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IMPERIAL OIL

Trouble in the Forest

by Duff McCutcheon

There is trouble in Canadian forests – and in the boardrooms of forest product manufacturers, the mills in isolated northern communities, and along the logging roads that serve them.

The Canadian forest industry is currently in the throes of what Avrim Lazar, CEO of the Forest Products Association of Canada (FPAC), calls the “perfect storm” of softwood duties, intense competition from abroad, soaring energy and fiber costs, and a Canadian dollar that has appreciated by almost 40% in just four years.

All that has translated into mill closures across the country resulting in 11,000 lost jobs, and a lot of logging truck drivers that are either leaving the industry or giving much thought to a career change.

Lazar says that with a fairly severe capacity glut at the beginning of the decade, the industry was in need of a “correction.” However, the fast rise of the Canadian dollar over the past four years ensured that happened much faster – and more painfully – than it otherwise would have.

The Big Picture
“The largest component of the ‘perfect economic storm’ facing the industry is the dollar,” Lazar points out. “All our inputs – trees, energy, labor – are in Canadian dollars, so that’s driven our cost structure up 40 percent [from an international perspective]. It’s forced the industry to improve our cost effectiveness by 40 percent, which is hard to do in just four years.”

Then there’s the softwood lumber dispute with the U.S., with that country illegally withholding $5 billion in duties – money that could otherwise have been reinvested in the industry – from Canadian lumber producers. The dispute has also had a chilling effect on Canadian investment decisions. “You don’t know what something is worth until this issue is resolved. A lot of the rationalization, consolidation, and reinvestment has been slowed down while decision makers wait to see what the landscape is going to be like,” says Lazar.

At the same time, competitors in other parts of the world are starting to pick up the pace – Russia is now the number one softwood supplier to a hungry Chinese market, and is rapidly making gains in the fiber market (pulp and paper). Brazil, too, is now a big competitor in pulp.

In Canada, the East Coast now has the world’s highest prices for wood chips thanks to a diminishing supply, while B.C. is experiencing a glut as loggers race to salvage what they can of the province’s pine forests in advance of the mountain pine beetle that’s been chewing its way through western forests.

And finally there’s the rising cost of energy, which has affected everyone from the pulp mills, and the guys hauling logs out of the bush, to the guys who get the lumber to market.

Dave Watt, an independent from Thunder Bay, Ont. who hauls dressed lumber into the northern states, says he has seen a lot of his customers turn to rail as a lower cost alternative to trucking the stuff to market.

“The shippers are beginning to realize that getting there in a week as opposed to the day after next is an acceptable compromise,” he says. “The cost of trucking – with the increases in fuel and the rise in the Canadian dollar – is soaring. I can’t afford to absorb any more increases in cost without a raise, and I’m not making any headway. They’ve got an alternative that’s less expensive, and a delivery window they can live with. They’re looking seriously at rail again.”

Lazar is quick to point out that there’s light at the end of the tunnel, that the industry as a whole leads in productivity gains against other Canadian industries, and that Canada is always going to be a manufacturer and supplier of forest products to the world. But in the small towns across northern Canada that rely on the industry, and that have suffered the bulk of the hardship, that’s small consolation.

Logging Drivers:
Coast-to-Coast Discontent


Northern Ontario
“A lot of my colleagues are looking to get out of the logging industry and converting their trucks to haul gravel,” says Ron Lepine, a Timmins, Ont. logging driver, and president of the Independent Truckers Association Corp, a collection of logging truck owner-ops around Timmins, Kapuskasing, and Hearst in northern Ontario.

Lepine says these drivers, most of whom are close to retirement, would rather invest in a belly dump trailer and haul gravel six months of the year, with perhaps a month or two of log drawing during the best months, than go through the headache of full-time log hauling. He says crazy diesel prices – up to 37 to 48 percent of operating costs depending on the state of your truck – and a 50 percent insurance surcharge over a highway truck is forcing many drivers to reconsider their line of work.

Add to that the influx of drivers from Quebec and New Brunswick who come in during the winter to take advantage of the premium log drawing conditions “They’ll draw nine months’ worth of logs out,” says Lepine. “And when breakup comes, who gets caught doing nothing? It’s the locals. The [out-of-province drivers] just go home after they take the cream. We can’t go to Quebec without all kinds of permits and changes to our equipment. They can go back and continue working while we’re doing nothing.”

And as for young people looking to get a start hauling logs in their home communities?

“Young people do the math and they can’t see quitting a $20/hour job to maybe clear $21 as an owner-op, plus all the headaches. You work 60-70 hours a week, plus another 20 on the weekend getting the truck ready,” says Lepine. “They’re not interested.”

The few that are interested in buying a truck to haul logs are looking at a big investment, because they need to be able to haul logs, chips, and highway in order to stay solvent and work year round, according to Lepine. At $125,000 for a tractor, $80,000 for a log trailer, $70,000 for a chip trailer and $45,000 for a flatdeck, that’s a lot of money. “You’re not going to pay your equipment off in four or five years. You’re looking at seven years.”

While Lepine recognizes there are larger forces – namely the high Canadian dollar and high energy costs – causing pain for everyone in the industry, he says the various levels of government aren’t doing enough to help ease the pain.

