Page 1

Sharing the Risk of Innovation in Forestry ]


Summer 2016



on the BC Coastal Forest Industry Competition and Investment in the BC Coastal Forest Industry

PM # 40010419

Contractor Sustainability: Understanding the Numbers

Summer 2016 Truck LoggerBC 1


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2 Truck LoggerBC Summer 2016

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SUMMER 2016 Volume 39 Number 2 Photo: Kari Silbaugh Photography


Columns & Departments



50 Community Perspectives on the BC Coastal Forest Industry


President’s Message

Fresh Perspectives: Appreciating All Aspects of the Forest Industry Jacqui Beban

Executive Director’s Message

Offering Solutions for Relationship Building David Elstone

10 Interior Logging Association’s Message Equipment and Advocacy: Success at the ILA Conference & Trade Show Wayne Lintott

13 North West Loggers Association’s Message Looking Foward: Building Strength in Membership in the North West Ken Houlden

15 Market Report

Competition and Investment in the BC Coastal Forest Industry Harry Nelson and Ngaio Hotte

16 Safety Report

10 Year Perspective on Insurance Rates in the Forest Industry Tom Pawlowski

18 Legal Report

Penalties Provisions and Confidentiality Clauses in the Forest Industry Rob Miller and Erin Reimer

20 Business Matters Cracking the Rate Model Chris Duncan

TLA Editorial

Features 22 Big Machines and Big Hearts: Telling Forestry’s Story in Vernon Brenda Martin

26 Understanding the Mysterious “Industry Standard Rate” Jim Girvan

28 Working Guidelines To Use In Developing Relationships With First Nations Robin Brunet

33 Contractor Sustainability: Understanding the Numbers Aaron Sinclair

36 Sharing the Risk of Innovation in Forestry Robin Brunet

40 Understand Stumpage Obligations and Protect Yourself from Liability Jessica McLachlin

42 The Impacts of Falling AAC: Who’s Next? Jim Girvan

46 What Do Steep Slope Machines Mean For Human Fallers? Ian MacNeill

Cover photo: Strathcona Photography Coverofphoto: Strathcona Photography Photo Andrew Adams, Campbell River Mayor (left) and David Elstone, RPF, TLA Executive Director (right).

Summer 2016 Truck LoggerBC 3

A&A TRADING LTD. Forestry Management and Marketing

The Truck Loggers Association 2016 Executive & Directors

Interior Logging Association 2015-2016 Board of Directors

Chairman Reid Hedlund Jacqui Beban Mike Richardson First Vice Chairman Randy Spence Second Vice Chairman Len Gudeit Don Banasky Past Chairman Ed Smith David Elstone Directors Lee Callow Ted Beutler Guido Claudepierre Howie McKamey Dennis Cook Dave McNaught John Drayton Clint Parcher Randy Durante Mark Ponting Matt Edmondson Barry Simpson Frank Etchart Doug Sladey Scott Horovatin Matt Wealick Jeff Kineshanko Adam Wunderlich Hedley Larsen Associate Directors George Lambert Bill McDonald Tim Lloyd Tim Menning Brian Mulvihill Ron Volansky Carl Sweet General Manager Wayne Lintott Adam Pruss Administration Nancy Hesketh Editorial Board Don Banasky Jacqui Beban James Byrne Interior Logging Association Graham Lasure 3204 - 39th Avenue Wayne Lintott Vernon, BC V1T 3C8 Brian Mulvihill Tel: 250.503.2199 Fax: 250.503.2250 Bill Sauer

President Vice President Past President Executive Director Industrial Directors

Proven 30 year track record of maximizing timber values Experienced, qualiďŹ ed staff including 8 Registered Professional Foresters Development capital at attractive rates Strong customer base in domestic and export markets

Accurate market price forecasting Detailed planning and budgeting process to ensure performance Assisting First Nations develop successful forestry businesses for over 10 years

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E-mail: Website:

SUMMER 2016 / VOLUME 39 / NUMBER 2 Editor Brenda Martin Contributing Writers Jacqui Beban

Robin Brunet Chris Duncan David Elstone Jim Girvan Ngaio Hotte Ken Houlden Wayne Lintott

Jessica McLachlin Ian McNeill Rob Miller Harry Nelson Tom Pawlowski Erin Reimer Aaron Sinclair Matt Wealick

For editorial information, please contact the Truck Loggers Association: Tel: 604.684.4291 Email: For advertising, please contact Advertising In Print: Tel: 604.681.1811 Email:

Sustainable growth through healthy forests and healthy British Columbians. Truck Loggers Association members know that a healthy forest means jobs and economic growth. Pacific Blue Cross is a proud partner of the TLA in supporting workforce health and productivity.

Truck LoggerBC magazine is published four times a year by the Truck Loggers Association, with content and support from the Interior Logging Association and the North West Loggers Association. Its editorial content seeks to reflect issues facing the industry and to provide readers with current information on BC’s forest industry. All rights reserved.

Advertising Sales & Design Layout office:

Advertising In Print 200 - 896 Cambie Street, Vancouver, BC V6B 2P6 Tel: 604.681.1811. Fax: 604.681.0456 Publication Mailing Agreement No. 40010419. For subscriptions, contact or 604.684.4291. Send change of address notices and covers of undeliverable copies to:

4 Truck LoggerBC Summer 2016

The Truck Loggers Association Suite 725-815 West Hastings Street Vancouver, BC V6C 1B4 E-mail:

Tel: 604.684.4291 Fax: 604.684.7134 Website:

from the Editorial Board DESK...


elcome to the summer edition of Truck LoggerBC! First, I would like to introduce myself—I am Matt Wealick, an employee of Probyn Log and a member of the Ts’elxweyeqw Tribe. I’ve sat on the TLA Board of Directors for the past eight years. I was honoured this year to be asked to chair the TLA’s Communications Committee and the Editorial Board for Truck LoggerBC. I attended the ILA Convention in May with the rest of the TLA board and was impressed, once again, with the extensive heavy equipment exhibition. We also held a successful joint meeting between the TLA and ILA Board of Directors and Minister Thomson. To find out more about what happened at the ILA conference, read the article in this issue. Taking a hard look at contracts, our Legal Report addresses penalties provisions and confidentiality clauses often included in timber harvesting contracts that can negatively affect our membership. The first in a four-part Business Matters series breaks down rate models and provides our membership with an in-depth look at how a model is put together. Our Market Report rounds things out by answering the question, “What is hampering investment in the forest industry on BC’s coast?” Get an answer to the question, “What does steep slope mechanized falling mean for human fallers?” by reading Ian McNeill’s article. It was inspired by members voicing their opinions on this topic on the TLA’s Facebook page. What will the AAC reduction mean for our Interior loggers? Look for the article, “Cut Reduc-

tions and the Interior Contractor” to understand what the Interior’s future may look like. Finally, with the courts making substantial steps towards recognizing First Nations rights and affirming First Nations title to what was once Crown land, relationship building with First Nation’s communities becomes that much more important for our membership. The TLA, through its Aboriginal Affairs Committee and Aboriginal members, has produced a list of six principles in developing good working relationships with First Nation communities. Have a read and see what they are; we bet you are already moving in that direction. This fire season started early and fierce. What makes for good boating weather makes for a dry forest so be careful out there. The TLA would like to send out its condolences to the families and businesses in Fort McMurray. We hope they get the support they need to recover from the fire’s impact as quickly as possible. We know it will be a long road. As you can see, we have an interesting line up of articles to read in this issue of Truck LoggerBC. I only touched on a few here, there are many more. As always, we hope you enjoy our magazine and that you find it informative. If you have any feedback or comments, please contact Brenda Martin, Director of Communications, at 604.684.4291 ext. 2 or

Ts’ayweyi:lesteleq (Matt Wealick, MA, RPF) Probyn Log Ltd., Editorial Board Chair

Summer 2016 Truck LoggerBC 5


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6 Truck LoggerBC Summer 2016

Jacqui Beban

TLA President’s MESSAGE

Fresh Perspectives: Appreciating All Aspects of the Forest Industry


tarting from a boots on the ground perspective, after seeing the devastation fires caused in both Alberta and BC already this year, I encourage all logging contractors to gear up for a long dry summer. Make sure you are prepared. Clean out your machines on a regular basis, have the prescribed fire tools on hand and make sure all your employees are hydrated to avoid potential heat stress. With a potential of a wildfire season similar to last year, please—exercise caution this summer. On the safety front, I am disheartened to learn of the serious incidents that have already occurred this year. We have to ask our managers, our crew and ourselves on a regular basis: Why is this happening? Work in the forest industry has been pretty steady for the last few years. We must always be on the guard against complacency. Everyone is responsible for safety and our safety programs cannot be effective if all the players are not working together. This teamwork happens only if open discussions about incidents and close calls are not hampered because people are afraid of the repercussion of reporting. Work hard to keep your programs effective and make sure everyone goes home safe at night. Your business depends on your workers! On the business front, from talking with a number of TLA members over the last half year, it is my assessment that some licensees do not view their contractors as assets. There is a wealth of knowledge in the contractor community and in too many cases it is not being used to generate, well, wealth. As an industry, we need to get away from rates being front and center and tap into industry experience—asking ourselves how we can improve margins. Part of the problem seems to lie with some contractor managers’ incentives rewarding only cost performance and not margin performance. This needs to change if we want to improve working relationships between contractors and licensees.

Despite the fact that BC’s coastal logging community generates a significant portion of the economic wealth in most rural coastal communities, it appears that the public and even the people living in rural communities still view mill jobs as being more important than forestry jobs. The loggers, truckers, forest engineers, log scalers, equipment service companies, mechanics and tow boat operators—many of which are familyowned businesses—make up the communities we live in and their jobs support our local economies. We have to ask; are these jobs not just as valuable as mill jobs? Many times we hear, “Are these logs going to local mills?” and when they are not, somehow logging becomes bad. Our local mills are dependent on the success of the harvesting sector, but the communities depend on the logging sector which includes licensees, logging contractors and First Nations. Many years of planning and executing the various regulations and policies go into getting trees to the market. However, many people don’t want to see logging in their backyard, unless it goes to a mill in their community. Our communities don’t seem to be connecting the health of our local rural communities to the health of our forest industry as a whole with timber harvesting being a major part of that process—even if the timber isn’t being milled locally. We need to celebrate an industry with the best forest practices in the world without picking and choosing who can access the resource. The fact that forestry has been happening in BC for well over a century and tourism continues to grow should be celebrated and taken as an indicator that these two industries co-exist well already. The implications of recent resolutions by the BC Chamber of Commerce and the Association of Vancouver Island Coastal Communities around ending the logging of old-growth within the working

forest on Vancouver Island are serious and would devastate not only the logging sector, but the sawmill and pulp sectors on the coast and, by extension, the coastal economy as a whole. Either/ or is simply not the answer. We need to continue working to ensure we have a healthy working forest and a growing tourism sector that can co-exist. Looking within the industry, I would like to congratulate the ILA on another very successful conference and trade show. The TLA Board of Directors attended the event and both TLA and ILA boards had an opportunity to meet jointly with Minister Thomson. A strong message was sent to him that under current conditions the logging contractors in BC are simply not sustainable. This was evident when one contractor asked every contractor in the room to raise their hand if they felt their business was on a firm footing. Not one hand went up. We trust that action on addressing contractor sustainability and support from Minister Thomson is coming. Finally, I would like to send a huge thank you on behalf of the Board and all our members to Kathie Madden, the TLA’s Director of Events & Membership, for her time and commitment to the TLA over the last six years. She has been a valuable asset and she will be greatly missed. Happy retirement Kathie! Monica Sayers has joined the TLA and we look forward to working with her in the years to come. Welcome Monica! Jacqui Beban, President, TLA Tel: 250.951.1410 Email:

Summer 2016 Truck LoggerBC 7

David Elstone

TLA Executive Director’s MESSAGE

Offering Solutions for Relationship Building


question asked regularly during my meetings with major tenure holders and land managers is “Is it us or the other guys that contractors have issues with?” I find such questions interesting. I wonder, does it mean these executives are so disconnected from their own supply chain they don’t know? Or do their queries come from genuine concern? Here’s a good rule of thumb. An indicator of a poor relationship between contractors and their employers is contractors declining offers of work. An even blunter signal is contractors choosing to send their equipment to auction. These signals are not subtle and they mean something is wrong. For those willing to learn, please consider some insider’s advice, or what might be called the secret sauce to improved relationships with your harvesting contractors. To have a good relationship with your contractor, the agents for the tenure holder must recognize their contractors are independent business owners.

