By Tony Kryzanowski
“My grandchildren are almost certainly going to buy a home built in a factory and I’m hoping it will be built from wood.”
That was the concluding statement delivered by Paul Jannke, representing Massachusetts-based forest industry consulting firm Forest Economic Advisors LLC, at this year’s Alberta Forest Products Association (AFPA) annual conference held recently in Jasper.
Jannke sent a jolt through those attending the session, warning dimensional lumber producers supplying the American market about two notable macro trends that will likely have a significant impact on Canadian wood sold south of the border over the next decade.
The first is the growing trend toward off-site, robotic building construction to supply the Canadian forest industry’s bread and butter market: American single detached homes. The second is the strong consideration being given by some of these builders to using steel—instead of wood— on their production lines.
The presentations Jannke delivers to the AFPA have become a popular feature with participants, as he rarely disappoints with the depth, quality, accuracy and uniqueness of the information he shares. Jannke outlines in detail the current state of the industry globally, as well as macro trends that likely will impact the market for wood products in the short, medium and longer terms.
After coming off historic highs of $650 per thousand board feet of benchmark 2 X 4’s in the American market last spring, prices have now dropped to about half that level. What drove those prices higher were low lumber inventories in the U.S., exacerbated by reduced supply from British Columbia due to the record number of forest fires curtailing sawmill production. The situation was made worse by a cold winter that slowed rail transportation of Canadian lumber to the U.S. There were also more American housing starts in 2018 than expected, and record amounts spent by American homeowners on renovations and remodeling.
While Jannke predicted that prices would not spike again anytime soon, there is also no recession looming on the horizon. He expects a steady and profitable year for Canadian lumber producers in 2019, with prices settling into the $400 per thousand range.
It’s what Jannke said about the lumber market in the U.S. beyond that point that really caught the audience’s attention.
There was a somewhat predictable jaded response from some in the audience who had heard about the dimension lumber industry’s demise several times over the past half-century. But the evidence that Jannke presented concerning on-the-ground trends among American builders had a certain ring of authenticity to it to make several in the audience visibly uncomfortable in their chairs.
Jannke says that the biggest challenge among developers and home builders in the United States is not housing demand. That continues to stabilize and trend upwards. The biggest challenge is a significant construction labour shortage and this is changing how American homes will be built in future.
In short, the robots are coming.
There are 200,000 fewer American construction workers compared to historical levels. In addition to youth steering clear of construction jobs, Jannke says that the opioid crisis is also contributing to fewer construction workers. This crisis is serious and is resulting in a decline in labor force participation, with the biggest impact being in rural areas.
The consequence of fewer construction workers in the U.S. is that more builders are opting for off-site construction. This sector is now capable of producing attractive single detached home designs as well as multi-family and commercial buildings like hotels with all the electrical and plumbing passageways cut out, and with a high degree of accuracy of modular components fitting together, within about one millimetre. All that is required are on-site assembly crews. Another attractive element to off-site versus on-site building for developers is that these structures can be erected in a matter of days, versus weeks using traditional methods.
Jannke says that builders and developers are opting for robots in factories over human on-site tradespeople, and while they are still using wood as their preferred material, that is not set in stone. The wood industry should be concerned about that.
He pointed out why wood continues to dominate residential building construction and why off-site manufacturing will challenge that paradigm.
Wood continues to be the building material of choice for single detached homes because that is historically how they have been built. For decades, these homes have been hammered together on-site with framing crews and carpenters.
That will no longer be the case, given the trend toward off-site, robotic module construction.
What’s working against wood and favoring steel with off-site building construction is that robotic manufacturing using steel is well established. Robotic assembly lines in the auto industry are just one example. So, there is no historical connection in a factory environment to using wood.
Jannke says that a number of off-site builders are already complaining about the variability in wood quality from suppliers and some are openly talking about substituting a portion of their production with something other than wood, the obvious alternative being steel.
Significant capital is pouring into the off-site building construction industry in the U.S. from Silicon Valley. Billionaires who made their fortunes recognizing the power of robotic building and new communication technology now see that there is a pivotal change happening in building construction—and they want to be part of it.
