By Jim Damicis, Senior Vice President, Camoin Associates

To understand economies and industry sectors related to forestry and lumber it is important to first understand the significance of forests to the U.S. economy. Forests after all are where wood comes from. “Global forestry issues are of considerable significance to the United States, which has five percent of the Earth’s population and consumes an estimated 28 percent of the Earth’s industrial wood products. Although domestic timber inventory is only 10 percent of the Earth’s total, 96 percent of U.S. consumption of industrial wood comes from domestic supplies.¹” In the U.S., the majority of the forests are privately owned with an estimated 58 percent of forest acreage owned privately by corporations or individuals; however, ownership patterns are quite diverse with public forests dominant in the West and private forests dominant in the East. Private industrial forest ownership is concentrated in the South, Pacific, Northwest, upper Lake States, and northern New England².

Source:  U.S. Forest Service- www.fs.fed.us/sites/default/files/forest-ownership-map.png

The forest themselves, along with the services to manage them, extract and produce wood, and turn or convert wood into products are all part of the supply chain industries that make of forest and lumber industries. These industry areas include natural resources, wood products, logistics, energy. Furthermore, there are also emerging opportunities that blend forest and lumber with other industries notably composite materials manufacturing and biosciences. For this article we will focus on two core components: natural resources and wood products examining market environment, recent performance, and projected trends³. We will also examine emerging market opportunities in several of the blended industry sectors.

Natural Resources Market Overview

National and Global Market Trends

Within the natural resource industry area and based on the North American Industrial Classification, NAICS, the most relevant forest and lumber industry subsectors can be described as follows.

• Timber Services (NAICS 11311): manage timber lands and sell timber to downstream wood, pulp, and paper producers.
• Logging (NAICS 11331): cutting and felling trees to produce sawlogs for use in sawmills and pulp mills.
• Forest Support Services (NAICS 11531): assist downstream timber and logging operators in timber valuation, forestry.

There are currently 68,242 establishments with a total of 126,674 employees within the Natural Resources industries in the U.S. with the largest subsector being Logging. The states with the most establishments in Natural Resources industries include: OR, GA, ME, VA, WV, WI, MI, LA, NC, AR, SC, WA, MS, AL, TX, FL, MT, and CA.

Revenues in the Natural Resources industries totaled $19.6 billion in the U.S. in 2018-19. Annual revenue growth in the past five years within subsectors of Natural Resources ranged from 0.7 percent to $5.2 percent and are projected to decline driven by a slowdown of housing construction from recent peaks and from increased foreign competition in downstream wood production markets. Exports totaled $2.3 billion in 2018-19 and were solely in logging production. Key countries exported to include China, Japan, and Canada.

Leading companies in Natural Resources include: Weyerhuaser, Sierra Pacific Industries, PotlatchDeltic Corporation, Rayonier, American Forest Management Inc., F&W Forestry Services Inc., Firestorm Wildland Fire Suppression Inc., Green Timber Consulting and Foresters Inc.

Industry Outlook

• Timber Services (NAICS 11311): With 3,125 business and 7,134 employees in 2018, this subsector grew at an annual rate of 5.2 percent in the past five years reaching $1.4 billion in revenues with growth driven by surging demand for housing following previous periods of recession. Annual revenue growth is projected to decline over the next five years to 1.9 percent annually resulting in $1.6 billion in revenue as housing markets temper, domestic wood product production faces heavy import competition, and domestic paper continues decline due to electronic media alternatives. A growing number of operations are becoming intuitionally owned investment entities including real estate investment trusts, REITS or timberland investment management organizations, TIMOs. There are no exports in this service industry.
• Logging (NAICS 11331): In 2019, this industry had an estimated 50,374 businesses employing 92,347 employees and generating at total of $15.9 billion in revenues. Over the next five years, revenue is forecast to rise at an average annual rate of 0.4 percent to total $16.2 billion in 2024. This represents a slight decline from the 0.7 percent growth in the past five years. The declining projected growth rate in the next five years will be driven by slowing of residential construction from recent peaks as well as weakening demand from paper mills. Exports from logging businesses totaled $2.3 billion in 2019.
• Forest Support Services (NAICS 11531): In 2018, an estimated 14,743 businesses employed 25,193 workers and generated $2.25 billion in revenue. Revenue is projected to grow at an annual rate of 0.4 percent through 2023 resulting in $2.3 billion in revenue. This is a decline in the annual growth rate over the past five years of 1.5 percent. The decline in annual growth will be driven by a continued reduction in outsourced services and will offset increase demand for pest control and fire suppression. Many firms in this industry are small or even non-employer establishments (self-employed). There are no exports in this service industry.

