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History Repeats Itself

They say, “history repeats itself” and you won’t get any argument from me on that one. With almost 25 years in Canada’s forest industry, I have experienced the downside of our cyclical industry and the pain that goes with it more than once.


December 2, 2011
By Bill Tice
Bill Tice They say

 

But in the world of history, 25 years is just a short blip in time. Recently, while looking through a book on Canada’s distant past, I came across an interesting passage:

“Wood became British North America’s most valuable export commodity, making up nearly two-thirds of the colonies’ exports to Britain by the 1840s,” state authors R. Douglas Francis (University of Calgary), Richard Jones, and Donald B. Smith (University of Calgary) in their book entitled Canadian History to Confederation. “But the lumber industry remained vulnerable and volatile, subject to fluctuating demand in Britain, low tariffs after 1842, and overproduction – all of which caused many businesses to go bankrupt during the 1840s and 1850s. Without preferential treatment in Britain, it was difficult for Canadian lumber suppliers to compete with lumber exporters from the Baltic countries with their lower transportation costs,” add the authors.

One hundred and sixty years later, change the main player from Britain to the United States, and you have a similar story – overproduction with a lack of demand forcing lumber companies into bankruptcy. Even today, we still have to compete against the Baltic States and their lower shipping costs when selling into Britain and other parts of Western Europe. So maybe it’s more a case of some things just never change, rather than history repeating itself?

And that brings me to another point in this historical look back in time. One of the biggest and brightest red flags that comes up when looking at our past is our continued trend of putting all of our eggs in one basket. Admittedly, in the mid- 1800s, we really didn’t have much of a choice. As a British colony, it was expected that most of the wood extracted from our forests would be sent to Mother England for use as construction lumber for buildings, and in shipbuilding, particularly for the production of masts made from white and red pine.  They were sending so much Canadian wood to Britain that logs from Canadian forests were even squared prior to shipping so that a higher volume of wood could be stacked inside of each ship crossing the Atlantic. It seems we didn’t really learn much about catering to single markets from that experience. Fast forward a few years, and in the 20th century, and the early part of this century, we willingly turned to our neighbours to the south and made them, by far, our biggest market for wood products. Even when the softwood lumber agreement came into play, most major companies in Canada’s forest industry didn’t diversify in terms of geographic markets, continuing to pump dimension lumber and studs into a country that at its peak was building 2.2 million homes per year. That, of course, all changed when the economic bubble recently burst and new home starts in the United States dropped below 500,000 annually, reducing significantly demand for our dimension lumber and other wood products.

Now we have China. Sure, it is a huge market and in British Columbia alone the percentage of the province’s lumber production being shipped to China has increased substantially from 10% in 2009, to what provincial Forests and Range Minister Pat Bell predicts will be 20% this year. But we have to be careful we don’t make the same mistake we made in the past by relying on this one market for the bulk of our sales. China’s current appetite for wood is enormous, but some economic analysts are already cautioning that the bubble in China could also burst. As the U.S. economy slowly starts to recover, we have an opportunity to take a diversified path and have two huge markets for our wood products. Not only will that drive up prices for our lumber and other wood products in both markets, it should improve Canada’s negotiating position when the Canada-U.S. Softwood Lumber Agreement comes back up for re-negotiation in the not too distant future.

Times are still tough for Canadian forest products companies and probably will be for some time, but if we take a few steps now to try and prevent history from repeating itself, we might just have a better chance at sustaining profitability for a longer period of time when things do turn around.

 

Bill Tice, Editor
btice@annexweb.com


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