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Ramping Up Production

Canfor’s strategy of ramping up lumber production—in the face of a brutal US countervail—is part of the company’s strategy to be the lowest cost producer.

By Jim Stirling

Early in 2003, Canfor’s sawmill in Fort St James, British Columbia will start cranking out lumber during the weekends. The three, 12-hour Friday to Sunday shifts will complement the mill’s two, 10-hour shifts running Monday to Thursday. It will create about 30 new jobs and result in 25 per cent more lumber production at the mill. The strategy is Canfor’s latest salvo in the softwood lumber dispute with the United States.

Canfor’s strategy of increasing lumber production emphasizes the company’s determination to lower its unit costs

The move emphasizes the company’s determination to lower its unit costs. Tactics and timing are critical in fighting any war and Canfor’s initiative to achieve better utilization from its wood processing assets comes at a time of low lumber prices, slackening winter demand and no imminent resolution to the softwood lumber dispute on the horizon. “It may seem bizarre you would do that,” (add the extra shifts) in the midst of a 27 per cent duty,) says Canfor’s Susan Yurkovich. “But it’s absolutely on page with where we have been going all along, which is striving to become the lowest cost producer and be the last guy standing.”

Driving down costs to stay in the game has surprised the Americans. They expected the countervail to result in a curtailment of lumber production, not a boost. It means US mills haven’t been able to benefit from the anticipated higher lumber prices resulting from less Canadian lumber flowing across the border. The ability to increase production widens the efficiency gap between US mills and those in the interior of BC. Adding the third shift at Canfor’s Fort St James sawmill was not an easy sell.

Members of IWA Local 1-424 voted 55 per cent in favour of the change. It means longer working hours for some people and the requirement to work weekends. Compensating for that, however, are longer time-off periods provided by the mill’s additional flexibility. The 30 new mill jobs expected will increase the demand for logs which is good news for regional logging contractors and log haulers. The extra work will filter benefits throughout the economy of forestry-dependent Fort St James and the surrounding region. Canfor is fortunate to have a good long-term log supply in the region.

The company has also developed a sound client base for its lumber products in the US, including customers like Home Depot and Lowe’s. The strong demand for Canfor products continues—despite the duties—and the third shift will help the Fort St James operation meet those obligations.

The mill’s weekend shifts and the economic advantages they will create are just reward for the operation. The mill and its log harvesting operations lost 17 weeks of production during 2000. It was due—in part—to lumber export quota restrictions to the US during the last round of battles in the lumber wars. Canfor’s Fort St James mill is not the first to adopt the three-shift route. The company’s Polar and Isle Pierre operations are also running a third shift. Both are located in the greater Prince George region. Other forest companies with operations in the BC interior are looking at or have adopted the additional shifts option.

Canfor has been aggressive with mill upgrades, investing $200 million to make its operations efficient and viable.

For example, Slocan’s Plateau Forest Products’ dimension sawmill near Vanderhoof added a third graveyard shift Monday to Friday this past summer. For Canfor, the third shifts initiative is a continuation of the company’s strategy to grow production and cut costs. In 1998, when David Emerson assumed the company helm, he announced an internal review of Canfor’s activities with the goal of reducing its permanent cost base by $40 million. Since then, management structures have been altered and operations streamlined. Jobs have been lost and a sawmill—Netherlands Overseas in Prince George—closed down.

The acquisition of Northwood Inc in 1999 came close to doubling Canfor’s size and positioned the company as a player of significance on the global stage. Canfor has also been aggressive with mill upgrades, investing about $200 million to make its operations efficient and viable. As a result of the continuous efforts to increase production and lower costs, the company’s mills are in a position to stay in business and turn a profit, despite low lumber prices and punishing US duties.

It’s a similar story with other BC interior lumber producers. They are all pursuing plans tailored to their operations and designed to cut costs and assimilate positive synergies, while continuing to produce top quality wood products. In the late 1990s, Slocan announced its intentions to do whatever was necessary so its sawmilling operations could make money when lumber prices dip below $250 US per thousand board feet.

But the US duties, the fibre supply and cost structures impacting individual mills are taking their toll and will continue to do so until the lumber dispute is settled. Four sawmills on Vancouver Island announced temporary shutdowns because of softwood lumber duties. The 500 or so people thrown out of work as a result are uncertain how long “temporary” will turn out to be. The BC interior has not been immune. Slocan announced the indefinite closure of its sawmills in Valemount and Slocan.

At the Nelson area mill, a business development committee has been struck. It’s comprised of mill workers, loggers and local politicians and it’s charged with examining ways to cut costs. It’s estimated savings of $6 million annually need to be achieved before the 350 laid-off workers can get their jobs back. Eliminating jobs altogether and/or encouraging remaining workers to take wage cuts is a typical—if painful—method of cost cutting.

That is precisely what has happened with Skeena Cellulose. Members of Local 4 of the Pulp, Paper and Woodworkers of Canada employed at the Prince Rupert area pulp mill gave a 72 per cent approval to a six- year deal that will cut wages by 20 per cent. There will be no wage increases during the contract’s first two years, with two per cent annual increases kicking in at year three. Jim Sinclair, BC Federation of Labour president, termed the contract “one of the worst cases of economic blackmail” he has seen.

Daniel Veniez, president of NWBC Timber & Pulp—which owns Skeena Cellulose—calls the contract a change essential to survival. NWBC bought Skeena from the provincial government earlier this year for the fire sale price of $6 million. It includes the pulp mill, major sawmills at Terrace, Carnaby and Smithers and their accompanying timber harvesting rights. (The Smithers mill will soon be sold to West Fraser Timber and regional Indian bands are in court protesting the transfer of licences to NWBC).

Sinclair’s charge of economic blackmail is sympathetic to the plight of the pulp mill’s workers who have been out of work for 16 months and counting. Many who remain in Prince Rupert are in desperate financial straits and the prospect of their job at a reduced wage is acceptable by necessity.

The cost cutting ripples will permeate through the bush where NWBC expects similar concessions. Evergreen harvesting contracts have already been suspended and out-of-work loggers will face “take it or leave it” rates this winter if work resumes. The pulp workers’ contract does not guarantee the mill will re-open. It’s in dire need of upgrades to be sustainable, especially during low pulp market prices. The NWBC workers contract is in direct contrast to one signed recently between Norske Canada and members of the Communications, Energy & Paperworkers Union.

That deal gives the 2,200 union members at mills in Crofton, Port Alberni, Campbell River and Powell River an 11 per cent wage hike over five years. The disparity and the Skeena precedent will influence future labour relations throughout the BC forest industry as rounds of cost cutting go relentlessly forward.

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