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Fighting the Asian Flu

Mill Creek Wood Products, a small sawmilling operation on northern Vancouver Island, has found diversification and flexibility to be the keys in surviving the "Asian Flu".

By Reg Barclay
Copyright 1998. Contact publisher for permission to use.

A visit to the Mill Creek Wood Products sawmill in Port McNeill, BC, takes you into the magnificent mountain wilderness of northern Vancouver Island. This densely forested region of 12,000 square Km north of Campbell River is characterized by its lakes and saltwater inlets. A small population is scattered over five small villages and towns.

Historically, this region has been reliant on logging and fishing for its livelihood. Now with an excellent high- way north from Campbell River, its natural wilderness is bringing in tourists for sport fishing and attractions such as killer whale-watching near Port McNeill.

Logging operations by major forest companies make up the predominant forestry activity in the region. Beyond logging though, the handful of small sawmills in this area are reflecting a trend towards diversification and the search for new value-added markets.

Mill Creek Wood Products is one of these small mills - a specialty log-cutting mill, producing high-quality clear cuttings from old-growth logs harvested in nearby forests. Quality ranges from large logs of premium grade that are custom-cut to demanding specifications to salvage-grade material of slabs and hollow core logs, where clear recovery is the objective.

Hollow Core Logs

The quality of wood produced at Mill Creek ranges from large logs of premium grade to salvage-grade material of slabs and hollow core logs.

Mill Creek is not a production-oriented mill, but a mill that carefully breaks down logs with accurate sawing, yielding best quality in terms of colour and straight grain. Annual production is 12,000 to 15,000 cubic metres or five to six million board feet-with a crew of 12.

Cuttings range in size from timbers and cants to 1" and 2" clear lumber. Sales are made to agents who specialize in supplying the remanufacturing niche markets in domestic and international markets.

Just recently, for example, three premium logs valued at $15,000 were sourced to fill an order for veneer-slicing flitches. "You don't want to make mistakes cutting logs of that quality and value," says Greg Morris, a Mill Creek partner and manager.

In this case, the buying agent actually drew on the log ends to guide the sawyer in cutting what he wanted. The flitches were cut to produce vertical-grain veneer, a premium product. The value of these cuttings ranged from $2,500 to $6,000 per thousand board feet. As an added protection, the ends, top and bottom of each package were coated with wax before wrapping.

With these high values, it might be concluded that a small specialty mill is the road to riches. But the small mill suffers the same market storms as larger companies do, and it doesn't have the buffer of capitalization to tolerate longer periods of down markets. Also, the small mill must compete for log supply and market orders with the large companies, which can be competitive at times. Generally speaking, however, Greg Morris notes that he enjoys an excellent working relationship with the large forest companies logging in the area, particularly MacMillan Bloedel and Canfor.

Mill Creek is owned by a father and son, Derek and Greg Morris, with an equity position held by a native Indian group through the Wawadee Holding Company. Both Derek and Greg have broad experience in BC logging and sawniilling.

Derek started out as a forest ranger on the northern BC Coast and then moved to the BC Interior to work in woodlands management and chip supply. Seeking even more challenge, he worked as a consultant in China and other Asian countries for 10 years. Greg's experience is more hands-on in the logging side, having worked in the BC Interior and done sawmilling on the Coast.

It was through Derek's consulting work that the Mill Creek venture got its start. He undertook a project in 1980 to assess the merits of railroad vs. truck log hauling for Canfor's Nimpkish Valley operation on northern Vancouver Island. Derek found in favour of continuing with rail, as the Nimpkish already had a well-maintained rail network.

Over the course of his study, Derek discovered there was Ministry of Forests moratorium on yarding shingle-grade yellow cedar slabs and hollow-cored butt logs, as the cost of yarding and hauling exceeded the market value at that time. He noted that this material left at the logging site contained solid, useable wood. With Canfor's agreement, he arranged to salvage the yellow cedar,and set up a small circular sawmill operation called Highland Mills Ltd. at Woss in the Nimkish Valley. Highland Mills cut the cedar into railroad ties for the Nimpkish railroad. This was the first step into value-added for the Morris family.

