Softwood Competition in the Global Economy
Al Schuler , USDA Forest Service

1. What are some key trends facing the softwood industry today?

• Environmental issues – here are two
  • CCA ban - 40% of SYP lumber goes to treated market
  • Spotted Owl impact – OSB vs plywood; 2x10’s vs EWP; etc
• Globalization – more intense competition in export markets particularly, plus more imports
• Demographics – affecting key customers, e.g. housing industry looking for ways to reduce labor costs – using more factory built components like trusses, wall panels, etc. – increase demand for EWP’s
• World Fiber glut?? – stumpage rates to keep trending down?
• Too much lumber (commodity lumber that is) – low lumber prices despite best housing markets in history (in terms of square feet floor area)

2. Is our industry still competitive? – Impact on fiber markets and land values?

• Fiber cost is key if you’re in the commodity business, and NA is not the low cost producer in lumber, pulp, paper, plywood, ….
• Timber glut?? – fiber is getting even cheaper and more plentiful
• Plantation acreage increasing!!! - Lots of fiber in U.S. –
• Stumpage prices falling – land values correlated to stumpage values – so land values falling!!!
• Shifting timberland ownership – some large forestry corporations getting rid of some or all of their forest land (LP, Weyerhaeuser, GP, etc.) – holding forest land not as strategically important to some companies – raising money to pay down debt and focus on core markets??
• Losing export markets in Japan, Europe and elsewhere to Brazil, Chile, Europe, Scandinavia, NZ, Australia, Russia, ….
• Healthy forests need healthy forest products industry and vice versa!

3. Survival strategies –

• Some key products are becoming mature – need new ones to better compete in key markets – e.g. lumber, plywood, …..
• Lumber markets oversupplied – need to develop new products for new markets – add value – less commodity lumber – e.g. EWPs like OSB, LVL, I-Joists, OSL, Parralam, Timtek, ….
• Key customer , the residential construction industry, is home to 75% of structural lumber and panel products – they are dealing with serious and structural/long term skilled labor shortages. So, they are starting to build houses differently – more factory built components like trusses, wall panels, installed sales, …., modular and panelized housing versus “stick built:. ….
• Impact – increased demand for EWPs – more components – fewer commodities: they want better quality lumber products from the sawmills – more cut to size, better drying; etc. Wood products industry must work more closely with the homebuilders to provide them with products and services needed to deal with labor shortages, etc.
• Example – Japan homebuilding industry – due to severe labor shortages, they adopting more factory made, pre - cut housing techniques in the highly labor intensive post and beam house construction (most of the wood housing in Japan is post and beam). Impact is fewer log and lumber imports (from NA and elsewhere), plus using more EWPs like glulams and laminated lumber.
• Furniture example - losing domestic markets to cheap imports – almost 50% of wood HH furniture consumed in USA is imports, most recently from China. Big impact on entire “supply chain” – less demand for hardwood lumber, PB, MDF, etc. Impact on pallet industry too which uses 40% of hardwood lumber, mostly low grade material. If furniture industry keeps shrinking, less demand for hardwood lumber – lower stumpage prices – lower land values – impact on pallet industry too
• Furniture industry needs to reinvent itself? More components, lean manufacturing, JIT, supply chain management, etc. Require closer working relationship between supply chain and the furniture industry – opportunities for wood products industry – more value added/components, etc. more partnering!!!!!

4. What does this mean for timber and fiber markets?

• As demand for EWPs increases, this offers opportunities for thinnings and other smaller diameter material; more usable species too – less dense hardwoods for OSB; shorter rotations?
• We (the industry and its stakeholders) need to find solutions to current problems – help customers (homebuilders and furniture industry for example) to deal with issues (labor shortages, imports), or else demand for timber will continue to fall – land values will fall, etc. –
• The industry needs to develop new products to insure the housing industry continues to build houses from wood!!!