Challenges and Strategies in the Timber Industry

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Challenges and Strategies in the Timber Industry

Authored by Charlie Susser, Darshana Subramaniam, and Hayden Davis King

CIAG Interns

Introduction

The timber industry plays an important role in the United States economy. According to IbisWorld, the 2023 revenue from the timber and logging industries is valued at approximately $14.9 billion dollars making it one of the largest markets for raw materials in the United States (Pigott). The harvesting of timber presents businesses with many opportunities and challenges, especially given the changing nature of how raw materials are being valued within the United States. As newer technologies develop and climate change is becoming more and more of a challenge, it is essential for businesses to consistently be proactive in their business models while also accounting for new policies and regulations. In this article, we will explore the current business environment within the timber industry while also looking at ways to make it more sustainable and efficient within a changing economy and national landscape.

General Economic Outlook

Raw timber prices are downstream from demand for processed timber, which is largely used in manufacturing and construction. Thus, the business cycle and mortgage rates can have dramatic impacts on the price of raw timber. The long production timeline of timber means that producers need to forecast future economic conditions and market demand to avoid shortages or oversupply. To reduce risk, timber producers can diversify across varieties, enter into long-term contracts with processors, and sell futures contracts.

Market Structure

The American timber market has over 9,000 private companies that produce raw timber on a long production cycle, 370 pulp mills, and 2,476 sawmills (“Forestry and Logging”) (“Pulp and Paper Mills”) (“Sawmills & Wood Production”). Despite the high number of processors, timber producers have relatively few viable options for selling their products due to high transportation costs. Some firms may have market power as buyers and/or sellers of timber in different regions due to spatial dispersion and economies of scale (Murray and Prestemon). While timber is homogeneous once separated into commercial grades, timber producers compete based on transportation cost, harvest cost, and scale.

Technology in Forestry

Forestry has started using several different softwares and forms of data collection to improve the efficiency, environmental factors, and safety of the industry (Nasi). To monitor and gather information on areas that are going to be harvested, foresters use sensors, drones, unmanned aerial vehicles (UAVs), light detection and ranging (LiDAR), as well as satellite imaging. The data collected from these various methods allow foresters to closely monitor the health of the trees, the topography, pest infestation, soil moisture levels, vegetation and wildlife, and to monitor illegal logging practices. Foresters then can input data into mapping softwares, such as geographic information systems (GISs), to get a full picture of the areas they are interested in (Roshetko). Investing time into tracking and monitoring the area of interest allows foresters to be more efficient with the trees they log, and keep the other wildlife safe and healthy. The utilization of UAVs has reduced the physical demands of forestry, since UAVs can gather data without being operated by a person, and then improves efficiency by cutting trees to their desired length.

To offset the harms of forestry, nanotechnology has been used to improve seedling growth and to remove pollutants and contaminants from the area that has been harvested (Roshetko).

Impact of Climate Change

As global temperatures have steadily increased over the recent decades, the effects can be felt in all different kinds of raw material markets around the world, including the American timber market. Researchers at North Carolina State University found that the amount of trees adequate for timber production will drop up to 23% in the continental United States by the year 2100 (Baker et al.). Scientists believe that rising air temperatures would cause trees to grow slower and die faster as a result (Oleniacz). This fact, along with increasing harvest levels and greater demand for timber, would lead to noticeable declines in the amount of timber available for harvest (Oleniacz). The regions most affected by this would be forests located in the Southeast and South-Central regions of the United States. Aside from the Pacific Northwest, these are the two most productive locations for timber supply in the United States (Baker et al.).

Policy and Regulatory Environment

The forestry industry has several laws and regulations to ensure best practices and to protect the environment. The National Environmental Policy Act (NEPA) has created a guideline for management of national forests and grasslands to protect environmental quality and meet the obligations of federal agencies (“US Forest Service Forest Management”). To maintain the quality of timber produced many foresters use pesticides which are regulated by the Federal Insecticide, Fungicide, and Rodenticide Act. This is in addition to the Plant Protection Act which prevents introducing or disseminating forest or plant pests in the United States (“Federal Laws”). There are several different policies regarding keeping the environment clean and protecting native species. The Clean Water Act, Clean Air Act, and the Endangered Species Act regulate what pollutants can be discharged into the air and water, as well as protecting and recovering species that are endangered or threatened (“Federal Laws”). The Coastal Management Zone Act is in place to protect and restore the United States coastlines; this entails each state to develop a set of forestry best management practices that protect soil and water quality because logging is not considered a point source of pollution (“Federal Laws”). The United States also protects the importing, exporting, transporting, selling, or receiving any plant or plant product (including timber or wood) that is sold in violation of laws and treaties that the U.S., any U.S. state, or any tribe has been established (“Federal Laws”).

