No Woodworking

Unfortunately our field trip for Thursday to Tupper Secondary for woodworking has been cancelled. The supplier for the wood has run out of supplies! So we will have to cancel. Thank you to all the parents who offered to take the time to drive us!
– Evie’s Grade One teacher (via email, May 23)

On the topic of dwindling fibre supply, it’s reported the B.C. Interior accounts for more than 90% of the province’s softwood lumber exports to the United States. So far this year, the significant decline in B.C. lumber shipments to the U.S. (down 20% in the first quarter according to the article) is widely attributed to transportation bottlenecks and export duties. However a bleak report here from The Globe & Mail this week serves as stark reminder to post-beetle, mega-fire, fibre scarcity realities – a land base “ravaged in turn by pests, fire and drought”.. a province with “barely enough timber now available to meet legal commitments to its major forest license holders”. After a recent fly over, B.C. Minister of Forests Doug Donaldson likened the Chilcotin Plateau, 60 kilometres west of Quesnel, to “a moonscape”. Never mind the missing trees; in some places we’re told, firestorms consumed even the soil.

In a report in February, the chief forester noted that the 2017 wildfires in B.C. affected over 1.2 million hectares, the largest impact on record (in about 100 years of record-keeping) for a single fire season. Most of that – about one million hectares – was in the Cariboo region. The fires consumed or damaged almost one-quarter of Quesnel’s timber supply. That is on top of the devastation wrought by the Mountain Pine Beetle epidemic, and sustained drought conditions that had led to fire bans in April – remarkably early. “We just cringe now when we see lightning,” Quesnel Mayor Mr. Simpson said. Now, a growing fir beetle infestation that somehow eluded last year’s wildfires is putting the remaining timber supply at risk. “There isn’t a tree species or a plantation that isn’t under stress due to increasing maladaptation to the current climate,” Mr. Simpson said.
– The Globe and Mail (21 May, 2018)

Meanwhile, Random Lengths reports lumber output in B.C. was down almost 8% in February from the same month a year ago; through the first two months of 2018, production in B.C. was down over 3%. On the bright side, according to Random Lengths, late-shipping railcars are beginning to roll into destinations more readily – welcome short term relief no doubt for razor-thin inventories at distribution yards and North American dealers starved for wood.

Of course in the long run, a global market is in play to influence supply and pricing. When demand for lumber increases, prices climb. When production ramps up, the supply/demand balance swings the other way and prices come off. What happens when production can’t ramp up?

The lion’s share of increased North America lumber production will need to come from U.S. mills.
– Russ Taylor, Forest Economic Advisors (FEA) Canada (19 Jan 2018)

The U.S. labour force is the single biggest constraining factor in U.S. sawmill production.
-Paul Jannke, FEA (5 Apr 2018)

“Moonwalk” – Evie’s space-themed Sports Day last wk

Live at The Pond: Five Questions for Guillaume Pelletier

Thomas on Dispatch – Guillaume’s 16-month old son

Harderblog recently caught up with reload operator extraordinaire Guillaume Pelletier, Vice President, RCP Transit Inc.
Dakeryn Industries has enjoyed a strong working partnership with RCP Transit since 1995.

1) How have Electronic Logging Devices (ELDs) impacted truck capacity at RCP Transit?
Right now, we’re handling the same volume as we were doing before the ELD – but differently. Drivers can’t lose time anywhere, they’re running like crazy! As soon as they move the truck, the clock starts; they have 14 hours to complete their day (11 hours of driving + three hours work/on-duty). It’s changing the way they’re driving.

2) Changing in what ways?
Before ELD, drivers could stop to eat, take a shower, do maintenance – now they need to sleep 10 hours in a row! I never sleep 10 hours! I used to have 9 out of 10 drivers sleeping in their truck – now I have three out of 12. And we need to pay extra. Truckers are leaving the reload earlier in the morning, deliver by noon, p-up their log and come back home by 17:00/18:00. My mechanic needs to work overnight or on the weekend. I need more trailers since we don’t have anyone to load at night anymore. I had to hire an extra local driver only to deliver all the back hauls. It’s costing big money.

