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?

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.

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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

Gig Economy

Who knew? A recent study predicted that by 2020, 40 per cent of American workers would be independent contractors. We’re told the switch to gig work is first and foremost about employers moving to what is efficient for them. Here in Canada, 85 per cent of companies recently surveyed figured they will increasingly move to an “agile workforce” over the next few years. It’s part of a “gig economy”.

The “gig economy” is an environment in which temporary positions are common and organizations contract with independent workers for short-term engagements. For lumber types, this may conjure images of portable sawmills and seasonal workers in the woods. For some lumber traders, the concept smacks of impermanence and flies in the face of marketing effectiveness that pays homage to building longterm relationships. Even so, the gig economy finds shared identity in today’s world of transactional strategies and realpolitik.

 

~Tricks and Treats~

The coldest air of the season is flowing into Western Canada today, but a beautiful starry night’s in store for Vancouver this evening. At our house, pretty sure we’ve managed to turn our pumpkin inventory 8 times since Labour Day. A quick check of the 25 Horribly Inappropriate Halloween Costumes for Kids confirms Dorothy, Toto, and this Dad are all good to go. Happy Halloween!

The Art of the Deal

By definition, lumber traders earn their living through negotiation. Most days, the process is more nuanced than “buy low – sell high”!

Trade deals involving negotiation are making news on many fronts these days. Online articles readily offer varying principles, guidelines, and rules for effective negotiation. One such report in the Harvard Business Review offers what the author terms “four ‘golden rules’ to be the most helpful towards productive negotiation outcomes.”

Some have been known to describe successful outcomes around strategy of ‘winning versus losing’, or characterizing established trade deals as “the worst ever”. However, experienced lumber traders know that successful long term customer-supplier relationships, as with international trade deals, are built on effective “win-win” negotiations.

Current NAFTA negotiations are taking shape around what has been described as a list of ‘demands’ from the parties involved. While noises and threats of cancelling NAFTA eminate from some quarters, serious folks tell us to keep focus on the real work of negotiations that recognize there are benefits to be gained for all in working toward effective updating of the deal. Thus the ‘golden rules’ as spelled out in HBR that parallel different stages of a negotiation are interesting to view in the light of negotiations underway on many fronts.

1. The background homework: This serves as a good reminder that any beginning of negotiation calls for need to understand the interests and positions of the other side relative to your own interests and positions.

2. During the process, don’t negotiate against yourself: It’s pointed out that this is especially true if you don’t fully know the position of the other side. This is a recommendation not to give in too early on the points important to you. Wait to better understand which points are more important to the other side.

3. The stalemate: We’re told that there will often come a point in a negotiation where it feels like there is zero room for either side to budge. Both sides are stuck on their position and may have lost sight of the overall goals of the negotiation. If you recognize that you’ve reached this point, see if you can give in to the other side on their issue in exchange for an unrelated point. My Dad relates the story of how my parents negotiated the sale of their first home in Prince George 52 years ago, when a transfer back to Vancouver by his wholesale lumber employer, Ralph S. Plant Ltd, necessitated sale of the home. When negotiations seemingly reached a stalemate over price, Dad recognized that the unfinished basement in the home had been mentioned as one of the sticking points. The prospective buyer, a self-described handyman, was satisfied to point of successful closure on the sale with offer from my Dad to include a trailer of fine Carrier studs, sufficient for completion of the home’s basement.

4.To close or not to close: That is, whether you drive too hard a bargain, cannot reconcile on key terms, or feel that the deal is just too rich for your blood, it’s suggested you “make the offer you want to and let the other side walk if they don’t want it.” This is not to say to be offensive or to low ball, but rather, to be honest, straightforward on what you are willing to do, and explain that you understand if it doesn’t work for them and that it is the best you can do.” No doubt this rule garners respect among all parties involved, including buyers and sellers of wood.

Aspirational Lumber Labors

A social media article at Quartz this week categorizes blogging as aspirational labor. Social media researcher and author Brooke Erin Duffy describes ‘aspirational labor’ as “a forward-looking and entrepreneurial enactment of creativity.. seen as something that will provide a return on investment.” Broadly speaking then, we might comfortably frame our work trading lumber under the umbrella of ‘aspirational labor’.

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Influencer Marketing?

The degree to which intermittent posts at Harderblog are “influencers” on a road to personal riches, so far at least, is undetermined. We mostly share questions and topics gauged to hold common interest with our 135 followers to date – valued subscribers who include Mom and Dad, two uncles, and my cousin Dean. According to “influencer marketing” experts, a blogger needs at least 1,000 followers to be considered a “super blogger” or “super influencer”. At this lofty subscriber level, we’re told advertisers come calling. It’s much cheaper for a brand to reach out to a super blogger’s “organic following” than it is to place an ad in a magazine or on TV. The article at Quartz cautions that there are risks in abandoning your blog for a week, or “you see a huge dip in your followers”.  It’s a risk we accept as a part-time blogger, and full-time lumber trader.

 

Subscribers? Brother Matt, Nephews Cal and Seb, Paul – Quilchena on the Lake (4 Aug 2017)

 

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Musical Refreshment

Project Funkify continues:

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

More: Canadian Wildfires Choke Lumber Supply to U.S. Home Builders – WSJ