Successful Business Model

Ontario logging contractor Bruce Kropf has found a successful business model, using the services of a group of contractors to carry out the logging with their own skidders, while his company handles the trucking with an even halfdozen Western Star trucks equipped with Serco self-loaders.

By Paul MacDonald

Deeres, Timberjacks and Rangers—it sounds like quite a variety of equipment. But that’s the range of skidders Bruce Kropf can have working for him at any point in time, with as many as eight crews contracted to B Kropf Forestry Services.

Kropf even has his own assortment of  older skidders that serve as back-ups for  the contractors: a Timberjack, a Deere  and a vintage Tree Farmer. “We’ll use  those if someone gets in a jam,” says  Kropf. They act somewhat as courtesy  skidders, in effect.  On an ongoing basis, Kropf relies  on his group of contactors with their  varied pieces of equipment to bring in  the timber. In turn, it’s his job to make  sure they’re kept busy, by making sure  they have timber to cut, and that he has  a sawmill ready to buy that timber. Their  base is around the Stratford area, in  Southwestern Ontario                                     

“From our start 18 years ago, the  idea was to have people with their own  equipment doing the harvesting,” Kropf  explains. “That way, I can focus on being  on the road looking at and buying timber  and selling the timber.” The equipment  operators run their own operations; and  as long as the wood gets to roadside,  Kropf is satisfied.                                 

Even though contracting-out is the  business model, Kropf knows first-hand  how things are done in the bush. He  ran chainsaws for close to 10 years in  this area of Ontario, then moved on to  timber buying before he set up his own  company in 1989. In an average year, he’s  moving anywhere from 10 to 12 million  board feet of hardwood in Southwestern  Ontario, primarily supplying the needs  of five mills with everything from cherry  to maple. “We supply pretty much  everything those operations are milling,”  he says. They also provide a few other  customers with specialized species, such  as butternut, walnut and red elm.                    

The business has grown considerably  over that time, and it has also evolved.  Initially, he started out with a single  logging crew, and even the trucking side  was contacted out.                          

“Things grew, we took on more crews,  and we had too many logs sitting on the  ground. I wanted the flexibility to be able  to deliver the logs to a customer today or  move our logs if a farmer needed access 

Bruce Kropf - “Being involved on the trucking side gives us more control,” says Kropf.

big hardwood areas.  “If we get a 25 acre piece in this part  of southern Ontario, that’s considered a  big bush,” says Kropf. A farmer might have  10 or 12 acres of a 100-acre farm in trees.  And, in good hardwood markets, that  can generate a tidy sum. “Some of those  cuts, if they are maple, could be worth  $30,000 to $40,000,” says Kropf.  Logging is highly regulated by the  counties, each with their own regulations  on exactly what diameter trees can be  harvested. That’s been good for the  industry, says Kropf. “It helps to keep  things going on a sustainable basis, and  means you can go back to the same bush  every 10 or 12 years, if you’re doing it  right.”

Dealing with the varying locations of  all these small woodlots and farm bushes  is second nature to Kropf’s contract crews.  “We usually try to get into an area where  we can line up several bushes within a  reasonable distance, and then just  move the equipment around from  there.

“We’re only moving skidders  on the equipment side, and the  guys who cut the trees down—we  don’t have equipment like feller  bunchers. They’re too big for the  size of operations we are working  in.”

The logging crews seem to  stay busy—there is always enough  wood to keep his six trucks  moving timber. Busy enough  that regular maintenance on  those trucks is usually carried  out on weekends and evenings  at the company’s shop, though some  maintenance is also done during the  limited down times.

Fuel costs are a big expense with six  trucks—and they are on the hook for  that. “Highway truckers may be able to  get a surcharge,” Kropf notes. “But on the forestry side, the mill says you are getting  this amount for the timber—period.  There’s no fuel surcharge there.”  He’s doing what he can to keep the  operation as efficient as possible. They try  to market their logs to the closest mill, and  drivers will operate out of areas closer to  where they live, cutting down on travel  time.  While the industry in this part of  Ontario has seen some boom years, the  last couple of years have been more of a  struggle. The returns on the logging side  are now marginal, Kropf says, especially  considering the money he has to invest in  advance to buy timber.  With issues such as high fuel costs and  the high value of the Canadian dollar, the  Canadian forest industry as a whole is  currently facing significant challenges. But  this area of southern Ontario has its own  specific set of challenges.