3) In the face of the ELD mandate, what is RCP Transit doing to be a “U.S. truck shipper of choice”?
We have changed the way we dispatch – it’s hard to explain. Overall, improved communication with customers. Our hours of service for truckers have been fully optimized. It’s more work on the dispatch side, but we have good partnerships in place.

4) How about freight rates?
We’ve been running with the same freight rates out of both our reload locations in Coaticook, Quebec and Island Pond, Vermont, for almost five years. But last week we announced higher freight rates effective June 1st. We probably should have increased rates six months ago, but our goal was to run with the existing rates at least through Q1 to accurately determine what was needed. We want to stay as competitive as possible to continue to grow the business – but waiting until now to raise rates has cost us significantly more then I was expecting! With our trucking company, we were probably short $80,000 for the first three months of the year. We were expecting to handle 20% less loads per week, but that never happened. So we’re handling the same number of loads, but driver salaries are up 20%, our insurance costs are up 30%, and fuel is going totally crazy! Unfortunately those expenses are out of our control.

5) Any shipping relief in sight?
There are fewer truck drivers every year. People are desperate for trucks! Right now there is such a shortage of trucks, people are calling us non-stop everyday. You wouldn’t believe it! We cover one out of every five loads we’re offered. It’s not easy refusing business everyday. The worst part is I am losing my broker. And prices continue to climb. For example, Montreal to Plainfield, CT a truckload of steel pays around $2000.00. How can we compete with that?

Related: America doesn’t have enough truckers

RCP Transit’s Reload in Island Pond, VT

Sharpening the Saw

Its been said that there is power in staying connected to other people in your industry. My fifth consecutive B.C. Council of Forest Industries (COFI) Convention, held in Prince George last week, provided again opportunity to return with ideas to sharpen skills and stay abreast of a rapidly-changing lumbering landscape. The listed takeaways include a surprise at how few marketing and sales types were among more than 550 delegates who packed the Prince George Civic Centre for agenda presentations:

-The prevailing politically-charged environment these days seemed to shape tempered viewpoints from panelists on several fronts. Folks looking for Interfor President & CEO Duncan Davies to deliver pertinent softwood lumber dispute insights were disappointed. His confirmation lauding the work the Softwood Lumber Board is doing to grow softwood lumber demand did not excite. Fortunately a pointed question from the audience, asking why Canadian producers would support the SLB when a number of U.S. members are working to constrain market access, elicited topical response: “The tariffs are wrong. Whether or not the economy is helping to soften the blow, the tariffs should not be there. Inspite of trade matters, we need to continue to invest in our biggest market.” From West Fraser President & CEO Ted Seraphim: “Today, we’re not worried about the softwood lumber dispute. But if the market were weaker, we’d all be worrying about it. So we need to grow demand.”

-While there wasn’t a panel discussion dedicated to timely transportation concerns, Federal Minister of Transport Marc Garneau addressed the situation. He said CN and CP need to do better. He pointed to Bill C-49 (Transportation Modernization Act) but his reporting an improvement in railcar capacity for grain fell flat among an audience concerned with lumber shipments. From Beth MacNeil, Assistant Deputy Minister, Canadian Forest Service: “Without infrastructure, there is no trade.”

Jock Finlayson, Business Council of B.C., talked about the uncertain, shifting economic landscape in this province. He referenced the impact of uncertainty on investor confidence and how Canada is lagging in healthy capital formation. He sees little upside in residential construction in Canada, while pointing to “fundamental organic demand for housing growth” in the U.S. 30-39 age group. He suggested recent fiscal stimulus in the U.S. is unnecessary and poorly timed. Presently 300,000-400,000 manufacturing jobs in the U.S. are unfilled.

-According to Paul Jannke, Forest Economic Advisors (FEA), the U.S. labour force is the single biggest constraining factor in U.S. sawmill production.

-It was refreshing to hear from B.C.’s new Minister of Forests, Doug Donaldson, but otherwise nothing noteworthy recorded.

-An excellent presentation by Kevin Pankratz, Senior VP, Sales & Marketing, Canfor addressed export markets and the global outlook. Interesting to learn that the R&R market is bigger than new home construction. Expansive growth in hybrid construction, off-site construction, and building automation in all markets reported. “Governments everywhere will increase focus on green building initiatives to meet emission targets.”