Contractor Independence

There are many ways contractor independence—or the lack thereof—manifests itself within the industry today. A prime example is found within the safety realm. Regulations that all business owners must follow exist and are enforced. However, contractors are often required to also follow another standard set by their employer—typically more restrictive than the regulation. While undoubtedly the laudable intention is to improve safety performance, how that intention is implemented is critical. Using a big stick to deliver a punitive response is not considered a good way to grow a safety culture. Yet my members report that some major licensees are currently using negative feedback as a tool. This concerns me because it shows no acknowledgement of or respect for an independent contractor’s ability to manage his/her own safety program and operations.

8 Truck LoggerBC Summer 2016

Solution: Discuss what a true safety cul-

Solution: Don’t let the incentives given

Industry Rates and Labour Markets

The Big Picture

ture looks like and collaborate with contractors on how to achieve this. I recommend contractors facing a punitive response discuss their situation with the BC Forest Safety Ombudsman, Roger Harris.

Rate negotiations are another area where the concept of independence is disregarded. And no, it’s not just that rates are too low. There are many facets to this one. For instance, during negotiations, contractors are often told their work should be priced at the “fair market rate” or the “industry rate.” This doesn’t acknowledge aspects such as productivity, reliability and stability of the service. The contractor interprets this statement as “forget about negotiations, the price is what the price is.” On page 26 of this issue, there is an article calling into question how the “industry rate” is derived and through that questioning, wonders if we have a functioning fair market? Finally, if contractors have their rate dictated to them, obviously there is no market. Contractors have also explained to me, that this approach shuts down communication and closes the door on the type of collaboration that leads to innovation.

Solution: Assemble your team of con-

tractors not based on rates, but by the value each contractor generates. Or alternatively, look at what the margin improvement is for your company, not based on squeezing costs, but based on the various service attributes your contractors brings to the table.

When Contractors Leave

When a contractor leaves because of a failed relationship, the pool of alternatives to fill the gap has shrunk and those left are more aware. I know this is a fair observation today because when a contractor does say “no, thanks” there is often effort to re-engage the contractor with a world of promises.

to contract managers’ overrule the long term success of your business. Conduct respectful negotiations, and if the goal posts change, acknowledge the change and cost implications.

When the major licensees externalized the harvesting function for the timber they hold the rights to cut, they should have stepped aside to allow contractors to do what they do best—go logging.

Solution: Integrate contractors into

your planning process. Or better yet, let contractors conduct their own planning and deliver the logs as required to the sawmill. Or even better, support tenure reform as means to the end. Solutions have always been available, but largely not applied. I have forewarned in previous reports that contractors’ businesses are not sustainable. In my assessment, the issue of contractor sustainability has grown worse evidenced by the Alberni situation and many stories of contractors walking away from their employers in the last six months. As such, we have asked the provincial government to help, as clearly intervention is required. A successful industry does not have one side operating at a loss while the other earns a profit. Maybe it is too idealistic to think that the problems I am advocating about can be resolved by the solutions I’ve provided. However, I know maintaining the status quo will only worsen the situation for contractors and thus harm BC’s forest industry as a whole. I’ll close by coming back to the original question, “So is it us or the other guys that contractors have issues with?” If you can’t look at the problems I have identified here and agree with the solutions, then you are the problem. David Elstone, RPF, Executive Director, TLA Tel: 604.684.4291 ext. 1 Email:

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Wayne Lintott

Interior Logging Association’s MESSAGE

Equipment and Advocacy: Success at the ILA Conference & Trade Show


irst and foremost, I want to thank everyone who made the ILA’s 58th Annual Conference and Trade Show such a success. Without your support, we could not have done it! This year, the conference theme was “Be the Change for Forest Safety” and we hosted BC Forest Safety Council’s 2nd Annual Interior Safety Conference on Saturday, May 7th. This allowed us to put safety front and centre at our conference and offer ILA members a welldeveloped program on a topic close to everyone’s heart. Our trade show was the biggest success we’ve had in recent years. We had 50 indoor booths and 115 outdoor exhibit areas. I know it takes time and money for these equipment dealers to bring the machines in and set them up. I appreciate the manufacturers making our event a priority and getting out there. These equipment shows are part of our history and I’m real pleased to see ours thriving again. As you can see from the photos on page 22, the Saturday of the trade show was a family affair with lots of kids coming out to see the forestry equipment. Photo: Kari Silbaugh Photography

10 Truck LoggerBC Summer 2016

The ILA board was pleased to host the Truck Loggers Association Board again this year. After the TLA board meeting, the ILA and TLA Directors sat down together to discuss the challenges both groups are facing. There were several overlapping areas of concern. However and not surprisingly, contractor sustainability ended up being the focus of the meeting. There was a full house at the Minister’s Luncheon this year and everyone was eager to hear what Minister Thomson had to say to industry. Minister Thomson started out by thanking the ILA and the TLA for working together. “These joint meetings are a great chance to listen and hear the key current concerns from across the province,” said Thomson. He acknowledged contractor sustainability is an issue across the province and that government needs to figure out how it can ensure contractor sustainability. “We’re committed to looking at all of this,” said Thomson. “We need to look at it in a comprehensive way with all the components of the industry involved.” For the contractors in the room who have been struggling

with sustainability since the economic downturn in 2008, this was reassuring! I think it is fair to say that contractor sustainability is worse today than a year ago when we last heard from the Minister on this topic. I also want to take this opportunity to thank Minister Thomson for his announcement that the provincial government would add $1 million to the Forestry Service Providers Compensation Fund which brings the government’s total contribution to the fund up to $7 million. For the first time ever, half of the $1 million will be put into a sub-account for silviculture contractors who are an important part of the forestry contractor base. While we still seek a permanent funding mechanism for the Fund, this action shows that the government appreciates the unique business risks logging contractors face. Looking forward, it’s shaping up to be another hot, dry summer and I want to remind everyone of the two most important fire tools: preparedness and reporting. They can make the difference between a small blaze that is quickly brought under control, and a wildfire emergency. Make sure you’re including fire preparedness in your tailgate meetings and daily planning. Finally, I’d like to thank everyone again for helping make our conference and trade show the success it was. Special thanks goes to Nancy Hesketh who works so hard each year to bring it all together and ensure the event runs smoothly.

Summer 2016 Truck LoggerBC 11

Put Woodland Equipment to Work! Ffifi 36 fifififififi fifififififififi Eqfififififififi fififi fifififi fifififififififififi fifififi fififififififi fififififififififififi fififi fififififi fifi fifififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififi fifififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififi fifififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififi fifififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififififi

12 Truck LoggerBC Summer 2016

Ken Houlden

North West Loggers Association’s MESSAGE

Looking Foward: Building Strength in Membership in the North West


his article begins with the news of big changes in the North West Loggers Association. Bill Sauer, General Manager of the NWLA for the past 25 years, has decided to pursue other opportunities in the southern Interior. Bill’s work over the years as General Manager has been of great benefit to the NWLA and its members. He provided excellent representation of our interests within the forest industry and was involved in numerous committees and government consultations. Bill was instrumental in fostering positive relations with both the Interior Loggers Association and the Truck Loggers Association. These relationships have unified and increased our presence and standing within government ministries and with key stakeholders. I am certain the entire membership joins me in wishing Bill great success in his current endeavor and any future endeavors he may pursue. I have agreed, at least on an interim basis, to try and fill Bill’s boots. I have a long history in both the forest industry and the NWLA. I have served as Director, Vice President, and President of the NWLA for decades and I have been a partner in a logging and hauling business. With the recent management change in the organization, I intend to shift focus somewhat. The first job will be to rejuvenate membership involvement in the NWLA. Strong membership involvement is crucial to providing input on the various challenges the forest industry faces today and the ones we’ll face in the future. Our membership includes a wide variety of industry players who work across the spectrum of the forest industry including reforestation, consulting, independent saw millers, log brokers, small licensees, trucking contractors, logging contractors, and road builders. All of these contractors

face similar challenges related to the forest industry and the NWLA is willing and able to represent those interests. Another project needing attention is the NWLA truck wash. The truck wash provides a good facility at reasonable rates. One way to increase usage is making the equipment owners in other local industries aware of it and its competitive pricing. It provides a simple, cost effective way to clean up equipment and relieves the burden of maintenance and waste removal from equipment owners. The NWLA truck wash is located on Novotny Street in Thornhill and the rate is $25 for NWLA members and $40 for non-members. If you’re interested in using the NWLA truck wash and want more information, please get in touch with Lisa Lapointe, 250.615.6866 or

it up to you.” The make-up seldom happens. The other tactic is, “That’s the offer, take it or leave it.” It’s clear what the results have been over the last few decades. There is very little new equipment in the area and in fact a lot of the good equipment has been sold off to other parts of the world. I want to be clear that the lack of contractor sustainability in BC affects both Bill 13 contractors and non-Bill 13 contractors. Government has met with the TLA, ILA and NWLA about contractor sustainability and is working to come up with solutions to address the issues. I look forward to working with them and hope we can even the playing field for contractors and, in doing so, protect the forest industry’s supply chain. I’m excited to step into the role of General Manager of the NWLA. While I’ve been involved in the organization for a

Strong membership involvement is crucial to providing solid input on the various challenges facing the forest industry. The feature article, “A Path to Mutual Successful Change: Contractor Sustainability & Industry Competitiveness” in the Spring 2016 issue of Truck LoggerBC magazine really hit home for me. The coast and southern Interior have a very different licensee makeup than northwestern BC because those areas are dominated by a few consolidated licence holders. In the northwest, the fibre basket is made up of several small licence holders and BC Timber Sales. Most of the volume harvested in BC’s northwest is sold through log brokers. Despite these differences, the issue remains the same. For at least 20 years, contractors have had to compete with each other in order to secure fibre. In turn, those that control the fibre use the hat-in-hand approach saying “Markets are poor, do it for this and when things improve we will make

long time, this is a new perspective and I’m looking forward to rolling up my sleeves and getting to work. If you have any questions for me, I can be reached at 250.635.0240 or

Summer 2016 Truck LoggerBC 13


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14 Truck LoggerBC Summer 2016

Harry Nelson and Ngaio Hotte


Competition and investment in the BC Coastal forest industry


nvestment in the BC forest sector has fallen sharply in recent years, most visibly in wood product manufacturing. The decline has raised concerns about the future of the industry, particularly on the BC coast where contractors are struggling to earn a competitive return and manufacturing capacity has shrunk significantly. What is hampering investment on BC’s coast? The forests remain standing on some of the most productive lands in the country, communities with a long history of forestry have not gone away and forest products are still in demand. But a successful forest industry requires more than just trees and demand for wood products: it needs competitive businesses. From an economic perspective, the marketplace is an obvious area to begin looking for answers to the investment question. Competition, a critical element of a functioning market, works like natural selection: weaker businesses are removed from the industry while the strong ones survive. To emerge as a stronger competitor, you have three options: become more efficient and lower costs, create a higher value product and boost prices, or develop specialized markets. In the absence of competition, businesses are unmotivated to invest in these types of innovation. More effort is spent defending market power and position and less invested in continuous improvement or seeking new opportunities. Pressures on the coast forest industry over the past decade have influenced competition in the harvesting and processing sectors in very different ways. In the wake of the US housing market

Statistics Canada. Table 029-0005 - Capital and repair expenditures, by sector and province, annual (dollars) (accessed: May 10, 2016). crash and global financial crisis, the harvesting sector has continued to experience intense competition while the processing sector was reshaped through consolidation. Both changes have important implications for investment and growth. In addition to the pressures of the global economy, increasing mechanization and a shift from old growth to second growth timber have reduced the number of jobs in the harvesting sector and increased capital requirements. In a new reality where fewer harvesting opportunities are available, the weakest businesses go bankrupt. Competitors will continue to battle it out for contracts until a new equilibrium is reached; those that underbid will win the battle but lose the war. Businesses that are able to reinvest in capital and hang on through the tough times will have a stronger position with greater negotiating power when the dust settles. While competition is working its painful magic in the harvesting sector, major players in the processing sector

have insulated themselves from similar pressures by becoming larger and more powerful. Current conditions enable the major players to maintain profitability through low-cost production instead of seeking opportunities to develop higher value products. From a business perspective, this strategy can prop up an existing business model in the short term and reduce the need to reinvest; over the long term, it spurs a race to the bottom that harms the industry as a whole. With a handful of processors holding the harvesting rights to a large proportion of the forest resource, other businesses are unable to access this potentially high-value fibre on the open market. Power is not readily ceded by those that hold it. One thing that well-functioning markets can do is rebalance power by creating more options: the more buyers and sellers of logs, lumber and residual fibre, the more opportunities exist for firms to develop innovative business arrangements, processes and products. Competition is critical (Continued to page 49)

