19 Questions for 2019

Here are 19 questions that Harderblog will be watching next year, in search of answers:

1. Will the railways be better prepared for winter weather conditions?

2. Will the extreme price volatility in lumber markets this year persist in 2019?

3. Will Justin Trudeau still be Canada’s prime minister after Canada’s federal election scheduled on or before October 21, 2019?

4. Will Donald Trump still be America’s president by the same date?

5. Will Beto O’Rourke or Joe Biden emerge as the leading Democratic presidential nominee for 2020 by the end of 2019?

6. Will the 12 months of 2019 provide conclusive evidence that trade wars are “easy to win”?

7. Will noise about the border wall on the U.S. southern border have lessened by the end of 2019?

8. Will progress be reported in solutions for solving the opioid epidemic?

9. The American Psychiatric Association says anxiety levels jumped 7 per cent from 2017 to 2018. Will 2019 see a reduction in anxiety levels among the American general population?

10. Will 2019 see a reduction in anxiety levels among continent-wide lumber distributors?

11. Will Canadian softwood lumber exports to China (dropping each year since 2014) continue to decline?

12. Will an old-growth protection strategy be established in B.C.?

13. Will the accelerating rate of climate change evidenced in 2018 be exacerbated by global climate patterns experienced in 2019?

14. Will the U.S. repeat as the FIFA Women’s World Cup Champions?

15. Will the record number of homeless people identified in the City of Vancouver’s 2018 Homeless Count be broken again in 2019?

16. Will 2019 have seen an economic recession?

17. Will Brexit status be significant in determining whether Britain is “better off” at the end of 2019 than at the end of 2018?

18. Will European lumber deliveries to the U.S. decline in 2019?

19. In view of lower lumber prices, will we see movement in the Canada-U.S. softwood lumber dispute?

Year-end Answers

As we approach year-end, you’ll recall 11 questions for 2018 we posed one year ago at Harderblog:

1. Will rhetoric of military strike pass the ‘tipping point’ into war with North Korea?
No.

2. Will the Bitcoin excitement be fading, or prove to be a bubble?
“For built into this situation is the eventual and inevitable fall. Built in also is the circumstance that it cannot come gently or gradually. When it comes, it bears the grim face of disaster. That is because both of the groups of participants in the speculative situation are programmed for sudden efforts at escape. Something, it matters little what – although it will always be much debated – triggers the ultimate reversal. Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. Thus the collapse. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang. There will be occasion to see the operation of this rule frequently repeated.”
– John Kenneth Galbraith, A Short History of Financial Euphoria

3. Will the extreme weather patterns evidenced in 2017 be as pronounced in 2018?
According to The Washington Post, the extreme floods, droughts, heat waves and wildfires that broke out this year across North America, Europe and Asia were unprecedented. In Canada, it’s reported no region was spared from extreme weather events; in B.C., 2018 was the worst wildfire season in history, beating the previous record set in 2017. The Weather Channel calls 2018 the year of the California wildfires.

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?
Who knows for sure, although reports suggest it’s less likely now than appeared to be the case at the beginning of 2018.

5. Has integrity lost some of its lustre as a perceived prerequisite for leadership success?
2018 – a year when we’ve been inured to shock! Many revelations, many developments unfolding still, lead us to believe that integrity remains a prerequisite for leadership success in the long run.

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?
It’s a combination of factors, including fibre supply and ongoing international trade/duty related concerns that has motivated major producers to seek out options for gaining better control over the variable factors that go into managing their operations. Contrary to Trump’s America First philosophy, these days the large integrated corporations recognize they have to think globally to be successful.

7. Will Germany repeat as FIFA World Cup champions?
No. Germany did not make it out of the Group Stage, finishing last in Group F which also included Sweden, Mexico, and South Korea. France won the 2018 World Cup, beating Croatia 4-2 in the final.

8. Will the powers that be acknowledge that the re-manufacturing (value-added) segment of the Canadian forest sector is being unfairly penalized in the application of the AD/CVD?
No. On re-manufactured specialty wood products, the cross-border Anti-dumping (AD) and Countervailing duties (CVD) continue to be applied to the selling (border) price instead of the first mill price. Freight and all processing costs are included in the AD/CVD calculation. The resulting, punishing impact of this application on the value-added segment of the Canadian forest sector has been described as “an unintended consequence” of the Softwood Lumber Dispute.

9. Will softwood lumber be incorporated into NAFTA?
Softwood lumber was not incorporated into NAFTA 2.0 which was signed November 30th but has yet to be ratified.

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?
No. On the heels of the epic, bull-trap riddled lumber market collapse from the record high prices reached in June, the “just-in-time” model has probably intensified.

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?
A not-so-random survey among lumber traders reveals that broccoli has been gaining in approval ratings among lumber traders and the general population this year. In fact a survey suggests that as of June 2018, broccoli took the lead as America’s favorite vegetable. While many vegetables consumed in the U.S. are imported from Mexico, broccoli is well down the list of imported vegetables.

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Just in time for Christmas!

Pleased to announce our brand new album Waterfront Station – 14 original songs – was released just this week. Available now on iTunes and all major streaming services Apple Music, Spotify, Amazon etc.

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.

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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.

https://giphy.com/embed/3ohs4w0cY60YNTinIY