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December 2006 / January 2007 - The Logging and Sawmilling Journal

 

MILL UPGRADE

CAPITAL INVESTMENTS

BC’s Porcupine Wood Products has recently completed an equipment upgrade program—to the tune of $7 million—but investing human capital is also a very important part of its operation, especially since they are working with high value western red cedar.

By Paul MacDonald

 

It’s a good thing that Craig Upper likes a challenge. The general manager of British Columbia’s Porcupine Wood Products faces a big challenge on a month-tomonth basis: securing the western red cedar fibre required to run their sawmill.

The company has a 9,500 cubic metre annual forest licence, meaning that every piece of timber above that has to be bought on the open market. In a province where most sawmills and forest companies have secure access to provincial timber, Porcupine Wood Products is one of a select few mills that rely principally on the open market for their timber supply, whether that timber originates on private or public lands. There is a large amount of privately owned land in this part of the province, but the harvest off that land is dependent on the markets.

“We have to pay top dollar for wood, and our margins are very slim,” says Upper. “I consider us to be a no-frills operation. That may not be the ideal, but we make it work—and it’s a challenge and balancing act every day.”

The Porcupine Wood Products mill produces about 75,000 board feet of green cedar decking and fencing product a shift, or slightly more than 20 million feet a year on a one-shift basis.

On an ongoing basis, the company is able to source the cedar it needs, though it could use a lot more, especially since it recently completed an upgrade program. From 2002 until the end of 2005, Porcupine Forest Products invested $7 million in a variety of upgrades. That may not sound like much if you’re a Tolko or Canfor sawmill, but for a small independent sawmill, that’s a major infusion of capital.

“The investment really never stops,” says Upper. “To stay alive in this business, you’ve got to be investing on an ongoing basis.”

Since Porcupine went the auction and used sawmill equipment route with its investment, you can apply a significant multiplier to the original value of that equipment. Sometimes mill equipment can be picked up at auction for pennies on the dollar.

“You have to know what you want at those auctions, and I’m not saying we always knew exactly what we wanted, but we always had lots of good ideas,” says Upper. “We know where we are going, what we want to do and how we want to do it at Porcupine. And when we find the right piece of equipment at an auction, we usually buy it.”

The last year has seen the completion of the mill’s large log line, with much of the equipment picked up at two large US auctions. “I don’t know exactly how much the equipment was worth originally, but I’d be surprised if we paid more than 10 cents on the dollar.”

In the latest upgrade, they purchased two new pieces of equipment: a step feeder from Linden Fabricating and a Gator fencing breakdown line.

The current upgrade started with a used log merchandizing system, followed by a dual ring Nicholson debarker. “The Nicholson is still one of our best equipment choices,” says Upper. “We tried running cedar for years with a single ring debarker, but it doesn’t work out well if you want production. The Nicholson has far more capacity than what we need, but it works really well for us.”

Upper notes that the mill has some merchandizing software, but due to the inconsistent nature of western red cedar—with its rot, crook and taper—the human element is still a very important part of the process. “The software works great probably 75 per cent of the time. The other 25 per cent of the time we are overriding it to make adjustments.”

The large log line saw the major infusion of new—or at least new to Porcupine—equipment. They have a CAE bandsaw and carriage, along with setworks which again, are older, but do the job. Next is a Ukiah gang, which takes the six- or eight-inch cant and generates the boards they need for one of their major markets: decking. “The wood then goes to a shifting resaw, where we recover the best yield that we can, and then it goes to the board edger, and we get the widest board.”

All of this feeds into a Valley trim line which is staffed with two graders. “I’m a believer in having two people for getting the most value out of the wood, versus an automated trimmer. One person works with one side of the board and the other person works with the other side.” The net result: higher value.

The small log line includes a Mark IV Chip ‘n Saw, with an alligator infeed, a set-up which is pretty rare these days, says Upper. This is followed by a gang edger and a board edger and short trim line. The small log line is high on the list for the next upgrade, since they expect to be working with smaller logs in the future.

At the end is a 150 feet long green chain, with 45 sorts. They would consider putting in an automatic stacker in the future, but the green chain is working just fine now, reports Upper.

