What’s wrong with this picture?

We’re told that “rising material costs” were a significant factor in the wake of 51% of U.S. home builders raising prices last month. This according to surveys conducted by John Burns Real Estate Consulting, noting this ratio marks only the second time in the last 10 years more than half of new home communities raised prices – the highest rate since the dramatic surge in U.S. housing prices in 2013. Meanwhile The Economic Calendar reports here that “cost pressures” can help to explain why housing starts and permits have been relatively uneventful over the past few months. The National Association of Home Builders (NAHB) suggests that this trend of firming confidence in the face of underwhelming housing data is liable to continue due to “supply-side issues.”

Aside from unprecedented seasonal B.C. wildfire impact on lumber markets, restricted fibre supply looms on the horizon. At the same time as questions of housing affordability challenge builders and consumers across the continent, does it make sense for narrowly defined interests of The U.S. Lumber Coalition to seek further price-increasing tariffs on lumber imports?

Some of the groups that are hurt by foreign competition wield enough political power to obtain protection against imports. Consequently, barriers to trade continue to exist despite their sizable economic costs.
The Concise Encyclopedia of Economics

Close?

While industry spokespersons are being tight lipped about progress in softwood lumber negotiations, rumours abound.

Last Friday, word circulated that Canadian Minister of Foreign Affairs Christina Freeland and United States Secretary of Commerce Wilbur Ross “shook hands” on a ten year Softwood Lumber Agreement restricting market share. This rumour seemed to be congruent with perceived political motivation to achieve a managed trade agreement ahead of potential NAFTA negotiations. By Monday however, a declared state of emergency due to mega-fires in B.C. superseded quota chatter. Then CIBC Capital Markets cautioned that any proposed settlement could be vetoed by the U.S. Lumber Coalition. The rumour fizzled Monday afternoon when in a Madison’s Lumber Reporter follow-up, we were told a source close to the U.S. Lumber Coalition had cleverly confirmed that Minister Freeland and Secretary Ross “surely shook hands” on Friday but “did not shake hands on a deal”. In an update just this afternoon, CIBC Capital Markets noted the framework of the rumoured “handshake deal” was almost identical to a proposal the two sides were reportedly close to agreement on two weeks ago before it was rejected by the Coalition.  CIBC estimates the probability of an agreement between the two countries by the end of August at “greater than 50%”.

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As recently as last Thursday, the only talk about forest fires in this province was about how few were burning (“three or four”). Suddenly 140 fires started Friday, followed by nearly 100 more Saturday, and a few dozen more Sunday. It’s interesting to learn here how a below-average fire season in 2016 and an unseasonably wet spring in 2017 may have made the forest more susceptible to fire, fueling the unprecedented spread over the weekend. Mills watch with anxiety as the wildfire season, just begun, is impacting Interior communities and forest operations. The Vancouver Sun reports West Fraser, Tolko, and OSB manufacturer Norbord are among the companies that have suspended operations around 100 Mile House and Williams Lake, with 1,000 employees from West Fraser alone off work due to the closures.

Robots and Lumber Traders

Robots are increasingly being blamed for job losses these days. At the same time its been said that robots can’t perform as well as humans when it comes to “complex social interactions”. According to Science Daily, researchers recently found that personality factors are the best defence against losing your job to a robot.

Humans outperform machines when it comes to tasks that require creativity and a high degree of complexity that is not routine. As soon as you require flexibility, the human does better. The edge is in unique human skills.
– Rodica Damian, assistant professor of social and personality psychology, University of Houston

In assessing the threat therefore that robots pose for replacing lumber traders in the marketing function, could it be that the critical determinant may involve evaluating the degree to which lumber trading is deemed to involve “complex social interactions”?

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We’re told the study’s findings also suggest that traditional education may not be fully equipped to address the rapidly changing labour market. With that in mind, I read with interest Thomas Friedman’s column in today’s New York Times, Owning Your Own Future. Friedman argues that in the face of automation (“accelerations set loose by Silicon Valley in technology and digital globalization”), the self-motivation to learn – and keep learning – has become the most important life skill. He quotes education-to-work expert Heather E. McGowan: “Stop asking a young person WHAT you want to be when you grow up. It freezes their identity into a job that may not be there. Ask them HOW you want to be when you grow up. Having an agile learning mind-set will be the new skill set of the 21st century.”

Political analysts will long debate over where Brexit, Trump, and Le Pen came from. Many say income gaps. I’d say.. not quite. I’d say ‘income anxiety’ and the stress over what it now takes to secure – and hold – a good job. The notion that we can go to college for four years and then spend that knowledge for the next 30 is over. If you want to be a lifelong employee anywhere today, you have to be a lifelong learner.
– Thomas L. Friedman, New York Times (11 May 2017)

Who’s going to pay?

A jam-packed North American Wholesale Lumber Association Regional Meeting in Vancouver last evening heard a panel of experts discuss implications of countervailing duties on softwood lumber announced Monday by the U.S. Department of Commerce. The latest round of the long-running dispute comes amid ramped-up political rhetoric on both sides of the border.