Kropf says they are seeing more  disease in the hardwoods, noting emerald  ash borer and ash dieback are of growing  concern. “There is a lot of ash being cut.  People are trying to cash in on the value  before the trees are dead or worthless, so  the market is flooded with ash right now.”  This, in turn, has affected oak markets  because of the similarity of the oak and  ash grains in a finished product. There’s  also the hickory bark beetle, which has  been spurred on by several years of dry  weather.

Like the industry in other parts of  Canada, the forest industry in Ontario has  also seen some fallout from an increasing  global economy. Globalization is often  viewed as a positive for the forest industry,  opening up markets for Canadian forest  products around the world. But just  as these markets have opened up for  Canadian products, the Canadian market  itself has also become more open,  including finished wood products.  As one industry expert pointed out  recently at a conference, those thousands  of steel cargo containers from China that  are offloaded every day at the ports of  Vancouver or Halifax don’t just contain  electronics or home goods destined for  the local Canadian Tire or Wal-Mart. They  also have finished wood products. And to  some degree, this is affecting Canadian  mills and Canadian loggers.

Landowners in Southwestern Ontario, such as farmers, are now far more aware of the value of the timber on their land, says Kropf. They’re also far more concerned about compacting on the fields, and area loggers have responded, making sure the work is carried out when ground conditions are right.

“It’s kind of mind boggling, but  Chinese companies can buy hardwood  logs here, take them back to China,   process that timber into flooring, and  send it back and sell it for less than we  can produce in Canada,” notes Kropf.  “It’s not rocket science—it’s all  about labour costs,” he adds. “Someone  in China might be getting $5 a week  compared to a wage of $20 an hour in  North America.” Finished wood products  are also coming in from Africa and South  America.  This market pressure is affecting  Canadian mills, including the mills Kropf  supplies. While the quality of the product  being imported from China may not be  as good as that produced in Ontario,  consumers can be very cost conscious.  They often don’t care where a product is  manufactured.  That said, Kropf does not have any  control over trade with China, nor do  any of his crews, and they focus on the  job at hand. Even though the business  climate has become tough, Kropf is  doing whatever he can to make sure his  operation is as efficient as possible.  He has responsibilities to supply his  customers, and to the contracted crews.  He has good customers that he wants to  retain—and contractors and employees  he wants to hang on to.  “We’re a specialized industry, and it’s  hard to find good people. If they leave  the forest industry, they might not come  back.”

Kropf sees things improving, especially  once adjustments sink in on the timber  supply side. Even though the hardwood  market has changed, farmers and other  land holders are still looking for top buck  for their hardwood timber. “Timber prices  still need to be adjusted,” says Kropf. “A  farmer may know that a guy down the  way got $25,000 for his bush last year, or  the year before. But his bush is only worth  $17,000 today—and he doesn’t like it  one bit.”

In general, landowners are far more  aware of the value of the timber on their  land. They realize that it, like the corn  they grow, is a commodity, and that they  can make money if it is managed properly.  And related to this, they are more  interested in how timber on that land is  harvested. They’re more concerned about  rutting in the bush, and compaction on  the fields, says Kropf.

The end result of this is loggers have to  manage their operations more efficiently.  “They’re planning it out more so they can  be there when the ground conditions are  right, working on the lighter soils in the  spring and fall, and the heavier ground  at other times of the year.” He adds that  their crews understand that they are to leave as light a footprint in the forest as  possible.                                

“We want them doing a good job  because that’s the right thing to do.” But  also, he adds, because they want to work  with these landowners again.                     

The weather has also become more of  a factor in their work. During the summer  months, instead of getting half an inch of  rain a couple times a week, they seem  to be getting two inches of rain—in one  go—every several weeks. “The contractors  have to plan around this, too, because  they might be off the land for two or three  days with a heavy rain. With the lighter  rains, we’d be back to work the next day.”                                 

The decline in timber prices has a  direct impact on buyers like Kropf. Unlike  other industries that can buy their raw  material a week or a month in advance,  timber buyers are sometimes buying as  much as a year out. In rising markets, that  can work in their favour. But in falling  markets, they might have to work through  some pretty high priced timber inventory.  “It can be a hard spot to be in,” says  Kropf.                                   

They are working harder to get the  most out of all of that timber, however.  They are paying more attention to niche  markets for some species. “We never  worried too much about that before—it  seemed like more aggravation than it was  worth. But if we can get an extra $1,000  for a couple of loads, it’s worth our  while.”    

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