Wood Business

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The Straight Goods

Doug Routledge, vice-president forestry and northern operations for the Council of Forest Industries (COFI) in B.C., doesn’t attempt to sugar coat things when asked about the state of the province’s forest industry. He gives it to you straight up – that it is still extremely tough out there for anyone in the business. But, he is also confident we will come out of this downturn, and he predicts forestry will continue to be a significant component of the economy in Canada’s most westerly province. However, he cautions it won’t be the same industry it once was.


November 15, 2011
By Bill Tice

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“Things will be different,” Routledge concedes. “I don’t think any industry can go through what this industry has gone through and not be different at the end of it.”

Routledge has seen the carnage in what was B.C.’s number one industry first hand. He is based in Prince George, which is regarded as the centre of the province’s interior wood products business and home to numerous sawmills, panel plants, pulp and paper mills, value added operators, loggers and many suppliers that developed innovative products and services for the previously thriving sector. Today, while most mills are operating on reduced schedules, some others are boarded up, showcasing only vast empty log and lumber yards that during the good times were packed full of fresh logs, finished inventory wrapped and ready for shipment to the U.S. and overseas, and parking lots overflowing with the vehicles of employees collecting good, family supporting wages.

A few of these mills, Routledge says, may never reopen. “When we recover, I expect we will still see on the traditional lumber, panel and pulp side of the business a combination of the big boys, a few medium-sized companies with highly efficient mills, and smaller operators that can fill niche markets and roles. What will be new is an additional revenue stream from part of the fibre supply that was considered waste in the past, and that is both debris fibre from the trees we harvest and from stands of timber that were previously inventoried as non-merchantable. Previously, our industry and our timber inventories were based on saw logs and pulp logs and the rest of the revenue came from products made from the residuals of lumber production and a few value added operations. But now, the industry and the province are looking at the timber resource in the working forest areas as an entire fibre basket, not just a saw log basket . Increasingly we will be taking these two additional sources of fibre and turning them into viable products.”

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Routledge says this will allow the industry to “generate additional economic activity” off the same 25% of the province’s forested hectares that currently make up B.C.’s working forest. He says the commercial use of this previously discarded and/or non-inventoried fibre will be “kick started” with beetle-killed wood that won’t make the grade in a sawmill. But he says even once we have harvested and reforested all of the beetle wood areas, the use of debris fibre from normal operations that was previously burned for hazard abatement or the non-inventoried stands that were ignored, will make this additional economic activity sustainable. He is of course talking about biomass, but he says we must caution ourselves against building more capacity than we can sustain and that we must be cognizant of jobs per cubic metre formulas. “We don’t want to lose jobs in the sawmill, pulp mill and value added industry by chipping or grinding up their fibre for power which generates fewer jobs. As we go down this road, we need to make sure we don’t just replace existing viable businesses and put rural resource dependent communities at any more risk. We need to make sure we generate maximum value and employment out of the commercial forest throughout the entire business cycle.”

On the solid wood side, Routledge says the bigger players, such as the major licensees, will be stronger and leaner when the business recovers and that will help them return to profitability. However, he concedes they may have problems bringing production back up to capacity as a number of talented people have left the business for greener pastures due to industry layoffs, curtailments, shutdowns and uncertainty, and finding replacement workers could be tough. “The ability of the big players to ramp up quickly may be hampered, but these companies have positioned themselves as best as they can to survive the downturn and they will ultimately be stronger because of it,” he adds.

As for the smaller companies that have just a single mill or maybe two mills, Routledge says he definitely sees a place for them as well. “They may have to work a little harder in the commodity lumber business where unit cost is king,” but he says if they can continue to develop custom markets, custom cutting programs and instil customer loyalty, they will survive and succeed. He also adds that smaller companies often have the advantage of being more nimble than their bigger competition in developing business plans that include niche products and the right markets for their business. “There are proven business models out there that include specialty products and niche markets and in most cases, these mills are successful because they aren’t competing head to head with the big 2×4 commodity producers.”

Looking forward, China appears to be a promising market for B.C. lumber producers and it is one the provincial government is heavily promoting through trade missions and other government sponsored programs. It’s also a market some critics have been quick to downplay, saying it only consumes low-grade wood products for concrete forms that offer little in the way of economic return to the mills and the province. Routledge, who is connected with the national Canada Wood program through COFI’s Markets and Trade department, disagrees.

“We see significant potential in accessing the market in China,” he says. “Not just for B.C., but Canada wide. The industry has learned some very important lessons through our past dealings in the Asian markets, and one of those lessons is to export our building technology, our labour skills and our wood culture along with our products.”

Routledge says by teaching China how to work with wood products we can avoid mistakes that were made more than a decade ago in other Asian countries where we shipped lumber and panels but didn’t show the market how to properly use them. “We have corrected those mistakes and we are finding new ways to supply products that help develop a wood culture and fit within the building styles in China,” he notes.

As an example, he says they looked at the type of housing preferred in China and the largest market potential wasn’t single-family homes and duplexes. “They need to house a lot of people and they use apartment buildings to do it,” he explains. “In the past, these buildings were made entirely from concrete but as the buildings aged they typically had roofing problems, so we are helping them renovate using wood-truss roofing systems, which use a lot of higher grade wood. And, we are also showing them how to build interior divider walls with wood.”

Routledge’s comments on China may be bang on. In early November 2009, B.C.’s Minister of Forests Pat Bell and Federal Minister of Natural Resources Lisa Raitt announced that a memorandum of understanding had been signed with the Shanghai Housing Bureau. It is expected that the MOU will help B.C. and Canada get a piece of a $141 billion urban housing initiative that is part of China’s $586 billion stimulus package. At the same time, the Shanghai civic government introduced a wood-frame building code for the city and Natural Resources Canada announced that they would pump $800,000 into three demonstration projects – one related to wood-truss roofing systems, one that will illustrate how wood can be used for interior partition walls, and one that will focus on wood-framed commercial buildings that will have a concrete main floor and upper floors made from wood.

As for Routledge’s earlier comments about things being different when the economy picks up, he says his own organization, COFI, is not exempt from the tough times the industry it represents has been facing.
“Our revenues are based on our members’ production numbers, so the lower volumes have made it difficult for us as well, but we also feel and share the pain, which makes us more responsive to our members because we are tied to what they are going through.”

Routledge says, as a consequence, COFI is smaller than they have ever been, both in terms of staffing and programs. “We have managed this for the most part through attrition, but we are much leaner now. All three of our offices are probably staffed at 40% to 60% of where they were in the past and we cancelled our conferences for 2009 and 2010. Our board struggled hard with that decision, but we still have everything in place for 2011. Our members tell us these events are very good opportunities for sharing and exchanging ideas and with the right speakers, are extremely valuable.”

Just like its member companies, Routledge says COFI will survive this downturn, and they will also be stronger because of it. “Much like the industry we represent, we have to deal day-to-day with the downturn and we will also look different coming out of it,” he concludes.