Right now, might not be the best time to get into the sawmill business given all the western mills curtailing production and hardwood sawmills struggling to find markets. But then again, it might be the best time to buy an existing mill that is struggling if you want to diversify your lumber supply network and guarantee greater control of your supply chain.
That is probably what is behind some recent moves that have some in the industry buying up pallet operations with sawmill capabilities. Beyond the sale of John Rock Inc. to Kamps, Inc., Olympic Forest Products recently acquired Jacob A Weaver Co., which has both pallet and lumber operations in Pennsylvania. See the story on page 76. While a handful of transactions hardly makes a trend, it does show that some of the companies looking to expand capacity understand their need to have some sawmill or resaw operations in their corner.
For a thorough discussion of the current state of the U.S. hardwood sector, see the Hardwood Roundtable discussion on page 24.
When lumber supplies get tight or some previous producers go out of business, it is a good thing to have some control over raw material production. Some pallet recyclers are looking at automated, optimized trim saw lines as the answer because these relatively new machines can efficiently cut lumber to size and sort the boards into bins. But if you are a new pallet producer, a sawmill or at least a resaw operation can help you respond to whatever the market throws at you.
Not everyone believes that complete vertical integration is the answer. I recently visited Cottondale Wood Products’ new pallet production facility in Houston. Other than corner cutting CPC pallets or other block designs, this facility has no saws. Everything comes in precut and ready to go. While the company’s Alabama facility has a sawmill, this plant was designed to be as clean and efficient as possible. Much of the lumber comes in precut from South America although some material is sourced domestically and even from the company’s own sawmill in Alabama. Since this facility only produces a handful of pallet sizes and designs, it makes sense for the facility to procure material precut in bulk. The owners told me that they want this plant to do one thing really well, better than anyone else – efficiently produce block pallets. And that is certainly one of the strategies that some companies are pursing. Others are trying to diversity to custom sizes or produce more combo pallets.
Your strategy will really dictate whether or not you go for vertical integration. And vertical integration means different things to different companies. Some pallets companies even employ their own logging crews due to concerns about aging logging crews or the inability to find solid logging partners in their area. Some purchase their own timber tracts. For other companies, vertical integration means operating a sawmill. Some pallet companies have even operated sawmills in other countries and exported lumber to the United States. But this last approach is far less common. No matter your definition, the goal is to have greater control over your supply and ensure that you can at least augment some of your needs when the market struggles to supply it.
So, should you be more vertically integrated? Below are some questions to consider as you ponder this question. The process starts with assessing your current lumber supply network.
1.) How diversified are your lumber suppliers? How long have you done business with these companies? During the last lumber crunch, were these suppliers reliable?
2.) What timber supplies are near you? Hardwood? Softwood or both? What species have you been using predominantly? Do you anticipate this changing much in the next 5-10 years? Are there any major landowner or regulatory restrictions that could impact your existing timber supplies?
3.) Are you close enough to secure imports from Canada or South America? Have you ever tried these sources? How close are you to a rail line for long-hauling shipping?
4.) What is your current supply of odd-sized pallets? Can you efficiently process, and prep used lumber in your recycling operations? Are you currently selling remanufactured or combo pallets to customers?
5.) Are your customer requirements for pallet specs, sizes or species changing? How might those changes conflict with your current lumber processing setup?
6.) If you have sawmill or resaw operations, what is your system currently optimized to process most efficiently? Can you upgrade your systems to become more flexible in terms of size and species?
7.) If you are running a hardwood sawmill, how are those existing grade markets in your area doing?
8.) Have you developed a raw material supply game plan for the next 5-10 years? This can be a valuable road map to chart your way forward in terms of equipment purchases, lumber partnerships, etc.
The answers to these questions can really prove helpful as you consider changing timber and lumber markets. If you want to find new lumber sources, check out the 2023 Lumber Pages that is included with this issue of the Pallet Enterprise. It is the largest directory of cut stock suppliers updated annually or visit www.lumberpages.com.
Another resource that may be helpful is the Pallet Profile Weekly. This report is the only weekly market report dedicated to low-grade lumber and pallets.
For more information, visit www.palletprofile.com, contact Rick Henretty at 804-550-0323, extension 105 or email rick@palletprofile.com.
