Recently I read an analysis of the U.S. Wood Supply Chain which got me to thinking about this column. The findings of that study were interesting although not that surprising to anyone who has been in the timber industry for any length of time.
A couple of points that stuck out to me from a loggers view point were:
- Massive capital investments would be required to meet the projected harvest demands.
- Existing suppliers are the most likely to expand the capacity due to restrictive financing, poor returns, and lack of new entries into the industry.
In one of my previous columns I discussed logging capacity and how labor impacted it but for this one I’d like to look at the issue of profitability and how it can impact logging capacity: Profitable is defined as yielding a financial profit. Increased harvest demand is a good thing provided you can make a profit in the process. A logging sector that is not profitable doesn’t do any good to the wood supply chain as a whole.
For years loggers have been told that they need to be more efficient in their operations when they brought up the issue of pay increases to their customers, the consuming mills. Over the years most loggers have become more efficient out of necessity in order to survive. The cost of doing business has risen substantially, while the return on that investment hasn’t kept pace. As an example I thought it would be interesting to compare some of the major costs from twenty years ago to today’s costs as well as the delivered prices from then and now:
- Fuel increased 400%
- Labor increased 67% before benefits
- Stumpage increased 200% on average
- Equipment increased 112% for similar machine
- Trucking increased 41% on average
- Delivered price increased 37.5% on average among species
I didn’t include health insurance figures in this for a number of reasons but we all know what premiums have been doing. Now I realize these numbers will vary by company and by region of the country but I would suspect only slightly.
After seeing these numbers I can’t help but question how much more efficient we can become and how existing suppliers are expected to expand to meet projected harvest demands when the cost of doing business is outweighing the return they are getting on their investment.
Expanded markets are great provided you can turn a profit, if not it spells disaster for the markets and those looking to fill those markets. It was brought to my attention a while back that our industry is one of a very few, if not the only one, where the customer sets the price for the product that we supply to them. Wouldn’t it be nice if we could go to our local Walmart or Home Depot and pay them what we felt was fair for the products they were supplying us with??