Western timber industry grapples for way out of slump

When the timber industry in the Western United States emerges from its prolonged slump, which began in 1979, it is likely to be leaner but stronger. Like the depressed housing industry, to which its problems are directly tied, the wood products business is learning some lessons through adversity. "We are fighting for survival." Housing is on its face, and we follow housing," says William J. Kirtland of the Western Wood Products association.

Industry leaders hope the housing and wood products businesses can benefit from lower interest rates induced by the Reagan economic program and begin to climb out of the doldrums by early 1983.

Figures on lumber mill closures and the number of workers laid off tell the story: As of Sept. 19, 113 of the 756 sawmills in 12 Western states were closed and operations at 271 others were curtailed. Some 49,200 (48 percent) of the 102,000 mill workers in the region were either laid off or working short hours.

Hardest hit states were california (11,500 workers affected, 17 mills closed and 42 curtailed), Oregon (15,000, 32 and 75), and Washington (9,700, 26 and 75 ).

The numbers rise daily. Contacted Sept. 30, Dick Bennett, president of Bennett Lumber Company in Princeton, Idaho, said: "I am shutting down one of my two mills tonight. My other, larger mills is losing money -- but not enough yet to justify the shutdown cost." He said he is fairly sure that by next spring both his mills will be closed.

In the important plywood segment of the industry (not represented in the previous figures) the situation is similar: Of 156 plywood mills in the US, 30 are closed -- 21 in the West, 6 in the South, 3 elsewhere.Operations at 53 are curtailed -- 37 in the West, 16 in the South, Oregon again is hardest hit: of 71 plywood mills in the state, 38 are closed or curtailed, and 5,500 workers are affected.

While large forest products firms like Boise Cascade, Louisiana Pacific, and Weyerhaeuser have the resources and diversity to ride out the long slump, many smaller companies my well go out of business. However, industry analysts point out that bigness is not the key to survival in hard times. It take good management and the ability to maintain sufficient "cash flow."

Jerry Griffin, a spokesman for Louisiana Pacific and personally a strong supporter of the Reagan economic program, says that only when federal borrowing is brought under control will interest rates come down and the housing industry recover.

While the industry waits for this to happen, Mr. Griffin says, there will be a "winnowing out of the weak. Those who did not speculate on high-cost timber will be able to maintain positive cash-flow and stay in business."

Number bear out his view: In 1955 there were 25,000 firms in the US wood products business; today there are 6,000. In a few years, Griffin predicts, "many fewer than that will be in business."

Dick Bennett, a small operator, doesn't expect to be "winnowed out." But he does hold that the US housing industry's prosperity has always been based on subsidy and that special steps will have to be taken by the federal government to make lower interest rates available for housing loans.

Like Griffin, Bob Anderson, director of market research for the American Plywood Association, feels the wood products industry has to "hang in there and ride out the squeeze" while the Reagan economic program gets the situation under control.

In recent years, wood products for use east of the Mississippi River have been increasingly supplied by Southern and Canadian sources. Shipping costs by water, rail, and truck have been a major factor in this change, as has been the Canadian government's subsidization of its forest industries, according to Mr. Bennett.

Today 67.8 percent of lumber milled in the Western states is sold in the region, up from 42.4 percent in 1971. But this shift is not totally due to Southern and Canadian competition, since much of the nation's new construction is going in the Southwest, including southern California.

Some small steps to aid the Western industry have been taken or are being considered. The Southern Pacific Railroad recently announced lower rates for shipping lumber from Oregon to southern California.

Another kind of relief to some operators who have contracted to harvest timber on federal lands is being considered by the US forest Service and Bureau of Land Management. In previous years, lumber companies -- especially those without large timber tracts of their own -- have lobbied hard for access to timber in national parks and forests. Those who obtained cutting contracts are obligated to remove certain amounts of timber within a specified time. With little market for the milled product, these companies are actually losing money on the much-sought federal contracts. A year ago the government granted extensions on the required cutting time, and new extensions now are being considered.

A more long-range source of relief is the export market -- especially to Japan. The Western Wood Products Association has been negotiating with the Japanese for increased sales of finished lumber.

William Kirtland says the long term prospect is good -- that "as Japanese construction methods change, more US products will be sold there."

Griffin asserts that the US must follow the example of resource-short areas such as Western Europe by using a greater variety of materials and types of housing that can make possible the construction of quality housing that is relatively inexpensive.

An example of this, he says is a plywood substitute Louisiana Pacific has developed using aspen wood, which in the past has not been considered of much value for lumber.