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LTANUFACTURERS aren't the only ones discouraged I - I about too much supply depressing prices. Wholesale distributors consider oversupply their "biggest business concern," according to a recent North American Wholesale Lumber Association survey of members.

Most obviously, when profit margins and operating costs remain the same, lower prices mean lower profits. Three percent of, say, $300 per thousand bd. ft. is less than 3Vo of $400 per thousand bd. ft.

"With prices so depressed, wholesalers have to sell much more wood to keep up with past profit numbers," said Sam Bacogiannis, Falcon Lumber & Wholesale, San Leandro, Ca. "This causes much more competition among wholesalers, leading to cutthroat pricing strategies. We see a lot more wholesalers from other regions now trying to sell into our market."

significantly, resulting in 'tire kicking' in the extreme. Many so-called inquiries are simply price checking, with no impetus to actually place an order. Because of oversupply, many mills in the Northwest will actually compete with distribution yards, quoting as little as three- to fourunit quantities, thus filling the distribution yard's function."

"If you have a good business established and your pricing is undercut substantially by another broker or a mill, your integrity as a supplier immediately comes into question," said Jim Stanhope, Pacific Lumber Resources, Lake Oswego, Or. "As a wholesale lumber broker, I have three things that ale my lifeline: my customer list, my mill connections, and my integrity-not necessarily in that order. Increase in supply causes all ofthose to be volatile."

f n addition, when prices are depressed to bare minimums lwith no fluctuation, there's precious little room for wholesalers to "get in between."

"Wholesalers make their money on markets that are moving," agreed Kevin Pratt, Seneca Wholesale, Ogden, Ut. "Overproduced markets tend to move sideways or down, and it is hard to buy anything when there is very little to no upward movements."

In addition, he added, oversupply "can cause an adversarial relationship between wholesalers and the mills, as wholesalers fight for orders and are forced to short the market. Always going back to mills with counters to buy your profit is a tough business, but there are wholesalers doing just that. You don't think that the mills won't remember that when the market turns?"

As a result, mills are more willing to cut wholesalers out of the sales process. "Loyalty becomes less important to both customers and mills," said Chris Leece, Lewis Lumber, Hamilton, Mt. "The customer knows he can wait and get what he wants from anyone-whoever calls when he decides he needs some. The mill has to move product fast and cannot wait for your customer to (act); therefore they offer a product you have been moving for them to everyone. Because the mills are in dire straits, they are more inclined to deal with customers direct-leaving wholesalers out in the cold."

Added Dave Betz, Pacific Western Lumber, Lakewood, Wa.: "An oversupplied market slows the pace of trading

As one Oregon trader explained lumber wholesaling: "It's like the stock market. Nobody's making money unless it's moving."

"Oversupply creates a market that minimizes a wholesale company's role in marketing process," agreed Daniel Sweeney, Sweeney Lumber Co., Fresno, Ca. "No peaks or valleys to anticipate for customers' benefit."

Falling prices most seriously harm wholesalers locked into long-term conlracts.

Speculators also are at increased risk. "We often 'take positions' when we feel a grade or size of various species of pine or fir is undervalued," said Ed Langley, Neiman Reed Lumber Co., Van Nuys, Ca. "When that position is taken, we have elected to 'gamble' with our capital in the hopes that the market will tighten and perhaps bring prices to a higher level. When we misjudge the market, sometimes we have had to devalue our inventory to reflect replacement costs."

Early this year, seeing oil prices on the rise, Bridger Forest Products, Belgrade, Mt., bought heavier than normal volumes of felt paper. Cost of the tar-based product has risenby over60Vo sinceJanuary 1.

"Every wholesaler I know counts on positioning themselves with lower cost products with the hopes of improving their bottom line with the positioned products increasing in value," said Bridger's Mike Hull. "That is why we should all be called professional gamblers instead of wholesalers. Don't tell our bank that."

