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Tough Spot on the Coast

The closure of independent operator Bayside Sawmills illustrates the tough spot BC’s coastal industry is in these days.

By Rick Crosby

Earlier this year, the management of Bayside Sawmills Ltd, near Port Mellon, British Columbia, had to make a tough decision. “We called a crew meeting and put the scenario before the employees, saying it didn’t look good,” says Jeff Salmon, mill manager. “About a week later, we made the official announcement to close the mill.”

When Steve Tsuruda, president of Bayside Sawmills, founded a small 30-man sawmill cutting yellow cedar and hemlock near Port Mellon in 1986, his vision was to design and construct a production facility that would manufacture wood products to the high standards demanded by Japanese clients, while also extracting maximum value from each log.

In 1989, a new production facility was built close to the original site and Tsuruda’s vision was fully realized. Bayside Sawmills grew into a successful value extraction operation sitting on 16 acres of foreshore—including log yards and storage areas—in the southeast arm of Howe Sound, 24 kilometres northwest of Vancouver. Twenty-five per cent of the company’s products were destined for European and Asian markets. Seventy-five per cent of the mill’s production went to the Japanese housing market.

The mill cut primarily hemlock products for traditional Japanese post and beam construction and kiln dried veneer for interiors. While there was a boom in hemlock exports from BC to Japan in the late 1980s and early 1990s, markets have since gone into a tailspin. Producers are now struggling, trying to get hemlock into markets that can pay a decent return against the cost of raw materials.

A swing to kiln dried material due to changes in the Japanese building code implemented in April 2000—requiring builders to guarantee homes against structural defects for 10 years—has not made marketing hemlock any easier. The variable moisture content in hemlock makes the species a challenge to kiln dry. Bayside Sawmills prided itself on grade and value extraction. The philosophy of value extraction had been an integral part of company culture with the employees since Tsuruda started the first mill. “It was a real focus for management and employees alike,” says Salmon.

There was a lot of hands-on training for employees that enhanced grade recognition and value recognition. “It’s basically a culture that our workers and management people have been trained with,” Salmon says, training which was translated into experience. “It’s really through experience that you’re able to determine the maximum value you can expect out of any given log.” The equipment installed in the mill facilitated value extraction rather than high production volume. But despite its initial success and advantageous location, the mill was not immune to changes in global market conditions, particularly in Asia.

Bayside Sawmills had been operating on a one-shift schedule since February 2001. The mill was down for all of July 2001. Like other sawmills on BC’s coast, Bayside Sawmills faced problems shipping their lumber because of a slumping coastal forest industry. There wasn’t the variety of shipping schedules there had been when there was more lumber volume being produced on the coast. But there were additional bigger issues that impacted Bayside over the long term and that eventually led to the decision to close the mill. Problems really began when a significant downturn occurred in the Japanese economy.

“We felt the impact of the economic bubble bursting in Japan about 1995,” says Salmon. “Construction was then about 1.6 million housing starts annually. But Japan is now at a little over one million housing starts annually, so we’ve seen a tremendous decrease in housing starts there.” The devastating Kobe earthquake that struck Japan in 1995 also had an effect on the type of housing starts. Traditional Japanese post and beam houses were impacted by the earthquake and a lot of them crumbled.

The Kobe earthquake triggered a swing in building style that chiseled away about five per cent of the market. The Japanese building code changes implemented in April 2000 also impacted traditional Japanese construction. “That’s when they began to swing to more kiln dried products,” Salmon continues. “Homebuilders wanted kiln dried lumber because it maintains better stability throughout the construction period and the initial year or two of the life of the home.”

Global competition intensified with the new building code and became more of a factor than ever before in the Japanese market. “The quality of fibre that the West Coast has to offer was not appreciated in the way it was in the past because of changes in building codes and the economic viability of building,” says Salmon. Builders look for the best value for their dollar and the market for premium West Coast fibre has become limited to a number of high-end Japanese homes. But Bayside fought back.

“There was a continual refining of what we do and how we marketed our product with ongoing competition from the Scandinavian countries and Russian log imports,” Salmon says. Bayside Sawmills competed by striving to meet customer demand and the changing markets in Japan and by continually refining their marketing strategy, trying to maintain the best dollar possible for fibre and get the best return at the mill. But it was a struggle, a struggle that is now over for Bayside. For the surviving companies, Salmon doesn’t believe there are any pat answers to solving the hemlock question or helping the slumping BC coastal forest industry.

“The question is how hemlock is going to compete with products from other countries,” says Salmon. Understanding what the Japanese customer now wants has been an ongoing process not only in BC, but also in Japan where purchasers have struggled with the new building code. “Trying to understand what the customer wants was an ongoing learning curve for the Japanese purchasers of our wood,” Salmon says.

To compete, the work force at Bayside and the management team maintained a high level of efficiency. The company had a system in place, for example, that monitored the value of lumber produced per shift versus the cost of the shift. The company continued to service the Japanese market through the downturn in the Japanese economy because that was the market the mill was configured to serve.

Throughout this tough period, management looked for other customers but, in the end, global competition, the cost of West Coast fibre, labour and the cost of doing business in BC was just too high. “We had a difficult time competing with what was out there from other countries, such as laminated posts from Scandinavia,” Salmon says. Although best efforts were made to keep the mill going, things began to look very bleak when the final determination of the countervail duty was announced for US-bound lumber production.

“At that point in time, we noticed that prices dropped even further and it looked as though there wasn’t going to be any short-term turnaround,” Salmon says. Fibre was going up and lumber prices were going down and those two events basically led to the decision during the last week of April to close down the sawmill operation. The Tsuruda family was very appreciative for the 16-year run of Bayside Sawmills and exited the business with a great deal of class. They ran a large ad in the Vancouver Sun, titled A Grateful Farewell.

The ad thanked Jeff Salmon, company management, bargaining unit employees and contractors “for their ongoing support.” It pointed out the “excessive uncertainty” of the lumber industry in recent years and made note that “conditions have been extremely difficult for you and your families.” In the end, it was circumstances in the global marketplace and a continued slump in the BC coastal sawmilling sector that prevented Bayside from hanging on, Salmon says.

And just as they entered the industry 16 years before with a clear idea of what they wanted to do, the Tsurudas also chose how they wanted to leave the industry. “The philosophy was it’s better to go gracefully having no debt than continue to operate,” says Salmon. “They are grateful for what the industry has given them and I guess that’s just their style.”

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