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Summer 2016 Truck LoggerBC 15

Tom Pawlowski


10 Year Perspective on Insurance Rates in the Forest Industry


ver the last decade or so, we’ve seen an overall lowering of injury rates and recorded a reduction in the number of workplace deaths. As a result, we’ve also seen a corresponding decrease in claim costs in the sector. In the early 2000’s, claim costs topped out above $80,000,000 per year while the claims paid out in forestry last year amounted to $49,354,151. We have often heard safety advocates like Reynold Hert, the former CEO of the BC Forest Safety Council, champion the view that reducing injuries improves the overall operation and that it even leads to greater productivity and profitability. And you may have heard at WorkSafeBC rate consultation sessions that you need to reduce your injury rates and decrease the cost of claims through

16 Truck LoggerBC Summer 2016

measures such as better return to work outcomes in order to drive down your insurance premiums. That is still the magic formula. Industry insurance rates are driven by two factors—the number of claims and the cost of those claims. The more claims you have—both as an industry and as an individual employer—and the higher your claim costs are, due to severity of injury and related healthcare and rehabilitation services, the higher your insurance premiums will be. There is, however, a third intervening factor linked to the return on investments from the premiums that WorkSafeBC collects from you as an employer. Insurance premiums must cover the current and future needs of injured workers, some of whom may re-

quire healthcare and other services for many years. To cover the cost of those needs and maintain low and stable rates, WorkSafeBC invests a portion of the premiums collected from employers. Returns from those investments have been used to offset the difference between the average base premium rate charged to employers and the rising benefit cost rate. For example, money from the Capital Adequacy Reserve, a fund set up to reduce volatility in premium rates, was used to offset the insurance rates for forestry employers in 2015 and 2016. An industry base rate specific to a given classification unit is the number usually referenced when one talks about insurance premiums. That is because the rate is directly tied to the amount

Credit: WorkSafeBC

that’s charged to employers. However, it may not be the truest reflection of the sector’s current safety performance. This is because the base rate includes other components, such as amortization adjustments, which reflect rate group deficits incurred by the industry in previous years, along with other elements such as the effects of above mentioned investment returns. All this makes it difficult to gauge a given industry’s base rate against its safety accomplishments. Perhaps what gives a more accurate picture of the industry’s health and safety performance is the average benefit cost rate, which reflects the multi-year average of disability claims, survivor benefits, health care, and rehabilitation costs charged directly to the rate group. If we examine both the injury rates and the average benefit cost rate in forestry, as represented by Rate Group DR, we see a general downward trend in injury rates from 2005 to 2009, but then a moderate rising trend through 20141. In terms of the benefit cost rate, the downward trend continues through 2013, but then it rises onward. In dollar terms, we see that the average benefit cost rate for Rate Group DR went from a high of $4.85 per $100 of assessable payroll, to a low of $3.30 in 2013. It has since jumped to $3.59 in 2015 and $3.90 in 2016, reflecting a rise in claims costs. As far as trends go, any such upward movement should be seen as a prompt for further action to curb injuries and reduce associated claims costs. While industry wide cost rates are a valuable indicator of the sector’s performance, it is also important to remember that everyone isn’t on the same scale. Individual employers may pay higher or lower premiums than the average based on their respective discounts or surcharges, which are called experience rating adjustments and are related to the

individual firm’s claim costs. Employers can earn discounts of up to 50 percent on their base premium rate if they have lower claim costs than others in the industry, or they could face surcharges of up to 100 percent. This means that a firm with $1 million payroll and exhibiting average performance in an industry with a base rate of $9.75 (which corresponds to the 2016 rate for Integrated Forest Management Classification Unit) would pay $97,500. However, based on a favourable health and safety record over time, the same employer could pay as little as $48,750. By comparison, if this firm experiences claims that are higher than those of other employers in the industry, it could end up paying as much as $195,000, based on its record over time. It is certainly worth it for any employer to review the firm’s claims history to determine what could be done to reduce those claims costs and the resulting premiums. When we reflect back on the last decade or so, the year 2005 truly stands out as a watershed moment for British Columbia’s forest industry from a safety perspective. Injury rates had soared at the time and the general public was starting to express its outrage at the number of deaths and injuries in the woods. Industry, along with labour, government, and WorkSafeBC acted with the formation of the Forest Safety Task Force, the Safety Accord, and the creation of the

BC Forest Safety Council. It is reasonable to conclude that these various efforts have contributed to the subsequent downward trend in workplace injuries. However, while the statistics show an overall reduction in injury rates in the forest industry they also suggest significant room for further improvement. After all, the injury rate in forestry is still more than twice the provincial average (5.3 vs. 2.3). And the manual tree falling and bucking injury rate is 28.9. This is a marked drop from the 2005 injury rate of 35.9 for that classification unit. However, it still roughly translates to one in four workers being injured on the job. Note to reader: Injury rates for 2015 will be published when industry employment numbers become available later this summer.

Tom Pawlowski is the Manager of Primary Resources within the Industry & Labour Services Department of WorkSafeBC. He can be reached at 604.233.4062 or

Summer 2016 Truck LoggerBC 17

Rob Miller and Erin Reimer


Penalties Provisions and Confidentiality Clauses in the Forest Industry


hen it comes to contracts, TLA members often have a lot on their minds. We have been asked to answer two contract questions that have been posed by the TLA membership, one relating to financial penalties and one relating to confidentiality provisions.

There are financial penalties in my contract—are these enforceable?

TLA members have identified a trend of licensees adding financial penalties in contract terms relating to matters such as environmental performance or safety. The main question when looking at penalty provisions is whether or not they are enforceable. The primary remedy for breach of contract in Canadian law is damages. Damages compensate the injured party for the losses suffered as a result of the breach. “Liquidated damages” clauses are clauses providing for payment of a predetermined sum estimated to sufficiently compensate an injured party in the event of a breach in order to avoid the risk of litigation. “Penalty” clauses, on the other hand, are designed to deter parties from breaching a contract by penalizing poor performance. Unlike liquidated damages clauses, penalty clauses are not a genuine pre-estimate of damages that a party to a contract might suffer if the other side does not perform. The law in Canada is that liquidated damages clauses are generally enforceable, but penalty clauses are not. This means that if you are asking for a penalty clause or being asked to accept one, you should always ask whether the clause is truly a penalty (and unenforceable) or liquidated damages (and enforceable). Also remember that with all things to do with contracts, there is no magic in a name—just because you label something a liquidated damages clause, if it requires payment of an amount that exceeds the likely damages caused by breach, it could be unenforceable as a penalty as well. Ultimately, all that matters is whether the clause is intended to

18 Truck LoggerBC Summer 2016

function as a genuine pre-estimate of damages or an oppressive tactic compelling performance.

Are confidentiality clauses reasonable for businesses with a small customer base?

Despite being a major driver behind the British Columbia economy, the customer base for many of the TLA’s members is remarkably small. This is primarily a result of the fact that much of the annual cut is held by a handful of major licensees and private timberland companies. We have been asked whether confidentiality clauses are reasonable in such a small industry. It is important to understand that while most confidentiality obligations arise under a contract, a written contract is not required for confidentiality obligations to exist. Even if there are no obligations on paper, you could be liable for a “breach of confidence” if: i) you have been given information that has “the necessary quality of confidence about it” (legal speak for something that looks like it should be confidential); ii) the information has been imparted in circumstances importing an obligation of confidence (legal speak for someone giving it to you in a way that should make you assume it’s confidential); and iii) there must be an unauthorized use of that information to the detriment of the party communicating it (legal speak for sharing it when you shouldn’t and someone suffers damage as a result). There are two issues about confidentiality from a contractor’s perspective, whether or not the confidentiality requirements arise under a written contract. First, the negative: confidentiality provisions can prevent the sharing of information about contract terms so that it is difficult to understand what “market” is. These provisions also make it more difficult to understand where other service providers have struggled in terms of compliance—which is useful information if you are a believer in not learning

things the hard way. On the other hand, licensees automatically have much more information on contract terms and compliance issues simply because they deal with a number of service providers and can collect data from multiple contracts without breaching confidentiality requirements. All of this means that confidentiality provisions in service agreements can mean that contractors suffer in contract negotiations because of an imbalance of information. Second, the positive: confidentiality provisions can ensure that your business information is protected from your competitors. In a highly competitive market with a small customer base, any competitive advantage that one company has over its competitors can be the difference between profitability and failure—and companies that are succeeding often jealously guard their confidential information. Confidentiality provisions in your contracts are critical to ensuring that sensitive information about your business practices does not make its way into your competitor’s hands. The bottom line is that it is unlikely that confidentiality provisions are going anywhere. Licensees will continue to insist on these provisions because it helps protect their data from the prying eyes of their competitors, and because it gives them more “knowledge power” in negotiations. In addition, many successful contractors will see a need to protect information about their business practices and guard their competitive advantage. This means that everyone in the forest industry should be aware of the benefits of confidentiality provisions to their business, and ensure that wording of confidentiality clauses maximizes these benefits. Rob Miller is a co-founder of Miller Titerle + Company LLP and practises in the areas of Aboriginal and natural resource (including forestry) law. He can be reached at 604.681.4112 or Erin Reimer is an articling student at Miller Titerle + Company LLP.

Summer 2016 Truck LoggerBC 19

Chris Duncan

Business MATTERS

Cracking the Rate Model

Part One: Depreciation & Amortization: The Forgotten Piece


n this four-part series I will discuss the rate model, how it can be broken down into individual parts and how this knowledge can be applied to the way you negotiate your rates. As business advisors in the forestry industry, this is an area we focus on to help our clients be competitive and profitable. I will discuss the parts of the model where I see clients succeed in calculating as well as the parts missed most often when clients attempt to put together a model on their own. Miss just one part of the model and your results can be disastrous. Top of the list for forgotten items in the rate model is depreciation and amortization. Many models I’ve seen are great cash-based models with many costs covered. However, they rarely have the wear and tear on the equipment factored in. Models built like this are

bound to fail in the long-term because what happens when the gear is tired and you have little or no profit available to reinvest in new gear?

Depreciation and Amortization What is it?

Depreciation and amortization are different words for the same thing—an assignment of an assets’ costs over its useful life to give a representation of the cost of the wear and tear on an asset each year. For example, if a business purchases an excavator with a cost of $500,000 and it is expected to be used for 10 years, the business might have depreciation expense of $50,000 in each of the ten years. (The amounts can vary depending on the method and assumptions used.)

What’s the Right Way to Calculate it?

There are a variety of ways to calculate depreciation, but they all start at the same place—the original cost of the equipment. This original cost may include all costs needed to get the equipment operational including purchase price, financing costs and shipping. The most common method used for rate models is the straight-line method. This method takes the original cost less any salvage value and spreads it over the useful life of the equipment. The useful life and salvage values are assumptions determined by your past experiences with similar equipment and the market trends for used equipment. The second method used is the declining balance method. This method takes the undepreciated cost base and

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multiplies it by a rate based on the life of an asset. Generally rates of 20-30 per cent are used for equipment (in line with Canada Revenue tax depreciation rates). The difference with this model is the amount depreciated gets smaller and smaller each year compared to the first method where it remains steady for the life of the asset.

How Does it Affect the Rate Model?

Depreciation can make or break a rate model. A model not properly showing depreciation can be deceptively profitable when in reality it is a loser. By including depreciation in the model you are giving the model a representation of the wear and tear on the equipment being used. This is not the actual maintenance and repair costs; these are reflected elsewhere on the model. This

is the devaluation of the equipment as it is used to log. Any good rate model should have this cost represented in one form or another; by omitting it you are only fooling yourself. People are quite often shocked at the large effect depreciation can have on a rate model when it is added to an existing model.

