The most developed wood supply chain in the world. Others should learn from it…
This post focuses on harvesting and wood supply chain management in the one of the most developed forestry regions in the world. Click to continue!
Timber supply chain in the SE U.S.
First, we should start with short introduction how the typical wood supply chain looks like in the southeastern United States.
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Usually, it consists of the forest landowner, the timber buyer, and the end-user, or wood mill. I am saying usually, because sometimes the forest landowner (especially one having big forest property) can directly sell the timber to the wood mill. However, despite these three main actors, there are also forestry consultants, loggers, and trucking firms, which are also involved in the forest business. Those are usually employed by previously mentioned three main actors in the wood supply chain.
Forest Landowners
As it was mentioned in the post titled “Kingdom of Pulpwood”, one of the most important competitive advantages of Southeastern U.S. is the private ownership. Out of more than 200 million acres (ca. 81 million hectares) of timberland, over 90% are in private hands!
Two-thirds of this area is owned by families or individuals, while one-third belongs to corporations (such as TIMO’s and REIT’s), forest industry, and the federal and state government.
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Regarding family forests owners (sometimes called non-industrial private owners), majority of them (59%) own between 1 and 9 acres of forest land, but when they start to cooperate, then 60 percent of family-owned forests are in holdings of 100 acres or more (Butler et al. 2013). In consequence, the average size of family forest holdings increases to 29 acres. It is expected in the future that parcellation and fragmentation through estate disposal and urbanization will continue to take place and alter forest management in the South.
Many landowners hire forestry consultants as managers to manage their lands for variety of benefits, with timber production often being the primary management objective. According to state regulations, forestry consultants have to be licensed by the state to practice forestry, and often must meet specific education and experience requirements. In many cases, these consultants are also hired only to appraise and sell timber for landowners. Regarding larger corporate landowners, often they employ their own foresters to manage forests and sell timber.
Timber buyers
Between a landowner and wood processing facilities there are dealers. Dealers purchase timber from landowner, and sell the harvested wood to mills. Often, dealers have a contract to supply certain mills. However, during last decades the situation was slightly different. Historically, large sawmills and pulp mills grew much of their timber on their own land or purchased standing timber directly from landowners without dealers. Everything has started to change in late 80’s when larger forest product manufacturers began divesting their timberlands and began relying more on purchased wood from another privately-owned timberland.
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The vertical integration as a business model has been found inefficient in forestry. During my trip stay in the SE U.S., I had opportunity to talk to one manager of big REIT company, which had their own forests and pulp mills before (vertical integration). He told me that in some moment, their company decided to sell mills and started to focus only on forest and real estate business. He said that having both mill and own forest “you are always losing money in one of the businesses”. He meant that if you want to maximize profits in forestry part of the business, then you are losing in the milling business component, and vice-versa. That is why companies started to specialize and have begun selling either forestry or wood industry components from their businesses.
In the photo above, we can see the forest operation activities on the plot that I was visiting on the boarder of Florida and Georgia in March 2017. Before the harvesting operation can be performed, the sawmill sends his own appraiser to evaluate how much wood is on the plot. Besides, forest owner has its own appraisers who check how much wood is there. When everything is estimated, the deal can be done. Large landowners may enter into agreements with forest product manufacturing facilities to supply wood to a mill over a long period of time. These agreements are referred to as timber supply contracts. Prices are usually based on market rates with prices reviewed on a quarterly or annual schedule. Minimum and maximum amounts to supply each year are also incorporated into the contracts. These arrangements are not common, but are used in certain cases.
Timber Harvesting and Hauling
Usually, loggers are employed by timber dealers to harvest wood that has been purchased. Then, timber products delivered to a mill are purchased from a dealer by a mill based on tonnage and product.
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The process of transport of logs to destination is quite interesting, as it may or may not be part of the logging company.
It is quite common that the trucking is performed by another firm who is employed under contract by the timber buyer. There are some loggers who are timber buyers, but most logging is performed by contract and based on the amount (tonnage of product) of wood harvested.
The process of weighing truck with pulplogs in US South.
Summary
In the wood business, supply chain management is essential. To understand fully supply chain for your forestry and wood supply, you and your company need to understand very well the process and actors involved in it. This post focused on harvesting and wood supply chain management in the one of the most developed forestry regions in the world – U.S. South. It described main actors and aspects from forestry and purchasing to harvesting, transport and mill reception. Nevertheless, we should not forget that storage, management of the wood yard logistics, and information management is very crucial in the efficient management of wood supply in the forest business. The word ‘efficiency’ is here the key, as without efficiency in wood raw management, your company cannot successfully compete in the forest business.
Forest Business Analytics (FBA) – a specialized consulting and business analytical company in forest and wood industry sectors – has worked with the leading forest companies for years, and understands the challenges in wood supply management very well. FBA is changing business analytics forever by data preparation and analysis — giving unprecedented power to forest and wood industry products businesses without the need for cumbersome and expensive IT investments. Thanks to solutions, your company will be able to adjust faster to changing business environment, and will have a knowledge how to deal with risk related to oversupply and shortage in the wood supply.
Author of the post:
Rafal Chudy – PhD Candidate in forest and resource economics at the Faculty of Environmental Sciences and Natural Resource Management, Norwegian University of Life Sciences (NMBU). He has acquired the international experience in forestry and forest economics at North Carolina State University, Swedish University of Agricultural Sciences, Oregon State University, University of Helsinki, University of Hamburg and Warsaw School of Economics. Rafal has gained profesional experience as forest economists and analyst at United States Department of Agriculture, National Forest Holding in Poland and many other companies from private sector.
Sources:
Source: Butler, Brett J.; Wear, David N. 2013. Forest ownership dynamics of southern forests. In: Wear, David N.; Greis, John G., eds. 2013. The Southern Forest Futures Project: technical report. Gen. Tech. Rep. SRS-GTR-178. Asheville, NC: USDA-Forest Service, Southern Research Station. 103-121.
McClure Nathan. 2009. A General Description of the Wood Supply Chain in Georgia and the Southern United States Forest Utilization Department
Photos: Rafal Chudy