"The only light I see at the end of the tunnel for this business is a freight train of more bad times coming at us," said Wendell Cramer, owner of Coastal Lumber Co. in Hickory, N.C., who also has mills and consolidation yards in Pocahontas and Randolph counties. The hard times in the lumber industry that Cramer describes as being "hit by the triple whammy of rising fuel costs, decreasing demand and deflation in the value of lumber" is echoing throughout the area.
"We were going along at a fair pace until December of last year; then we fell off a cliff. December is always a slow month because of Christmas, but that was a crucial month for us," Cramer said. "And the worst part is that there is no end in sight that I can see."
Mill Manager Donnie Nottingham of the Inter-State Hardwoods sawmill and dry kilns in Bartow has had similar experiences.
"We had eight logging contractors cutting timber for us at the end of last year," Nottingham said. "We had to lay two of the crews off and put the remaining crews on quota. The downturn in the housing industry, plus the rising cost of production and the decline in the retail price of lumber cut our business nearly in half at the beginning of last fall.
"We have seen some improvement in the last few months, however, and our production is now back to between 70 percent and 75 percent of what it was," he said.
Transportation costs and product demand still remain as problems for Nottingham.
"The fuel situation is really hurting us, too," he said. "The cost of getting logs to the mill has more than doubled at a time when demand is down and the price of lumber has gone down because of a lack of demand. Our shipping costs have also nearly doubled over the past six months."
Dennis Gibson, owner of Gibson Logging in Slatyfork, who contracts cutting tracts of timber for mills, said this is the "toughest" he's seen it in his more than five years in business.
"One thing that is hurting my operations is that mills are being very selective of the species they want causing us to have to leave a lot of harvestable timber standing on site," Gibson said. "A year ago the mills would have been happy to take most anything we cut, but that's not the case now because of the drop in the prices of some species."
One advantage for Gibson is that he owns a trucking company and doesn't have to pay a contractor to transport logs to the mills.
"Fortunately, too, I don't have a large mortgage on my equipment," he said.
Last fall, Gibson considered buying a feller buncher, priced at around $130,000. Now, he's glad he changed his mind.
"Fortunately I did not go through with my plan," he said. "If I had, I probably would be out of business."
Gibson said that to start out in his business with all new equipment, which would include a feller buncher, dozer, skidder and knuckle-boom loader, would cost at least $500,000.
"I've known some contractors who tried to break into the business using all brand new equipment and nearly all of them went broke."
Reports in other media confirm that some loggers are having difficulties making payments on their equipment and some cases have resulted in foreclosure or bankruptcy. Local bankers, however, suggest that they have not yet experienced these problems.
"We are in touch with our logging industry interests continually," President and CEO of Citizens National Bank William T. "Bill" Johnson Jr. said. "What we are hearing is that many if not all of them are struggling. They have been hit with rising fuel costs, workers' comp costs, insurance costs, an increase in compensation costs at a time when a demand for their product is in severe decline. The combination of higher expenses and a soft market have caused many of them to either leave the industry altogether or diversify into other industries for which their on-hand equipment can be used, i.e. using logging trucks in hauling other products such as in the paving industry.
"Many of these people have dealt with these problems before, but never have they had to deal with them all at the same time."
A Mountain Valley Bank official who wished to remain anonymous said, "I believe the abilities of those in the logging and lumber industry to prevent financial collapse in these times of stress speaks extremely well of their managerial abilities."
An official at Frank E. Wilson Lumber Co., who also wished to remain anonymous, confirmed what Gibson said.
"While I don't know the exact numbers, I suspect at today's costs, one can easily tie up over a half million dollars or more in equipment for a small logging operation. Most people don't have that kind of money so they go out and borrow money from the banks. Then the economy hits a slump like we're in now and the first thing you know he can't make the payments on his equipment and, even though banks are notorious for working with people to help them save their business, eventually they have to foreclose and there goes the logger."