The Role of Consulting

As the American timber industry is rapidly evolving, business consulting plays an important role in making sure companies can adapt to the changing times successfully. Working closely with timber businesses in analyzing the current market, navigating environmental regulations, developing efficient logging technologies, optimizing supply chains, and minimizing both financial and legal risks are some of the best ways consultancy groups can help timber companies grow sustainably and ethically.

Conclusion

Given the growing need for timber and the necessary legal protections for the environment, the forestry industry has to balance utilizing technological advances for efficiency and protecting the environment. It is important in the timber sector to be adaptable, and this can be achieved by being aware of changing market dynamics, changing environmental regulations, and using technology to the advantage of the industry to provide consumers with what they need.

Works Cited

Baker, Justin S., et al. Projecting U.S. Forest Management, Market, and Carbon Sequestration Responses to a High-Impact Climate Scenario - ScienceDirect.

https://www.sciencedirect.com/science/article/pii/S1389934122002118?via%3Dihub. Accessed 3 June 2024.

“Federal Laws.” National Association of State Foresters, https://www.stateforesters.org/timber assurance/sustainability/federal-laws/. Accessed 3 June 2024.

“Industries at a Glance: Forestry and Logging: NAICS 113: U.S. Bureau of Labor Statistics.” Bureau of Labor Statistics, 20 May 2024, https://www.bls.gov/iag/tgs/iag113.htm.

Murray, Brian C., and Jeffrey P. Prestemon. “Structure And Efficiency Of Timber Markets.” Forests in a Market Economy, edited by Erin O. Sills and Karen Lee Abt, vol. 72, Springer Netherlands, 2003, pp. 153–76. DOI.org (Crossref), https://doi.org/10.1007/978-94-017-0219-5_10.

Nasi, Robert. Innovation in Forestry: Where It’s Happening, Why It Matters - CIFOR-ICRAF Forests News. 19 Mar. 2024, https://forestsnews.cifor.org/86687/innovation-in-forestry-where-its-happening-why it-matters?fnl=.

Oleniacz, Laura. “Climate Change May Cut U.S. Forest Inventory by a Fifth This Century.” NC State News, 30 Jan. 2023, https://news.ncsu.edu/2023/01/climate-change-may-cut-u-s-forest-inventory/.

Pigott, Matthew. Logging in the US - Market Size (2005–2030). 20 Mar. 2024, https://my-ibisworld com.wake.idm.oclc.org/us/en/industry/11311/at-a-glance.

“Pulp & Paper Mills Industry Profile from First Research.” Dun and Bradstreet: First Research, 25 Mar. 2024, https://www.firstresearch.com/industry-research/Pulp-and-Paper-Mills.html.

Roshetko, James M. Innovative Technologies for Sustainable Forestry and Forest Management. Dec. 2020.

Sawmills & Wood Production in the US - Number of Businesses. https://www.ibisworld.com/industry statistics/number-of-businesses/sawmills-wood-production-united-states/. Accessed 3 June 2024.

Singhavi, Praveen. The Natural Resources Industry Is Facing a Massive Transformation – Once a Historically Human- Intensive Industry, the Industry Is Now Rapidly Embracing Technology. The Adoption of Drones, Robotics, and Data Analytics Are Radically Changing the Way the Industry Can Manage Raw Materials in Real Time.

US Forest Service Forest Management - Laws, Regulations & Policies.

https://www.fs.usda.gov/forestmanagement/aboutus/lawsandregs.shtml. Accessed 3 June 2024.

Weber, Veronica. “2024 Market Trends: Natural Resource Management.” Environmental Science Associates, 16 Jan. 2024, https://esassoc.com/news-and-ideas/2024/01/2024-market-trends-natural resource-management/.