Wood Products Market Overview

National and Global Market Trends

Within the wood products industry area and based on the North American Industrial Classification, NAICS, the most relevant forest and lumber industry subsectors can be described as follows:

• Sawmills and Wood Production (NAICS 32111): saw dimension lumber, boards, beams, bolts, poles, shingles, siding and wood chips from logs. Also, chemically treat lumber to preserve and protect it from fire.
• Wood Paneling Manufacturing (NAICS 32121): manufacture veneer, plywood, engineered wood or reconstituted wood products.
• Prefabricated Home Manufacturing (NAICS 32199a): produce manufactured (mobile) and modular (prefabricated) homes and buildings.
• Miscellaneous Wood Product Manufacturing (NAICS 32199b): includes wood product manufacturing not produced by sawmills or by manufacturers of veneer, engineered wood, millwork and mobile homes. Includes wood ladders, cabinets, kitchenware, broom handles, kiln-dried lumber, reels and toothpicks.
• Wood Pulp Mills (NAICS 32111): manufacture pulp without processing it into paper or paperboard.
• Paper Mills (NAICS 32122): manufacture paper from pulp.

There are 14,448 establishments in the U.S. spanning these industries, and they employ 311,363 persons. California, Florida, Washington, Oregon, Texas, New York, Wisconsin, Michigan, Ohio, Pennsylvania, Missouri, Arkansas, Kentucky, West Virginia, Virginia, Tennessee, North Carolina, Alabama, Georgia, Indiana, South Carolina, and New York are home to the largest percentages of establishments in most of these industries.

Industry revenues nationwide totaled $127.7 billion in 2018-19. Annual revenue growth rates in the past five years have ranged from a decline of 4.6 percent to increases of 8.6 percent for prefabricated homes. While declines in pulp and paper are projected to moderate, the growth of the other industries will also moderate. This will be driven by projected increase in interest rates dampening borrowing for construction projects, a reduction in housing starts from recent peaks, continued digitalization replacing paper, and foreign competition. Exports in these industries total $15.9 billion in 2018-19 and top export destinations were to China, Canada, Mexico, Japan, Australia, and United Kingdom.

Leading companies in Wood Products industries include: Domtar, Verso, International Paper, Sappi, Resolute Forest Products, Weyerhaeuser, Boise Cascade, Georgia-Pacific, Louisiana-Pacific, Berkshire Hathaway, Champion Enterprises, Koch, West Fraser Timber, and Interfor.

Industry Outlook:

• Sawmills and Wood Production (NAICS 32111): In 2019, this industry had an estimated 3,229 businesses employing 88,029 workers and generating at total of $35.2 billion in revenues. Over the next five years, revenue is forecast to rise at an average annual rate of 1.1 percent to total $37.1 billion in 2024. This represents a decline from the 2.8 percent growth in the past five years. The declining projected growth rate in the next five years will be driven projected increase in interest rates dampening borrowing for construction projects. Exports in 2019 in this industry equaled $4.7 billion.
• Wood Paneling Manufacturing (NAICS 32121): In 2019, this industry had an estimated 2,715 businesses employing 81,424 workers and generating at total of $27.6 billion in revenues. Over the next five years, revenue is forecast to rise at an average annual rate of 1.6 percent to total $29.9 billion in 2024. This represents a decline from the 4.1 percent growth in the past five years. The declining projected growth rate in the next five years will be driven a return of housing starts to more normal annual levels from recent high-level peaks. Exports in 2019 in this industry equaled $1.3 billion.
• Prefabricated Home Manufacturing (NAICS 32199a): In 2018, this industry had an estimated 905 businesses employing 40,877 workers and generating at total of $10.5 billion in revenues. Over the next five years, revenue is forecast to rise at an average annual rate of 2.2 percent to a total $11.7 billion in 2024. This represents a decline from the 8.6 percent growth in the past five years. The declining projected growth rate in the next five years will be driven market preferences and prices from traditional housing competitors, including apartment, condominiums, and stick built homes. Exports in 2018 in this industry equaled $389 million.
• Miscellaneous Wood Product Manufacturing (NAICS 32199b): In 2018, this industry had an estimated 7,325 businesses employing 38,222 workers and generating at total of $7.7 billion in revenues. Over the next five years, revenue is forecast to rise at an average annual rate of 0.8 percent to total $8.0 billion in 2024. This represents a decline from the 4.5 percent growth in the past five years. The declining projected growth rate in the next five years will vary depending on the specific product line with construction applications expected to exhibit the strongest growth and household products the weakest due to competition from imports and substitute materials. Exports in 2018 in this industry equaled $1.0 billion.
• Wood Pulp Mills (NAICS 32111): In 2018, this industry had an estimated 46 businesses employing 8,609 workers and generating at total of $6.2 billion in revenues. Over the next five years, revenue is forecast to rise at an average annual rate of 0.7 percent to total $6.4 billion in 2024. This represents an increase from the -1.7 percent annual decline in the past five years. The declining projected growth rate in the next five years will be driven projected increase export sales. Exports in 2018 in this industry equaled $5.9 billion.
• Paper Mills (NAICS 32122): In 2019, this industry had an estimated 228 businesses employing 54,202 workers and generating at total of $40.5 billion in revenues. Over the next five years, revenue is forecast to decrease at an average annual rate of -2.6 percent to total $35.6 billion in 2024. This represents an improvement from the -4.3 percent growth in the past five years. The continued overall declining projected growth rate in the next five years will be driven continued increase international competition and reduction in print paper. Exports in 2019 in this industry equaled $2.6 billion.