Questions to Consider When Building the Depreciation Part of the Puzzle

• What is the equipment purchase price? • Is it in Canadian dollars? If not, will exchange rate changes affect the purchase price? • Is shipping built into the purchase price or is it extra? • What is the useful life of the equipment under a regular maintenance

and operating schedule? • Will the equipment have any value at the end of its useful life? • Does the equipment have other uses or is it solely used for the purpose the model is being prepared for? These are a small sample of some of the questions you should consider when building depreciation into a rate model. Next time you’re working to determine the fair rate model for your equipment remember to factor in depreciation and amortization. A model including these is a far better model than one without. Don’t let anyone fool you into believing otherwise. Chris Duncan, CPA, CA is a Forestry Services Business Advisor for MNP LLP. He can be reached at 250.748.3761 or

Plans change. Make effective communication part of your operation. The planning decisions you make today can affect the health and safety of workers tomorrow. Find resources to help prevent accidents and injuries at Summer 2016 Truck LoggerBC 21

All photos: Kari Silbaugh Photography

Big Machines and Big Hearts: Telling Forestry’s Story in Vernon

By Brenda Martin


he ILA’s 58th Annual Conference and Trade Show was a runaway success! The conference theme, “Be the Change for Forest Safety” marked a change in the program. This year the ILA Conference and Trade Show hosted the 2nd Annual Interior Safety Conference which took place on Saturday, May 7th. Combined with the ILA conference events, the indoor trade show and the spectacular outdoor equipment show, it was an event not to be missed! On Thursday, before the event started, the ILA was pleased to host the Truck Loggers Association (TLA) Board. And later that day the ILA and TLA Directors sat down together to discuss the challenges both groups were facing. Not surprisingly, contractor sustainability

22 Truck LoggerBC Summer 2016

was at the core of the discussion. This is the second year in a row that the TLA has attended the ILA conference and the two associations continue to value their collaborative working relationship. The conference officially kicked off on Thursday evening with the Meet & Greet event which gave delegates a chance to catch up with people they hadn’t seen in a while and do some networking. Once again, the smorgasbord of appetizers and snacks was delicious! This was also the first opportunity to check out the impressive silent auction. Organized by Canadian Women in Timber, the auction had a wide selection of items including the ever-popular John Deere kids’ gator and an impressive barbeque. Friday morning brought the opening

of the indoor and outdoor tradeshow exhibits at Kal Tire Place. Records were broken this year with 50 indoor booths and 115 outdoor exhibit areas. Forestry was looking good in Vernon! “I’m particularly pleased with the response we had from our outdoor equipment exhibitors,” said Wayne Lintott, General Manager of the ILA. “I know it takes time and money for these guys to bring the equipment in and set it up. But these equipment shows are part of our history and it’s great to see ours thriving again.” The Minister’s Luncheon was well attended this year with delegates eager to hear what Minister Thomson had to say to industry. First, Minister Thomson welcomed Eric Foster, MLA for VernonMonashee and a great supporter of the

With 50 indoors booths and 115 outdoor exhibit areas, this is the biggest forest industry trade show Vernon has seen in a while! forest industry. Then he commended the ILA and the TLA for working together. “These joint meetings are a great chance to listen and hear the key current concerns from across the province,” said Thomson. He acknowledged that he heard a strong theme this year—concerns around contractor sustainability and the need for government to take a look at how government can ensure contractor sustainability. “We’re committed to looking at all of this,” said Thomson. “We need to look at it in a comprehensive way with all the components of the industry involved.” This was good news for contractors who have been struggling with sustainability since the economic downturn in 2008. Minister Thomson went on to highlight other issues the Ministry of Forests, Lands and Natural Resource Operations is addressing including the softwood lumber agreement, mountain pine beetle and the resulting decline in AAC, and a foreboding fire season that had already got an early start. He also highlighted two programs that he thinks contractors looking for work should consider. The first is the Rural Dividend Program which will make $75 million available—$25 million over three years—to protect and grow jobs and diversify communities with populations under 25,000. “I think there are opportunities here for logging contractors and I encourage contactors to contact their local governments to see if there are potential programs that could involve them.” The second is the Forest Enhancement Society of BC which is primarily focused around

forest fire mitigation, but will also focus on forest health and renewal. Minister Thomson believes the work generated will provide some opportunities for logging contractors. Minister Thomson was also pleased to announce that the provincial government would add $1 million to the Forestry Service Providers Compensation Fund which brings the government’s total contribution to the fund up to $7 million. New this year, half of the $1 million will be put into a sub-account for silviculture contractors. “We think this is a very important component because silviculture contractors provide an important service,” said Thomson. “This is recognition of the important role silviculture plays within the forest sector,” said John Betts, Executive Direc-

tor of the Western Silvicultural Contractors’ Association. “We remain optimistic about the forest sector in BC. Nevertheless, this will provide some business certainty for our members as they contribute to the future forests of BC.” David Elstone, TLA Executive Director, was also pleased to hear the announcement. “By his actions, we know Minister Thomson understands that timber harvesting and silviculture contractors are the economic backbone of BC’s rural communities and values the jobs they create,” said Elstone. “We look forward to the future where the Fund will have an ongoing replenishment mechanism. However, we sincerely thank Minister Thomson for his efforts.” Friday night the Western Night Dinner & Dance kicked off at 6:00 pm. The

Summer 2016 Truck LoggerBC 23

During his speech, Minister Thomson said he valued the opportunity to meet with both logging associations to hear their shared concerns and he committed to addressing contractor sustainability. food was delicious and there was heaps of it! Lee Dinwoodie & Band outdid themselves again and there were lots of people up on the dance floor all night long. The silent auction run by the Canadian Women in Timber also closed on Friday night raising $7,377 of which $3,697 was donated to the Canadian Women in Timber to support their forestry education program. Saturday dawned hot and sunny and the trade show ran all day attracting the public and engaging people in conversation about forestry. But while the public were learning about forestry, forest workers were learning about safety at the Interior Safety Conference, also held at Kal Tire Place. The BC Forest Safety Council has a full review of the Interior Safety Conference available on their website (https:// But we’ll include some of the highlights here. WorkSafeBC’s Mike Tasker gave an interesting and relevant presentation on how good supervisors are made, not born. It’s critical to remember there’s a special skill set that must be learned to be an effective supervisor and not everyone has the temperament to be a supervisor. Mike also reinforced the idea that supervisors can’t be effective sitting in an office. They must be on-the-ground giving feedback—both positive and negative—and controlling outputs with guidance and advice. Dave Fennell, of David Fennel Safety, gave an excellent talk in the afternoon about risk tolerance. He broke down ten factors that influence risk tolerance and gave a real-life example of how we can influence people and not even be

The ILA equipment show was a family affair and a chance to talk about forestry with the next generation. 24 Truck LoggerBC Summer 2016

aware. The human desire to fit in and be liked in group situations sometimes impedes our ability to assess risk and make safe choices. Finally, Adrian Sunduk, a log truck driver based in the Interior, told the story of how listening to the Anatomy of a Rollover presentation changed his stance on wearing a seatbelt which only months later saved his life! Overall, the ILA 58th Conference and Trade Show and the Interior Safety Conference were rousing successes. “I’d like to thank Nancy Hesketh for all her hard work in planning this event, the ILA board for their support and the BC Forest Safety Council for partnering with us this year,” said Lintott. “And I’d like to thank everyone who attended and helped make our 58th conference and trade show such a success!”



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Understanding the Mysterious “Industry Standard Rate” By Jim Girvan


t a recent meeting of contractors, the discussion eventually got around to rates and costs and the inability of most in the room to negotiate better rates at the hands of the major licensees they worked for. They wondered, “How did we get to this point?” Some complained that the Bill 13 “fair market rate test” was anything but fair given there was only one licensee in many of their areas of operations. And there was no point in pushing for arbitration because the costs to arbitrate were never worth the rewards. Arbitration under Bill 13 was simply not a way to improve rates. In law, “fair market value” is the underlying premise to the Bill 13 fair market rate test. Justice Cattanach1 articulates the concept as follows: “…That common understanding I take to mean the highest price an asset (or service) might reasonably be expected to bring if sold by the owner in the normal method applicable to the asset in question in the ordinary course of business in a market not exposed to any undue stresses and composed of willing buyers and sellers dealing at arm’s length and under no compulsion to buy or sell. I would add that the foregoing understanding as I have expressed it in a general way includes what I conceive to be the essential element which is an open and unrestricted market in which the price is hammered out between willing and informed buyers and sellers on the anvil of supply and demand. These definitions are equally applicable to “fair market value” and “market value” and it is doubtful if the word “fair” adds anything to the words “market value.”” [emphasis added] After much discussion of these key characteristics that define a fair market in law, everyone concluded that there is no fair market in the BC forest industry given the level of tenure consolidation, as well as the compulsory aspect of Bill 13 contracts. As a result, it came as no surprise that the fair market rate test was meaningless and had totally skewed

26 Truck LoggerBC Summer 2016

“the market” for contractor services in favor of the major licensees in BC. Other contractors then pointed out that despite efforts to discuss specific site conditions and equipment compliments required for proposed logging, the response was the usual, “We can only pay the industry standard rate.”

tractors to discuss and fix prices or rates is illegal under the Competition Act. Group discussions about safety reporting or conditions of work, for example, can be undertaken by either party without Competition Bureau scrutiny. However, any discussion that affects rates for services cannot be entertained. This

Feel like you are stuck in rate negotiations and can’t turn to anyone for help? Turn to the TLA. So, what is the industry standard rate asked one contractor? We all stopped to think, realizing that no one actually knew. Well, it must be the rate that reflects the average of all the contractors in the area? That led to the conclusion that a major license holder would be hesitant to pay a contractor more than the standard rate for fear of being non-competitive on the logs they were receiving and if it was higher than the average, that all contractors would then want that rate. But just how does one major licensee come up with the industry standard rate? Of course, it couldn’t be that the major licensees talk amongst themselves and then agree upon “standard rates” to be paid to contractors since everyone knows that this would be a form of price fixing which is illegal under the Competition Act. And further, the Competition Bureau—the independent law enforcement agency under the Act—has a maximum fine of up to $25 million and imprisonment for up to 14 years for price fixing offenses. The Competition Bureau guidelines describe price fixing as: agreements to fix prices at a predetermined level, to eliminate or reduce discounts, to increase prices, to reduce the rate or amount by which prices are lowered, to eliminate or reduce promotional allowances and to eliminate or reduce price concessions or other price-related advantages provided to customers. In fact, any collaborative effort on the part of the major tenure holders or con-

likely includes the potential for contractors to collective bargain rates with their tenure holder, despite the fact that collective bargaining by individual employees is legal. That said, your local logging association—advocating on behalf of its members generally—may not face the same scrutiny by the Competition Bureau since they are not party to either side of any specific contract negotiations. This is why support for the work the TLA does to promote the need for contractor sustainability; to address the Bill 13 rate dispute mechanism; to develop rate models that reflect the reality of contractor’s experience; to establish Blue Book type all-found rates for equipment use; and to collect data that shows on balance the financial position of the contractor community relative to the major licensees are all of benefit to contractor members. Feeling like you are stuck in your rate negotiations and can’t turn to anyone for help? Turn to the TLA. They may be your new best friend when you are at the negotiation table. And, next time you hear that your rate is above the industry standard rate ask: “Hey, how did you determine that rate?” 1 Wikipedia: in Henderson Estate, Bank of New York v. M.N.R., (1973) C.T.C. 636 at p. 644

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Working Guidelines To Use In Developing Relationships With First Nations

By Robin Brunet


n argument could be made that compared to many other industries, forestry has an advantage with regard to First Nations issues, thanks to a long history of working with Aboriginal communities. But as Aboriginal title becomes a reality, provincial and federal governments must recognize, relying on established goodwill is not enough to ensure that the forestry sector thrives in the decades to come. This is why the new Working Guidelines for Contractors To Use In Developing Relationships with First Nations, unveiled at the TLA Convention earlier this year, is regarded as a first step in fostering long-lasting partnerships between Aboriginal and non-Aboriginal groups.

