June - July 2001 - Logging and Sawmilling Journal -

With a restrictive US lumber market, BC companies are being encouraged to look at further developing their capacities and capabilities for the multi-billion dollar factory-built homes market, in the US.

At a time when it seems tougher than ever to gain free access to US lumber markets, BC's wood products industry has the opportunity to tap into a potential $200-billion market in the US for factory-built homes and ready-toassemble components. That's the tantalizing conclusion of Evolution of the North American Home Building Industry, a report prepared for Forest Renewal BC (FRBC) by Vancouver based consultant Woodbridge and Associates Ltd in association with Ernst & Young. At a business planning session with its partners in the value-added wood products industry, FRBC was asked to analyze this opportunity and look at the associated challenges and business issues, explains John Talbot, executive director of Forest Renewal's value-added business unit. Forest Renewal BC is a provincial Crown corporation whose mandate includes supporting a wide range of forest renewal and industry development activities in BC.

There is no better time than right now for the forest industry to set aside its "2x4" mentality and begin to get real added value for its wood products through participating in the growing market for modular pre-fabricated homes, says a report prepared for Forest Renewal BC.

Consultant Peter Woodbridge was subsequently asked by FRBC to evaluate the potential for developments like "clustered" manufacturing sites in BC and the opportunities for speciality cut sawmills to provide the stock required for factory-built homes. According to the report, the US home building market is hungry for modular prefabricated homes-homes that are being produced just about everywhere except BC. In some countries, such as Japan and Sweden, they have all but replaced on-site construction. North America is now experiencing many of the same pressures that have led to these changes elsewhere. Buyers want less expensive housing and increasingly they want warranties and quality assurance guarantees. Factory-built homes constructed in controlled conditions can deliver that promise.

Also, building tradesmen are in short supply in many parts of the US and preapproved homes can be assembled with fewer sub-trades. Capitalizing on these market opportunities won't be easy, however. The Woodbridge report outlines some very significant hurdles that demand considerable changes. They include new government policies to attract and reward investment and a desire by industry and its workers to embrace a more entrepreneurial approach to doing business.

But the potential rewards are clearly there. In North and South Carolina and Virginia the factory-built home industry has doubled in the past five years. The companies doing this type of business there are unabashedly buoyant about their future. "During our tours there, factory managers proudly showed us key steps in their manufacturing process, despite the fact that they were dealing with potential competitors," reports Dalibor Houdek, a specialist in timber-frame buildings at research organization Forintek Canada. "These factory owners clearly see on-site builders as their competition. They're confident that the market share they've taken from site-built construction will continue to grow rapidly."

Forest Renewal BC's John Talbot says the increased shift to engineered wood products will mean major growth for quality modular and panelized home builders (above) and opportunities for mills. "There are business advantages for commodity sawmills to establish alliances with the upstream value-added wood products manufacturing community in BC."

The Woodbridge report's proposed plan of action centres on the existence of several large turnkey factory-built home manufacturers at the hub of an integrated system of suppliers. It envisions that these "anchor investments" will create industrial synergies with a range of key suppliers, including ready-to-assemble (RTA) wall, roof and floor system manufacturers, cabinet and countertop makers and wood furniture manufacturers. Woodbridge believes that BC's wealth of experience in wood production will allow it to readily shift into the production of housing units for export. "We know the house building industry," he says. "It was British Columbia that got the Japanese thinking about platform frame construction back in the seventies.

We know how to get our products to markets around the world. We have developed earthquake and termite resistant homes and we have the skills to build products that can be used in a range of climatic conditions around the world." As those in the business know only too well, the past few years have not been kind to most BC primary manufacturers. Woodbridge believes that against the backdrop of high operating costs and an increasingly competitive market, a new focus for the forest industry would be welcome news for both the sawmilling industry and the logging sectors. "Traditional primary markets are growing at one to 1.5 per cent annually. The newer value-added markets are growing at eight to 10 per cent," notes Woodbridge.

Having lost market share to offshore competition, BC's share of the $35 billion (US) North American commodity lumber market is now 16 per cent. Its share of the $200-billion value-added market in North America, however, is barely one per cent. Clearly, in such markets, the loss or gain of one per cent translates into hundreds of millions of dollars in sales. Woodbridge believes the time is right now for BC to direct its efforts toward the value-added industry. "If a five per cent market could be achieved, the BC forest industry's annual sales of wood products could increase from $8 billion (US) to $15 billion in the next 20 years."