-Most edgy presentation (“Fibre Supply – It Is What We Make It”) goes to Diane Nicholls, now two years into her job as B.C.’s Chief Forester. In the aftermath of the Mountain Pine Beetle, she seemingly referees the constant fight for access to quality fibre, further complicated by the Spruce Beetle presently eating into the midterm timber supply.

-The Forestry Jobs for Today and Tomorrow panel might have been one of the highlights. Best moderator of the convention goes to Sandy Ferguson, VP Corporate Development, Conifex. It was interesting to hear industry (Canfor/Interfor/Tolko/West Fraser) is working to rejuvenate parts of the BCIT Wood Products Manufacturing Program I graduated from, which has been dormant since 2003. From Kara Biles, Manager Learning & Talent, Canfor: “Aggressively advocate for diversity and inclusion in your company; diversity is a competitive differentiator shifting market share toward more diverse companies.” Derek Orr, Business Development Manager, Carrier provided update on planning underway for a Ranger Program aimed at development/training of Aboriginal youth. Lots of sponsor traction for the program including Carrier, Dunkley, Conifex, West Fraser, and Canfor.

Premier John Horgan seemed pleasantly surprised with the warm welcome before delivering his keynote speech Friday morning: “Thank you for clapping.” He deftly navigated the politically-charged minefield.

~~~

At first glance, the 2018 COFI Convention struck me as perhaps being lighter on content in comparison with past years. However, on second glance, it was rich in both content and opportunity, with plenty to digest. As one among four delegates from Dakeryn Industries, I again return from this convention with new and enlightening ideas. For us all, it was a worthwhile time to ‘sharpen our saws’.

Premier John Horgan with COFI President & CEO Susan Yurkovich (6 Apr 2018)

Tolerance of Uncertainty

Lumber traders daily navigate a terrain of market volatility and uncertainty.
Interpreting market changes for suppliers and buyers is a defining characteristic of the wholesale function in today’s international lumber trading environment. The factors contributing to successful lumber trading are closely tied to personal qualities ascribed to effective sales and entrepreneurship.

In Building Products Connection (Feb/Mar issue, published by the Northwestern Lumber Association), sales consultant Jeff Beals suggests sales is entrepreneurship, before exploring the seven characteristics of an entrepreneur. In a nutshell:

Moderate Risk-Taking: Far from the stereotypical reputation for taking big risks, Beals argues successful entrepreneurs are moderate risk takers. “They don’t shy away from ambiguity if they believe opportunity is present, but they study and calculate before taking the risk.” (Related: The B&S Theory of Lumber Trading)

Tolerance of Uncertainty: “Entrepreneurs can handle living in the unknown.” That’s a particularly valuable characteristic according to Beals, because there are no guarantees in sales.

Ego: “Obviously you don’t want to be an obnoxious ass, but if you’re lacking in confidence, you should work on it. Even if you’re an introvert, constantly develop and refine your people skills, because working with and through others is critically important.”

High Energy: Perseverance is similar to energy. “When things aren’t going well, entrepreneurial people double down” – and blog harder?

Goal-Oriented: Beals considers this to be the most important entrepreneurial characteristic.

Diverse Thinkers: Simultaneously managing tactics while thinking strategically; we’re told entrepreneurs work on short-term and long-term goals at the same time.

Integrity: The longer people and organizations exhibit consistent integrity, the more likely they will succeed. “The most consistently successful entrepreneurs exhibit high levels of integrity.”

Fraser River, view to Baker Mountain (12 Feb 2018)

Sticker Shock

After hitting a 20-year high in 2017 ($440 October 10), the Random Lengths Framing Lumber Composite Price has snowplowed even higher this winter, reaching $458 Friday. SPF 2×4 #2&Btr is $502, a record high. “Shaking their heads – some in near disbelief..” — that’s how Random Lengths describes ever-wary lumber traders in their Weekly Report on North American Forest Products Markets (19 Jan 2018).

Last week a good U.S. customer, in response to a partial quote, asked: “Where are they hiding all the wood?” I posed the question to Russ Taylor, Managing Director, Forest Economic Advisors Canada. Russ notes Canadian shipments are already limited by tightening timber harvests in the B.C. Interior and Quebec. And with Canadian softwood lumber exports further constrained by cross-border duties, FEA-Canada projects Canadian shipments to the U.S. to shrink even more, up to 7% through 2019. Russ confirmed the additional North American lumber production required to satisfy U.S. demand will need to come from U.S. mills. Russ considers projections for U.S. mill shipments to grow 15%, from 34.0 billion FBM in 2017 to over 39 billion FBM in 2019, “an aggressive target.”

