Interior Recovery Challenges

Interior-based forest companies and the log-harvest sector are leading the way to recovery of the province’s forest industry.

Almost all economic indicators show lumber production and harvesting are accelerating more strongly in the Interior than on the Coast. Among the many reasons:

• Overall lumber prices are up, especially for spruce/pine/fir, the dominant Interior species.
• Stumpage changes give Interior mills a greater advantage
• Rising export volume is helping Interior mills more than Coastal ones.

B.C. government economic data tells the story.

On the production side: Lumber prices are up overall, with SPF 2x4s – the main species used in the Interior – bringing 15.9% more in March compared with the same period in 2010. In that same period, Coastal stumpage rates rose by 22.3%, while Interior stumpage rates declined by 15.4%. The volume of beetle-hit pine processed by Interior mills was a factor. Housing starts in the U.S. and Canada are still down, but softwood lumber export value is up 23.8% from a year earlier. China’s imports of B.C. forest products have more than doubled compared with a year earlier. But percentages are only part of the story. Interior mills turned more than 24 million cubic metres of timber into lumber in 2010, compared with 20.5 million m3 in 2009. Coastal mills processed 2.8 million cubic metres of logs into lumber last year, compared with 2.4 million m3 a year earlier. Interior mills ran more than nine times as many cubic metres through their plants than Coastal mills did.

What about harvest volume?

In 2010, Interior loggers harvested 45.1 million m3, a huge increase from the 36.5 million m3 they logged in 2009. On the Coast, 12.2 million m3 was logged in 2010 compared with 7.9 in 2009.
The Interior harvest increased by twice as much as the Coastal harvest in one year. Overall, almost four times as much timber comes from the Interior than is harvested on the Coast.

There are clearly two forest industries in B.C. Add it up: Rising lumber prices, eased stumpage, more export volume, efficient mills and lower harvesting costs have allowed Interior forest companies to quickly go from a crawl to a sprint in terms of harvesting, output and profits. Interior forest companies are reopening mills at a faster pace than on the Coast, and adding shifts to cope with increased product demand.

Canfor and West Fraser, the two dominant Interior forest companies, both announced major reinvestment programs for the next 18 months to upgrade mills. All this is good news for the Interior lumber industry and communities across this part of the province, but as mentioned in previous articles, there are some dark clouds. Contractor capacity is one, and harvesting rates, frozen or reduced during the downturn, must rise if forest companies are to continue to move ahead. Contractors in the CILA area have some unique problems. We worry a lot more about how to ramp up to meet demand for our services, stave off raids on our skilled operators by other industries, and take advantage of emerging opportunities all around us, than do contractors anywhere else in the province.

How does industry rebuild? Some ideas

Last week, we reviewed factors that limit harvest sector capacity as the forest industry’s recovery strengthens. This week, we outline steps to help breathe new life into an ailing sector.

Expanding logging and trucking capacity to meet rising demand will take commitment from all levels to adopt new ideas and processes. There is no time for lengthy studies. The work has to start now, focusing on firming up the log-hauling and contractor bases before more leave for better-paying opportunities in other industries.
Here are some ideas to help stabilize the harvest sector and lead to rebuilding of capacity:

Loss of skilled workers -- Pay rates are a factor, but so is the industry’s stop-start nature. In a decade or so, we’ve gone from 170-plus operating days a year down to 110, and it isn’t all climate change. Log stockpiling followed by months of down time might save mills money, but it’s a prime cause of workers seeking steadier work elsewhere. A bit more mill yard staffing and some roadwork might be a good investment in keeping truckers and loggers in this industry.

Attitude -- Some forest companies see contractors and truckers as a liability – a cost factor. Others see them as assets and invest in them. Which attitude attracts and keeps contractors, especially now, with rising demand for logs and lumber?

Working together -- There could be much more cross-feeding of ideas and information on such activities as harvesting plans and block road layout. Loggers and truckers know the terrain well, and can often suggest ways to reduce costs for mill, contractor and trucker. It might cost more to build road in one area, but that cost may be offset by reduced machine and tire wear.

Rates, Rates, Rates -- Negotiations will flow more smoothly if rate and amount-of-work discussions for seasonal logging are scheduled well in advance of the planned start, with full block data provided, as required by Bill 13. Contractors and truckers should also be proactive, know their cost structure and be ready to discuss options. Rates are a bigger pressure point for contractors and truckers than they are for mills, which will continue to see gains in lumber prices.

Training – We need to develop specific training initiatives to grow more qualified truckers and machine operators. On the trucking side – the most pressing problem -- a log-hauling endorsement on top of a Class 1 driver’s licence would help develop a stronger trucking force more quickly. If we don’t accelerate training skilled workers immediately, our shortages will grow much worse.

