BC Interior loggers talk rates, future

October 25, 2016

By: Wood Business

Once upon a time, contractors in the BC Interior were the envy of Canadian loggers. Big wood, modern mills, large volumes, and conditions that lent themselves to efficient mechanization meant that a good contractor could expect to do relatively well here.
Based on results from the 2016 Canadian Forest Industries Contractor Survey, Interior contractors have seen their lot in life slip over the past decade. They feel they have seen their margins and mill relationships increasingly strained in recent years, perspectives that have them questioning logging as a career for themselves and their families. In general, Interior contractors reported the following:

Rates & profits
Based on the results of Canadian Forest Industries’ 2016 Contractor Survey, 41 per cent of all contractors saw some form of rate increase over the past three years. For the rest, rates were either stagnant (28%) or had declined somewhat (23%).

That’s not a great baseline to compare against, but given that challenging revenue picture, loggers in the BC Interior did relatively well. Almost two thirds (63%) of contractors in Canada’s fibre bread basket say they had some form of rate increase over the past three years. This was in fact the only region where the majority of loggers saw any increase over that period.

As for profits, BC Interior loggers fared noticeably better than colleagues on the BC Coast, and at least marginally better than most other regions as well. Only Alberta contractors had a slightly better profit profile (see chart). While 14 per cent claim to have made no profit last year (21% on the Coast), 45 per cent made at least a marginal profit (1 to 5% ROR), while one-third saw a profit of 6 to 10 per cent, and 8 per cent made 11 per cent profit or higher.

The BC Coast is just a bit worse than average when it comes to trends in profitability, with 45 per cent of loggers saying profits were lower last year than three years ago (Canadian average was 41 per cent). Given the industry recovery over that period in this region, the fact that only 19 per cent of Interior loggers say their profits have increased is a concern.

Operator pay
Operator hourly rates vary greatly by region, with competition in places like BC and Alberta driving rates higher than elsewhere on average. Loggers in the Interior on average are dealing with operating rates that are a touch lower than on the BC Coast, but like their colleagues in Alberta still have to manage among the highest operator rates in Canada.

Almost all (97%) of BC Interior operators working for our respondents are making over $26/hr, and almost half (44%) are making over $30/hr. That compares to Ontario, where only 38 per cent are making over $26/hr and no one reported wages over $30/hr.

Operators in this region are also more likely to receive a range of benefits than anywhere else in Canada. With 94 per cent of contractors reporting that they offer benefits, it’s a rare operator here not getting something. The bulk of contractors offer life insurance (69%) and health/dental (92%), while a large minority (39%) offer matching pensions.

A relatively long operating season (97% of operations run 31 to 52 weeks per year) and full mechanization mean that the industry in the BC Interior continues to offer reasonably good employment, at least by forestry standards.

Workload
Contractors in the BC Interior share the dubious honour of working very long weeks with their counterparts in Ontario and Alberta. Three quarters of Interior loggers work more than 55 hours per week, higher than Alberta (73%) and only slightly less than Ontario (77%). That compares to 56 per cent on the Coast, 63 per cent in Atlantic Canada, and 38 per cent in La Belle Province, one band of sanity across the nation when it comes to work-life balance.

That life/work seems out of whack with most of the general economy, and will likely be a hurdle when attracting the next generation of logging contractors in all of these regions.

Company size
Along with colleagues in Ontario, Interior contractors tend to have the largest fleets and harvest volumes. While Ontario tends to have the most “super fleet” contractors, with almost one-third (31%) reporting fleets of 51 to 100 machines (19% in the BC Interior), the Interior is right in the hunt when comparing large fleets. Over half (53%) claim fleets in the 21 to 50 machine range, almost identical to the per cent in Ontario. They also run the largest pick-up truck fleets in the nation, with 73 per cent owning 11 or more full-size pick ups.

These fleet sizes will likely have an impact on succession planning as well, as the larger the fleet, the higher the cost of entry for the next gen of contractors. Barriers to entry appear to be far lower in Quebec and Atlantic Canada than anywhere west of Montreal.

This is the case with staffing as well, with 67 per cent of Interior contractors having 21 or more employees, much higher than the national average of 46 per cent. These are not simple operations to acquire or learn how to run.

BC Interior loggers also drive the highest revenues in Canada, with 69 per cent having earnings over $5 million, versus 47 per cent on the Coast, 27 per cent in Alberta, 15 per cent in Ontario and single digits in Quebec and Atlantic Canada.

Mill consolidation
Loggers are generally faced with fewer and fewer mills to sell their products and services to, a general concern that affects some regions more than others. The BC Interior has less than average competition for fibre. Despite most loggers reporting that their neck of the woods has four or more mills buying fibre, a whopping 75 per cent report that they sell their wood to only one or two mills.

That compares to only 31 per cent of Ontario contractors selling to two or fewer mills, and 56 per cent on the Coast. Alberta is closest with 60 per cent selling to two or fewer mills.

Perhaps more telling is that 58 per cent report selling to just one mill, putting the entire notion of independent contractor in question. Only Alberta comes close to that level (50% sell to one mill), although there are obvious pockets of near monopoly in Atlantic Canada (33%), Quebec (22%), and the BC Coast (31%).

This consolidation was repeatedly mentioned as a source of conflict among both coastal and Interior mills.

Contractor age
Despite the company size and equipment investment, Interior contractors sit mid pack in age, with 58 per cent 46 years or older. That’s still relatively young compared to Coastal (67%), Atlantic Canada (65%) or Ontario (69%) contractors. It’s just a bit older than Alberta, where 54 per cent of contractors are 46 or older, but way older than Quebec’s loggers, with just 32 per cent of loggers 46 and older.

In fact, only 13 per cent of Quebec respondents placed themselves as 56 years of age or older. Compare that to 46 per cent in Ontario, 44 per cent on the BC Coast, and 36 per cent in Atlantic Canada, all regions that need to treat succession planning with urgency. The Interior has 26 per cent of its loggers 56 or older, similar to Alberta (23%).

The next generation
That age breakdown, as well as retirement plans mean that the situation is not as dire here as on the BC Coast. Just under a third (29%) say they’ll be out of the industry within five years, so there is some urgency to replace this workforce. Another 29 per cent expect to leave within 6 to 10 years, while 42 per cent hope to stick around for 11 or more years.

Still, contractors in the Interior are more likely than any other to say the industry has deteriorated as a place to make a living. Three quarters in fact say it is much worse or slightly worse than 10 years ago. Overall, we see a BC logging force that perceives its working life in decline.

Perhaps as a result, just 37 per cent of Interior loggers have a clear succession plan (family or employees). A quarter expect to sell to another contractor, while 30 per cent have no plans at all. In both BC regions the sentiment that logging is not a fit career for their children is at least twice as prevalent as it is in other regions (44% in the Interior, 45% on the Coast).

The Canadian Forest Industries 2016 Contractor Survey was conducted in April 2016 for Canadian Forest Industries and Operations forestieres et de scierie by independent research firm Bramm & Associates, generating over 230 replies to a detailed list of questions. Many thanks to our sponsors for making this vital research possible – Hultdins, Stihl, Tigercat and Ponsse.

By: Wood Business

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