The official said everyone in the business is experiencing the same problems: decreasing prices of the lumber and rapidly accelerating costs to produce and deliver it. He noted that the price of cherry had dropped 23 percent since last fall. That, along with the rising cost of production caused by the tremendous rise in fuel prices is having a staggering affect on the industry. He referred to an invoice from early summer where the shipping cost to the West Coast was $1,896.55 and the fuel surcharge was $834.48. It has since risen substantially.
He noted that housing is one of the biggest markets for locally grown hardwoods such as maple, red and white oak, cherry, walnut, ash and other species.
"When we don't have the houses being built, we don't have a demand for our product - there goes the demand and consequently the price goes down with it," he said.
When asked if the slump in the market had forced him to reduce his workforce, he said, "No, but if it doesn't turn around soon, we will have to find additional customers or we may have to. This forces us to go out looking for additional business at the worst possible time - when business is poor. We have to be so careful of credit risks in times like these as well. If someone is willing to buy lumber from us, we have to be very careful they are not doing so because they are a bad credit risk and can't get their needed supplies from other sources. This is a dilemma that all of us in this industry face - not just this company."
The sagging timber industry has had a dramatic affect in the transportation industry as well.
"The slump in the timber industry has had a very dramatic affect on the volume of our hauling," Fred Burns Jr., chairman and CEO of Burns Motor Freight in Marlinton, said. "In 2007, our volume was down 12 percent from that of 2006. So far this year we've seen an additional decline of 6 percent - that's an 18 percent reduction in less than two years.
"We haven't had to lay any of our drivers off, but we're not replacing those that we lose through attrition such as retirement or those that seek employment elsewhere. On average, we now have from eight to 10 trucks parked.
"It's a tough time right now," Burns said. "We have cut every corner we can cut. When companies like Inter-State Hardwoods and other mills cut back, that cuts us back. In addition to their sawed lumber, we haul their chips. When they aren't sawing, they aren't making chips or lumber. Generally speaking, it's been a dark cloud for two years."
Jim Tanner, president and CEO of Tanner Lumber Co., L.L.C., operates concentration yards in Jim Town and Wilmore, Pa. The business purchases various species of lumber from sawmills, and also does grading, storing and kiln drying. In addition, Tanner Lumber packages four or five different types of lumber onto trucks for delivery to customers.
"Cherry is our No. 1 species," Tanner said. "Red oak is No. 2, followed by the rest of the Appalachian species common to the area including white oak, hard and soft maple, popular, ash, and some walnut. Ninety percent of what we handle goes into homes as flooring, molding, doors, cabinetry and millwork. It's easy to see that the downturn in the housing industry has affected our operations dramatically."
Tanner said that he has not had to lay off anyone, but has not replaced any of his employees who have left for other employment.
Most officials in the business seemed to agree that the industry might "bottom-out" and begin a slow recovery in late 2009 and 2010. The Wilson Lumber Co. official said, "I don't want to paint a picture of gloom and doom on this, but it's quite like 'The Perfect Storm.' So many things have us all at once. The lumber industry has always been one of ups and downs - cyclical. Those cycles have averaged about five years; a short cycle would be about three years, a long one about nine years. This company has been in business for over 100 years, and I've been with it for 48 of those years. I have never seen it this tight before."
"As all industries do, though, a comeback will eventually take place - a year or two, whatever it takes," Cramer said. "When it does recover from its present-day doldrums, there will be no quick fix, and we'll be faced with another problem. The sawmills will be dying to get logs so they can meet the demands of the market. The logging crews are going to have to be remade to get the logs to the mills - everything is going to go wild - prices are going to skyrocket. That is not what we in the business want, but the old supply and demand theory still rules - if you have it, and not many others do, the price goes high."
All in all, Gibson considers himself fortunate.
"Owing to the fact that I don't have a huge mortgage hanging over me, I am able to stay in the business and provide those that work for me a weekly pay check - that's what is important to me, otherwise I'd probably get out, too," he said. "It takes everything I make to keep the equipment in working order, pay the fuel bills, and pay my men. Then there's always the hope that the market will recover before too long and we'll be in a position to make up for these hard times."
