News Story of the Year: Economic Roller Coaster Impacts Industry

                      From skyrocketing fuel prices to a collapse in the financial sector and the burst of the housing bubble, the ups and downs of the economy must be the news story of the year. A few months ago, many pallet companies reported that their business levels dropped off a cliff as dwindling consumer confidence has led to a significant drop in consumer spending. The overall forest products industry had already been taking it on the chin for a few years, and the recession is making bad times even worse. Consolidation and mill closures continue to raise questions about the long-term stability of domestic lumber supplies.  

                      Throughout the year, the Enterprise covered a wide variety of topics on the economy. This included a series of interviews with Al Schuler, a leading economist from the USDA Forest Service. Although Al suggested that housing problems would continue for several years, he suggested that the long range picture for the domestic housing market looked promising. This primarily resulted from the aging infrastructure that would need to be replaced as well as fairly strong immigration and population growth expectations for the future.

                      Hakan Ekstrom of Wood Resources International spoke to the Enterprise about the global wood and fiber markets. Hakan said that new duties and limitations on Russian log exports as well as favorable currency exchange rates would likely open up opportunities for U.S. exports in Asia. He also forecasted that larger hardwood logs will do fairly well in the future, especially as lumber certification becomes a bigger issue for consumers.

                      Global commodity prices have experienced significant shifts in 2008. Oil and steel prices reached historic levels earlier in the year and have since dropped as the slowdowns in the United States and Europe impact the global economy. Oil prices have plummeted to under $45 per barrel in early December. These are prices that I never thought we would see again, and they are a sure sign of the global nature of the current recession. Diesel continues to sell at about an 80 cent premium compared to regular gasoline. Steel prices have dropped off as well, which is leading to lower nail prices as the year comes to an end.

                      Dr. Ed Brindley interviewed several industry leaders about their strategies to survive the slowdown. He provided a historical perspective that shows what we are facing now is not new. In the 1980s, total demand nosedived around 25%.

                      General tips included increased communication with customers, utilize lean manufacturing principles to reduce costs, take advantage of tax breaks, negotiate with suppliers, continue sales and promotion efforts, diversify product lines, pass through higher commodity costs, keep a tight watch on cash flow, develop good relationships with bankers and other financing options, watch dead beat accounts, keep your debt as a small percentage of your revenue, prepare in the good times for the bad times, etc.

                      My November column discussed a survey done by the Pallet Profile Weekly on the current state of the economy and industry debt strategies. Our research found that 73% of respondents reported worsening cash flow situations. I highlighted 12 steps to prepare for whatever lies ahead in 2009.

                      The economy had a significant impact on the November election as the country elected a new president and appears to be turning more toward government intervention in major sectors of the U.S. economy. This will definitely create opportunities and will make it important for smart suppliers to follow the money. Companies will also have to be vigilant to keep from getting blind sided by “unintended consequences” such as inflation or dollar depreciation.