A Word from the General Manager - March 2014

March 1, 2014

Brian Isard

This past month I represented our association at the National Wood Pallet and Container Association Annual Leadership Conference. I would like to report back to our association members on what might be of interest to our industry in Canada. 

Economic Forecast – Overall the sense from many attendees is that the economy and demand for wood packaging products are improving. On the whole, business confidence is getting much stronger. The potential that the US will become energy self-sufficient within the next few years, due to new supplies of natural gas and oil, is really beginning to have an impact in areas that affect our businesses in Canada, as we shall see below. However, many attendees lamented the fact that as the overall market for wood packaging, in particular the demand for pallets improves, so does the competition for lumber from other industrial sectors. Consequently, that is driving higher prices on our raw material costs.
Wood Market Trends – Many pallet manufacturers I talked to are really concerned about lumber availability and escalating prices. On the softwood side, US softwood mills in the South East and North West are seeing improved demand and reporting strong profit levels. On the hardwood side, there is strengthening competition for material in several areas. US flooring plants are buying green oak to service an improving US housing sector. Railways are laying new track to service a growing need from the oil and gas industry. As a result, the railways are paying better prices for ties than the pallet industry is paying for cants. What I heard that really surprised me was that an estimated 350 million board feet of hardwood lumber will be purchased this year for timber mats used for ground stabilization under the construction equipment used in the oil and gas industry. That is a new demand on the supply of hardwood cants that are typically used for cutting pallet stock. Competition for industrial grade hardwood material is high and these competitors are paying premium prices for lumber.
American pallet manufacturers in the eastern and central US were making sure to keep in close touch with their Canadian lumber wholesalers supplying them with railcars of aspen pre-cut. The strengthening US demand for industrial grade lumber from Canada and the US dollar’s rise against the Canadian dollar are two trends that we can expect to continue for the balance of the year.
There was a lot of talk about the difficulty pallet manufacturers had in raising their prices to cover rising lumber costs in a market setting where customers are mandating zero cost increase or in some case price reductions within the supply chain. There was a great deal of discussion in presentations I attended about customer focused strategies to help buyers of wood packaging to understand the influence of raw material costs on the price of finished goods. These are always difficult discussions in our industry. The consensus reached among pallet manufacturers and their customers was that regular communication with clients and effective tools (such as CWPCA Lumber Graphs) be used to demonstrate trends in raw material markets was the most effective method of opening up discussions about price increase. 
Equipment Supply -  I talked to a number of nailing and sawing equipment manufacturers who reported that they have very strong order books with some suppliers reporting that are taking out their order books 8-9 months. Wood processing and pallet assembly manufacturers haven’t seen this level of demand for their equipment for several years. However, the problem with selling new equipment is that these equipment manufacturers often have to help their customers move their old equipment first. This tells me that there should be some improved availability and potentially some good deals to be had on used equipment this year. I also had a chance to talk to manufacturers who shared with me some of the challenges they are having in selling into the Canadian markets these days. They reported difficulty in getting their installations upgraded with safety devices to meet Canadian Standards Association (CSA) and in the case of kilns approved by the local Technical Standards & Safety Authority. So when Canadian companies are buying equipment out of the US it is a good idea to factor in some additional time and money to retrofit the equipment to meet Canadian safety standards.
The last bit of news is that NWPCA 2014 Recycler’s Conference is likely to be held in Detroit in September. This affords us a great opportunity to arrange for a busload of CWPCA members to attend both the plant tours and do some networking with our industry colleagues South of the border. Expect to hear more about this in the months to come. 

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