Happy Fourth of July Everyone! I hope all of you celebrated Independence Day with family, friends and the great outdoors. Even though we are in some particularly challenging economic times, we still live in the greatest country in the world.
Speaking of challenging times, the logging and trucking industry is in uncharted territory. There are several stories from across the country of loggers deciding to close their businesses due to the lack of profitability primarily because of continued skyrocketing fuel costs.
I have had conversations with many fellow loggers in my home state of Wisconsin and with loggers from California to the Carolinas. There is a common theme that “the fuel costs are absolutely killing us.” One logger I spoke with provided his costs to his procurement forester and a mill he had a long relationship with, and they gave him almost nothing for a fuel surcharge. He told me he decided to sell his equipment and call it quits. He has had enough and wasn’t going to do it anymore. He had been logging most of his adult life and felt he was going backwards and had the numbers to prove it. The procurement forester asked who he sold his equipment to so he could find the contractor in hopes of luring him to also work for less.
I recently had a conversation with another logger, and we were talking about the current state of the industry. The advice I gave him, as well as my advice to everyone is to figure out and know your costs. Once you know your cost of doing business, reach out to your procurement people. Unless you can show and explain your costs, we are doing nothing more than complaining.
At the time of writing my monthly message, off road diesel fuel was at $5.05 per gallon. An even more alarming number no one is talking about is bar and chain oil which was priced at $6.97 a gallon along with hydraulic oil at almost $13.00 per gallon and that is in bulk delivery. Who would have ever thought you would be paying that much for oil that flies off a chain? I recently purchased some one-inch sized hydraulic hose, and the price was over $20.00 per foot! That was also purchased in bulk as it is the most economical way to purchase. The cost of a harvester has increased from around $600.000 to well over $700,00 for some brands. So, who is reaping the benefit efficiency and technology?
I apologize, but I am not as well versed on the costs for a lot of things for our truckers. I know the fuel costs and have been told a truck tire has almost doubled in cost. The topic of fuel costs has consumed almost the entire conversation between me and fellow loggers at home and across the entire country.
In the past when there have been challenges for loggers and truckers across the nation, they have just taken it on the chin and worked through the challenge. For the first time in my 36 years of working in the profession I love, my fellow loggers and truckers can no longer afford to absorb these continually increasing costs and remain viable. Many are saying they will no longer produce wood at below cost rates and are going into a different direction. Others are just selling their assets and retiring from the industry all together.
In practically every business sector of our world, significant fuel surcharges or price increases are being implemented and are usually never withdrawn. I’ve said at nauseum that the logger doesn’t have the ability to be viable based on our current business structure. It has been also mentioned more times than I can count that stumpage costs are too high in our region. I’ve thought about that a lot to come up with a viable response. In some cases, contractors will bid high to control a market in an area or maybe make a name for themselves. In this case criticism is probably deserved.
In many cases though, contractors get into bidding competition with the entity they sell their wood to. Unlike other parts of the nation, our region has some unique wood species, which in my opinion, tend to skew wood prices and land values. That stated is why, in real-life stumpage costs have many variables to consider.
I have wondered many times about why loggers place values on stumpage which seem unrealistic according to what I know about productions costs and delivered prices. It’s hard to get into the mind of that contractor but there are times when a bid is placed because he may need that timber sale to fulfill a contract or keep his crew working, or they may need it to simply get enough work to pay the bills. Summer work, time of year access, terrain, and quality of the timber all come into play when purchasing standing timber. Everyone merchandises a little different to come out financially. How a logger spends his money he or she receives shouldn’t be a factor on the price he is paid for those products. That argument could go into a very slippery slope that may never end.
Out of necessity, these challenging times may instigate equitable ways of buying and selling forest products making it profitable once again for everyone including loggers and truckers. The way things have been done for the last 100 years seems not to be working. I have several ideas of how to make it work for both sides of our industry. Do you?
Please be safe out there and know your business so you can speak intelligently about it in times like these.
Until Next Month,