2020 Contractor Survey: Regional View – Ontario
By Ellen Cools
In 2016, the last time CFI shared a regional report on Ontario, the outlook was bleak. The region was considered a tough place to log, with contractors less likely to have seen a rate increase and among the worst profit margins in the country.
But according to the results of CFI’s 2020 Contractor Survey, Ontario loggers are having much more luck in negotiating logging rates now. More young people have also gotten into the industry, and while harvesting volumes are lower than in 2018, they have not dropped off as dramatically as in other provinces. However, there is still work to be done: Ontario loggers are still among the least profitable in the country thanks to high operating costs. On the whole, the results are more positive for Ontario than in previous years, and there are signs that the industry will see more good news in light of the provincial government’s new forest sector strategy.
Contractors in Ontario, in general, reported the following:
Rates and profits
When it comes to logging rates, Ontario contractors have seen a big change since 2016. Back then, just 31 per cent of contractors said they had seen a rate increase in the past three years. That number has jumped to 50 per cent in 2020, with another 31 per cent saying their rates have stayed the same. Just 12 per cent report a rate decrease, and none report a decrease of more than five per cent. Only Alberta contractors have fared better, with 64 per cent reporting a rate increase there.
But, the higher logging rates does not equal higher profit margins. In fact, Ontario has the highest percentage of loggers who report not making a profit in 2019 (38 per cent). No contractors report making a profit of more than five per cent in the region, with just 51 per cent saying they made a profit of one to five per cent. The remaining 13 per cent prefer not to say or don’t know. The estimated average profit rate in the region is just two per cent, the lowest in the country. In contrast, Alberta contractors report an estimated average of 8.4 per cent. In neighbouring Quebec, that number is 5.6 per cent.
The lack of profit in the region can be explained by the increasingly high costs, particularly when it comes to insurance. Across the country, 92 per cent of contractors say their insurance costs have increased in the past three years. In Ontario, that number is a full 100 per cent. This is likely because the cost of machinery has also increased drastically, with 63 per cent of contractors rating it as significantly higher than three years ago. Loggers report a corresponding increase in the cost of machinery parts and services, with 69 per cent saying it’s significantly higher. On top of that, 93 per cent of Ontario contractors say the cost of labour has increased, and 50 per cent say fuel costs have increased. Overall, it’s clear that logging has become a much more expensive endeavor in the region.
Operator pay is also going up in the region, with 50 per cent of contractors paying $26-$30 per hour, and 19 per cent paying more than $30 per hour. In 2016, almost two-thirds (62 per cent) paid $21-$25 per hour, and none paid more than $30 per hour.
The estimated average wage in the region now is $28 an hour, higher than in Quebec ($25) and Atlantic Canada ($22.50), but far lower than in B.C. and Alberta, where the average is $35 or more.
This increase in pay might be explained by the higher level of competition for skilled trades workers in the province, as older workers retire and fewer younger workers come into the industry to replace them (more on that below).
However, fewer contractors in Ontario are providing benefits to operators. Only 31 per cent offer medical/dental insurance, and 19 per cent offer life insurance. In comparison, in 2016, 46 per cent offered medical/dental insurance and 31 per cent offered life insurance. This year, more than half (56 per cent) of Ontario contractors do not provide any benefits. Only Quebec has a higher number at 57 per cent.
Despite low profit margins, Ontario loggers are among the hardest working in the country. Forty-four per cent of operations run more than 70 hours per week, higher than the national average of 35 per cent. Another 31 per cent run 51-70 hours per week. This puts the estimated average number of hours per week in the province at 73. Only Alberta and Atlantic Canada have a higher average number, at 105 and 107.5, respectively.
On a personal level, Ontario loggers are second only to Alberta when it comes to the number of hours worked per week, at an average of 56 (in Alberta, the average is 59). No Ontario contractor reports working less than 46 hours per week, unlike their neighbours in Quebec, where 25 per cent do so. More than half of all Ontario contractors (56 per cent) say they work more than 55 hours per week. Another quarter work 51-55 hours per week, and 19 per cent work 46-50 hours.
But, Ontario contractors are working fewer hours than they did in 2016. At the time, 77 per cent claimed to work more than 55 hours per week.
Across the country, harvesting volume has decreased, with the percentage of those harvesting more than 100,000 cubic metres dropping from 60 per cent in 2018 to 40 per cent in 2020. The estimated average harvest per year fell from 189,000 cubic metres per year to 134,000.