When Russ then reiterated FEA-Canada’s most recent five-year outlook quoted below with permission, I was reminded of the comments John Innes, Dean of the Faculty of Forestry, UBC made back in 2012: “What people seem to forget – and I don’t really understand this – is that there was extra capacity created to process this lumber when the beetle reached its peak. Surely people then realized that this was a temporary thing; that it wasn’t going to last.” See: Firm Offers?

U.S. demand will be leaning more heavily on expansions in U.S. production and European lumber imports in the 2018-19 period. Production increases in the U.S. will be subject to many factors, including lumber prices, log supply and costs, financing, supply chain dynamics (including loggers and sawmill workers) etc. This means we could see varying supply responses in different regions of the U.S., and at different times.

As we have been forecasting for the last few years (and again this year), there does not seem to be nearly enough available softwood lumber capacity in North America to meet U.S. demand by the end of the decade. While the slower pace of housing starts has somewhat delayed any potential ‘supply gap’ in the last few years, the burden of import duties on Canadian lumber shipments to the U.S. has now exacerbated this situation (starting in 2017). We predict that incremental supplies of logs and lumber will be required each year, and that high lumber prices will result and attract more supply; in 2020 and beyond, there is strong potential for even higher lumber prices.

 

Breaking: SLB-funded initiatives generated 1.02 billion board feet of incremental softwood lumber demand in 2017.

11 Questions for 2018

Here are 11 questions that Harderblog will be watching in 2018, in search of answers:

1. Will rhetoric of military strike pass the ‘tipping point’ into war with North Korea?
2. Will the Bitcoin excitement be fading, or prove to be a bubble?
3. Will the extreme weather patterns evidenced in 2017 be as pronounced in 2018?
4. Will Trump take steps to call a halt to the special prosecutor’s investigation into Russia’s interference in the 2016 U.S. presidential election?
5. Has integrity lost some of its lustre as a perceived prerequisite for leadership success?
6. As higher lumber prices effectively offset impact of duties, will Canadian major producers’ newly-hedged investments in U.S. production assuage any further concerns companies such as West Fraser and Canfor might have about the ongoing Softwood Lumber dispute?
7. Will Germany repeat as FIFA World Cup champions?
8. Will the powers that be acknowledge that the remanufacturing (value-added) segment of the Canadian forest sector is being unfairly penalized in the application of the AD/CVD?
9. Will softwood lumber be incorporated into NAFTA?
10. In view of the fractured supply chain, will lumber buyers abandon the “just-in-time” model in favour of securing coverage that satisfies longer-term projected needs?
11. Will broccoli, the least-trusted vegetable of 2017 among lumber traders and the general population, retain that notoriety in 2018, at the same time as the world watches broccoli’s favorability surge to number one in Scotland?

Year-end Answers

As we approach year-end, you’ll recall 17 questions for 2017 we posed one year ago at Harderblog:

1. (See Question #1 from 2016)
Yes.

2. Will Trump really build a wall and have Mexico pay for it?
No. It’s reported the promised border wall amounts to eight prototypes sitting in a desert outside San Diego. Mexico hasn’t contributed a peso and no funding has been appropriated by Congress to advance the project beyond the testing phase.

3. Will the softwood lumber dispute have found a satisfactory resolution?
At the 2017 COFI Convention in Vancouver, David Emerson, B.C.’s Trade Envoy to the United States, described the ongoing softwood lumber dispute as “a mutating form of bacteria that has all but become antibiotic-resistant.” In the face of a dwindling resource and increasing demand for softwood worldwide, effective today the combined CVD/AD duty paid by most Canadian importers to the U.S. Customs and Border Protection Agency will be 20.23%, calculated on the selling price.

4. Will anticipated countervailing duties on Canadian softwood lumber shipments to the U.S. be applied retroactively?
