VARDAMAN VIRTUAL FORESTRY COMPANY

Twenty-five years later, a second technology wave threatens to restructure the regional industry. That technology is small log lines. While there are perhaps 40 to 50 of these in operation in eastern Canada today, as best we know, there are just two in the Western U.S. and six in the U.S. South. Four manufacturers sell competing lines, though essentially there are just two major competitors. Similar technology is employed by Scandinavian firms in their home countries. Though not yet used for manufacturing hardwood, eucalyptus or maple might someday be candidates.

A typical line might cost $4-$6 million, of which approximately $3 million would relate to a log bucking line with the balance being other equipment and machine housing. With it, a 70-ton line could produce 40-50 million board feet per year in 2x4, 4x4 or 4x6 dimensions using only 6 or 7 laborers in a two-shift, five-day schedule. Although labor unit manufacturing costs are very low, the real savings is in the fiber. At $20-$25 per ton, 17-20 year-old juvenile pulpwood is considerably cheaper than even chip n’ saw logs at $45-$60 per ton. While more expensive sawlogs do feature a better yield, say 4 to 4.5 tons per mbf, at 5.5 to 6.0 tons per mbf for the small log lines, their fiber advantage is enormous. These lines could also benefit from the anticpated “wall of wood” thought to be available over the next 5-10 years as younger pulpwood plantations come of age.

We would not be surprised to see the industry add 30-50 of these lines in the southern U.S. over the next five years. Such a development could provoke several major changes to the regional industry including: 1) the prevention of any material near-term recovery in lumber prices; 2) timberland divestitures, as sawtimber ownership becomes a less strategic advantage; 3) added pressure on marginal larger dimension sawmills to close; 4) more consolidation activity in the sector and the withdrawal of several large corporate competitors from this product, 5) better margins for wood treaters and 6) possibly, a repositioning of the industry’s cost position below its eastern Canadian competitors and, potentially, an economic lever to discourage their further import penetration.

In summary, the advent of these new lines should prompt serious and significant shifts in timberland management policy, sector international trade flows, sector employment, common ownership of paper and wood products manufacturing facilities and the wide disparity of fiber prices by location and age throughout the South. While still inchoate, this development should neither be overlooked nor misprized by executives making a living in this industry.