DK Knight, Editor-in-Chief: Phone/Fax: 334-834-1170, e-mail: [email protected]
As a new year unfolds, most economic gurus seem to be more confident that a slow recovery is underway. Assuming that recovery is finally rooting, what form will it take, particularly for businesses linked to the forest resource? Chances are good that it will differ from the previous prolonged growth period because so much has changed. These changes will contour the recovery and likely will complicate it.
One important condition that will impact the forest landscape in coming months and years is logging capacity. By many accounts, U.S. logging capacity on average has dwindled by 25-30% since 2006. International Woodfiber Report (IWR) last November quoted Plum Creek Timber Co. CEO Rick Holley: “Frankly, it’s the industry’s number one issue in the future.” Once depressed markets for logs and fiber improve and new markets emerge, Holley says there will be a “real shortage of quality harvesting capacity.” Holley and company should know. According to IWR, Plum Creek sells most of its timber on a delivered basis and last year marketed about 16 million tons from its 7 million acres.
Cecil Johnson, Director of the Mississippi Loggers Assn., tells that the group in 1996 accumulated a logging database of approximately 3,000. As of last fall, Johnson said that number had diminished to less than 900.
Johnson, a logger himself, stressed in a recent state government sponsored forest forum that Mississippi loggers are dealing with a half dozen issues: markets, financing, operating costs, labor, local infrastructure and public perception. Loggers elsewhere struggle with some of these (and other) obstacles. Let’s break them down:
Markets—Just about everywhere, markets are limited and prices are low. U.S. pulp and paper demand, which had contracted before the deep recession settled in, is expected to remain flat for years, but demand for grade logs will gradually increase as domestic housing activity strengthens and log and lumber exports advance. Most closed OSB plants will someday restart, creating a better market for pulpwood grade material in some locales. Ironically, as sawmills increase production (and chips), demand for pulp grade fiber could fall in some places. Here and there, new energy plants will spur demand for lower-grade fiber, and chip and pellet exports could certainly increase as well.
Financing—Sources for this vital service are very limited and down payment/trade-in requirements are much greater than they were before the recession and are expected to remain so. Even the largest manufacturers with captive in-house financing now are known to pass up sales to customers with less than perfect credit. Market instability, caused in part by lack of long-term contracts and no cost escalation provisions, will keep some would-be logging equipment finance entities on the sidelines.
Operating Costs—Tier IV engines for off-road equipment, which begin a four-year phase-in this year (see story, page 12, will jack up operating costs significantly because they will cost more, weigh more and be more expensive to maintain. Already, this EPA-mandated development has increased demand for used equipment, sending prices upward. Unrelated to this, most manufacturers increased machine prices by up to 3% effective January 1, citing higher costs for everything from steel to electronics to tires. Meanwhile, fuel costs continue to escalate. In early January diesel was 65 to 70 cents per gallon higher than a year ago and the trend is upward. Higher fuel prices impact the cost of most everything.
Labor—Many loggers were having trouble finding, pacifying and retaining both experienced and rookie labor before the recession. Generally, it won’t get any easier, even with a higher than usual unemployment rate, thanks to drug abuse, poor individual initiative, government handouts, the nature of the work, scant benefits and so on. Those willing to work will tend to take the more secure and less demanding jobs with more benefits.
Infrastructure—Strapped for funds, county governments, particularly in the rural South, are increasingly trying to regulate logging activities with regard to site access, permits, performance bonds and secondary road and bridge use.
Public Perception—Logging continues to whip up negative emotions, even among those with rural roots. To many, its intrusion on the landscape lingers like a foul odor.
One continuing sore spot that Johnson didn’t mention is transportation. Always a challenge, transportation seems to become more challenging and complex with each new year. Kicking in recently was the Federal Motor Carrier Safety Administration’s Compliance, Safety and Accountability (CSA) initiative, an effort to improve large truck and bus safety and reduce crashes, injuries and fatalities related to commercial motor vehicles.
Many of the quality loggers still standing are not very profitable as it is. Some are now diversified and may not be willing to ramp up log or fiber output, especially if they can’t see the potential for a decent profit. Also, loggers are growing older and are not encouraging their offspring to follow in their footsteps.
No wonder Rick Holley is concerned.