28 Truck LoggerBC Summer 2016

Developed by the TLA’s Aboriginal Affairs Committee and presented by its chair, Matt Wealick, at the TLA Convention and to BC Timber Sales, the guidelines seem straightforward: 1. Define success for all parties. This may include but not be limited to revenue generation. 2. Manage expectations: set mile stones and update progress. 3. Recognize the difference between community and corporate governance. 4. Pro-actively engage: reach out, look for common interests, be flexible and transparent. 5. Respect culture and traditional uses. Incorporate First Nation

community land use plans and identified cultural values into planning. 6. Participate in community events and ceremonies where possible and appropriate. Wealick, who is First Nations Strategic Advisor for TLA member Probyn Log Ltd., speaks to the Working Guidelines’ development. “First Nations are more and more becoming involved in forestry, and even though many examples of productive relationships exist between them and non-Aboriginals, there are also many frustrations on both sides over how to communicate with each other.” Wealick points out, “On the one hand

it’s important to maintain business objectives; on the other hand though, First Nations concerns such as conservation must also be respected. There’s also the challenge of interpreting specific initiatives. For instance, what does reparation around streams consist of, specifically? Most initiatives have to be spelled out in detail.” Wealick was mindful of many other basic challenges in forging the document. “Decisions from First Nations groups can be slow because they have to flow through government-made Indian Act processes and this only adds to the frustrations and makes contractors confused about who they should be consulting. “None of these problems are easily fixed, and the Working Guidelines are merely a starting point for good relations. But one thing is certain: if the six principles aren’t embraced and maintained by both parties, then healthy relationships will not result, no matter what auxiliary steps are taken.”

Thanks to the pro-active mindset of many BC forest industry players, examples abound of how the six principles are already being honoured. In fact, many consultants were following the intent of the Guidelines long before the document was ever ratified. For example, John McLaughlin, General Manager of TLA member Heiltsuk Coastal Forest Products Ltd., first became involved with the Heiltsuk back in 2004. Another example is Meridian Forest Services Ltd., a management firm co-owned by Darren Hiller and a TLA member whose team specializes in engineering cruising, total chance planning, management planning, as well as community forest and forest license applications and development. One of Meridian’s many claims to fame is its long involvement with the Huu-ay-aht First Nation that harvests about 100,000 cubic metres yearly from settlement lands, woodlands and community forests. Hiller echoes the sentiments of his

pro-active colleagues when he says the first two principles of the Working Guidelines along with the fourth (defining success; managing expectations and setting milestones; and being flexible and transparent) “are basic business concepts that all responsible people should adhere to. We apply them to all clients.” Rectifying past wrongs—which in a sense was a driver of the Working Guidelines—is something that motivated Corby Lamb to form TLA member Capacity Forest Management Ltd. in 2003, after leaving a large forest products company where he had established relationships with eight First Nations. “I had seen too many instances of First Nations groups being burned by people telling them ‘trust us, we’ll take care of you,’” he recalls. With the intent of helping First Nations develop a meaningful industry voice, Capacity today works actively with 20 Aboriginal groups

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30 Truck LoggerBC Summer 2016

provincially. Capacity manages, harvests and markets about 800,000 cubic metres annually, through a number of different business arrangements. As is the case with Hiller and other people contacted for this story, abiding by the first two and fourth principles of the Working Guidelines is second nature to Lamb; but Capacity is also a good example of how the third, fifth, and sixth principles (recognizing the difference between community and corporate governance; incorporating cultural values into land use plans; and participating in community events) can be honoured with relative ease. Lamb says, “Essentially, boards are formed by First Nations to deal with forestry matters, and they get input from hereditary chiefs and other community members. So we wear several hats, and it’s a matter of ensuring you wear the right one when you communicate with the different parties—which is feasible providing you involve yourself wholeheartedly in the community. “This goes back to the basic value of establishing relationships and being transparent in all dealings. We thoroughly enjoy participating in all of the communities we serve, attending events whenever invited, getting involved in big house projects, and helping out individuals whenever required.” Lamb goes on to note that his jurisdiction of the Central Coast “Is fairly advanced with regard to First Nations land use planning, and we conduct archeological studies for every project we undertake in order to ensure that cultural values are upheld.” The process isn’t an impediment, taking as little as a few days or at most a few weeks. Similarly, geographical regions that have been identified as culturally significant and therefore verboten to business “are pretty confined, so it’s no problem avoiding them.” Not surprisingly given their mindset, Lamb and Hiller are constantly seeking common interest opportunities, which is a tenet of the fourth Working Guidelines principle. The latter says, “Employment training is huge for us: we have one First Nations member on staff and we’re trying to get others into training positions. This is obviously a benefit for Aboriginal people; but in an industry that badly needs an infusion of new blood, it’s also a huge benefit for us.”

With the camaraderie shared by Meridian and the Huu-ay-aht, flexibility (another tenet of the fourth Working Guidelines principle) comes easily. “We’re currently working together on a strategic plan that will ensure sustainability for the Huu-ay-aht for decades to come. It’s a matter of submitting proposals, getting feedback, adjusting certain elements, resubmitting, and so on,” says Hiller. “It’s a productive and fulfilling process because both parties are unified in reaching common goals.” Transparency, flexibility, managing expectations, respecting culture, and other Working Guidelines tenets are responsible for other mutual success stories, including that of the Goat Lake Group of companies, co-owned by Howie McKamey, a TLA member and the second biggest forestry employer in the Powell River area. The Tla’amin, which is a 50/50 part-

that the Tla’amin place a high premium on professionalism and good quality work, which also happen to be Goat Lake’s hallmarks. Having this mutual value did a lot to build trust.” As for John McLaughlin, he became involved with the Heiltsuk in 2004 after their tribal council had been given a Forest and Range Agreement. “We have high operating costs here in Bella Bella and, as a consultant, I was expected to help create efficiencies and expediency,” he says. Operations flourished and at the end of 2005 the Heiltsuk formed a business development corporation; they also launched the Heiltsuk Integrated Resource Management Department (HIRMD) to oversee stewardship and decision-making related to land, water and cultural resources within the Heiltsuk Territory, guided by Heiltsuk laws, customs, traditions, policies and practices.

One of the many reasons we enjoy friendly relations is that the Tla’amin place a high premium on professionalism and good quality work, which also happen to be our hallmarks. ner with Goat Lake, is an example of how Aboriginal/non-Aboriginal relations may play out on a grander scale in the foreseeable future. The Tla’amin recently signed a self-governance accord and now has 8,000 hectares of land that could conceivably be logged in the future. McKamey recalls how the partnership began. “They approached us about six years ago because they knew what they wanted from their forest tenure but their ventures weren’t working,” he recalls. “We started harvesting for them, about 10,000 cubic metres yearly. All went well due to constant communication between the two parties and more land was successfully negotiated. We then approached them to make our relationship more permanent. They were agreeable and we became partners, with them using their earnings to buy their own road builder, rock truck, loaders and a skidder.” Today, the partnership handles all the logging and road building, to the tune of about 80,000 cubic metres yearly. McKamey adds, “One of the many reasons we enjoy friendly relations is

McLaughlin points out, “Every licensee has a memorandum of understanding with the department. It’s a fairly smooth process, an improvement over the days when I would review our cutting plans with the tribal council.” While it’s too early to predict how Working Guidelines for Contractors To Use In Developing Relationships with First Nations will be received by TLA members and other groups, TLA Executive Director David Elstone believes the future success of the industry in BC depends on following its intent: “Thanks to court decisions, Aboriginal title has become much more real than it ever was, and First Nations are rightfully moving forward to protect their rights and address their concerns. “There’s a new landlord of our timber and we very much want our industry to flourish. In order to do so, new relationships have to be formed—so if as a business you don’t have the Working Guidelines on your radar, now is a great time to consider them.”

Summer 2016 Truck LoggerBC 31

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Contractor Sustainability: Understanding the Numbers By Aaron Sinclair


t the 73rd Convention and Trade Show in January, I was honoured to be invited to speak on the sustainability of logging contractors. One part of the presentation featured the graph below showing the profitability trend of logging contractors and publicly traded licensees operating in British Columbia.

We analyzed the financial statements collected and adjusted them to remove non-operating income and expenses and normalized tax planning measures. We also adjusted management compensation to a consistent amount to recognize differences in compensation that

wards a reasonable profit margin. At the same time, contractors have experienced a less aggressive softening in their profit margins. Four years is a short time period to establish a trend but four years for small private enterprises like logging contrac-








Source: PNL Consulting Inc.




Source: PNL Consulting Inc. Figure 1: Licensee and Contractor Profit Margin Trends (2011 - 2014)

How Our Analysis Works

Our company has been fortunate to work with some great logging contractors over the last few years who have trusted us with their confidential information, including their financial statements. They know how much confidentiality means to us and that we take their trust seriously. The contractors that shared their financial statements with us represent both Interior and coastal contractors. The Interior sample represents an annual harvest capacity of approximately 23 per cent of the Interior harvest. The coastal sample represents an annual harvest capacity of approximately 14 per cent of the coastal harvest.

could influence the performance. Then we calculated the median adjusted operating profit margin in each fiscal year and calculated the logarithmic trendline to smooth the variation from year-toyear. This is how we arrived at the Interior and coastal profitability trendlines in the graph above. The same process was followed using the available financial statements from publicly traded licensees to establish the profit margin trend of licensees.

What Our Analysis Found

The results of this analysis shows that from 2011 through 2014 licensees have moved fairly aggressively from a near breakeven profit margin to-

tors can be an eternity. During that time, a contractor is likely to have turned over at least half of their fixed assets while a licensee may have turned over less than 20 per cent. This disparity is reflective of the differences in capital intensiveness of contractors relative to licensees.

Understand EBITDA and Capital Intensiveness

Capital intensiveness is a reflection of the need for upfront investment in order to operate. The forestry industry is capital intensive and needs more cash flow to be sustainable than non-capital intensive industries. Contractors are capital intensive businesses with shorter asset lives and so they need more cash flow

Summer 2016 Truck LoggerBC 33

longer and risk potential lost efficiency through downtime with increased repairs and maintenance expenses or use equity to purchase that replacement buncher. This is a pernicious scenario that is not easy to identify on an annual basis and may not even be obvious on the first or second replacement cycle of equipment.

Impacts on the Forest Industry

Figure 2: Licensee & Contractor Actual and Minimum Sustainable EBITDA Margins than licensees that are capital intensive businesses with longer asset lives. The way to measure cash flow before capital is to use EBITDA—earnings before interest, income taxes, depreciation, and amortization. EBITDA is a measure of how much cash flow a business generates after paying its operating expenses but before paying for its capital assets, income taxes, or its ways of financing assets (i.e. debt and equity). EBITDA margin is calculated like profit margin, as a percentage of revenue. The higher the EBITDA margin, the more cash flow the business generates. For a business to break even on capital intensiveness, it needs to generate enough EBITDA over the life of its capital assets to replace them when they require replacing. If it does not, then they must use equity to bridge the shortfall between the EBITDA generated and the replacement cost of a new capital asset.

A Real Life EBITDA Example

Assume the full cost to purchase a new buncher is $600,000 and it has an efficient useful life of five years. That buncher would need to generate at least $120,000 ($600,000 / 5 years = $120,000)

34 Truck LoggerBC Summer 2016

in cash flow after operating expenses such as fuel, wages, insurance, repairs, etc., every year just to replace itself. If an efficient buncher generates $550,000 per year in revenue, it needs a 21.8% EBITDA margin ($120,000 / $550,000 = 21.8%) just to replace the machine. This margin does not consider any profit for the owner to justify investment in or risk associated with the business. Comparing Statistics Canada data with our data (see graph below), logging contractors’ average EBITDA margin is between 18.3 per cent and 19.2 per cent, respectively. In the buncher example, that means the average contractor is short 2.6 to 3.5 per cent in cash flow ($14,000 to $19,000) per year to replace that buncher in five years. It’s not much in the context of a contracting business on an annual basis and not something a contractor may even notice until it is time to replace that buncher. The scenario gets worse if inflation and exchange rates mean a replacement buncher costs $650,000 five years later. Now the contractor is short $120,000 to $145,000 to replace the machine (18 to 22 per cent of the purchase price). As the contractors’ shortfall increases, they may need to run the machine

Our data shows that BC’s logging contractors are stuck in this pernicious scenario and it’s getting worse. The industry knows it but is caught in an echo chamber that reinforces long gone stereotypes. Contractors dug deep after the financial crisis in 2008 to keep the industry afloat. However, unless major licensees are willing to invest some of their strengthening profits to improve contractor sustainability moving forward, the supply chain will reach a breaking point. Eventually, equipment must be replaced. Running older, worn out equipment or depleting equity to replace equipment is not sustainable. This path leads to more contractor exits and places major licensee operations and whole communities at unnecessary risk. Aaron Sinclair, MBA, is the Principal of PNL Consulting based out of Prince George. PNL Consulting helps businesses maximize profits by proactively planning and analyzing financial results on a continuous basis. Aaron can be reached at 250.961.3114 or

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Sharing the Risk of Innovation in Forestry

By Robin Brunet


ediation, common goal sharing and many other strategies have historically been used to unite disparate parties, whether they be warring married couples or business rivals. But in embracing what the TLA has defined as ‘sharing the risk of innovation,’ several coastal players have determined a strategy that not only enhances operational efficiency but has the potential to help ease the tensions between the most disparate parties of them all: contractors and licensees.