Rules and red tape – The industry sectors and government need to review legislation and regulations that either add costs or limit opportunities. Government has done this exercise before with good results, and now, as this industry struggles to rebuild, would be a good time to revisit those concerns.

Next week: The industry recovery – it’s happening first and fastest in the Central Interior

Industry recovery not without problems

Last week, we examined our worsening skilled worker shortage; this week we review factors that are already limiting contractor capacity as the recovery strengthens.

Part 2 of a three-part series.

The past three years have been tough for loggers and truckers.

The recession meant lower lumber prices and less logging, and as forest companies cut costs, contractors were hit by reduced work and lower logging rates.
Some quit, while survivors struggled.

Ask a logger “how’s business?” and he’ll say he’s been busy, but not making money; that it’s been tough just staying in business. Ask about logging rates, and he won’t hesitate to say they’re too low – that he can’t replace aging equipment, now has to pay more to keep skilled operators, and can’t put any money away. Some will tell you they’re working for wages and not much more.

Contractors all over the region are apprehensive over rates and future logging volume. In the Williams Lake area, three replaceable logging contracts have been for sale for several months. So far, no takers – a clear sign that either the risk is seen as too high or nobody can afford to purchase them.

This apprehension has its roots in possible future AAC reductions, and forest company consolidation which over time has made negotiations more difficult for contractors.

Some contractors and truckers could see what was coming, and began developing new customers in the oil patch, mining, Highways and BC Hydro, gaining flexibility if forestry wasn’t profitable.

More recently, tougher negotiations, the recession and emerging opportunities in other industries have brought a mindset change that has more loggers and truckers thinking of themselves as resource contractors.

Now, having endured rate cuts, freezes and lost volume for the past three years, this identity shift is giving them determination as they enter rate and amount-of-work discussions. They know they can move to other industries as they become more active rather than try to live with low logging rates.

Forest industry consultant Russell Taylor recently commented that the contractor capacity issue is the “Achilles Heel” of the recovery, adding industry costs on this part of the supply side will rise as contractors leave. (It costs money to attract and keep contractors from elsewhere – if you can find them.)

This worsening capacity issue can be addressed, but it will take a level of sincerity, commitment and trust by both sides that so far has eluded everyone.

Some loggers and truckers have left the industry already, and more will follow. If this drain continues, the day will soon come when mills will be competing with each other to be able to hire a contractor.

We’re all in a waiting game that neither forest companies nor contractors can afford to play.

Next week: What forest companies, government and contractors have to do to overcome a harvesting capacity situation that threatens to limit the milling sector’s recovery?

Skilled Workers in High Demand

The harvest sector faces a ‘perfect storm’ as the forest economy heats up. This week we examine the worsening skilled worker shortage that limits the harvest sector’s ability to bounce back.

First of a three-part series

Logging contractors and log-haulers are watching the beginnings of a recovery in the sawmilling industry with a mixture of hopefulness and unease.
It doesn’t matter who you talk with, loggers and haulers all hope rising demand for lumber will translate into more work and stability for them.
But they also worry about taking on extra logging volume when some are experiencing crucial skilled operator shortages. Although owner-operator truckers are getting a lot more work, trucking companies also worry about finding or training enough drivers to keep their trucks rolling.
This past winter logging season, some contractors experienced the frustration of having enough work, but had some of their equipment sitting idle for part of the time because they didn’t have machine operators with enough experience to operate them.
Some actually had to turn down additional work because they were unsure if they could handle it.
The same situation created discomfort on the log-hauling side -- not enough qualified drivers made it difficult for some trucking firms to take on work opportunities in front of them.

It’s about to get a lot worse.

The forest industry is moving into a strong recovery phase, meaning greatly-increased demand for skilled workers. At the same time, mining is revving up and the oil/gas sector is going strong, creating even more competition for skilled operators.
Business representatives from other industry sectors say this worker shortage situation isn’t unique to forestry; it’s endemic across the resource sectors.
There’s rising demand for skilled workers in the resource industries, and because workers are often mobile and have transferable skills, someone who can operate a skidder, loader or grader can easily find work in mining and the oil/gas sector, usually for higher pay. The work is also steadier, over more days in a year.
Poaching is becoming more frequent, with mining and oil/gas companies, under the guise of job fairs, offering signing bonuses and in some cases relocation allowances to attract workers away from the forest industry. It goes beyond harvesting machine operators; mechanics, millwrights, electricians and others are leaving sawmills and pulp mills for greener pastures.
Training and apprenticeship programs are too little, too late.

The storm is upon us.

Next week: The worker shortage is just one factor limiting contractors’ ability to ramp up and log more volume.