While it may sound straightforward, Upper says that with any upgrade or changes they make, they always have to keep in mind that it has to work with their current log supply. “We can’t just put equipment in thinking that we’ll get extra logs to run through it; we have to work with what we have in log supply.”

Upper, who joined the family business in 1997, relishes the challenge of keeping this all going. It poses difficulties far different than, say, running a high production SPF mill. “You have to be intuitive and creative to run a small business like this, and have a number of skills and a good group of people working with you.”

“I consider us to be a no-frills operation,” says Craig Upper, general manager of Porcupine Wood Products (at left). “That may not be ideal, but we make it work.—and it’s a challenge and balancing act every day.”

The current mill in Salmo—in southeastern BC—is the end result of a consolidation of four smaller mills in the region that were set up in the 1980s and 1990s. The reason: acquiring timber became an issue.

They tried cutting other species with the mills—lodgepole pine, fir and spruce. “But the economies just don’t work now for the small guys trying to compete with the big companies in commodity lumber—and they haven’t for some time,” says Upper. “We gave it a good honest effort and it just wasn’t there.”

So the decision was made to consolidate the smaller mills into this single operation that today produces about 75,000 board feet a shift of green cedar decking and fencing product, or slightly more than 20 million board feet a year on a one-shift basis.

They wanted to consolidate their fibre in one location, but they also wanted to consolidate their employees, Upper emphasizes. “Fibre and people make or break the business. It’s that simple nowadays.”

Being small and, with that, flexible, also make a difference. “The nice thing about our size is we can change in an hour,” says Upper. “We can make a quick decision to make changes based on the market, and we really have to be able to do that to survive. We can’t just be cutting one thing all the time and expect to be successful with that.” This flexibility is valued by their customers, who know they can get what they need reasonably quickly.

That said, however, they keep a tight rein on inventory. “When you’re a small business, capital is king and inventory is the enemy of operating capital. It really comes down to producing the meat and potatoes, which for us is fencing and decking that we can sell every day.

“We’ve tried doing some different specialty products, but you inevitably end up with odds and ends that are going to sit there in inventory and tie up your cash. That’s not something that works for a small business. It’s really all about getting the log in, making something that customers want, getting it on a truck and getting paid for it. There are lots of facets to make this business happen, but it can be as simple as that sometimes.”

Most of their fencing products go to the US market, and the majority of the decking stays in Canada, sold to a select few longstanding customers. When the US countervail kicked in, they faced some punishing duties on shipping their high value cedar to American customers, so they developed the Canadian market to help diversify their customer base. They do reasonably well in both markets. Upper says that if they could secure sufficient cedar logs, they could easily double their production and have a market for it.

In terms of log supply, it appears it is going to get more difficult in the short term to source the western red cedar that Porcupine needs. The focus by the major licensees and private landowners in the area is on logging bug-affected lodgepople pine, meaning that less cedar is being harvested. “That’s where we get most of our wood, so that’s going to make things tighter.”

Porcupine Wood Products has a small forest licence, but every piece of timber above that has to be bought on the open market.

And there is competition for that wood. “You can only go so far and then you’re butting heads with competitors. Yes, you can go further and buy the wood, however log transportation costs are extremely significant these days, and the lumber market is what the market is.” It’s not like the mill can charge more simply because the wood has to come from further down the highway.

While Upper is happy to have completed the most recent mill upgrade, he’d still like to do more. “Are we where we want to be? Well, you never are. There are always things you could spend money on to reduce your costs. But it gets back to that balancing act of capital investment versus return.”

That capital investment includes computer technology, an area which is right up Upper’s street. He worked as an IT manager for Revy Home & Garden, a former division of West Fraser Timber (and now part of Rona) before joining Porcupine. He notes that when it comes to technology, their mill, with the latest upgrade, is now in the 1980s. But, he says, some of the equipment they replaced dated from the 1950s—so things are still advancing.

“We’re not high tech,” he explains. “But then cedar is one species, I believe, that is a good example of the more you put into it, the more you get out of it. So the more time and effort spent on manufacturing and grading, the higher rate of return.”

Probably 80 per cent of their manufacturing process involves the use of human capital, rather than technology. Besides, Upper says, what’s really important is that their overall business approach, and business model, is 2007. The equipment, regardless of its vintage, will support that.

 


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