36 Truck LoggerBC Summer 2016

The strategy consists of deploying innovative technology under shared risk arrangements, and as unlikely as it may seem that new equipment could foster improved relations, some contractors as well as licensees are convinced it’s an avenue worth exploring. Mark Leitao, Director of Operations at Island Timberlands, is a strong believer in sharing the risk of innovation. “The term describes what has defined the evolution of the logging industry overall, with technology playing a key role,” he

says. “Take any system that is standard today, whether it’s grapple yarding or feller bunching: initially, these innovative systems were untried and therefore risky, and only after they were incorporated into a few logging operations and performed to expectations did their use become more commonplace.” One new system is what is commonly referred to as a ‘prodar’: a cross between a processor and loader made possible by the Southstar QS605 Grapple Processor head, an innovation that allows a single

Photo: iStock

machine to do the job normally done by two machines. “This particular head, which is designed for medium to large sized wood, came on the market late last year, and we’ve used a prototype with our company crew,” says Leitao. He adds, “Like all multi-purpose tools, we worried it wouldn’t do any single job well. But as it turned out, there was little loss in processing or loading, and as a result many of our contractors also purchased the new technology.” Tethered falling equipment is another

innovation Island Timberlands is focusing on, having been developed in New Zealand as a response to the dangers of steep-slope logging. Now commonplace in that country, these machines in BC coastal applications “have the potential to significantly reduce hand falling duties, which is the single most dangerous job in our industry and incurs the most serious incidents,” says Leitao. Even though the cost of the machines is expensive ($1.2 million for a purposebuilt unit, although operators with feller

bunchers can purchase the anchor and winch portions for $500,000), two Island Timberlands contractors and TLA members—Lyle Newton, owner of Island Pacific, and Craig Frederickson, director of Sicker Lumber Co.—have invested in the units. “Both have been using their machines on Island Timberlands land and on TimberWest and Hancock lands,” says Leitao. “Both are learning how to best utilize them on coastal terrain and how to use the tethered buncher to set up the block

Summer 2016 Truck LoggerBC 37

for grapple yarding. We’re assisting by learning how to engineer blocks.” Leitao adds, “Working collaboratively, we expect to improve safety by taking more hand fallers off the hill, minimize environmental impacts, and reduce the overall cost of harvesting on steep ground.” Leitao is excited about the future potential of risk sharing. “With contractors using the equipment and licensees designing the harvesting blocks to suit the technology, along with the sharing of information, we develop a true collaborative process,” he says. “It doesn’t solve all the problems between contractors and licensees, but the closer the two parties can get, the better.” David Elstone, Executive Director of the TLA, notes, “It’s interesting that the early adopters of the new innovations in this province appear to be coming from either private timberland owners or privately owned companies. It’ll be interesting to chart the evolution of sharing the risk of innovation as time goes on.” Brian Baarda, Chief Operating Officer

of TimberWest, agrees, adding that another bonus of sharing the risk of new technology is the potential to attract much-needed new blood to the industry. “For example, we worked closely with T-Mar Industries [a TLA member] to develop a new camera-based system for grapple yarders that attach to the block. It doesn’t eliminate the job of spotting, but it may eliminate the need for spotters to be in the bite.”

I expect risk sharing will become standard practice in our sector. We see the best, brightest, and biggest game changers of our times using this shared approach. Baarda goes on to note that, “This new camera will have a tremendous impact on reducing safety risks, and it will also increase job performance. A focus on safety is nothing new to us, but by using technology such as our camera, or tethered falling equipment, or the prodars, we send a clear signal that we care

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about our contractors in the field. Safety resonates with contractors, and it’s also attractive for anyone planning on entering the industry.” TimberWest offers a range of solutions for some of the new tethered falling equipment, along with risk sharing arrangements among contractors prepared to invest in innovation that include longer-term visibility and increased cut levels. “Our support allows contractors

to trial some of the new equipment and get the opportunity to benefit from the technology, all the while sharing the risk associated with making that change,” says Baarda. As for the grapple cameras, the company has ordered several more units “to support the commercialization of this

innovative product,” according to Baarda. The cameras were trialed and are now used by TLA member, Fall River Logging Ltd. Fall River’s president Adam Wunderlich says, “Sharing the risk of innovation worked out very well for us. TimberWest footed the capital costs, and we spent about six months making the system work in the field—in this case, in the Comox Lake region. Today, our grapple yarder operator says he doubts he could work without the camera, plus it allows us to work in lower light and fog.” When asked to contemplate the future viability of sharing the risk of innovation in an industry that is faced with numerous key challenges, Baarda unhesitatingly replies, “I expect risk sharing will become standard practice in our sector. We see the best, brightest, and biggest game changers of our times using this shared approach. Our forest industry deserves to be at the cutting edge of innovation, and the only way to get there is for us to work together in col-

laboration, to see change take effect on the ground. “For me personally, it’s gratifying to sponsor and promote change that will not only help ensure every person working with us goes home safely every night, but also to see TimberWest and its contractors becoming more competitive relative to our competitors in New Zealand and other countries.” To which Wunderlich adds, “I absolutely believe that risk sharing will bring contractors and licensees closer together. What we’ve needed for some time now is a different dialogue, and technology is providing us with that.” For his part, Elstone hopes sharing the risk of innovation won’t be misinterpreted as the term becomes more commonly known in industry circles: “While some might think it refers to financial assistance for larger ticket items, that misses the structural problems that inhibit taking on the risk of innovating in this industry. Working block-by-block and being subject to the short-term decisions by customers is

not conducive for risk taking.” He is betting that, if properly applied, sharing the risk of innovation may change the belief of many TLA members that the logging contractor base and their own businesses over the next five years are not sustainable (expressed most recently in a poll taken at the TLA Convention). “I believe that improved contractor-licensee relationships, with new thinking on longer term contracts and greater independence in how to implement them, will certainly improve the industry and lead to greater innovation.”

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Summer 2016 Truck LoggerBC 39 Truck Logger Magazine Ad.indd 1

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Understand stumpage obligations and protect yourself from liability

By Jessica McLachlin


C’s forestry sector is an important contributor to the provincial economy, supporting 140 communities around the province and providing over 61,000 direct jobs. In 2015-16, forestry contributed about $812 million in direct revenue to the provincial budget, making it the largest contributor of natural resource revenue. The Ministry of Finance strives to treat operators fairly and consistently in fulfilling its mandate to manage forestry revenue, so that all British Columbians benefit from this shared natural resource. The Ministry’s goal is always to encourage voluntary compliance with the Forest Act, but there are tools that the Ministry may fall back on when voluntary compliance is not possible.

Section 130: Improving collection and debt recovery

Section 130 of the Forest Act provides a collection tool that may be used when attempts to come to an agreement on the repayment of debt have failed or when additional security is required. The legislation provides that the provincial government may obtain a certificate for recovery of a debt that carries the same force and effect as an order of the court. Once the certificate is registered, the province can pursue collection against an individual or company through a writ of seizure and sale. A certificate also allows for registration of liens in the Personal Property Registry and with the Land Title Office (Land Title and Sur-

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vey Authority BC). The certificate can be registered against the licence holder and any third parties that are deemed to be liable for stumpage under the Forest Act.

Section 131: Supporting recovery efforts

Under Section 131 of the Forest Act, third parties may be liable for unpaid stumpage on timber purchased from a seller. As buyers are ultimately benefitting from the timber, they are responsible for reporting transactions within 10 days and paying any unpaid stumpage. Fair and equitable collection practices mean that the Ministry first pursues the licence holder for unpaid stumpage. The licence holder is the party who entered into the agreement and is firstly liable for unpaid stumpage.

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In instances where a licensee fails to pay their debt, the Ministry may pursue third parties that acquired or dealt with the timber, in addition to the licensee. In this case, a third party would be given an opportunity to provide proof of payment. Otherwise, the same tools and legislation used to collect from licensees can be used against a third party.

eTaxBC: Minimizing risk

The government will streamline the collection of forestry revenues by granting Forest Revenue Accounts access to eTaxBC. eTaxBC is an online portal forestry clients will use to access and update their account information, correspond securely with government and make payments online. This system will also offer protection for forestry clients concerned about liaJB unpaid BenProg stumpage. Ad Nov2012-OUTLINED.pdf bility from Third par-


ties will be able to grant clients account access to pay on their behalf. The system will also allow clients or third parties to target specific invoices and amounts. This information will be recorded and the payment transaction will identify who has made the payment and how much was paid. If eTaxBC is chosen as a payment method, the ability to allow a third party to pay on your behalf will ensure the provincial government is paid directly. The process of paying directly is the only way a liability under section 131 can be discharged. Using eTaxBC also has the potential to minimize the need for payment holdbacks between the licence holder and the third party, protecting both the client and the third party. In order to use this service, you will need to enrol for access to your forest 12-11-08 account, 2:48 PM even if you already revenue

have an eTaxBC account for taxes you pay (e.g. PST, Logging Tax). As we approach implementation into our new system, information about enrolment for eTaxBC will be mailed out.

Information can protect you

Licensees and third parties should understand their obligations under the Forest Act with respect to the timber licence and their obligations under sections 130 and 131 of the Forest Act. Doing so can help minimize third party collection. All parties should know who they are conducting business with, ask questions and know both the licensee’s and the timber’s history. If necessary, agreements should be put in writing. For more information visit http://


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the imPactS of falling aac: who’S next?

By Jim Girvan


he editorial “After the Beetle: Is There Opportunity?” in the Fall 2015 issue of Truck LoggerBC speculated on the fate of contractors as the BC Interior AAC fell in the wake of the beetle and the demand for logging contractors that fell with it. At the time, we cautioned that contractors should make themselves aware of the changes coming to the BC Interior allowable harvest levels as we collectively moved into the

Graph: MDT Ltd. BC Fibre Model 2016 42 Truck LoggerBC Summer 2016

post-beetle world. While the future AAC and the current harvest level may not have been that far apart, we warned some regions would experience greater declines than others and some contractors may soon feel the pain. Fast forward to 2016 and the inevitable impacts of lost contract work due to a falling AAC are now becoming very real for many Interior contractors. In March of 2016, the Merritt AAC

was reduced by 900,000 m3 to 1.5 million annually, with a further drop of 300,000 m3 scheduled for March of 2021. In May of this year, the Kamloops TSA cut was reduced by 1.7 million m3 to a new level of 2.3 million annually. This represented a 42 per cent reduction. But despite its magnitude, a further reduction of 200,000 m3 is scheduled for May of 2021 bringing the mid-term AAC in Kamloops to 2.1 million m3.

