Oversupply Hits Wholesalers

(Please turn to next page) dard commodity items, all adding to the sameness of the industry and concentrating production."

(oft demand hasn't helped, according to Tom Walker, 9Klupenger Lumber Co., Portland, Or. "The only reason we have any demand at all right now is due to very low interest rates. Thank God for that, otherwise we would really be in trouble," Walker said. "Other factors such as high unemployment, the Iraq war, SARS, severe winter and wet spring have been factors contributing to soft demand. Another factor that has been disruptive has been the consolidation that has been going on in our industry."

R. Lynn Forsberg, Fremont Forest Group, Whittier, Ca., identified several reasons for the oversupply of lumber in the U.S. and Canada. "Fewer export options to Asia and Europe has pushed more volume back into the domestic system," he said. "With fewer options, prices have dropped, so have margins. This in turn hurts the wholesalers, who work on skinny margins anyway. Lumber prices are at their all time lowest for this decade-similar to prices we had in 1980 through 1983."

Also, Forsberg added, "many of the mills that are still operating operate at a higher level of efficiency and have to run volume to cut their cost per unit to even stay inthus they cannot afford to shutdown even at lower prices."

In addition, he said, "lumber imports from Europe and the Baltic have also created 'world competition.' This is the first time the U.S. producers have had to deal with world market prices that have been as much as 337o less than past markets." ptotp..,t for a quick turnaround are dim. "Until there I is a concern with the supply of lumber, caused by major shutdowns, there will be no change in this market," said Craig Rohlfing, Cascade Empire Corp., Tigard, Or. "I don't see how demand (housing) can increase, but there is a possibility of a decrease, which will add to the problem."

Imports have been increasing from Asia, South America, New Zealand and Europe. "Oversupply goes hand in hand with a global influx of fiber, struggling country economies, and relatively strong U.S. starts," said Dan Pellizzari, Ontario West, Redding, Ca. "The focus to maintain a presence in niche markets has helped to insulate us to a degree, but not completely."

Some lay blame north of the border; others say the problem is homegrown. Mike Herrema, Disdero Lumber, Clackamas, Or., pointed to how the U.S. has "effectively legislated ourselves out of our own forests. When we started doing that some 15 to 20 years ago, it began a gradual progression of eliminating our participation in the world market. It not only affected the U.S., but also the Canadians. The Canadian producers needed a market in which to move its production, and the U.S. is the most likely place to do so. If we allow ourselves governmentally to get back in the managed forestry/lumber business, it would go a long way in helping boost our economy and offset our trade imbalances."

Christian Harrett, Saratoga Forest Products, Langley, Wa., has accused "one or two monsters-sized companies" of "dumping record volumes of material at record low prices and killing off the last of the smaller and medium size companies."

He explained: "The real problem is the loss of these businesses. Obviously if it were just too much material, that would not affect us. We would just buy and sell at cheaper prices, or the stock would sit a mills until the natural course of business made them slow down, when they had no more room for storage. If, as in the situation we see today, there is an excess of material being dumped into the market at ridiculous cheap prices, some manufacturers are going to go broke trying to compete. The problem isn't oversupply, it is the result of oversupply. Or in simpler terms, whatever hurts our customers and mills, also hurts us. It is in our best interest to have a healthy and competitive industry."

"Oversupply is a concern for wholesalers if mills go out of business," agreed Drew lrving, Oregon Trail Lumber, West Linn, Or. "Obviously less coverage makes a nilrower market. Not to mention the loss of relationships that take years to establish."

"Those of us who are stable and able to weather the storm will and have survived," said Rick Anfinson, Anfinson Lumber Sales. Fontana. Ca. "But it is this process that hurts. We all have to lower our profit margins in order to compete."

"In the short term." said Disdero's Herrema. "when the economy sags, desperate people do desperate things. If you need to move material, you are much more likely to lower prices to turn dollars, which is what we are definitely seeing right now. I would think there is still some attrition to take place before we pull out of this economic slump. A healthy economy cures a lot of ailments."

The problem, most wholesalers agree, is a real one. One apparently without an immediate solution.