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GUEST COLUMN

BC's coastal industry now faces the fight of its life to survive

By Duncan Davies

We operate in a global industry-more than 95 per cent of the products produced on the British Columbia coast are sold in export markets. For decades, the world beat a path to our door. The quality of our fibre was the envy of the world. And the coast was a dominant player in the world trade in softwood lumber.But somewhere along the way, we lost our place. We have allowed our costs to increase to the point that we're now the world's highest-cost producer. 

We've lost market share in the US and in Western Europe-and now we're facing the fight of our lives in Japan. Everyday, our Japanese customers, and customers in other markets, question the reliability of our supply and look for alternatives. Too often, I hear people say our problems will be resolved when the softwood lumber dispute is over or when the Japanese economy comes back. 

These people need to get real! This is not a cyclical downturn-the softwood situation with the US is simply the straw that broke the camel's back. What we have on the coast is a full-blown structural problem in an industry that has attempted to defy the laws of economics. So why are we in this terrible predicament? No single group can be blamed, but collectively we must all shoulder the responsibility for allowing this to happen. 

Over the years, a culture of entitlement has developed in this industry. It was driven by government policy designed to promote social objectives and by narrow, self-interest on the part of key industry players. In hindsight-which we all know is perfect-the captains of industry missed the boat on this. 

Industry leaders allowed this situation to develop and failed to do the things necessary to ensure the industry remained competitive. Now, it's caught up to us-and we're paying the price. The result is a cost structure that is out-of-line with our competition, products that are out-of-date and an industry that is incapable of responding to changing market circumstances. 

But I believe we can view the current crisis as an opportunity-an opportunity to address the fundamental issues and to re-establish the Coast as a vibrant, successful industry. In this regard, I am particularly encouraged by the package of policy reforms tabled by the new BC government. But it's going to take more than changes to government policy to put this industry on a proper footing. Industry, labour and contractors also have to come to the table if we are going to achieve the magnitude of change required. 

A recent report by Peter Pearse indicated that costs on the coast are offside to the tune of $30 to $35 per cubic metre. With this size of gap, stumpage could be eliminated entirely and we'd only close the gap a little more than halfway-and that's not going to happen. The people of BC deserve a fair return for their timber. And while there's no question that we currently have a problem with stumpage, I'd like to believe over time we will see stumpage rates increase from where they are today. 

The bottom line is that markets and government are not going to bail us out and there's nowhere left to turn. If we are truly going to renew prosperity in this industry, the key industry players are going to have to work together creatively and cooperatively with government to address the real issues that plague the industry. First and foremost, there is too much capacity in the industry. 

There are too many mills and the existing mills, in many respects, are not well suited to the timber profile. Many are simply obsolete. I believe you can count the number of world-class sawmills on the BC coast on the fingers of one hand. That says a lot about our predicament when you consider there are more than 40 mills on the coast. Some of them will have to close and others will have to be upgraded or rebuilt and this is going to result in fewer jobs-at least initially. And while this is unfortunate, it's reality. 

There's also too much equipment and too many people trying to earn a living on the logging side of the industry. Loggers cannot expect to be isolated from the competitive realities of the market any more than the manufacturing sector can. The same goes for labour. 

The Pearse report said that our unit labour costs are more than double those in other regions. Individual workers can't be blamed for this. We have a hard-working, experienced workforce that, by-and-large, simply wants to go to work everyday, earn a good living and raise their families. They look to industry and labour leaders to ensure the viability of the industry and we've let them down. 

If you analyze our labour agreements, you will quickly see that the problem lies in payments for time not worked-which adds a staggering 60 per cent to the average hourly rate of pay in the industry-and in inflexible work rules which add significant additional costs. 

ogether, these two factors add well in excess of $200 million to the industry's cost structure each year. Costs that can't be passed on to customers and are, therefore, not affordable in today's global marketplace. No single group can be blamed for get ting us to this point, but it is up to industry and labour leaders to work together to address this problem. It's not going to be easy. And it's going to require difficult choices and decisions for all of us-but collectively, we need to get on with it.

Duncan Davies is President and CEO of Vancouver-based International Forest Products Limited (Interfor).

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