The potential move away from using wood in building construction is not only happening in the United States because of construction labor shortages and more off-site building, but also in other key wood markets for Canadian producers, like Japan.
That said, Jannke added that what’s working in wood’s favor of continuing to dominate the single detached home market is its environmental footprint superiority over alternatives like steel. But the wood industry should take this growing trend toward off-site building with alternative building materials seriously, and be prepared to work with factory builders to ensure that they receive wood products that suit their needs. Some of these builders have even expressed a willingness to pay more for their wood, if it meets their needs.
In addition to this building trend, AFPA conference attendees spent considerable time discussing global trade, with the renegotiation of the North American Free Trade Agreement (NAFTA) and current softwood lumber tariffs being top of mind. Given the upcoming Alberta election in 2019, there was a heightened government presence at the conference, including presentations by the province’s Agriculture and Forestry Minister, Oneil Carlier, who was in attendance throughout the entire conference, and Alberta’s Minister of Economic Development and Trade, Deron Bilous, who delivered the keynote address at the formal dinner. A number of other Members of the Legislative Assembly representing forested areas were also present.
To everyone’s relief, the federal government was able to negotiate the continued presence of the dispute resolution mechanism within the new NAFTA, which many believe will be one of the key avenues to once again address and resolve punishing American tariffs on Canadian softwood lumber.
A reality check was provided on just how important the American market is to Canadian wood producers. It was pointed out earlier in the conference that 89 per cent of Canadian wood products are shipped to the U.S. Jannke says that Canadian producers have a greater sense of urgency to want to resolve the softwood lumber tariff issue because trade represents 31percent of the Canadian economy while trade represents only 12 percent of the American economy.
For those thinking that greater trade in wood products with China is the solution to greater Canadian wood product market diversification, Jannke says that producers should think again. Even with China engaged in a trade war where they are threatening a 25 percent tariff on Southern Yellow Pine produced in the U.S., it is not likely that Canadian producers can compete with cheaper wood products from Russia.
“It is much, much cheaper for China to buy wood from Russia than from Canada,” Jannke says. “There is much more profit to be made shipping to the U.S. market than China, even with the tariff.”
Wood products trade with China from Canada has in fact fallen significantly since 2013, which may not necessarily be a bad situation, given concerns about the Chinese economy and its significant debt.
“The Chinese economy is slowing and people on the ground there are nervous,” Jannke says.
On the Cover:
It can take loggers time to get used to a new location when they move their equipment—new terrain, different timber, and perhaps different weather conditions. But Swiss logger Beni Brunner had to get used to a whole new country and continent when he set up logging operations in the B.C. Interior with his Valentini remote control tower yarder. Read all about Brunner’s B.C. experiences beginning on page 10 of this issue. (Cover photo by Paul MacDonald)
The robots are coming—to home building
A forest industry advisor recently warned wood producers that the robots are coming to American home building.
Logging in B.C., Swiss style
Swiss logger Beni Brunner has set up a remote control tower yarder operation in the B.C. Interior, and the equipment is working well in some very challenging conditions.
B.C.’s Kyahwood Forest Products has a green waste-not approach to business: it uses trim ends for its feedstock, the plant’s residuals are used for manufacturing wood pellets, and some of the sawdust generated at Kyahwood is used to heat the mill.
Forest planning tools can generate big $ savings
Alberta’s Millar Western Forest Products says there is the potential to save millions of dollars in its woodland operations with new forest planning tools.
Hobby sawmill takes off
What started as a hobby sawmill operation for retired teachers June and Larry Scouten has grown into a successful business—and they can now point to hundreds of fences, decks and docks in Ontario that Scouten White Cedar has been part of creating.
New and Noted at Portland’s Timber Processing & Energy Expo
We take a look at what was New and Noted at the recent Timber Processing & Energy Expo (TP&EE) in Portland, Oregon.
Included in this edition of The Edge, Canada’s leading publication on research in the forest industry, are stories from the Canadian Wood Fibre Centre and Alberta Innovates.
The Last Word
The forest industry faces some tough sledding with multiple challenges ahead, says Jim Stirling.