The Lumber Industry is Poised on the Cusp of a Market Change

Recently I wrote about the shortage of African Mahogany and how the plummeting market price has essentially killed the lumber mills that harvest it and now there isn’t enough supply to meet the demand.  Unfortunately it is a growing trend not unique to the lumber industry and I made a passing comment about North America’s penchant for this price reduction frenzy.

Lumber and many other raw materials have been hit hard over the last 50 or so years.  It is hard to put a date on when manufacturing began to shift from North America to offshore.  Some will point to the 1950s but many agree that the 70s and 80s began the biggest moves.  Whether it be to escape higher taxes or purely to reduce manufacturing overhead, these overseas developing countries provide the vehicle to dramatically change how business is done.  With the exodus in full swing, lumber companies started losing customers at a record rate.  No one was terribly upset though because at the same time a housing boom was underway buoyed by low interest rates and new loan types that would allow anybody to buy a home.  The construction industry kept lumber alive and growing.  Unfortunately as we see now, this home loan explosion was a false positive that led to the crash of the economy and to the present day.  Now without large amounts of new construction, lumber production is way down, yet offshore competition continues to drive prices down.  New markets have developed as China hungrily buys up our domestic species for their growing economy.  But due to the sheer volume of construction and the necessity to ship large amounts at once via ocean freight, they are successfully driving the price further down.  Struggling lumber companies are blinded by the volume needed for these export deals and lose sight of the scary low profit margin that goes with these container export jobs.  So now saw mills and lumber distributors are closing in unheard of numbers.  Companies with 50 to 150 years in business disappear over night.  With many domestic lumber prices hovering at price points equivalent to 1960 rates it is no surprise that these companies cannot stay in business.

The trend to devalue raw materials doesn’t stop there.  Manufacturers and builders are slashing prices on their own work in order to compete with one another in a shrunken market.  Timelines are contracted because maybe if it can’t be done cheaper, then more production in the same time period will cover the loss.  Quality starts to slip and suddenly, the North American made moniker loses meaning over the widely accepted poorer quality Asian made products.  Consumers begin to wonder why they should buy local when the quality has become the same as the cheaper foreign made products.  Eventually quality becomes something no one even considers during the buying process.  Price and immediate availability become the only factors.  I think this is at the heart of our “disposable” society we live in today.

So this is the landscape we live in today.  Fewer sawmills, extremely tight margins, and a just in time supply chain that won’t tolerate the long harvest and drying times required for quality lumber.  But all is not grim.  Just the opposite.  I think we are on the cusp of a major change in thinking caused by the crash of the market.  The companies that have gone out of business are cutting the production rates dramatically and the total on hand national board footage of many domestic species is less than half of what it normally is.  Rarity of lumber means prices will begin to climb again and correct to current year standards.  Longer lead times on lumber and millwork is starting to become the norm as quality rises to the top.  So many builders have been burnt by the  “other offer” that was cheaper and faster that they are pushing back to their customers telling them that quality will take longer to get and cost more.  The quality of the material is enough to justify this but often times there are other factors that come into play.

The rise of the reclaimed material market is a perfect example of outside factors contributing to a higher price and longer lead time.  At face value, a 300 year old reclaimed barn board looks atrocious.  Lumber graders wouldn’t even know where to begin to put a grade on it due to all the defects and checking that has occurred through the years.  Color consistency is out the window and stability is questionable.  Though this lumber holds a story.  A piece of history that homeowners treasure and thus this “defect” wood garners a price that is 10 times greater than the same species freshly cut and dried.  This is just one example but many others can be found where other factors driven not by price is the deciding factor.  It speaks of a market that while still somewhat price conscious because we all have less, but also wants the best value they can get and a product that will last generations.  They want “other” factors in that they can brag about to the neighbors, or share with colleagues and clients to demonstrate their commitment to environmental sustainability or support of the local economy.  I truly believe this is a turning point for our industry and it is up to us to foster it’s growth.

Sawmills, lumber dealers, builders, contractors of the nation unite.  If we don’t respect our materials and our abilities and price them appropriately, we will run ourselves out of business.  But don’t expect your customers to just roll over and accept higher prices.  Find the “other” factor whether it be uniquely sourced lumber, to expert craftsmanship, to responsibly harvested timber.  This “new” consumer wants these factors and it is up to us to respond not just to please our customers but to save our industry.