A Perfect Storm

April 2, 2018

The first quarter of this year is now behind us, and to be quite honest, it was a whirlwind. Starting in January with the Western Pallet Association’s AGM, followed in March by the Canadian Forest Phytosanitary Working Group meeting at the CFIA offices in Ottawa, the NWPCA’s Annual Leadership Conference and CWPCA’s Board of Directors in-person session, followed by INTERPAL planning and host plant tours in Minneapolis and most recently a trip to visit our friends in the Quebec Pallet Association for their mill tours. It has been a whirlwind indeed.

One thing that all of these trips and events are good for is gauging the pulse of the industry. There seems to be mostly unanimous thoughts amongst wood packaging manufacturers that the industry is strong, demand for our products is good, labour is hard to find…but…invariably the conversations always include the topic of lumber. Why are prices so high? Why can’t I get it? Blame the duties, blame the mills, blame the brokers, blame China, blame anyone. We get asked questions like “What is the association doing about the lumber prices?”, or “What am I supposed to do, I cannot raise prices any more”. The fact of the matter is that in conversations with veterans of the industry, nobody has seen times like these before, and as such, there really isn’t an easy answer to the questions, nor is there a crystal ball that one can look into to provide a timeline to market stability.

What lumber buyers need to understand right now is that in the words of many “lumber experts”, “we are in a perfect storm”, and traversing in uncharted waters. There are many contributing factors influencing the markets, none of which have ever really existed simultaneously. Sure, the softwood duties imposed last year have some impact, but the real drivers in Canada right now have nothing to do with that. Low inventories, strong demand, lower mill outputs, optimization of material yield which is reducing the amount of downgrades being produced, reduced allowable harvest, competition from overseas for both round log and dimensional timbers…and wait for it…transportation. That’s right, the darn rail and trucking industry. They are to blame…well not really, but the current topsy turvy world of freight is certainly impacting lumber price and availability as much as some of the other influencers.

Let’s start with trucks. Electronic data logging in the USA has created some interesting challenges for Canadian companies. Drive ten hours, off ten hours. I won’t challenge the reasoning behind the rule, but it is contributing significantly to a lower availability of drivers, and many drivers simply not engaging in long haul work as it no longer pays. Why do USA rules impact domestic delivery? It’s simple, US bound loads pay more, consumption is greater, and driver resources feed that market first.  Additionally, the shortage of drivers and staffing issues faced by the trucking industry is as challenging to them as it is to us . Fuel costs are escalating again which is also driving transport costs up.  

Then there is rail. As noted in this month’s CWPCA Lumber Price Trends, inventories of Western SPF are good; however, due to a shortage of rail cars, lumber is not moving. Loads that are moving tend to be higher grades, and higher margin products, while whatever industrial grade material is available tends to be put on the back burner. It will be months until this situation is rectified, so don’t expect this problem to cease any time soon.

Now, finally, there is the demand issue. Demand is strong; so much so that the highest bidders or the quickest payers will sometimes get the delivery, or the load. As soon as loads are available, they are snapped up. It’s almost like an auction.  

All of these factors and more are contributing to the crazy reality that our industry faces, and the truth of the matter is that as long as the combining forces that are influencing the market continue to co-exist, the volatility in the marketplace will persist.

There are no set rules or guidelines as to how to survive in these tumultuous times. Rest assured that the mills, brokers, and transportation companies are cognisant of the problems, and are not targeting the wood packaging industry. However, we must all be prepared to endure these uncertain times for at least the next few months.

 

 

11-1884 Merivale Road, Ottawa, ON, K2G 1E6
T. 613.521.6468 or 1.877.224.3555 F. 613.521.1835 or 866.375.1835
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