Photo: iStock

Most recently, the Quesnel TSA Public Discussion Paper pointed to a forecast reduction of close to 60 per cent or 2.3 million m3. Since 2010, the Interior AAC has fallen approximately 10 million m3 as the shelf life of the dead pine trees expires and the economic opportunity to extract lumber from the dead forest passes. Looking forward to 2020, it is estimated that another six million cubic metre AAC reduction will occur and by the mid-term the AAC will be some 16 million m3 lower than today. And while it is clear that the entire AAC in the BC Interior is not currently being harvested to its full extent, as the AAC falls, regional job loss as a result of reduced harvesting and the real risk of more sawmill closures is now all too real. Since 2010, 11 sawmills or veneer plants have closed in the BC Interior and five other mills have reduced capacity through either permanent shift reductions, closure of small log lines, or reduction in capacity following rebuild. In aggregate, the equivalent capacity of 12 mills have closed as demand for sawlogs tracks dwindling supply. Looking forward, it is obvious that with as much as 16 million m3 of AAC reduction on the horizon, that more mills will suffer the same fate through either complete closure, significant shift reduction or reduced annual operating rates. If one looks at the operational capacity of all mills currently operating in the BC Interior and compares it to the forecast of sawlog supply in the mid-term AAC, a shortfall of 10 million m3 is seen. For the members of the Interior Logging Association, there is now real reason to be concerned. Wayne Lintott knows many contractors who are currently struggling under the constant pressure of low “industry standard” rates. These contractors now need to contend with the possibility of being the next contractor let go as a result of falling AAC. One second generation contractor, who insisted on anonymity for fear of reprisal from his current licensee employer, recently told me he had been in business for 30 years and is just about to go broke. He has worked on annual contracts for some time and could only afford to purchase used equipment at auction since the banks would not support any significant

lending given his short-term contract position. “We buy the trade-ins from the longer-term contractors who can get the financing, but we are expected to work for the same low rates as the bigger volume guys. Hell, today I have machines where I owe $60-$80,000 that are only worth $30,000 at auction.” The contractor can’t invest in new equipment because of chronically low rates which puts him in no position to relocate or diversify in the face of a reduced AAC. “We have been paying our bills with equity and now we are broke. We can’t afford to get out due to debt and have to take whatever they offer.

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We do not even know if we have work next year. And to make matters worse, when we try to negotiate better rates, we are simply told that they have other contractors that want to do the job, take it or leave it. Public tenure should not be abused like this. What kind of stability does that provide for communities?” Another contractor who also preferred to remain anonymous, was recently told his non-replaceable contract was being terminated after more than 20 years of contracting for the same company. “Every time we got a little bit ahead, we tried to expand and diversify but we could never make ends meet with the rates we were paid. Rates are set before logging starts and we have never had a rate changed when conditions warranted it. We have never really made any money and we have not paid tax since 2010 given we have had no profit. We tried many times to work this out with the company, but they never called back.” “In order to finance the business, we

had to secure a $200,000 line of credit with a mortgage against our house. Now, we have to sell the equipment or rent it to others. I hope that if we sell it all at reasonable prices we will break even. I have nothing left.”

is sad to see contractors, their workers and the communities they live in and support get turfed or go broke trying to work in this industry with absolutely no recourse at the hands of the major licensees who control their very existence

We have been talking about the issue of licensee consolidation and the detrimental effects that this has had on contractors and rural communities since we published “Logging Rate Negotiations: When David Meets Goliath” in the Fall 2014 issue of Truck LoggerBC. Since then, nothing has changed. These stories might become all too common over the next few years, notes Lintott. He believes the major licensees have known all along that the contractor workforce is too large for a post-mountain pine beetle harvest level. So if some contractors go broke under the weight of low rates—which coincidentally is helping the licensees reap growing profits—it is not a real issue for them. “It

as logging contractors,” laments Lintott. “Things have to change before more rural communities are hurt.” For his part, David Elstone sees the issues the contractors are facing in the BC Interior as just an unfortunate part of the larger contractor sustainability issue in BC. “We have been talking about the issue of licensee consolidation and the detrimental effects that this has had


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on contractors and rural communities since we published “Logging Rate Negotiations: When David Meets Goliath” in the Fall 2014 issue of Truck LoggerBC. (Read the article at “Since then, nothing has changed,” notes Elstone. “Disputes between contractors, workers and the major licensees continue on the coast and in the Interior while they continue to profit from the use of a public resource. Something has to change.” So what is a contractor to do? First. Assess your business and its potential to survive a significant, if not complete, loss of harvesting work. Do you have the equity to survive a complete dispersal of your business at auction? Can you modify your business model to do other work with comparable equipment? Can you move to a region where there may in fact be growing demand for loggers either through improved utilization of an undercut AAC or to places that have seen recent increases to the AAC such as Mackenzie and TFL 48 in the Peace Region?

Second. Look ahead at the harvesting work you have, the rates that are being offered and the profitability of that work relative to your equipment complement and need to repair or replace and ask yourself the question: “If I lose any work in the next few years as the AAC falls, do I have anything left for retirement?” If this question cannot be answered or the answer is no, then there is only really two options. Get out now while you still have equity or stop accepting rates that will only put you farther behind when the inevitable layoff comes. Third. Start looking for ways to diversify your business. A good example might be the new Forest Enhancement Society of BC, which is supported by $85 million in government funding. The new program will focus its efforts on wildfire risk reduction to complement the Ministry of Forest Lands and Natural Resource Operations existing forest stewardship programs and world-class wildfire suppression capabilities. With a focus on wildfire risk reduction, forest rehabilitation and wildlife habitat

restoration, the activities of the fund are certainly geared for the equipment and expertise most logging contractors have. With a significant biomass industry in the BC Interior, this initiative together with growing biomass fibre demand may be a good fit. Implementing programs developed under this initiative may be a good way to transition from logging to retirement in the BC Interior. And remember, the major licensees know that there are too many contractors out there. As a result, it is unlikely that improvements in rates will be forthcoming since from their perspective, a contractor who turns work down or leaves the industry will only help “thin out the herd” of contractors waiting to go broke. Don’t be next.

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Summer 2016 Truck LoggerBC 45

All Photo submitted by Graham Schaefer

What Do Steep Slope Machines Mean For Human Fallers?

By Ian MacNeill

There isn’t much about falling that Graham Schaefer doesn’t love. Read his story on page 48.


o the rapid advances in mechanized steep-slope harvesting technology spell the end of the hand faller in the history of forestry in British Columbia? No. Not by a long shot. The machines are coming, make no mistake about it. Although they have yet to demonstrate an ability to offer improvements in terms of productivity, it is in terms of promoting safety that they excel, says Rob Moonen Director, SAFE Companies of the BC Forest Safety Council. He reports that the injury rate for fallers in British Columbia in 2014 was a “staggering” 28.9 per cent— roughly three in 10. By contrast, the injury rate for mechanized falling was less than 2 per cent. However, despite the ability of the machines to tackle ever steeper slopes, they simply can’t do it all, and the trees they can’t get to are still going to be brought down by hand fallers. In fact, says Dave

46 Truck LoggerBC Summer 2016

Weimer, Chair of the Western Fallers Association, we may even be facing a shortage of fallers in the coming years because the average age of working fallers today is 59. Many of them will retire over the next few years and because an insufficient number of young people are currently engaged in faller training to replace them—fewer than 100 a year are coming into the business according to Weimer—those left are going to be in high demand.

Here and there, but not everywhere

The view that the machines can’t do it all and that there is now and always will be a place for hand fallers is widely held, up to and including at the academic level. According to Kevin Lyons, an associate professor in Forest Operations at UBC, and a man who worked in the woods and felled trees as a young man and has done extensive research at the academic

level on falling, today’s mechanized fallers are 30 to 40-ton machines whose operational abilities are restricted by both slope and tree size, including diameter and height. “So even with a grapple saw there’s a limitation on what you can do safely, especially when you consider the importance of retaining value in the tree and not just smashing it down,” he says. He says he views with skepticism the claims that machines are certified to operate on 100 per cent slopes. “Anything over 70 tends to get a little bit crazy.” Anchored machines can, of course, work more difficult terrain, “but then you’re only working below the road, and we have a lot of wood that’s above the road.” And finally, BC’s topography is more challenging in many ways than jurisdictions where the machines have had greater success, particularly Oregon. “We have U-shaped valleys with steep sides, whereas Oregon has more gentle ridges and deeply incised valleys, so it’s

Photo submitted: Graham Schaefer

not as simple saying a machine certified to 100 per cent can go anywhere.” None of this comes as revelation to Ted Beutler of Aggressive Timber Falling, a TLA member based in Nanaimo. A lifelong logger who started out cutting shake blocks at the age of 17 before turning to falling, Beutler now runs a company that employs as many as 40 fallers at any given time, and work is never hard to find. “As far as I’m concerned the impact of machine harvesting has already happened, and the equipment being developed to attack steep slopes will only be applicable in very specific situations,” he says. “These machines will never be able to harvest old growth. The wood is too big and heavy; the only way to do it is with hand fallers.” Heli-logging is another area where fallers will continue to be in high demand, he adds. Rather than fear the rise of the machines, he thinks now is the perfect time for young people to consider falling as a career. “Fallers are going to be in greater demand than ever,” he says. “Numbers are declining due to attrition, mostly as a result of aging, and anyone who comes in can have a bright future. The only reason they’re turning to these machines in the first place is because there aren’t enough fallers to go around anymore. It isn’t a matter of if there is going to be a shortage of fallers, there already is.” Jordan Nicolussi, president of Sibola Mountain Falling, a TLA member based in Prince George is another whose bullish on the future of hand falling. “We absolutely believe that there is going to be a place for us in the future,” he says confidently. “Machines won’t ever be able to do it all; I’ve yet to see one that could come into the kind of terrain we’re working in, and I’ve definitely never seen one that can go down a rock bluff.” He adds that flexibility and adaptability are keys to survival. “We’ll fell trees wherever they need to be felled. Our main business is logging, but we do it for mining companies, oil and gas, construction, hydro, anything,” he says, adding that his company is “perfectly situated” to deliver if the much-promised LNG projects move forward. He also says he gets at least a call a week, sometimes from overseas, from men wanting to break into the business. “As far as I’m concerned, the fallers out there now have nothing to worry about when it comes to getting work.”

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Summer 2016 Truck LoggerBC 47

What does concern him though, is that many already in the business are hearing about the new machines and getting increasingly concerned about their own futures, despite evidence that there will always be a place for hand fallers in the logging equation. “If the goal is safety then it’s not a good idea to be putting men who already have a stressful enough job in the position of having to worry about their future, especially when they don’t need to be.” Rumors that the days of hand falling are numbered can also have the effect of discouraging young people from considering it as a career, an unintended consequence that could lead to an even greater shortage of qualified fallers in the future. No one can see into the future or predict what kind of advances will be made when it comes to falling. However, it is safe to say that hand fallers are going to remain an integral and important component of the business, and that many are going to be working in what is likely to be the most difficult ground—the terrain even the most aggressive steepslope machines won’t tackle. Making

48 Truck LoggerBC Summer 2016

that environment as safe as possible is going to be of paramount concern. “As this new technology gets deployed we need to ensure that we are ahead of the curve and are able to supply industry with methods to reduce the risk of fallers being pushed into increasingly dangerous terrain,” says Rob Moonen. It’s also worth noting that in situations where hand fallers are replaced by machines, good jobs will open up in the cabs for operators. In fact, says UBC Kevin Lyons, the future may hold some combination of both man and machine, a not implausible notion in a world of rapidly advancing technologies. “It’s not inconceivable that technologies will emerge that will allow fallers to do their job more safely. The question, I suppose, is will we call them fallers or machine operators. It’s hard to say.” If fallers all became machine operators it would be a sad day for men like Ted Beutler. “There’s a lot of chatter in the industry—particularly from the mechanical manufacturers—about how we have to get fallers out of the bush because the work we do is dangerous. However, as fallers, we know our work

is dangerous and we knew it when we signed on, but we don’t want to be told by non-fallers we can’t do our job because of it. We fallers choose to be fallers and often times feel drawn to the career in the first place. “There have been great strides within the industry over the past number of years to improve overall hand faller safety,” said Beutler. “There are improved training standards, certifications for both fallers and managers, as well as a stringent professional auditing process. None of this was in place only a few years ago. The next generation of hand fallers will be better trained and better managed and they’ll have greater support from an improving safety culture within the industry. More than ever before, they’ll perform their daily work as safely as possible.”

Built for the Job: Graham Schaefer’s Story

There isn’t much about falling that Graham Schaefer doesn’t like. He loves the smell of sawdust as it swirls around him and the exquisite feeling of satisfaction he gets when he drops a tree exactly where

he wants it. He loves being a skilled practitioner of a historic BC trade, one that helped build the province. “I hate breaking wood though,” he says. “Some of it is more than 500 years old and I figure the least I can do is maximize its value as much as possible.” A small-town boy from Lumby, BC, Schaefer certified in 2009 and has been a production faller with Sibola Mountain Falling for the past two years. He brings to his job the professionalism of a surgeon. “Our day is full of situations you have to learn how to manage—snags, blowdown, shot rock, fog, rain and a million other things—and managing it gives me great satisfaction,” he says, adding that he finds he works with applied physics every day, including monumental forces and enormous weight.