Critical Factors Impacting Future Growth and Competitiveness

While there is some variance among the forest and lumber-related industries in terms of what impacts growth and competitiveness there are serval commonalities.  

• Construction levels and markets (in particular housing starts) – the more construction the higher demand for forest products,
• Trade/Tariffs and competition from imports directly impact cost competitiveness,
• Competition for substitute products and materials such as steel, plastics, and in the case of paper, digital options for media such as magazines and newsprint,
• Regulation and policy environment can preset both positive and negative influence on market competitiveness. Can add to costs and/or reduce production by placing restrictions on land use but can also improve long-term sustainability, open new uses such as biomaterials/bio energy, and increase overall value of unit of wood,
• Workforce is typically aging in these industries and constrain future growth, and
• Energy costs can drive up manufacturing prices but also create markets for bioenergy and biofuels.

Emerging Trends

As the industry outlook trends indicates, most all the industry subsectors are projected to experience slower growth in the next five years compared to the past five years. There are however several emerging trends that can change the trajectory of these projections. They represent opportunities to grow the market and are grounded in providing more environmentally sustainable alternatives, stronger or better performing products, or a combination of both.

By separating wood into its chemical components new theologies are being utilized for the creation of biofuels, biochemicals, and bio materials as alternatives to petroleum-based products. These technologies are continuing to advance to achieve greater production scale and overcome cost disadvantages when compared to their petroleum-based competitors. 

Combining wood with other materials to form composite materials and engineered wood products is also advancing in the market. This includes laminated veneer lumber, LVL which is multiple thin wood layers combined with adhesives to create a more structurally reliable building material. Similarly, Oriented strand board, OSB, is an engineered wood product constructed by adding adhesives to wood flakes and compressing providing a product that is now more widely used than its competition, plywood.  

Mass Timber and Cross Laminated Timber, CLT, are also growing in use.  “Mass Timber is defined as building construction where the primary load bearing members in the structure are made up of wood, including engineered wood products and/or large dimension solid sawn wood.⁴” Mass timber competes with concrete and steel based construction. CLT is a wood panel made from gluing layers of solid-sawn lumber together in a patter that increases performance.

Forest 4.0, like Industry 4.0 for manufacturing is the merging of digital technologies into all aspects of management, production, and logistics. For forest and lumber it includes the use of GIS mapping, satellite imaging, big data, 3D simulation, and digitalization of the supply chain to manage forests, harevets for production, produce products and ship to end users. This presents tremendous opportunity for both sustainability as well as increased efficiency and productivity.

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Sources: 

1 U.S. Forest Resource Facts and Historical Trends, US Department of Agriculture Forest Service, FS-1035, August 2014

2 Ibid

3 Data for this examination drawn from IBISWorld Industry Reports www.ibisworld.com for 2018/19 Industry Reports

4 Mass Timber Market Analysis, Council of Western State Foresters, November 2018, masstimberinstitute.ca/resources/consultants-reports