Monday, July 29 2019
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.
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.
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:
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.
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.
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.
1 U.S. Forest Resource Facts and Historical Trends, US Department of Agriculture Forest Service, FS-1035, August 2014
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