Wood Business

Industry News Markets
Coastal View: November-December 2016

Nov. 25, 2016 - I make no apologies for the following. It may sound alarmist, but I’d rather shout now and be proven wrong, than be right. Here is the situation.


November 21, 2016
By David Elstone

It is well understood – at least by contractors – that during the last downturn the belt tightening requested by their customers (the major licensees) would be loosened when markets improved. If you are at all tuned in to the industry over the last couple of years, you will know that expectation was not fulfilled. Contractors have steadily gone broke while many of the major licensees saw a healthy recovery in their balance sheets – and exported their profits as investments in southern U.S. sawmills. While some contractors continue to persist, the TLA predicts the supply chain is at risk.

This is my concern. Markets have been relatively good for the last few years, keeping up the demand for logs, in particular red cedar. Prices of logs have slowly improved (notwithstanding red cedar’s stellar ride). Most importantly, for 12 months leading up to the expiry of the softwood lumber agreement, Canadian shipments of lumber to the U.S. crossed the border unimpeded by any financial or volume restraint. In other words, we have actually experienced true free trade. Unfortunately, that free trade window has now closed and the Canadian industry is vulnerable to whatever the U.S. hits us with.

The probability of a new softwood lumber deal leading to managed trade over the next few months is low, and it is not unreasonable to expect counter-veiling (CVD) and anti-dumping (AD) duties – likely totaling 30 per cent – based on the last time we were at this juncture.

Some people I’ve spoken to have said the softwood lumber trade issue is more an Interior SPF lumber thing than an issue for the coastal industry. I respectfully disagree. Under the last SLA, a portion of the coastal market was shielded from the full impacts of the export charges. Charges on red cedar lumber exports to the U.S. were only charged on the first $500 per thousand board feet. Under a CVD and AD scenario, the full price is now exposed. Approximately 30 per cent of say $1,800/thousand board feet is $540. That will have a huge impact.

Advertisment

As loggers, let me ask you: How will our coastal and Interior industries deal with a 30 per cent increase in costs for lumber? There will be an attempt to pass off some as price increases to lumber purchasers. But it is more likely that sawmills will be looking back down their supply chain for assistance to help absorb that cost. Who is going to help? Fuel suppliers? The unions? Equipment distributors? Bankers? No.

I am betting the focus will be on you. There will be even more pressure from your contract managers. They’ll say, “We are all in this together. Help us out Mr./Ms. Logger . . . your rates are too high for my sawmill to stay in business and manage these CVDs and ADs.”

Here’s the thing. Contractors and some of their customers have fostered healthy, mutually respectful relationships over the last number of years. Those are great relationships and I would expect if those customers ask for help, the discussions between them and the contractor will be meaningful.

However, given that most contractors have not seen their balance sheets repaired over the last few years of good markets, there is very little for most contractors to contribute to sustaining business relationships. I am not the first to say this; good relationships are not developed for the sake of good markets; they are there for when markets are poor.

So while the logging business has been quite busy over the last year, please don’t be lulled into thinking everything is all right. We are about to enter some very challenging and uncertain market conditions. I predict that as usual loggers will end up bearing the brunt of it as the start of the raw material supply chain. Approximately 90 per cent of the B.C. harvest is conducted by independent timber harvesting contractors. Community stability will be threatened and the supply chain may break. The softwood lumber trade dispute has the potential to create widespread financial pain. And given that contractor sustainability has not been addressed, I predict today’s contractors will not be able to withstand the pressures that they once were able to and there will be no one left to take their place.


David Elstone is the executive director of the Truck Loggers Association.