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BC's Northwood Wants Fewer Logging Contractors

Contractors fear that Northwood's consolidation plan will trigger a bidding war, with lower logging prices and lost jobs the end result.

By Jim Sterling
Copyright 1998. Contact publisher for permission to use.

Northwood Inc. says to survive it has to cut its costs. The Prince George-based forest company has introduced a controversial logging contract consolidation plan as part of its effort to regain a competitive edge in the global marketplace. the plan means fewer but larger contractors and putting 50 Per cent of its logging and hauling quota up for public tender. Many of the company's contractors in Prince George and Particularly in Houston, 300 km to the west in central British Columbia, are dismayed and angered by Northwood's proposal. Houston's population of 4,200 relies heavily on the forest industry for its economic health. Fearing for their jobs, contractors predict a bidding war will drive logging prices down, and many worry that the security blanket of longer-term contracts will be pulled out from under them.

Protest meetings in Houston have generated a 1,000-name petition urging Northwood to reconsider its plans. Northwood, however, remains committed to its consolidation proposal. The contractors, through the Central Interior Logging Association (CILA), have met with Northwood officials and the Ministry of Forests in what was described as an informational meeting.

Northwood believes its logging contract consolidation proposal will help save money in three areas, explains Dan Alexander, general manager of wood products for the company's Fraser Region. It will boost the number of operating days a year, from the present 150 to more than 160, by allowing the contractor with the right equipment for the site to hasten the beginning and delay the end of the logging seasons, says Alexander.

Contractors harvesting annual volumes of 240,000 to 250,000 cubic metres are the most efficient in terms of equipment and supervisory costs. Northwood wants its contractors to increase the production time they get from their equipment by between 500 and 700 hours a year. That means extending the mark of 1,600 to 2,000 hours per year to a target of 2,500 hours per year. "We've done a lot of benchmarking on this in BC and Alberta, and there are contractors who are doing 3,000 hours a year with double shifting. If there's enough work for the contractor it drops the fixed costs of machinery," says Alexander.

He says in 1996, 2.3 million cubic metres of timber was harvested in Northwood's Fraser region by 37 contractors. In 1997, 2.2 million cubic metres harvested by 29 contractors. "We want to have 12 to 15 contractors in total."

Alexander stresses the company's determination to cut costs is not directed solely at contract loggers. "The logging consolidation is just one small slice." Nor have they come out of the blue. About three years ago, the company's contractors went through a performance and management improvement process. "We found that opportunities existed for 20 to 25 per-cent gains in productivity with better management. Very few (contractors) took that to heart. Quite frankly, that disappointed us."

Alexander suggests that by going to a competitive bid for half the company's wood requirements, a true market and competitive contract price will be established. Contractors in Houston fear if non-regional contractors are successful, they will use their own crews and equipment, displacing them. Alexander counters that contractors in Houston and Prince George are "the home-town guys" with the advantage of having their infrastructure in place and possessing local operating knowledge.

He confirms interest in Northwood's open-bid plan has been forthcoming from other parts of BC, but not from out of province. He adds the company is on track for a mid-October decision on awarding contracts for a three-year, 250,000 cubic metre annual harvesting contract in the Fraser Region (Prince George) and a three-year, 450,000 cubic metre annual volume in Houston, which can be split into smaller components.

Alexander dismisses charges of any preferential treatment extended to Blackwater Construction Co. Ltd., a contractor which has shares owned by Northwood and which has one of five renewable contracts in the Fraser Region. "We inherited Blackwater from Rustad (when Northwood bought that company). It's been around since 1980 and Northwood has nothing to do with day-to-day management. We did detailed assessments of all contractors with renewable contracts and looked at past performance, efficiency and business structure before offering the new contracts.

He also expressed surprise at the outrage in Houston to the consolidation plan. "We would have thought the bulk of people in a forest-industry community would realize the very difficult times we're going through."

Asked if Northwood was considering rescinding its consolidation plans, Alexander replied: "No. Absolutely not. We can't afford it."

Who can afford to stay in business and who can't is a major concern for contractors, points out Roy Nagel, CILA's general manager. He says contractors, like Northwood itself, want to be around for the long haul, but to do that they must have some degree of business security.

Northwood is reducing its evergreen (replaceable) licences from 15 to five in the Fraser Region, and from seven to three in Houston; that comprises half the volume. The other half is in non-replaceable, short-term contracts. Historically, independent contractors have logged and hauled nearly 100 per cent of the volumes in the interior. Replaceable contracts should comprise 90 per cent and still give the licencee some room to manoeuvre, suggests Nagel. But having 50 per cent of the annual allowable cut in replaceable contracts affords too much protection to Northwood and not enough to its contractors. "It's too big a plum on the tree," he adds.

Longer-term renewable contracts have long been fought for by contractors through associations like the CILA. "Northwood's turning the clock back 20 years," says Nagel.

He says Northwood's strategy is clear. Fewer evergreen contracts mean more desperate bidding on the replaceable contracts, driving prices down. That de-facto "going rate" can be used to influence negotiations when the evergreen contracts are due for renewal, he explains. "You don't get good work unless people are living in a healthy state. You increase the risk of not getting the job done right and increase in supervision costs."

Nagel says the successful contractors with evergreen contracts were told the rate to be paid. "It was take it or leave it. There's a fair degree of intimidation."

Nagel maintains it wouldn't cost Northwood any more to have replaceable rather than non-replaceable contracts. "If it looks like a duck and walks like a duck..." But having a replaceable licence is huge to the logger. It means he reduces his risk exposure and operates his business with some degree of stability. It allows for future planning, adds Nagel.

"With Northwood's consolidation plan, it's rewarding a quarter of the contracting industry with replaceable contracts and the potential advantage of harvesting bigger volumes, and penalizing the rest by not offering replaceable contracts."

The CILA would like to see some legislative changes to help protect the logging contractor and has urged Forests Minister Dave Zirnhelt to consider it. The association maintains there's an essential fairness factor here: if Northwood believes it can save money through consolidating its contracts, shouldn't there be some profit margin for the contractors, asks Nagel. He also suspects other licencees will consider following Northwood's contract consolidation lead.

He says the impact of contract consolidation on equipment dealers is a further issue. They're already hurt badly by the BC industry's decline. "If you have paper on a contractor who's not assured of business after two years or even next winter, you're going to be very worried," says Nagel.

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