The health of the hardwood sawmill industry has a direct impact on the pallet industry because the businesses of these two members of the forest products industry are intertwined and interrelated. In fact, they are associated so closely that some businesses have both hardwood lumber manufacturing operations and pallet plants.
Like many pallet manufacturers, the sawmills are users of hardwood. Many also supply pallet manufacturers with raw material.
It behooves pallet company owners and managers to stay informed and abreast of trends and developments in the hardwood sawmill industry because they may impact the pallet industry.
Appalachian Hardwood Manufacturers Inc. (AHMI) is one of several trade associations representing various parts of the hardwood sawmill industry. Pallet Enterprise recently interviewed Mark Barford, AHMI’s executive director, in order to get his insights and observations on issues and trends impacting hardwood sawmills and the pallet industry. Our questions and his answers follow.
ENTERPRISE: How do you believe all the changes going on in the hardwood lumber market will affect the wood pallet industry?
Barford: The permanent contraction of the sawmill industry that is taking place will affect the amount of pallet material that is being produced by the sawmills. On the other side of the equation, the quality of the logs harvested continues to decrease, thereby producing a larger percentage of lower grade materials for each log sawed. On balance, the pallet industry will have a steady supply of wood available on into the future.
ENTERPRISE: The International Plant Protection Convention recently agreed to a global standard for wood packaging that would require heat-treating both hardwood and softwood wood packaging. Could you gauge the impact this will have on the hardwood sawmill industry and explain your reasons?
Barford: The impact on hardwood suppliers could be dramatic, and we share in the concern that our customers have for how this may affect demand for hardwood pallets. The new international regulations will be a direct burden on our customers, the pallet manufacturers, bottom line. We are prepared to assist them through the use of our dry kilns. In addition, our largest hardwood association, the National Hardwood Lumber Association, is trained and prepared to help them obtain the certification they need.
ENTERPRISE: Are there any kiln-drying or heat-treating requirements for hardwood lumber shipped to export markets? Is hardwood lumber shipped to export markets commonly kiln-dried first?
Barford: No, which is of course one of the great mysteries of the regulations — you need to treat packing materials but not raw lumber. Most of the wood that is exported from the U.S. is kiln-dried in advance just to reduce the shipping weight, but many woods, especially from other less developed countries, that arrives green will not need a certificate. We feel this is an oversight that will be remedied in the near future.
ENTERPRISE: Labor has been a big issue for the hardwood lumber industry. What labor problems is the industry experiencing, and is there any likely end in sight?
Barford: Skilled labor will continue to be a problem as many companies are now using non-English speaking laborers from around the world. The recent reduction in the size of the industry has put this problem on the back burner, but as the sawmill industry returns to production, these problems will again surface.
ENTERPRISE: Sawing technology continues to become more and more precise and efficient. How does this affect sawmills that cannot afford to buy top-notch technology? Are the middle-level producers being squeezed out?
Barford: The mid-size companies that do not switch to higher efficiency processing are the companies that will find themselves unable to compete for the higher quality logs on the market, and they will eventually leave the business. The trend of the mid-size producers finding it difficult to compete will continue — as it has really for the past 30 years. There are less than half the number of sawmills today that there were in 1970, yet production has actually increased. The very small operation has been able to remain in business serving the small niche markets they have developed over the years.
ENTERPRISE: What do you expect hardwood lumber (both furniture and low-grade) will do over the next year?
Barford: There will be a demand and price rebound because there has to be in order to maintain a viable sawmill industry. The reduced production and the improving worldwide market for lumber will cause some spot shortages and strong demand. The recently concluded furniture market showed us there is a lot of pent-up demand for high quality wood furniture, yet no analyst is sure when that demand will kick in. We are expecting a modest increase in 2002 with a strong rebound in 2003.
ENTERPRISE: With so much lumber on the market right now, what can sawmills do to increase profitability? Are there any new or emerging industries or products that could use some of the excess?
Barford: Simply put, no — which is one of the most disturbing parts of this downturn. Both the flooring and kitchen cabinet markets have remained strong, but no new demand has been found for the wood that is not used by the furniture industry.
ENTERPRISE: How have imports affected the U.S. market? How has the move of U.S. furniture plants offshore affected the U.S. industry? What will likely happen in the future?
Barford: Hardwood lumber imports are increasing in volume as manufacturers find that in order to keep their expense of production down, they need to shop all of their suppliers from around the world. Furniture plants continue to move offshore and buy their wood from their local markets, which is reducing the use of American hardwoods. The lack of consumer loyalty towards buying American products will continue to erode the demand for our hardwood products. The future will look different as American hardwoods become used more for high-end, special use products and are used less in everyday furniture.
ENTERPRISE: What must the U.S. hardwood forest products industry do to halt or reverse these trends, or how could it successfully adapt to them?
Barford: We need to be sure we are serving our customer needs and look around the world for new customers. In the short term this will be expensive and painful as some companies will not be able to adapt. Good quality products, delivered in a reliable way, will always be in vogue in some market. We just need to keep chasing those markets.
ENTERPRISE: With improvements in veneer technology, are people willing to pay extra for 'real' solid wood furniture and building materials?
Barford: The recent furniture market showed us there is plenty of demand for the high-end solid wood market. But in the mid- to lower-price range of furniture, it will be tough for solids to be competitive — not only to veneers, but some of the other laminating and print technologies that are coming out.
ENTERPRISE: With many companies teetering on the edge of collapse, do you expect consolidation to continue in the hardwood lumber industry? Are the small, family-owned operations in trouble?
Barford: Consolidation will continue and affect all companies. Since the hardwood industry is nearly 100% family-owned (with a couple of notable exceptions), it will obviously affect individual owners to a very high degree. Which ones will survive will be determined by the workings of the free market system.
ENTERPRISE: What industries use hardwood lumber (grade and low-grade) and what approximate percentage of the total produced do they use?
Barford: Pallets and other industrial markets continue to use 50% of the hardwoods produced. Furniture consumes about 25% of the production, and exports about 10%. All remaining markets pick up the difference. It is clear to see why we need to reassure our number one consumer of our product, the pallet industry, that we will be there as their reliable partner for years to come.