In candid presentations and Q&A session at the NAWLA Regional Meeting, Susan Yurkovich, President and Chief Executive Officer, Council of Forest Industries; Duncan Davies, President and Chief Executive Officer, Interfor Corporation; Jason Fisher, Associate Deputy Minister, Forest Sector at BC Ministry of Forests, Lands and Natural Resource Operations, captured attention of more than 250 industry participants. While Executive Director of NAWLA, Marc Saracco, acknowledged the significant role of lumber distributors on both sides of the border in facilitating efficient continental marketing of forest products, the real question of who pays looms heavily over the ongoing dispute.

Interfor’s CEO, Davies, reminded us that they, like Canada’s other major producers now heavily invested in U.S.-owned production facilities, are not part of the U.S. Lumber Coalition that is once again creating havoc, unprecedented price patterns of volatility and strength in lumber markets. Reports in today’s Vancouver Sun (“Canfor eyes acquisitions amid fallout from new U.S. duties”) confirm Canfor’s optimistic outlook with “well-positioned balance sheet in recent quarters,” with Canfor CEO Don Kayne adding that they see organic growth opportunities worth up to $300 million by 2018.” Sounds great. Meanwhile, it’s the small and medium-sized businesses who don’t own sawmills in the U.S. – the vast majority of Canada’s softwood operators including re-manners – who will be forced to pay the duties retroactively on any shipments made to the U.S. since Feb. 1.

In the face of the United States’ inability to satisfy American demand for softwood lumber with domestic production, the objective of restricting Canadian market share, with underlying aims of enhancing privately-held timber in the hands of select U.S. entities, points to inevitable, further increase in costs for the U.S. homebuilding industry. Ultimately, of course, the consumer pays. Someone tweeting about the issue might simply add:  Sad. Bad.

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Thanks to Tree Frog News for the following images from last evening at The Vancouver Club, posted with permission. Tree Frog’s full report available at this link: NAWLA 2017 Overview.

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2017 COFI Convention – 26 Takeaways

1. Convention buzzwords: shift (in fibre supply), declining (timber quality), instability (of supply), balance, diversification, value, engage, relationships, confidence, communication, connecting, collaboration

2. Most important trend shaping the global environment: dramatic expansion of the global middle class.
Jock Finlayson, Business Council of B.C., bemoaned Canada’s “slow-moving jurisdiction in a fast-moving world.”
The American economy continues to advance. Over the medium term, “B.C. needs to address a number of important structural weaknesses that threaten our prosperity”.

The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people are so full of doubt.
– Burtrand Russell

3. Historical devaluation of the Ruble triggered significant investment in state of the art sawmilling equipment in Russia. Currency-based advantage led to surge in softwood exports to China. Notion that Russia has an aging, limited infrastructure, is wrong. There are no logistical cost issues in Russia.
– Russ Taylor, President, Wood Markets

4. Russia has Forest Stewardship Certification (FSC). “Don’t ask me how.” – Russ Taylor

5. The panel assembled for the International Markets Review was a rare convention disappointment. U.S. homebuilding constraints are well-known. U.S. housing starts forecasts have become tedious. As for China, when Eric Wong, Canada Wood Beijing Office, warned that B.C. is losing softwood market share, no alarm bells sounded at the Vancouver Convention Centre. Growth in demand offshore is “continual” according to Wong, attributed in part to logging bans in China’s “natural forests” (25 million cube/year harvest reduction). Record softwood imports in 2016 in China >32 million cubes. In a post-beetle world, at least one trader was left wondering if B.C. (“the global resource for softwood,” according to architect Michael Green) should just go off the market.

6. India will be the 5th largest consumer market by 2025. 60% of the population in India is <35.
– Peter Bradfield, Forestry Innovation Investment

7. “The concept of innovation is.. what are you going to do with all of this growing information? Big Data connects people, like us, to the brilliance in the room”. Challenges facing the Big Data Revolution: Volume, Velocity, Variety, Veracity.
– Rory Armes, Founder & CEO, Cumul8

8. “Innovative technologies will help attract tech-savy video gamer kids who aren’t considering a resource-based industry.”
Mark Gerberman, AR/VR Strategic Partnerships & Business Development, Finger Food Studios

9. How can we keep better track of our natural resources using emerging technologies? We need better data and better analysis tools.
In the future, drone technology and remote sensing will identify the log and the mill, and determine the optimal products and customers – before that tree is felled. “We’re working to offer the industry a turn-key drone.”
– Mike Wilcox, Co-founder/COO, Spire Aerobotics

10. “It’s Urban Wood Building instead of Tall Wood Building.”
– Michael Green, Principal, MGA 

11. “Instability of (wood) supply makes people step back.” – Michael Green

12. “Changing the public perception about what’s possible.. reshaping public perception.. is the challenge. But it’s really happening. These ideas are not abstract. Thirty storeys? When we do that or will we do that remains to be seen, but it’s possible.” – Michael Green

13. “The construction industry is broken.”
– Michael Green

14. “Here in B.C., we may be making the right products but we need to be part of the right system. The idea is universal. We want to be leaders in becoming part of this ‘system’ thinking.” – Michael Green

15. TOE = Timber Online Education. Open access to leading experts.. “from forest to frame”. Free global education in wood design, construction, policy, markets, ownership, and environmental impact.

