonable investment environment, which seems to recognize a contractor will invest when he sees a profit, reward for the risk. Specifically the study predicted that annual capital investment to achieve harvest levels would require (annual) investment capital increasing from the low of $5.9 billion in 2010 to $7.75 billion in 2017.
All this investment required to achieve increased demand round wood consumption by 16% between 2012 and 2016, most of which is needed to fulfill the need for domestic housing. The incentive is clear, the market is warming up and to capitalize they have to harvest... increase logging capacity.
The Wood Supply Chain Analysis also documented the effects of the past six year’s economy both from loss of contractors and the lag in contractors delaying updating their own machinery. “If these past investments were indeed lower than we assumed future capital expenditures may need to be higher than projected.”
Thus the data and message confirm what many loggers were well aware of: machinery is aging, new machinery will be needed, and the business climate has to be a powerful incentive for logging contractors to buy that new equipment, not only logging machinery, but trucks to haul as well.
One conclusion in the study, “The forest industry needs to participate in laying the groundwork now in order to address this situation... Massive logging and trucking capital investments will be required to meet the projected harvest demand.”
Another conclusion: Financing is tough for new ‘would be’ contractors saying, “...new entries into the wood supply business will be spotty at best. The existing supplier businesses are the most likely to expand the capacity.”
The study noted the “looming challenge” ahead, and certainly suggested a change in the business climate was needed, and that the historic belief that wood suppliers (loggers) could react immediately in response to increased demand was an “operational risk.”.
The good news in this report: we are definitely looking at several years of a much better market, but the report’s key is investing in equipment and improving the business environment to take that risk and be rewarded accordingly.
While this Wood Supply Chain Analysis addressed capital investment in equipment, there was little mention of investment in personnel, perhaps the key component. While its recognized that modern machinery requires a more highly trained operator, wages in the industry are well behind most competing industries. Machinery does not run itself.
The recommendation to contractors is to assess your business strategy and examine the relations with your customer mills and, “...focus on organizations that demonstrate they care about building strong relationships.”
A great lady
With any business, be it logging, publishing or more mundane enterprises, companies must be unique and valuable. And while Loggers World’s founder, Finley Hays was certainly the driving force of this enterprise since its birth in October 1964, the heart and soul resided in Jean Hays who answered the phones, ran the office, and kept the ship on course the first 25 years of its existence.
Through 61 years of a rock solid marriage, Jean and Finley were charged through the adventure of life and were friends to many, and a joy to have as company. They launched not only Loggers World, but also Timber Cutter, Log Trucker and Christian Logger magazines and while Finley was the writer and photographer, Jean was the glue that kept all the pieces together and on schedule with a grace and style only she could bring.
After selling the publications in 1989, whenever I’d drive out to their home to talk with Finley, she was always a most gracious hostess, bringing out munchies and coffee, her body frail from time, but her heart and kind spirit as strong as ever.
This great lady of Loggers World passed from our realm on October 18th this year, which missed our November printing. It marks the end of that era, though her influence lives on today. Again we are privileged to have our lives touched by such wonderful people.
The long run
Many loggers recognize all that was highlighted in the study, but on a far more local scale. It has been a very long, very slow recovery, and while the business climate overall is improved there are several points of concern not the least of which is finding capable crew (the next generation); the cost (and risk) of buying and financing new equipment after being out of the new market for upwards of six or more years; and high risk without a high reward (return on investment).
Governmental “leaders” seem utterly perplexed that business is reluctant to add personnel, grow, and increase their size... totally oblivious to government’s effect on the climate of business when the legislature and rule makers are cheerfully churning out more uncertainty and less predictability. We in business can adapt to changing business demands brought from customers because there is a reward for doing the job more innovatively, efficiently, and faster.
Why do we not see elected officials leaving government for private businesses? Well that’s another story.
The WSRI identifies and documents the structure and performance of the current wood supply system and identifies opportunities for improvement. It investigates ways to operate more efficiently and cost-effectively and communicates research findings directly to WSRI members as well as the forest products industry.