Caught In The MIDDLE
Rising fuel prices, and ongoing equipment and maintenance costs, have put logging contractors across the country in a classic cost squeeze situation.
By Paul MacDonald
Perhaps more so now than in recent years, logging contractors across Canada are finding themselves and their operations in a classic cost squeeze situation. On one side they face escalating costs, most notably for fuel, and on the other side they face the challenge of negotiating higher rates from the sawmills and forest companies, who are looking at low lumber prices. Most businesses in such situations would look at trimming operations, but logging contractors need a minimum number of operators and equipment to bring the wood in and deliver on their contracts. And while they may be able to delay some big ticket expenditures, such as the purchase of that new skidder or buncher, eventually an older piece of equipment starts to cost significant money in terms of downtime.
This strategy of delaying equipment purchases is strictly short term if your equipment is already in need of replacement or upgrading. Besides, that new piece of equipment can start to look very attractive when it is 20 per cent more fuel efficient, especially if your fuel bill has doubled in the last year. Most logging contractors, faced with the hills and valleys of the business, already operate on a pretty lean basis, so cutting back is not really a viable option.
And while operating conditions and particular details vary across Canada for contractors, the challenge of staying in business, employing your people and keeping your equipment up and running-and in the process trying to make a buck for your company-remains similar from Newfoundland through to Nanaimo.
The issue is hardly confined to the contracting sector of the industry, though. Having a healthy, and profitable, contractor sector should be of high interest to their bosses-the forest companies- to ensure the use of proper harvesting equipment and a consistent supply of wood from the bush.
Patricia von Ahn of the Canadian Woodlands Forum's Western Branch says that contractors in Alberta would like to see increased rates to account for the increase in fuel costs, but the forest companies are hardly in a position to grant that wish. The companies there are facing much higher energy costs of their own in operating their mills. Some mills have seen their power costs basically double. Financial results from the publicly- traded forest companies clearly show how badly they have been hurt by low lumber prices. There really is no easy answer for contractors dealing with higher fuel costs. "There's no magic bullet, everybody's facing the same situation" says von Ahn. "There's not much you can do about the cost of fuel."
Contractors are tightening up on costs with their operations, where possible, but there really isn't that much left to tighten, she says. In Quebec, fuel costs and fuel efficiency were certainly an area of interest at the Canadian Woodlands Forum maintenance workshops held this spring for contractors. The increase in fuel costs has definitely had an impact on logging contractors and truckers in Quebec and some companies in that province have been pro-active about assisting their contractors, reports CWF representative Karl Lamontagne. These companies, while they have not adjusted the terms of the central contract with contractors, have added on clauses to help cover the higher costs. "In spite of this, contractors in Quebec are having a hard time making a profit," says Lamontagne.
He agrees with his Western colleague Patricia von Ahn that there are no quick and easy solutions to the higher fuel bills facing contractors, but noted the CWF tries to help contractors operate as efficiently as possible through its workshops. The workshops help contractors work together, with an emphasis on sharing both common problems and solutions- especially if contractors are using the same equipment-rather than contractors having to "reinvent the wheel" each time they face an equipment problem. Lamontagne says contractors, by necessity, need to look for the most modern and fuel-efficient equipment on an ongoing basis, but that the equipment has to fit their operation. It's not just a matter of shopping around for the most fuel-efficient skidder, for example.
Lamontagne says that some logging equipment is decidedly better than other equipment, but much of the judgment of what is better is based on operating conditions. "There's no one perfect way to log," he says. "Contractors are working in the bush and the bush is not always the same. Sometimes you're clearcutting, sometimes it's partial cutting. There are many different types of forests in Quebec and Canada, and sometimes you have surprises when you get out there. Then there is the weather. "There are many factors at work out in the bush and, as a result, there is no best equipment for every situation. All these factors play into equipment decisions. There is no one easy way." Equipment fuel consumption should be a concern, along with general ongoing maintenance costs, and of course, the initial purchase price.
While fuel consumption may now be high on the priority list for logging contractors, Lamontagne says the CWF tries to address that-and other important issues such as effective equipment trouble-shooting and keeping downtime to a minimum-on an ongoing basis with its workshops. Initiating contractor workshops is high on the priority list for the CWF in British Columbia as the association ramps up its activities in that area of the country. The goal of these workshops, says CWF coordinator Robin Clark, will be to help contractors run their businesses more efficiently, covering important areas such as looking at making group or bulk fuel purchases in an effort to keep energy costs in line. The idea of holding these contractor workshops in BC has received broad industry support, he says.