“The forestry industry is going to have to get some kind of compensation for energy. And they have to get something for the logging roads.”

New Brunswick
“The forestry industry in New Brunswick is looking very bleak,” says Richard Lappage, an owner-op out of Lower Kintore, NB. “Everyone’s going out west, to Alberta and B.C. A lot of truckers are going out there to haul wood, replacing the local drivers who have left to make big money in the oil patch.

“Until the U.S. dollar goes up, or lumber tariffs are changed, then forestry in this province is heading to a point where government is going to have to step in.”
Despite mills closing and contractors going out of business, there’s actually a shortage of drivers and equipment to haul logs in New Brunswick, which should translate into more lucrative deals for existing truckers. But apparently it doesn’t.

Lappage says he’s a firm believer in saying no to cheap freight, as evidenced by a brand new trailer sitting idle in his yard that he says he’s used twice.

“You gotta have your costs,” he says. “The mills aren’t paying enough. Some of the mills have a fuel surcharge, but it doesn’t cover it all. It doesn’t really come close – it’s a very small drop in the bucket. The mills moan about not being able to get trucks, but guess what? The rate ain’t there. It’s not worth it.

“Those mills made big money when the Canadian dollar was cheap. They didn’t care how efficient they were because they were making money. They could have reinvested into their mills, but they didn’t. Now the government is helping them update the mills, and tell us we’re benefiting because if the mills are afloat then we’ll be working trucking the wood. But if you’re not getting paid enough to haul it you may as well sit home. You’re better off with a lunch box.”

British Columbia
Logging truckers around Prince George have had it good so far this year, according to Dan Henry, an owner-op and ex-president of the Prince George Truckers Association. Local truckers renegotiated their terms with area contractors and got their base rate bumped up from $2.34 per ton/hour to $3.01 per ton/hour, plus a fuel clause that boosts the rate three-quarters of a cent for every cent that fuel goes up. “It’s really improved. Now we have the highest rates in the province,” says Henry.

And there’s been lots of work this past winter, with area mills piling in tons of inventory.

It’s looking like there’ll be lots of work for everyone involved in cutting, transporting, and milling lodgepole pine over the next few years. Unfortunately, that’s not good news.

“We’ve got a mountain pine beetle infestation in the north that will likely cause serious devastation within five years,” says Henry. It’s estimated that the pest could destroy 80 percent of the pine forest within a few years and the forest industry in the province is now cutting as fast as they can to salvage as much of the wood as possible before it’s useless.

“I think we’ll be quite busy for the next five years and then we’ll slide into a downturn after we run out of saleable pine. The companies are saying we have lots of spruce left, but the annual cut has increased so much that when we come to the end of the pine beetle, I foresee the annual cut dropping, which means there could be more people out there with equipment than there is logs to haul.”

As for young people entering log trucking in B.C., Henry would recommend they look elsewhere for employment. He says there is a shortage of trucks and drivers in the province, but the rates don’t make it worthwhile to invest in equipment.

“Why spend 80 hours a week driving a truck when you could spend 40 hours a week using a computer. The average taxable income for our guys is between $30,000-$40,000 – what’s the point? They want to have a family life.”

If I was to buy a brand new rig, and I would have to change my equipment from long logs to cut-to-length logs so you’re talking a $300,000 investment. Could you pay for it in five years? Probably not. If you did, you’ve taken all your money to pay for the truck, which is depreciating as you go. If in five years there’s a decline in the cut, then you’re competing with everyone else so the price gets driven down to a point where you probably couldn’t operate. The truck is now worthless – why would I do that?”

The Mills’ View
A recurring theme among truckers’ complaints is that rates are too low to make a decent living hauling logs from the bush to the mills.

While rate decisions are obviously up to the individual companies, FPAC Director of Transportation David Church repeats the assertion that everyone’s hurting these days – including the mills.

“It’s very difficult for our companies now to make money. Every single penny of costs is something that has to be looked at very closely because you can’t pass those costs on to the customer. We don’t set the price of the product, that’s set by the marketplace, thus we have to absorb those costs. So it’s very difficult for companies to grant additional rate increases to the truckers simply because those costs have to come from somewhere,” he says.

Church says that in light of the “perfect economic storm” now gripping the Canadian forest products industry, companies are doing all they can to help themselves and the industry for the future – including investing $4 billion in R&D and capital improvements, as well as pressuring government to review policy to ensure the business climate is conducive to inviting investment.

That sounds good to the shareholders, but what about the drivers? How will they benefit?

“Sure drivers will benefit. It’s always a partnership in these things. It may not seem that way, but in talking to our members, there’s no benefit to driving down the freight rates that truckers are able to charge. We need them as much as they need us, and there are no benefits to us in gouging these guys and driving rates down to the point where they can’t make money. It’s obviously a negotiating process and you have to end up in a situation where it’s a partnership. That’s how the companies operate.”

Clearly, logging is an industry that’s feeling the pinch these days. A ton of pulp or a board-foot of lumber is worth only so much in the market, and the lowest price almost always draws the buyers. If Canada can’t compete with off-shore producers, or domestic costs price the product out of the market, all the negotiating in the world isn’t going to make much of a difference. Truckers need X, mills need Y, and if X plus Y equals more than the market price, everybody is going home.