Got The Inflation Flu?
Article by Dan Shell, Managing Editor, Timber Harvesting May/June 2022
Inflation is on the news and all over the dot com as loggers grapple with rising costs for just about everything they need to operate. And there’s no doubt that, despite all our earnest attempts to believe and be “over it,” the COVID pandemic’s impact, especially on labor and supply chains, is something we’ll be living with and operating under for a while.
Both the Professional Logging Contractors of Maine and the American Loggers Council have recently surveyed their memberships who detailed cost increases for a wide variety of equipment, supplies and services. The ALC survey found an average price increase of 25% (some much more) across more than 20 items. Inflation can also take on a life of its own up and down the supply chain: An official with the Southern Loggers Cooperative noted that during recent fuel price run-ups members were shooting themselves in the foot by maxing out fuel purchases in fear of higher prices in the next week—which in return lowered inventories and hindered SLC’s ability to ride out market swings.
There’s also an interesting note in the mid-April North American Woodfiber & Biomass Markets report from Fastmarkets- RISI about a growing debate among procurement officials and others involved in the fiber supply chain in the South Atlantic Region from northeast Florida to southeast Virginia about whether elevated wood prices from 2021—up roughly 10-15% or around $3-$4 per ton that have persisted into 2022 represent a new elevated cost structure or temporary spike?
According to the report, some say higher prices are “more or less here to stay” while others claim prices eventually revert to a historical trend.
That’s the funny thing about inflation: You have fuel prices that almost double in three or four months but take a year or more to get back to “normal.” There are those contractors whose prices seem to keep rising: Recent tree work on my leafy lot compared to some we had done 25 years ago showed a solid 300%+ price increase. Then there are the loggers, who are working for prices that are little changed from years ago.
The issue is pointed up repeatedly by surveys and conversations with loggers themselves: A supply chain that doesn’t allow its suppliers to keep up with inflation will eventually have trouble finding suppliers.
As part of the recent Panel & Engineered Lumber Conference in Atlanta hosted by TH companion publication Panel World magazine, I had the good fortune of listening to a presentation from award-winning economist Roger Tutterow of Kennesaw State, who delivered a presentation that noted the impacts of the pandemic on leading economic indicators and overall economy.
For the forest products and construction industries, the biggest issues are inflation and labor leading to higher construction costs, and it’s uncertainty along the supply chain that’s a big contributor to higher prices, he said.
Still, there are good housing and construction demand dynamics, with the inventory of new and existing housing currently at generational lows, Tutterow said. He added that recent interest rate increases may provide headwinds but historically a mortgage even between 5-6% is considered a good deal.
As he covered the current leading economic indicators; he noted that the pandemic recession of 2020 was the worst in U.S. history but also the shortest, and how we’re all living in a time of unprecedented economic dynamics during the world’s first truly global pandemic of the modern digital era.
Tutterow identified another big issue is how the economy will move forward without major federal stimulus funds and reduced Federal Reserve “quantitative easing” while grappling with pandemic recovery. All the stimulus money and “paying people not to work” is in the rear view mirror now, he said.
Amongst all the economic numbers and graphs, Tutterow made an important insight: We all love to talk about the mandates and shutdowns and those always grab the headlines. But 10 years from now, he said, we’re more likely to be talking about the impact of voluntary changes in our lives and businesses: the great resignation that was real, lower workforce participation, more work from home and other societal changes that will affect how the forest products industry and all of society does business.
As the economist noted, loggers have the current misfortune of living through “interesting times” as the world continues to work its way through the pandemic and a business roller coaster that started with shutdowns and social distancing that eventually led to high demand for logging services and the highest prices on record for basic forest products like 2x4s and 6s and plywood panels.
The 2022 Logging Business Survey takes a close look at how loggers’ businesses have fared in the two-plus years since the pandemic and its impacts on labor, the supply chain and companies throughout the industry.
Results of the TH Logging Business Survey will be shared in the July/August issue.
If your company has a case of the inflation flu, let us know!
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