“It’s kind of funny because I failed physics in high school.” A married man of 32, he says the hardest part is being away from his wife of seven years. “But she’s very supportive; I couldn’t imagine life without her.” He says he has no concerns about mechanical fallers putting him out of work. “I’d have to see it to believe it,” he says. “We deal with sensitive areas, large amounts of rainfall, grades of up to 70 per cent, rock and bluffs, all areas where I question a machine’s ability. At this point, I’m not too worried.” And that’s a good thing, because working as a production faller has been, quite simply, “one of the best experiences of my life, and I plan to keep on doing it until I’m too old to pull a saw.”


Market Report (Continued from page 15) to promoting not only cost reduction but also investment in innovation that yields higher value. If economists can agree on one thing, it is that the role of government is to ensure markets are functioning efficiently. To its credit, the BC Ministry of Forests, Lands and Natural Resource Operations has made some progress in this area by transferring forest tenures to communities and First Nations and creating space for innovation. However, efforts to date are insufficient to shift the balance of power from the hands of the few to the hands of many. A broader effort to redistribute harvesting rights through a fair, equitable buyback of forest tenures is one option to stimulate competition and create new opportunities for a larger number of small- and medium-sized businesses, including First Nations- and community-owned enterprises. Current distortions in the coast forest industry are hampering investment and much-needed growth. Until major restructuring of the forest tenure system takes place, there is little place for innovation to take root, and any efforts to stimulate investment in the industry will have limited effect.

Harry Nelson is an Assistant Professor within UBC’s Faculty of Forestry. His research interest is in analyzing natural and environmental resource policy with an emphasis on forestry and in developing new policy options that can help enhance the long run sustainability of Canadian forests and the communities and businesses that rely upon them. Harry has provided advice on forest policy and trade issues to the federal government, various provincial governments, industry associations, forest sector firms and First Nations among others. He can be reached at 604.827.3478 or Ngaio Hotte is a Resource Economist & Facilitator with Resource Economics Group and a doctoral student in the Faculty of Forestry at UBC. Her current research focuses on how trust is created between First Nations, federal and/or provincial governments in the context of collaborative natural resource management. Other major projects have focused on economic impact and value analysis in the forest, fishing and tourism industries and facilitation of multi-stakeholder dialogue. She can be reached at

CALL 1.800.810.8933


Summer 2016 Truck LoggerBC 49

Photo: iStock

Community Perspectives on the BC Coastal Forest Industry

TLA Editorial


ost of BC’s coastal communities feel the forest industry is in worse shape today than it was a decade ago. And community leaders are less optimistic about the future. They are concerned about job loss and the economic impact that it’s having on coastal towns and cities. Those and other key findings are from an innovative study the TLA recently undertook to explore our coastal leaders’ perspective on forestry and measure the pulse of our coastal communities. A follow up to our 2004 survey, which

50 Truck LoggerBC Summer 2016

was the first of its kind, to gather opinions related to the changing forest industry from leaders in the communities where TLA members live and work. The two surveys have enabled us to benchmark changes in attitude and expectation from over a decade ago in a report, Community Perspectives on the BC Coastal Forest Industry. When we conducted our 2004 survey, there was a strong sense of optimism about the future. The community leaders we reached out to at that time hoped changes in forest practices and

policy would help transform a flagging forest industry. However, our current survey found optimism has faded in our coastal communities. Eighty-eight per cent of community leaders surveyed were optimistic about the future of forestry in 2004 compared to only 56 per cent today. About a dozen years ago, the BC forest industry was about to undergo a massive restructuring, detailed in the province’s 2003 Forestry Revitalization Plan, which came about following the industry’s steady decline that began in the

1980s. The forest industry had reached a crisis point, blamed on a number of challenges—some of which are still in play today. These include the softwood lumber’s countervailing and anti-dumping duties, loss of market share in Japan, the continued decline of the allowable annual cut, increases in the cost of production, pressure from environmental groups, lack of capital investment and uncertainty created by unresolved land claims with First Nations. Many were optimistic the industry restructuring would bring solutions and opportunities for coastal communities. Since then, the world weathered one of the worst global financial crises in history, which the BC forest sector continues to recover from. And the industry has faced new challenges from the collapse of the US housing market to the mountain pine beetle epidemic and a landmark conservation agreement affecting land use in the Great Bear Rainforest. At the same time, the industry has benefited from market diversification over the last decade with the stellar rise of China as a dominant new market. But BC’s shrinking forest industry has seen a transformation resulting in tenure consolidations, mill closures, and timber harvesting contractors and forestry-related businesses closing their doors. Through this period of unprecedented change, the provincial economy diversified yet many small rural coastal communities remain heavily dependent on the forest industry and are vulnerable to its downturns. In 2004, the number one concern voiced by community leaders was job loss in their communities and today this remains a major concern. The leaders who responded to our survey are quick to acknowledge the importance of forestry to their local economies and some see a recent market recovery in the coastal forest industry bringing hope back to their communities. Communities such as Campbell River are seeing the beginning of a renewal of the coastal forest industry, aided by newfound certainty created by land use decisions that determine allowable annual cuts and provide clarity for planning and harvesting activities. As opportunity shifts in industries outside of the province, people who were once commuting long distance are returning home to work. Optimism is




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Summer 2016 Truck LoggerBC 51

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emerging here because there is an underlying sense that the forest industry “is on the right track.” “We are the centre of the coastal forest sector, so Campbell River certainly has been adversely impacted by the [decline of] the forest industry over the past decade—severely, with the loss of the TimberWest sawmill and the Catalyst pulp mill,” explained Andy Adams, Mayor of Campbell River. “We see that starting to come back and we’re certainly welcoming it.” Nevertheless, it’s clear policy changes from 2003 have not, for the most part, yielded as much of a positive impact on our coastal communities as expected. The TLA’s study found that 62 per cent of community leaders surveyed feel that the forest industry is in worse shape today than it was a decade ago. This finding is virtually unchanged from our last survey when 60 per cent of community leaders felt the forest industry was in worse shape. “We’ve seen contractors go out of business in Powell River,” said Mayor Dave Formosa. “First, you see job loss. These contractors are huge, great community supporters. When they’re gone

you don’t see that support for your hockey teams, your baseball teams, your cultural events, your political events, your drives that you’re doing to help community members. It leaves a big hole in the community.” The TLA agrees that tenure consolidation has impacted the coastal forest industry negatively. However, the gradual erosion of Bill 13 is another serious culprit that has caused many contractors to go out of business at the expense of the communities they support. The solution lies in leveling the playing field by updating Bill 13 so that forestry companies will have a secure, stable and safety trained contractor workforce to support their supply chain. With this, communities could feel confident that local timber harvesting contractors— who support the community and employ local people—will have security of work to sustain a stable economy. Furthermore, a review of forest tenure and its narrow control should be examined. One of the biggest concerns community leaders had when we talked to them over a decade ago was the lack of local manufacturing in their communities and, regrettably, this hasn’t changed.

Mayors continue to be frustrated by BC’s inability to compete with other regions and other countries in manufacturing and with the lack of local mills capable of efficiently utilizing the harvest while recognizing the true value of our fibre. As in the past, log exports remain a hot topic in British Columbia. The community leaders we surveyed show guarded support for log exports with 62 per cent supporting them today as compared to 60 per cent in 2004. Many see the logs leaving their communities as a missed opportunity. Even though only a small number of community leaders surveyed specifically oppose log exports, it remains a complicated and sensitive issue. Many mayors reluctantly recognize that log exports bring greater employment stability to the extremely cyclical, commodity-based forest products industry and contribute to community stability through these difficult cycles. For the majority of mayors the goal is to ensure an appropriate balance between domestic manufacturing and log exports. Campbell River identifies a significant difference between rural and urban communities in their understanding of

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the importance of the forest industry to our province. Mayor Adams pointed out, “The larger urban centres are indirectly benefiting from the resource around the province, but they don’t live it, feel it, breathe it, on an everyday basis like we do in Campbell River and other forest sector related communities.” On the other hand, not all urban communities are alike; as a port, The Corporation of Delta is quick to recognize the value of the forest industry on both a local and provincial level. Interestingly, there is even stronger support now for the working forest with 86 per cent of community leaders supporting the concept compared to 80 per cent in 2004. In a province rich in natural resources this support from community leaders acknowledges the important role forestry plays in our communities, but also recognizes that the multi-use of our forests “leads to a more diversified economy.” There is also strong support for First Nations involvement in the coastal forest sector, which has generated new opportunity in business and employment. Since our 2004 survey, the province has

redistributed approximately 10 per cent of the allowable annual cut to First Nations communities as a step towards economic integration and development in the forest industry. Mayor Hank Bood of Port Hardy remarked, “First Nations manage the resource and hire locally, which is a big plus.” Additionally, community leaders continue to recognize the need to improve the image of the forest industry in order to attract young people to fill the projected 4,700 job openings in the coastal industry between now and 2022. “Most young people believe there is no career in forestry,” commented Mayor Bill McKay of Nanaimo, “but those who have joined the industry are astonished at what a good life they can create for their families and themselves. That story needs to get out!” There is consensus that more needs to be done. People in coastal communities, both rural and urban, need to have a better understanding of the sustainability of the coastal forest industry, stewardship practices and the benefits it offers to all British Columbians. Our survey indicates community

leaders are frequently unsure of the province’s efforts to improve forest practices and policies and even when they are aware they often have difficulty being heard. With community prosperity and that of TLA member companies’ often going hand-in-hand, the TLA believes these voices should be heard and are committed to fostering dialogue on the critical issues that face communities and threaten the sustainability of the timber harvesting sector. By acting as a vital link between communities and the province and providing hands-on advice to government, industry and community leaders, the TLA is helping to create workable solutions that address the challenges facing today’s forest industry. To view the full report, visit our website at

Response from Minister Thomson: Community Perspectives on the BC Coastal Forest Industry


read with interest the results of the TLA’s survey, Community Perspectives on the BC Coastal Forest Industry. I want to thank the TLA for undertaking this important work and I also want to thank the 27 communities that participated in the survey and shared their views. Overall, the survey results provide valuable insights. However, it is disappointing to read that only 56% of community leaders are optimistic about the future of the forestry industry, compared to 88% in 2004. I think this finding reflects the challenges the industry has faced since then, including the US housing market crash, the global economic depression and, unfortunately, many mill closures. There is no doubt that the forest sector is smaller today than it was in 2004, but BC’s economy is more diversified today and experiencing growth in other sectors. We have seen a gradual recovery from the 2007-09 economic downturn and the forest sector has continued to grow each year. I was disappointed to read that confidence in BC’s forest stewardship has dropped, which indicates that we need to do a better job of sharing our strong environmental record with TLA members. Since 2004, as the survey noted, the number of protected areas has increased. The most significant changes on the coast are related to parks, conservancies and biodiversity, mining and tourism areas in

54 Truck LoggerBC Summer 2016

the Great Bear Rainforest. The landmark agreement now clearly differentiates between protected area and working forest in that region. Forest Practices Board audits and investigations consistently show compliance rates of over 95%. As well, 52 million hectares of BC’s landbase are certified to one of the three independent and internationally recognized standards for sustainable forest management. The ministry’s Forest and Range Evaluation Program monitors and conducts effectiveness evaluations of how forestry operators are meeting government’s objectives for each of the 11 different resource values identified under the Forest and Range Practices Act and regulations. I believe that BC’s coastal forest sector has a bright future. We’re currently working on a forest competitiveness agenda that highlights the importance of healthy, resilient forests and a diverse, globally competitive industry that supports communities and First Nations. I look forward to discussing all these important topics with you at the UBCM convention. BC produces great products that the world clamours to buy. A strong forest economy supports strong coastal communities, so we sustainably manage our forests to ensure that current and future generations can enjoy all the benefits they bring.




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56 Truck LoggerBC Summer 2016

Truck LoggerBC, Summer 2016 - Volume 39, Number 2  

The voice of British Columbia's forest industry - forest policy, new technology and challenges facing the industry.

Truck LoggerBC, Summer 2016 - Volume 39, Number 2  

The voice of British Columbia's forest industry - forest policy, new technology and challenges facing the industry.