The mill was successful from the start. As it progressed, Greg became aware that the yellow cedar in the area contained a lot of clear wood, ideal for markets in Taiwan and Japan. He proposed to Canfor that if they supplied the logs, he would cut the yellow cedar at Highland, market the product and split the profit. Again successful Greg could see the opportunity for a bigger mill, with accurate sawing, to produce a more marketable product and, together with Derek, set up the Mill Creek operation.

Starting up in the spring of 1996, Mill Creek initially focused on yellow cedar, with log supply from MacMillan Bloedel and sales through the MBL Custom Cut Group. Unfortunately, the yellow cedar market in Japan caught the Asian Flu about a year ago.

Greg says that market prices are currently down 40 per cent and demand is down 50 per cent yet log prices in BC are down only fractionally. Accordingly, Mill Creek has had to broaden its product and market direction.

The mill turned to red cedar clears and the better prices in the UK and Europe markets. Unfortunately, all of the major firms have cedar mills, and with these companies seeking the same opportunity, the market was soon oversupplied, and prices have since fallen. Since then, Mill Creek has turned more to custom-cutting large Douglas fir logs for veneer slicing flitches. Greg is now interested in high-grade hemlock and alder as future cutting possibilities.

For the present, it is a tough go for Mill Creek, and they seek logs wherever they can. With the current depressed Asian markets, logging on the BC Coast has been severely curtailed. "I can find a market, but I can't always find the right sort of log," says Greg.

On top of depressed markets, Mill Creek has another worry. When the mill was established two years ago, an application was made for a timber sale in the area under BC's Small Business Enterprise Program. This sale gave Mill Creek some long-term security in terms of log supply, and provided an opportunity to trade for additional supply or to sell logs to develop working capital for the company. "These small business timber sales are essential for the survival of the small mill business," says Greg.

Recently, however, the annual cut for the region has been revised downward by the Ministry of Forests.

To achieve that cut reduction, it has been proposed that the small business sales be reallocated south to the region of Campbell River, while the cut of the large forest companies remains in the area and at the same level. This has serious implications for small mills. For one thing, the timber in the re-allocated area is mainly second growth, and Mill Creek depends on old-growth supply. Secondly, when bidding for sales in the new region, Mill Creek would lose the regional advantage it has of claiming employment and added-value benefits for the Port McNeill region. Thirdly, the volume per hectare for second growth is lower than old growth, and there would be less volume for the same area of sale.

These points are now being discussed with ministry officials by Mill Creek and the Vancouver Island Association of Wood Processors.

The Mill Creek sawmill has made good progress in setting up operations in a cleared area adjacent to the town of Port McNeill. The equipment is either used or built in-house. Logs are debarked in the log yard with a manual, portable, high-pressure water system. This gives the mill a first look at the quality of the log. Logs are then sawn in half at the chain saw sphtter, for ease in handling at the headrig and to see the inside of the log and check for colour, grain, rot, compression wood and other characteristics.

From the splitter, halves are transported to a 6" Klamath headrig handsaw with a 4" Klamath carriage with PLC tempisonic setworks and a friction drive. Sawing is automated with order size fed into the computer.

The headrig is fast and accurate. Halves are quartered and can be broken down further. From the headrig, the cuts can go either to the timber deck, the pony mill or the edger, before trimming, grading and the green chain sort. The pony mill is another handsaw with carriage and, in effect, is a high-tech resaw, able to handle larger sections from the headrig. The back end of the mill is still largely manual and the next step will be to install some automation.

Lumber markets go up and down, and represent good and difficult times. Right now, the BC industry is seeing some pretty difficult times. There was some positive news during Ns past summer, as BC sales were finally re-started in Japan, but prices are still very low. Sales are on a just-in-time basis, as Japanese buyers purrhase cautiously. But this might favour BC, being closer in delivery time to Japan than most of its competitors. Given a little time, the Asian markets may resume a more normal buying pattern and give small BC mills, like Mill Creek, a chance to get back on their feet.

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