Continuing the trend seen in 2016, Ontario loggers harvest more than their eastern neighbours, but less than their western ones. Unlike in Quebec, where 23 per cent of loggers harvest less than 10,000 cubic metres per year, no contractors in Ontario harvest that amount. One-third harvest between 50,000 and 100,000 cubic meres, and another third harvest 100,000 to 250,000 cubic metres.
The estimated average volume harvested is 116,000 cubic metres per year, just slightly more than the 114,000 cubic metres in Atlantic Canada and a good bit more than in Quebec, where the number is just 92,000.
It’s no surprise, then, that Ontario contractors report much higher revenues than their eastern neighbours. The estimated annual average is $3.983 million, compared to just $1.74 million in Quebec and 2.041 in Atlantic Canada. Across the country, annual revenue has dropped from $4.52 million in 2018 to $3.96 million in 2020.
But, with higher harvesting volumes comes larger machine fleets. This helps explain why despite having higher revenues, Ontario contractors are seeing low profits. While fleets have become smaller across the country, with just 18 per cent running 21 or more machines, 19 per cent of Ontario contractors are running 21 to 50 machines. One-quarter say they have seven to 10 pieces of equipment, and another quarter has 11 to 20.
On average, Ontario contractors have 18 pieces of equipment in their fleet, more than contractors on the B.C. Coast (16 pieces) and only slightly less than those in the B.C. Interior (19). In comparison, Quebec and Atlantic Canadian contractors have much smaller fleets, at 7 and 6 pieces on average, respectively.
To run these larger fleets, Ontario contractors fall in the middle between their eastern and western counterparts. Thirty-one per cent employ between 21 and 50 people, on par with the B.C. Coast. Another 26 per cent employ between six and 20 employees. But, more than one-third (38 per cent) employ just one to five people. This puts the estimated average number of employees at 20 people. This represents a significant drop from 2016, when 54 per cent of Ontario contractors employed 21 or more people.
Despite the large fleets sizes and high operating costs, Ontario is seeing more young contractors coming into the industry. In fact, the province has the lowest estimated average contractor age, at just 48 years old, compared to the national average of 52 years old. This is a drop from 2018, when that number was 54.
Ontario also has the largest percentage of contractors under 35 years old, at 24 per cent. This is a big jump from the six per cent under 35 years old reported in 2018. Nearly half (44 per cent) of Ontario contractors in 2020 are between 36 and 55, similar to 2018 when that number was 50 per cent. The province now has the lowest proportion of contractors over 65, at just eight per cent. This demographic change could be because some of the older contractors have retired, but it’s also likely that programs encouraging young people to get into the industry are helping the region. This is a good sign for the industry, suggesting that the transition to the next generation is well underway.
Although Ontario contractors are the youngest in the country, they are the most likely to have a succession plan in place. Only 25 per cent say they don’t have a plan, unlike their neighbours in Quebec, where that number is 50 per cent.
Ontario loggers are the most likely to have their children take control of their business, with 50 per cent saying they expect this to happen. In comparison, only nine per cent of Alberta contractors expect this to happen. Next door in Quebec, that number is just 20 per cent.
But Ontario contractors might be a bit optimistic, since only 25 per cent say they currently have children working in the operation that are likely to take over. Thirty-eight per cent have children who are too young to be involved, but they hope they will be one day. Another 19 per cent say their children are currently working in the operation but have no plans for them to acquire the business. Only six per cent say they are unlikely to be involved.
Only 13 per cent of Ontario loggers say they will sell their equipment and shut down, the second lowest percentage in the country (second to Quebec).
Despite the high operating costs and low profit margins, there are reasons to be optimistic about the future of Ontario’s logging industry. With the youngest contractors on average and high likelihood of children taking over the business, it’s clear Ontario loggers see the industry as a good long-term investment.
The Ontario government released its final forest sector strategy in August this year. The plan calls for increasing the annual allowable cut and doing more with the available fibre, with a focus on value-added products and building up a market for low-grade logs to encourage economic growth in the industry. If the Ontario government follows through on these promises, loggers will likely see their profitability increase, especially with the high log prices the country has seen in the second half of 2020.
This survey was conducted in April and May 2020 by independent research firm Bramm & Associates, generating 271 replies to a detailed list of questions. Respondents were distributed according to the geographic breakdown of the forest industry, with 44 per cent of respondents in Western Canada, 26 per cent in Quebec and the rest found in Ontario, Atlantic Canada, and central Canada. Within B.C., responses were split between the B.C. Coast and Interior. Many thanks to our sponsors for making this research possible – Hultdins, Tigercat and John Deere.