No. While the USDOC concluded in April that “critical circumstances” existed (justifying the charging of duties retroactively 90 days), by early December the USITC had announced a negative finding concerning critical circumstances.

5. Will Trump really pull the U.S. out of the Paris Climate Change Agreement?
Yes.

6. In the face of “Fake News” and misinformation that poses distraction to sound decision formulation on many fronts, will lumber dealers lean more heavily than ever on trusted wholesale relationships to interpret market changes?
A poll of traders in Dakeryn’s office says “yes” to this question.

7. Will Trump really pull the U.S. out of the Iran Nuclear Deal?
No.

8. Will there be 100 million consumers shopping in augmented reality (AR) by the end of 2017?
Maybe not yet. However we’re told here “shoppers are beginning to give AR more attention, particularly when viewing function-driven, feature rich, high-consideration purchases such as furniture. Voice technology, augmented reality, and artificial intelligence are transforming the retail industry to make buying products quicker, easier and more enjoyable.”

9. Will a measure of sanity return to the Vancouver housing market?
No, although, as a major news story, rental-housing woes in Vancouver eclipsed angst over the climbing cost of homeownership. In 2017, it’s reported the average rent for a one-bedroom apartment listing in this city surpassed $2,000 per month.

10. Will the record number of homeless people identified in the City of Vancouver’s 2016 Homeless Count be broken again in 2017?
Yes. The record-breaking 2,138 homeless people counted in Vancouver this year is 291 more than the previous record of 1,847 homeless people counted in 2016. At 448, Aboriginal peoples are once again over-represented in the number of homeless people living in Vancouver.

11. Will tensions with China escalate over trade and Taiwan?
Trade issues loomed large on many fronts in 2017. The U.S. opting out of the Trans Pacific Partnership headlined trade-related news in Asia.

12. In light of increased hacking of connected products, will questions surrounding cybersecurity have become a make-or-break issue by the end of 2017?
Yes. In fact 2017 has been described as “the year of cybersecurity wake-up calls”. Recent examples show disturbing trends.

13. Is there any indication that by the end of 2017 a future of driverless transport trucks could promise enhanced just-in-time lumber deliveries?
See Corrections.

14. Will anybody care if the Vancouver Canucks fail to make the Stanley Cup Playoffs?
Vancouver Canucks attendance figures are said to be the lowest since 2001.

15. Will BC Premier Christy Clark’s Liberal Party secure a fifth term in May?
No.

16. Will the global crises surrounding issues of displaced peoples/refugees have eased anywhere?
See: Why nothing will stop people from migrating.

17. Will general predictions forecasting a “bumpy ride” for 2017 come to fruition?
See: Are you day trading?

O Christmas Tree!

Festive holiday flavours don’t come unwrapped around our home until The Little Christmas Tree story is shared. You’ll recall, it’s about the little fir tree in the forest, wondering if it will be the one chosen to be someone’s special Christmas tree. Sadly, this year, the little tree, like so much of what’s shaping news, is getting caught up in politics. Is nothing sacred, we might ask? Through northwest breezes touching Chilliwack’s Vedder Mountain woods we heard the little tree’s plaintive sighs. “Leave me out of it, NAFTA” the tree uttered. “My dreams are about creating wonder, cupping candy canes for kids. Let me hear laughter, even for a little while. I don’t need to hear talk of threatened export duties on Christmas tree shipments from Oregon to Mexico. Tell me about a star on top, or.. maybe an angel. What’s the world coming to? Not so many of us are being primed and pruned these days. My market value is higher this year you say? So what? Something’s twisted when gauging my true value in dollars and cents. You’re missing the point. I have no crass commercial ambitions. If that were on my mind, I might have sought long term ambitions as some condo floor joist. For just a little while, let my branches share sounds of birds singing O Tannenbaum. Allow me a moment to wonder if this be the year when I’ll be the one selected to brighten a living room corner – I be the one bringing joy, even for a little while. This year will I be selected to be someone’s special Christmas tree?” the little fir tree ponderedThe season invites a pause even for lumber traders to ponder things priceless.
(HT: Ernie Harder)

Corrections

