Survey snippet 2: Profit expectations drop
By Ellen Cools
Given the weak lumber markets in 2019 and the first half of 2020, the downturn in the B.C. forestry industry and dwindling fibre supply, it’s no surprise that profit expectations among logging contractors are down on average.
Since 2016, we have been asking CFI Contractor Survey respondents what a fair profit range is for an established, productive logging contractor. We defined profit margin as return on revenue as a percentage, or profit before income tax divided by total revenue. E.g., $5,000 of profit on $100,000 of revenue is a five per cent profit margin.
In 2018, 14 per cent of contractors felt above 20 per cent is a fair profit. But this year, just eight per cent see that as a fair profit. The majority – 45 per cent – believe a profit range of 11-16 per cent is fair.
But by combining all responses that feel 11 per cent or more is fair (see chart), it is clear that, just as with logging rate increases, contractors’ expectations differ drastically from province to province.
In Ontario, only 50 per cent of those surveyed feel a fair profit is 11 per cent or more. In comparison, a full 100 per cent of contractors surveyed in Alberta and 95 per cent of contractors on the B.C. Coast believe 11 per cent or more is fair.
Atlantic Canada, which in 2018 had the lowest expectations for profit, recorded a slight uptick, with 51 per cent of respondents saying 11 per cent or more is a fair profit range. The numbers in Quebec stayed the same as in 2018 (61 per cent). In the B.C. Interior, 75 per cent of respondents feel a fair profit range is 11 per cent or more, a slight drop from the 78 per cent who said so in 2018.
Across all three surveys, we asked mill woodlands staff the same questions. As in previous years, two-thirds of woodlands staff feel a fair profit margin is between six and 15 per cent for an established contractor. Similar to contractor responses, the number of respondents who feel above 20 per cent is fair has dropped, from 17 per cent in 2018 to eight per cent in 2020. There is a notable increase in the percentage who believe a fair profit range is three to five per cent – from two per cent in 2018 to eight per cent.
Missed last week’s survey snippet? Find a collection of reports published to date here. Look for more news from the CFI 2020 Contractor Survey in our eNews over the coming weeks, with a final digital report in December and a summary in the November/December print issue. Be sure to subscribe to our free eNews to get all the latest industry news.
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.