16. “We didn’t blockade because we wanted to stop the forestry, we wanted to be a part of it.”
– Chief Derek Orr, McLeod Lake Indian Band

17. “The Tsilhqot’in decision was a game changer. When I first meet with a chief, it better not be to ask to build a road. We’re there to undertake their unique vision for their community. What is your vision? Under-promise and over-deliver. If you don’t honour one of those commitments then your relationship goes backwards.”
– Karen Brandt, VP, Corporate Affairs & Sustainability, Interfor

18. “Engage and engage early. Meaningfully engaging with First Nations is how you build relationships. If you’re too busy to sit down with us, then we’re too busy to give you support.”
– Willie Sellars, Councillor, Williams Lake Indian Band

19. “I like to think Prince George is the Bio Energy capital.”
– Lyn Hall, Mayor, City of Prince George, who confirmed the COFI Convention returns to PG next year.

20. “The urban and rural connection, not the urban and rural divide.”
– Greg Moore, Mayor, City of Port Coquitlam
21. “Reinvesting in our business to innovate and modernize the technology in our mills isn’t about making more lumber. We’re not going to make more lumber. We’re going to make more value. Industry and government need to get together to get more value out of a scarce fibre resource.”
– Ted Seraphim, President & CEO, West Fraser

22. “How to run at two shifts efficiently instead of three shifts is the challenge. Three shifts are not possible.” – Nick Arkle, Co-CEO, Gorman

23. “(The softwood lumber dispute) could lovingly be called a hardy perennial. But it is a mutating form of bacteria that has all but become antibiotic-resistant.”
– David Emerson, B.C.’s Trade Envoy to the United States

24. “The consumer will pay the price.” – Duncan Davies, President & CEO, Interfor

25. “The softwood file is top of mind for the entire government. We have a strong case but that’s cold comfort for the people feeling the pain of the imposition of duties. A good, strong, fair, mutually-beneficial deal is preferable to long litigation. On both sides of the border, trade is central to maintaining standard of living. Trade creates jobs.”
– Kirsten Hillman, Assistant Deputy Minister, Trade Policy & Negotiation, Global Affairs Canada

26. Q: Is a market share-based quota inevitable?
A: “Nothing is inevitable.” – Kirsten Hillman

Carrier

It’s been said that excellence is the unlimited ability to improve the quality of what you have to offer. Dakeryn’s strong partnered approach in the marketing, re-manufacturing, and distribution of Appearance Grade lumber with western sawmills of excellence is integral to the company’s long association with key producers.

When Carrier Lumber honoured Dakeryn Industries as their “#1 Customer” with a trophy presentation Friday to President Rob Chimko, it reaffirmed the importance of quality as a building block in the lumber industry. As noted on their website, three principles have guided growth for companies associated with the Carrier Group:

  • Innovation in milling technology
  • Community partnerships with aboriginal groups and community stakeholders
  • Responsible management of the forest ecosystem.

Carrier has achieved sound growth over the years by consistently producing high quality lumber, a determination to form long lasting relationships with customers and to provide the best service possible.

Think Harder

Market Minute: Amidst the Canada-U.S. softwood lumber dispute, underlying strong demand on both sides of the border seems to be catching buyers unawares on many fronts. There are reports this week that some mills in B.C. are extending order files to unprecedented levels. In their February 8, 2017 Industry Update, CIBC Capital Markets describes dramatic lumber price increases since February 1 as “an encouraging sign for producers’ ability to pass on duties to U.S. consumers when tariffs are actually imposed.. considering we are only in partial retroactive territory, and we still have no idea how high Commerce will set initial duties..”

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There are many joys in blogging. We appreciate that cyberspace offers bloggers virtually unlimited latitude in expression and range of viewpoints. The medium can be a useful tool in support of business and development of customer relationships. In these days of heightened political sensitivities and polarized opinions, it’s evident that messaging via any medium creates perception of opportunity as well as risk. Measuring effectiveness may call for nuance. It’s interesting to read of the early feedback on the Super Bowl ad of our friends at 84 Lumber.

Of course daily now we’re exposed to direct messaging of folks marching in the streets, advertising a particular point of view or belief on, what is often a hastily-scratched message on cardboard. Through six years, I have found Harderblog to be a positive experience and useful medium for periodic messaging in support of lumber marketing here at Dakeryn Industries. Some might suggest that the messaging here is no more effective than if I decided to march in the streets with a placard advertising personal beliefs in support of the value-added services we provide. But then I took heart in affirmation of my beliefs on that score when I saw the image below. My only suggestion is that if I were a sign-carrying marcher in that parade I’d suggest a small revision to make it read: If you believe in lumber, think Harder…

best-damn-photos-beliefs-sign-fit

image source: brobible.com