The Effects of COVID-19 on Oregon's Lumber Industry - Restarting Logging as Timber Prices Boom

Toby Hazlewood

How well are industries managing to meet pent-up demand post COVID-19

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Person chopping wood with an axePhoto by Abby Savage on Unsplash

The COVID-19 pandemic had many surprising effects upon the behaviors and buying habits in citizens the world over. Subjected to stay-at-home orders and under government-mandated lockdowns, most sought to find ways to protect the health of their families while also looking for ways of passing the time and keeping body and soul together.

Many took to baking as a way to pass the time and feed their families, attempting to master the perfect sourdough loaf and manufacturing banana bread.

Others shopped online for exercise equipment to allow them to workout at home after gyms closed down - equipment became scarce and hard to obtain as a result of the demand.

Others still decided to begin home-improvement projects, dusting off their tool-belts and ordering materials to be delivered so they could revive old projects and kick-off new ones.

We did what we could to pass the time productively, to maintain our physical and mental health and likely also as a means of distracting ourselves from the terrifying virus that was wreaking havoc around the world.

Closure of entire industries

We all became used to businesses closing in lockdown. Bars, restaurants and hotels were obvious first casualties for halting their operation. But for other industries like the entire lumber production and processing industry so crucial to the Oregon economy, it was less clear as to exactly what the right course of action would be.

Coming off the back of years of reduced production that had been triggered by the 2008 financial crisis which had restricted demand as building projects halted, the response from many sawmills faced with labour shortages and uncertain future demand was to scale-back production. Correspondingly, timber dealers cut-back their orders and began to run-down inventory.

Faced with an uncertain future, it seemed the right thing to do.

As we've learned though, the demand for lumber ramped-up instead, as home-owners took the opportunity to kick off new projects. The construction industry was also one of the operations that found ways to open up again quickly - the benefits of a business that doesn't demand its employees working in close physical proximity and much of which happens in the outdoors with ample fresh air keeping virus particles at bay.

The effects on the price of lumber have been (and continue to be) staggering.

All-time highs

The price of exchange-traded timber futures - contracts locking in the price of lumber in the future are now up by about 50% in 2021 per 1000 feet board length. The preferred wood for home building - western-spruce-pine-fir - is up in price by 30% to over $1200, well above its 15 year average. In 2005 this was trading at an average price of $900.

The price is a direct reflection of the demand for the product - it's a classic demonstration of the economic law of supply and demand in full-effect. While the price is a good thing for those with product available to sell, the potential difficulties arise for those whose livelihoods rely upon being at the foot of the supply chain and on them being able to meet the demand.

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Person cutting wood with a circular sawPhoto by Greyson Joralemon on Unsplash

What does it mean for the Oregon Lumber Industry?

As a state, Oregon is the mainstay of the US lumber industry. 2019 figures show that the state earned $86.9 million from logging. The industry provided 61,000 jobs (across all aspects of forestry) and 47% of the entire state is considered forestland.

For the state, and cities like Portland (affectionately known by some as Stumptown) the logging business is fundamental and intrinsic to it. But what happens if the industry can't meet its part in fulfilling the enormous pent-up demand for lumber? Is there a risk of customers going elsewhere?

The effects of pent-up demand

The difficulty is that the demand for lumber seen in 2020 hasn't diminished. Home-building continues at pace across the nation. The move towards more home-working has prompted many to consider whether they really need or want to remain living in the nations cities with the inherent congestion, lower air-quality and higher taxes, or whether they can live and work in more rural areas or at least smaller cities. In 2020 for example, the number of people deciding to move to Austin, Texas was double that of the previous years.

Such mass-movement has pushed up house prices and increased the demand for new ones - cue the need for more lumber. The problem is that it takes time to grow, harvest and process wood and to restore the entire supply chain. Capacity cannot simply be ramped up since at the root of the chain is the need for more trees to have been planted many years ago, even if all other parts of the chain are ready to scale up.

Government intervention?

With the US lumber industry maxed-out, the National Association of House Builders has recently called upon the US Secretary of Commerce, Gina Raimondo, to seek alternate solutions to reduce the price of lumber which will otherwise be passed onto the end-consumer, potentially slowing the economic recovery after COVID.

One potential solution being considered is the reduce import tariffs on lumber from Canada - the biggest other source of US lumber is brought in from just over the border in British Columbia. There too the issues are compounded by an infestation of mountain pine beetles. As at August 2020 the plague had already destroyed 15 years of log supplies, enough to build 9 million single-family homes.

The solutions then don't seem so clear-cut. All that is clear is that stockpiles of lumber are rapidly being used up and capacity to respond to the new demand is currently limited - both within the US borders and, it would seem, from imported sources too.

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Container shipPhoto by Fabius Leibrock on Unsplash

The effects of pent-up demand across other industries

We are gradually learning more about the effects of completely stopping and then re-starting a global economy. The COVID-19 pandemic was a unique event and while nobody knows if it's a sign of things to come, we will be learning about what impacts it has had in life for many years into the future.

Supply chains are complex - it's not just about the products that we all take for granted as being readily available, but about how they move around the world too. The recent episode where the mega-cargo ship, the 'Ever Given' became stuck in the Suez Canal, blocking other ships from moving through it is yet another demonstration of how supply chains can be disrupted.

A lot of uncertainty exists for various industries in coming back from a standing start post-pandemic and dealing with pent-up demand. In the lumber industry it's about supply meeting demand, and the same concerns exist for other industries too.

  • Microchip shortages have occurred as manufacturers struggle to keep up with demand for their product and distribution efforts are hindered by the demand for global shipping of products. The availability of raw materials is a concern too. This has caused some downstream businesses to have to halt their production of products that use microchips.
  • As hospitality businesses open up cautiously, their supply chains are having to scale up to full capacity too. Breweries need time to prepare beer for example. Produce firms need to be able to source or grow foods. Some supplies can't be instantly restored on demand.
  • The types of jobs that are demanded in a post-COVID world could be different too - it takes time to recruit new staff and to train them before businesses can open.

It's rarely as simple as opening up and getting straight back to normal.

The longer term?

The long term outlook for the lumber industry seems positive. That the price people are willing to pay is high, demonstrates that demand is there. The main issue seems to be about how much the logging industry can scale to meet that demand and whether the prices can level out and a new normal can be achieved.

If prices remain high in the long term then the costs being passed onto the end consumer would potentially constrain long-term ability for demand to be sustained.

As for other industries, lessons will be learned in the process of businesses figuring out how to balance the pent-up demand while also meeting their usual level of custom. A cautious approach seems sensible and if this means a temporary increase in exports of lumber, or other short-term measures for other industries then perhaps that is simply what has to happen? Time will tell.

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