While underlining the importance of preserving BC's current share of the commodity market, Woodbridge sees many existing primary mills becoming suppliers of high grade housing components. For some, he contends, such a change might be a matter of survival. Presently, most sawmills are not being well-served by what is happening in US markets, he says.

But BC mills in fact know the US market very well and could capitalize on this knowledge in a fast-growing market. Despite the hurdles outlined, custom homebuilder Brian Hayashi says he's pleased and gratified at the findings in the Woodbridge report. He is part owner and manager of Tomco Wood Products Ltd in Kamloops. Hayashi is now using the Woodbridge report as a supporting document in his business plan for a new manufacturing venture dedicated to serving the North American market. Hayashi foresees a housing boom and a significant shortage of skilled labour-both of which will boost demand for factory built homes. "If everything goes according to plan, in five years time Tomco hopes to boost its current annual sales of $1.6 million to $30 million, with annual profit of $4 million." Britco Structures, a builder of fully-fitted modular homes, also envisions a greater need for high-quality wood products. "Currently, we pay top dollar for finger jointed studs and tongue and groove plywood," says Britco co-owner David Taft.

"During the next five years, I anticipate a growing need for high-end wood products such as glue-lam, LVL, I-Joists, roof-trusses and kilndried lumber." Due to the detailed nature of its finished products, Britco's 150 employees possess an impressive range of skills including design, plumbing, electrical wiring, sales and manufacturing. For the past 25 years, its core market has been portable houses and commercial/ industrial camp housing and complexes.

Recently, however, it completed a four-star hotel in Washington State. Over the next five years, Taft expects the company's core business to grow by five to 10 per cent annually. Though confident of future markets, Taft says that there is always room for improvement. "The Woodbridge report has reminded us of the skills that we possess and has caused us to rethink our approach to business. "We plan to build on the some of the things we do well already and target areas where we could increase our volume and lower our costs. The next few years will be an exciting time. I think we have great potential." Darrell Embley, regional manager of manufacturing at Riverside Forest Products, is equally enthusiastic about the new ideas presented in the Woodbridge report. Riverside produces plywood and lumber, as well as finger jointed studs, laminated lumber blanks, I-joists and railway ties, and performs custom cutting of lumber and plywood when required. Riverside employs 3,000 workers in mills and logging sites located in the Okanagan and Cariboo regions of BC.

The report prompted Riverside to review current practices and consider them against new ideas, says Embley-ideas that are essential to the industry's future. "The forest industry is not behind the times," notes Embley. "People come to see us regularly with new ideas. We are risk takers who aggressively market our products." For Embley, good ideas must also have a good bottom line-they weigh the market and profit possibilities against capital costs. "For us to move ahead, revenue must outweigh the risk." But he noted they are currently manufacturing a number of new wood products. Riverside sells the majority of its products to customers in the US, Japan, Canada and Europe.

It has also formed a number of alliances with secondary manufacturers. Over the past five years, lumber sales to this group have increased by 40 per cent, while plywood sales have risen by 30 per cent. Sales to value-added manufacturers have provided additional new revenue, especially important since panel sales to Japan have decreased. Embley, Hayashi and Taft are in firm agreement with Peter Woodbridge that taxes are currently too high and that changes are needed to expand or attract new business. Embley adds that any changes made must not be viewed as an incentive by Americans, which could add fire to charges by the Americans that the Canadian forest industry is subsidized. Hayashi envisions greater industry cooperation. "Our current approach to building is fragmented." Embley and Taft would like to see the government make an effort to streamline its policies.

Taft would like the BC government to approach various states and put in place a program that allows for easier inspection according to US codes. Currently, US inspectors must be flown in to do the inspections, a costly proposition. Early indications are that there is significant support for the report's findings but, as FRBC's Talbot notes, the challenge is to maintain the momentum and keep the report's proposed next steps in the forefront. It will be tough, he says, to keep the industry focused on this opportunity in the face of priority issues like the US challenge against softwood lumber exports, increasing competition from other jurisdictions, the need to evaluate new offshore opportunities and dealing with regulatory and policy questions.

As a first step, Forest Renewal will be distributing a brochure-style overview of the report that includes supportive quotes from leaders in industry and non-government organizations. The second step will be a value-added wood products study, sponsored by industry, to evaluate the competitive advantages and disadvantages for BC-and its regional competitors-in the factory-built home market. That report will be presented at the industry's next business planning meeting with Forest Renewal BC in September. But the bigger picture conclusion still seems to be that some degree of success could be achieved in a new and growing industry if government and industry, both primary and secondary, can work together.

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