If pallet companies are having a tough year, you don’t even want to talk with loggers or sawmills about how tough their time has been over the last year.
Sawmills are very hard to operate even in the best market conditions. As demand has dropped coming out of the pandemic, sawmills from coast to coast are curtailing production and idling facilities. Big players in the softwood market have followed this pattern for years. Reduced production can lead to price increases over time. As supply becomes constrained, sawmill operators can push up prices.
The issues the hardwood sector is experiencing relate to long-term consumer trends and a shift in global markets. As we reported in a recent issue of Pallet Profile, “Declining hardwood exports have also placed more financial pressure on mills, and the outlook for 2024 doesn’t look promising.”
According to Fordaq.com, sawn hardwood exports fell last year to 1.56 million cubic meters as of August 2023, a 21% year-on-year decline.
That’s why it is not surprising when another large hardwood player exited the market in late February. Allegheny Wood Products, a major hardwood provider in the heart of Appalachia, shut down all operations. Local news reports in West Virginia called the news abrupt, but the company has been on the market looking for a buyer since last year, according to several sources in the industry. However, the company was not able to find a buyer or adequate financing to continue.
Allegheny has an international clientele and is known for producing hardwood lumber including red oak, cherry, soft maple and white oak. The company is owned by John Crites II whose father started the business in 1973. It is a vertically integrated lumber producer with eight different major facilities throughout West Virginia. Crites was quoted in a 2019 Timberline article saying that the company works with nearly 100 different logging companies in West Virginia, Maryland and Pennsylvania. New reports suggest that the closure eliminates as many as 850 full-time and outside contractors. This development certainly will have ripple effects across the forest products sector in the region.
Some in the industry worry that the Allegheny announcement is just the beginning of more hardwood sector contraction as the market faces sluggish sales, unsustainably low lumber pricing, higher operational costs, depressed conditions making mill modernization difficult as well as regulatory and other factors that have put hardwood producers on the endangered species list.
According to WCHS-TV, employees say they knew the company was having difficulties, but anticipated that it would be sold. Some social media posts have suggested that at least a few facilities may be reopened under different management/ownership.
Overall market conditions may be tough in the pallet market, but they are downright miserable in the hardwood sector right now. Mills are facing major difficulties in modernizing and hiring staff. An operator of sawmills in the East told Pallet Profile about the challenges involved with staffing lumber mills. He commented, “If you think it is hard to get people to want to work in a pallet shop try a sawmill. They are not neat clean environments nor do most have heat and air conditioning. One more reason why it is hard to recruit talent.”
And the current market with depressed prices does not help when it comes to having resources to modernize facilities. This sawmiller added, “It is cost-prohibitive to build a new hardwood sawmill and operate it profitably under the current market conditions. If the sawmills cannot afford to modernize, because they cannot sell their lumber for a good price, then they will not be able to attract the talent to run the operation just to cover their costs, let alone make a profit.”
In some regions, local regulations are making harvests more difficult to execute. For example, Hampton Lumber announced in January the closure of its Banks, Oregon facility citing difficulty caused by regulations. Hampton CEO, Randy Schillinger, explained, “However, with the current log supply restrictions in Oregon and the likelihood of additional restrictions on State Forests in the coming years, we just can’t see a viable future for the Banks facility.”
Specifically, Hampton pointed to a proposed Habitat Conservation Plan (HCP) now being considered by the Board of Forestry. If enacted, the HCP would decrease harvest by 34% according to Hampton Lumber. A sawmill has been operating in the small town of Banks since 1961, a town of fewer than 2,000 people in rural Washington County.
In the West, regulations have dramatically reduced available timber for harvesting over the last two decades. By contrast, the softwood market has added capacity in the South over the last ten years even though some recent startup projects have been delayed or discontinued.
For pallet producers, this latest news points to the importance of developing an extensive network of lumber suppliers. If depressed conditions continue for hardwood mills, Allegheny likely won’t be the last hardwood mill to close or sell. One resource we are providing to help you develop and improve your lumber network is our annual Lumber Pages directory of low-grade lumber. This directory is included in the April issue. And you can reach it online at www.lumberpages.com.
Don’t wait until you are in a bind. Start making those calls and developing relationships now. This is especially important for any pallet company that doesn’t have its own sawing capacity or is located in areas with limited lumber production.