Y.r,oversupply also allows retailers to pressure their I suppliers to have more stock on hand. "Our customer base expects us to ship product within the next delivery to them or next truck, which is normally five working days. If we don't have it in stock, we lose the business," said Everett Gonzales, Huttig Building Products, Albuquerque, N.M. "When we overstock, this interrupts the flow. The other issue is dead and slow inventory and change of customer demand on styles and sizes. When this happens, our inventory becomes obsolete."

Dan Muldoon, Spokane Forest Products, Spokane, Wa., said, "Oversupply perpetuates customers'just-in-time' ordering habits, knowing he can virtually get whatever he wants as soon as he needs it. All he has to do is choose his supermarket."

Retailer Ganahl Lumber Co., Anaheim, Ca., also sees manufacturers pushing wholesalers to increase their inventory size. "Manufacturers continue to expand their lines and expect wholesalers/distributors to carry all their product line (large inventories with real costs), some of which turn very slowly," said Ganahl's Michael K. Seeds. "Costs go up, margins come down. If you are not willing to commit to a larger, often-slower turning inventory, you face being replaced as a distributor."

Often, the retailers' size of orders is also smaller. "When there is such a large supply of wood there just isn't enough feeling for end users to buy and inventory much wood," agreed Tye Winsor, Metolius Forest Products, Bend, Or. "We have been so used to having wood available to us with just a single phone call, that it is almost expected that it will always be there. There really isn't any need for planning out for loads much more than a few weeks out."

Widespread availability of product removes the emotional need to act quickly. "Customers have no sense of urgency to buy because in an oversupplied market they can get what they need when ever they need it and probably at lower prices," said John Stembridge, Burns Lumber Co., Medford, Or. "Competition for business is much tougher as well and margins are generally much lower as a consequence. It takes a lot of working capital to operate our business and an over supplied muket makes you question why we do what we do based on the returns on working capital. We're really not any different than the manufacturers; we all suffer in an over supplied market."

"Oversupply leads to no urgency, thus no price movement up/down," agreed Jeff Dill, Buckeye Pacific Corp., Portland, Or. "The fear factor is gone for the time being in that most yards are comfortable knowing their needs can be covered quickly without the need to load up."

Producers' desperation to unload product also results in too many wholesalers all selling the same thing, making it easier for dealers to shop on price.

N o* more than ever, a wholesaler has to be something l!special to survive. "The little guy who is selling commodities has to depend on close relationships to do business," said Rob Brown, Western Lumber Co.,

Medford, Or. "This variety of trader can also do okay in down and oversupplied markets by having close ties with the mills and a very strong and trusting relationship with his customers. This means getting a last look at the business. so he can take it back to the mills and make offers that will work for the mill."

Many wholesalers who say oversupply is not an issue deal in specialty products not commodities. The repercussions of oversupply "can be overcome by a change of focus in the product line by the wholesaler or retailer," said Sean Burch, Redwood Empire, Morgan Hill, Ca. "If you are dependent on commodity material then you are in trouble. Stay flexible and open to change and you will survive."

Jason Allen, Cascade Capital, Tacoma, Wa., said, "Our philosophy is to purchase and supply a higher grade of products and to avoid the glut of oversupply in the more traditional commodity lines. Therefore, we are providing 'value-added' goods and services to our customers."

"Opportunities exist for uncommon products which are not oversupplied and which are often overlooked in times like these," advised Larry Kromer, Wood Fiber Solutions, Molalla, Or. "Providing outstanding service to your customer and to your supplying mills gives the hard-working wholesaler a better opportunity to gain a few extra dollars in margin than most buys and sells in today's oversupplied market."

Western Lumber's Brown said niche traders may specialize in "specialty plywoods, treated lumber, edge-glued panels, hardwood lumber, export hardwood, import specialty products, the list goes on and on."

Unfortunately, said Roger O'Neal, O'Neal Forest Products, Wilsonville, Or., "niche areas that are developed soon become overwhelmed as information is quickly dispersed for value-added products. They soon become stan(Please tum to next page)