Clark notes that logging contractors are busy running the day-to-day affairs of their operations and often don't have the time, or sometimes the background, to fully investigate money saving opportunities on their own. "It's not their focus," he says. "They're in the business to be good contractors, not to be good accountants." On the equipment side, the CWF will be holding PARTCUTS 2001 in Williams Lake later this year, on September 27 and 28, to showcase equipment used in partial cutting operations. The workshop will also deal with meeting higher level objectives, as well, such as biodiversity guidelines. Clark said the industry overall- including the forest companies and their mills-benefits from having a healthy and efficient contracting sector. "It's in everyone's interest to have the contractors running more effectively."
While there will be a focus on dealing with energy costs, any workshops in BC would also deal with other equipment issues, such as clarification of a contractor's responsibilities-and the dealer's responsibilities-in the case of major component breakdowns, and keeping maintenance records. A strong focus would be on keeping logging equipment up and running. "The equipment is very expensive these days and it represents a huge cost to the contractor when equipment is down," says Clark.
Other issues that workshops would deal with include the issue of size-what is the optimum size in terms of people and equipment for a contractor-and what is the best use of equipment, and should phases of the operation be contractor- owned or subbed out. The overall goal, at a time of rising costs including fuel costs, is to help contractors run their operations more efficiently. While some contractors are looking for higher rates to account for rising fuel costs, Clark notes that "a lot of the forest companies are saying they don't have a lot more money to pay".
Clark notes that the CWF does not get involved in discussions about logging rates, but puts its effort towards helping contractors to better manage their businesses. Contractors may be facing higher energy costs, but through the workshops they may at least determine the ways of containing or reducing costs. Wayne Lintott, general manager of the Interior Logging Association in Kamloops, BC says fuel costs are an important factor, especially when a contractor is looking at a piece of equipment that is slurping 24 litres of diesel an hour. He says some contractors have been able to negotiate an indexing formula with licensees to account for increased fuel costs, which is helping.
"But they don't get 100 per cent recovery of the increased costs. Everybody's caught in a squeeze. It's not like a licensee can pass increased costs on by increasing their lumber prices. "When lumber prices go down, it's the contractor who gets squeezed." The opportunity for recouping some of the increased energy costs may come when it's time to negotiate a new rate with the licensee. Lintott says that most contractors are already running newer equipment that is relatively fuel efficient, generally trading in trucks after four years and logging equipment after four or five years. "If they hold on to equipment after that, they could be looking at some big maintenance bills. Minimizing breakdowns is critical.
That machinery has to be producing." Helping contractors to keep their equipment up and operating is really what it's all about, says Peter Robichaud, co-ordinator of the Canadian Woodlands Forum Atlantic Branch, because such a large part of their operating costs lies in mechanical costs. While fuel efficiency does take on greater urgency in times of spiralling fuel prices, Robichaud says the CWF makes ongoing efforts to help contractors with operating and equipment costs. "We're always conscious of working with contractors to help them in terms of efficiencies and maintenance practices, and that includes fuel efficiency." Robichaud says it is difficult to generalize about how the forest companies in Atlantic Canada have handled the increased fuel costs, but some contractors, who work exclusively for one company, have received some help in addressing their increased costs.
"A lot of the companies were very concerned about the increased fuel costs." Open market loggers have not been as fortunate and have had to look at containing costs more aggressively. "Some of them have just had to eat the increased fuel costs," he says. Robichaud said CWF workshops in the Atlantic region have a strong focus on overall operations in the woods, and deal with issues such as equipment fuel costs. The challenge is in getting contractors, especially owner/operators, to take the time to attend a workshop.
In many ways, attending a workshop could be viewed as an investment of time on the part of the contractor in his business and how it can be more efficient. It can be hard to quantify exactly, says Robichaud, but it is an investment that definitely has a rate of return-the payback is there. "They'll walk away with a few gems that will save them money. It may not save them money the very next day, but it will down the road." Perhaps one of the best parts of the workshops is the networking that goes on between contractors. "Sometimes it might be a contractor running into a problem and being able to call another contractor, who has already faced this problem, to get some advice."
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