Flexible North-American Sawmills likely to export more

Lumber production in North America declined sharply after the housing crisis (2007) in the U.S. The weak demand for lumber in the U.S. was offset by strong international demand, however, some sawmills hesitate to export their products internationally, while others actively pursue opportunities overseas.

Finnish Sawmills Exporting of Softwood timber.

A survey response from 89 sawmills showed that medium-sized firms are more likely to target international markets than smaller firms. Firms that have a strong differentiation orientation are more likely to participate in international markets.

Most Canadian lumber firms have been exporters to the U.S. The survey data suggests that Canadian and U.S. firms have similar degrees of international commitment.

Within the U.S., firms in the North are more likely to commit to exporting than firms in Southeast, but if a Southeast firm has adopted a product differentiation strategy, then they are more likely to commit to exporting.

The survey results also showed that medium-sized firms are more flexible than smaller firms based on the number of operational changes a firm made after the housing crisis.

In Europe, sawmilling technology is different – and very different in some areas. Simply put, European mills serve multiple markets that all require different sizes, lengths, grades and specifications.

To be able to produce lumber for these many European and export markets, European sawmilling technology has evolved to be different to North American technology – this has impacted not just costs, but allows for wider product lines, expanded markets and improved margins!

With log costs also very high in Europe (at least double U.S. log costs), the European sawmilling strategy is to reduce fall-down grades of sawnwood and maximize value from the expensive logs.

To accomplish, all mills first sort and grade their logs through a log merchandizing line where logs are scanned and typically sorted by diameter class, grade and length. Many mills have 60 to 80 log sorts; some have 160.

Flexible firms are more export oriented and pursue a higher degree of differentiation than inflexible firms. The flexibility characteristics of firms are time invariant.

Firms that are flexible perceive their performance is relatively better than firms that are not flexible; however, current performance could not give insight into past performance.

These results suggest that flexibility was the key factor in the prosperity of softwood sawmills after the housing crisis, but the factors contributing to success in the sawmill industry are inconsistent over time.

Source: Research Works Archive, Wood Markets