Turning Point for Timber as Demand Rises, Workforce Numbers Fall

by Jan Cottingham  on Monday, Nov. 25, 2013 12:00 am  

Some in the timber industry in Arkansas say they see demand for forest products slowly increasing but fear that a workforce decimated by recession won’t be able to meet that demand.

The timber industry in the state has been down so long — Arkansas Business’ headlines began growing gloomy in 2006 — that predicting an upturn seems downright foolhardy. But some in the sector are forecasting a slow-motion recovery.

It’s a confidence in industry improvement bolstered by AB’s own list of biggest players in the state, a list that saw 10 of the 21 largest forest products companies in Arkansas adding workers in 2013, with six maintaining their numbers and only five losing employees. And total employment in these companies has risen as well, to 10,495 compared with 10,260 in 2012. That, however, remains far below the 15,476 workers reported by the biggest companies in the palmy days of 2005.

Demand for timber products has not yet rebounded to prerecession levels, said Rick Holley, chief executive officer of Plum Creek Timber Co. of Seattle, which owns 720,000 acres of timberland in 22 Arkansas counties. Blame the continuing weakness in the housing industry for that. Forty percent of construction-grade lumber is used in homebuilding, he said.

“At the depth of the recession, new home construction dropped to approximately 500,000 starts, a level never seen in my lifetime,” Holley told Arkansas Business. “Since that time the recovery has been slow. In 2013 we expect housing starts to reach about 950,000 starts, and 2014 starts, by most forecasts, may approach 1.2 million. So the recovery is on the way, but timber products still have a way to go to full recovery to prerecession levels.”

Nevertheless, Holley said, “We expect lumber production in the U.S. South to increase by 50 percent during the next three to five years from present levels.”

(For more from Holley, see this week's Executive Q&A.)

Matthew Pelkki, a professor of natural resource economics at the Arkansas Forest Resources Center in Monticello, is more circumspect. “For a variety of reasons, I don’t see any indications that we’re going to see a real strong saw timber stumpage market for another two or three years,” he said. “I’m just not seeing the housing industry moving that strongly.”

Pelkki acknowledged that some forest products companies in Arkansas have added workers in the past year or so. Georgia-Pacific’s mill in Fordyce, for example, has returned to running three shifts, “and they’re running 24/7, 365 right now at that facility, where a couple of years ago I think they were just running one shift four or five days a week.”

The list in fact shows that Georgia-Pacific, the largest forest products company in the state as ranked by number of Arkansas employees, has added 200 to its workforce in the state in 2013, rising to 2,700.

Other examples: Anthony Timberlands Inc. of Bearden reported 157 more workers in 2013 — 697 — compared with 2012, and Deltic Timber Corp. of El Dorado added 98.

Total employment in the forestry industry in Arkansas was 26,234 in 2011, and the sector had an economic impact of $2.9 billion, according to the University of Arkansas Division of Agriculture.

“The light at the end of the tunnel is, hopefully, that the markets will pick up, the lumber will be needed and, therefore, we as loggers will be more in demand,” said Steve Richardson, a Warren-area logger and one of the founders of the Arkansas Timber Producers Association.

But, Richardson and others ask, will the workforce be there to cut that wood?

The lingering forest products downturn — a weakness in housing that started in 2006 but went into freefall in 2008 — pared almost a third of the logging workforce in Arkansas.

“We’ve lost probably about 30 percent of our logging capacity in the last five years,” Pelkki said. “And so as we have a resurgence, that’s a real concern.”

“Everything you see here,” Richardson said, giving a visitor a quick drive-by tour of Warren on a crisp November morning, “is tied to the logging business.” And when the bottom fell out of the housing market, businesses that depended on the timber industry — equipment dealers, mechanics, most of southern Arkansas — felt the effects.

“When the market crashed in 2008, the prediction was that by the fourth quarter of 2009, everything would be back to normal,” said Richardson. That, of course, didn’t happen.

“We were in a total production mode when the crash hit,” he said. “I personally had just spent $1 million on equipment.”

Richardson employs 21 workers and subcontracts out another 20, making him a bigger than average logger, who will have 12 to 15 employees.

His logging company, Richardson Wood Co., brings in $1.5 million to $2 million in annual revenue, he said.

The downturn forced out marginal operations, leaving only the hardiest and best capitalized. “Every logger has either gotten more productive with less people, just like the farming business, and gotten to be a larger producer, or they can’t stay in business,” Richardson said.

In addition, the workforce is aging out of the industry, and loggers and mills wonder where they’ll find employees to replace them. “The average age of Arkansas loggers is about 55,” Pelkki said. “We’re talking about an industry that’s going to see a lot of people leaving in the next 10 years, and we’re not exactly sure where we’re going to see new recruitment coming in. And of course that puts a real crunch on getting material to the mills.”

Plum Creek’s Rick Holley puts logging contractor capacity at the top of the biggest challenges facing his industry. The company wonders whether loggers will return to the forests as the industry recovers. “Some will, but the work is hard, does not pay well, requires a lot of capital and young people just don’t want to go into logging,” he said.

The hurdles facing loggers and the companies that need loggers’ products concern those in the industry.

Those obstacles:

• Logging is capital-intensive, requiring investments of $1 million to $1.5 million for what is now a largely mechanized endeavor, for heavy equipment like fellers, which cut the trees; skidders, which move the felled trees; processors, which de-limb the trees, and loaders, which lift the logs from piles to log trucks.

And now, if the timber industry really is poised to recover, companies may find product hard to come by.

• Lenders remain wary about providing money to young logging enterprises that are not well established.

• Logging, like almost any agricultural effort, is hard work subject to the whims of weather. Wet weather in Arkansas typically shortens logging time to 42 weeks of the year or fewer.

With the disappearance of so many logging companies, Pelkki said, those that survived are working as hard as they can. “Five years ago, Arkansas loggers had a capacity to bring in somewhere around 35 million tons a year of wood,” he said. “That’s dropped to somewhere around 22 million, 23 million tons now. And we’re harvesting somewhere around 20 million tons, so the loggers are working pretty much at full capacity. So if a mill wanted to bring in another million tons of wood, they’d have a hard time finding loggers who could do it.”

“If you haven’t been in this business, the heartaches and the headaches are such that most folks, No. 1, don’t want to go in it and, No. 2, they can’t because the lending institutions” have grown so careful, said Richardson, who has been in the business since 1981.

Some timber companies are considering forming their own logging crews, a practice that largely disappeared during the 1980s when workers’ compensation insurance rates soared.

The loggers, as Richardson said, “cleaned up our act,” providing increased training to their workers. At the same time, logging grew mechanized, moving away from men with power saws to workers handling big, expensive pieces of equipment. Safety improved and workers’ comp insurance rates dropped.

Forest products companies, Pelkki said, “used to all be a very vertically integrated process, and they got out of that, the land for tax reasons and the logging sector for a lot of cost reasons. And now they may end up having to go back to that.”

But Richardson is skeptical. “That’s fine. They can take their own crews. But they don’t have any idea of how to work this labor. These folks that work for me are fiercely independent. They’re not college graduates. They want to make a living, they want to go hunting and fishing on the weekend, and then some of them want to start getting drunk on Friday afternoon.”

And that mindset doesn’t fit with most business plans.

 

 

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