Markets have a way of redefining terms of the trade. Hot markets lend tolerance to ‘prompt shipment’. Market corrections, not so much. These days, ‘just in time delivery’ comes with caveats such as ‘subject to availability of trucks’. Market conditions present unique challenges to guarding supplier/customer relationships. Some have suggested that markets, like politics, frame questions of definition around who holds the power. In some instances, that is known to shape performance strategies in relation to commitment around short run versus long run considerations. It’s suggested that the transactional approach is not the most desirable for building enduring relationships among customers or voting constituents. A favourite response from one supplier known to be under pressure on late shipments: “In the end we’ll all get to heaven”. We’re in it for the long run, but we appreciate that even our most valued, understanding customers’ patience is stretched when lumber ready for delivery is awaiting wheels.

IMG_5330

Saint John, NB (20 Nov 2017)

 

Can’t See the Forest for the Trees (Guest Post)

I have to admit, I am not smart enough to totally understand all the concepts within the softwood lumber dispute. It is beyond me how a small group of people (U.S. Lumber Coalition) can continually try to hold a whole country hostage in spite of the fact that International Courts have proven them wrong time and time again.

It is also beyond me how the U.S. Department of Commerce can not only continue to support what seems to be a money grab but also seem to be able to differentiate the amount of alleged damage each company has contributed to the U.S. Lumber Coalition through mysterious, arbitrary numbers and selective testimony.

Be all that as it may, everyone both inside and outside of the industry understands that the only real damage being done is to the little guy. It is not a shock that this continued dispute only drives up the price of lumber to both U.S. and Canadian consumers and all the while the rich guys on both sides of the border get richer.

What my simple mind does find shocking is that with all the smart people involved in this process, nobody is talking about the “unintended” consequence of the anti-dumping and countervailing duties (AD/CVD) as it is applied.

In March of this year, I had a long conversation with Wendy Frankel, Director, U.S. Customs & Border Protection Liaison Unit, International Trade Administration (ITA), U.S. Department of Commerce (DOC). I took great pains to explain to her that by applying the AD/CVD on the selling (border) price, the DOC is actually subsidizing the U.S. Secondary Remanufacturers as opposed to creating a level playing field. Applying the AD/CVD to the first mill price would be far more appropriate as that is where the alleged damage exists and it would not affect the competitiveness of the secondary market. Ms Frankel was clear that subsidizing the U.S. remanners was not the intent and I will try to take her at her word.

The math is simple:
A Canadian independent remanner buys 2×8-20’ SPF on the open market from a mill in B.C. at $639/M delivered Vancouver. This remanner turns that wood into 2×8-20’ Fascia Combtex Prime and sells it to a U.S. customer for $1000/M. At the rates announced November 2nd in the final determination, the Canadian company will pay approximately $208/M in duties (calculation simplified for presentation) thus “grossing” $153/M before processing costs. A U.S. remanner buying the same lumber and selling to the same customer at the same price would pay $133/M in duties thus “grossing” $228/M before processing.

It seems undeniable to me that this significant difference is a clear subsidy.. a subsidy that would not exist if the duties were applied to the first mill price.

Since my conversation with Ms Frankel in March, I have approached fellow remanners (too expensive to fight), industry associations, and Government officials and nobody will take the time to have the conversation with me (although one individual did offer to meet me in the parking lot for suggesting he was not doing his job).

After all of that, I am left with a few questions:

1. Is this dispute legitimately about levelling the playing field – or just a recurring disguise for greed?
2. If somebody like me who admittedly is not the sharpest knife in the drawer can see this so clearly, why can’t the smart people?
3. Do the negotiators actually see the consequence – but both sides are holding ‘first mill’ as a negotiating point in spite of the fact that it was the basis of taxes in the previous agreement?
4. Do politicians just accept that there will be collateral damage in disputes like this and are willing to potentially sacrifice the small independent remanufacturers?
5. Am I missing something?

I guess only time will tell.

Roy Falletta, VP Finance & Administration
Dakeryn Group of Companies