SUPPLY CHAIN MANAGEMENT HOW ARE WE DOING?

SUPPLY CHAIN MANAGEMENTHOW ARE WE DOING?

WE ARE ALL PART OF A SUPPLY CHAIN

§ Growers produce trees§ Loggers produce truckloads of logs§ Truckers haul the logs to the mills§ Mills produce myriad of products

HOW ARE WE DOING?

*WSRI Supplier-Consumer Relationships Project. Don Taylor. Forest Operations Review, Spring 2012.

§ WSRI defines effectiveness in a supply chain “as the optimization of inputs and outputs, eliminating waste of both human and material resources.

§ They define a high quality supplier-consumer relationship as follows:§ Each side conducts business with mutual respect§ Interactions proceed in an open manner§ All parties act in an ethical framework aided by consistent

communications

FIVE LOOKS

§ The resource § Growers§ Loggers§ Truckers§ Mills

THE RESOURCESUPPLY AND DEMAND

SUPPLY – PINE, CYPRESS, & HARDWOOD - FLORIDA

Source: U.S. Forest Service FIA data for Florida

DEMAND – PINE, CYPRESS, & HARDWOOD - FLORIDA


We are cutting about 6% of pine inventory each year.

SUPPLY – PLANTED AND NATURAL - FLORIDA


DEMAND – PLANTED AND NATURAL - FLORIDA


Cutting about 7% of plantation inventory, 1% of natural inventory.

FLORIDA PINE WOOD SUPPLY – HISTORICAL & FORECASTED

SUPPLY – 5-YEAR AGE CLASS DISTRIBUTION -FLORIDA


15-YEAR-OLD PLANTATION ACRES - FLORIDA

28-YEAR-OLD PLANTATION ACRES - FLORIDA

THE RESOURCE - SUMMARY

§ Currently at high points in total pine inventory, sawtimberinventory.

§ Pulpwood inventory in decline – age classes of concern§ Sawtimber peaks in 2018-2021 and then declines –§ Plantation areas available for harvest will decline over the next 5

to 10 years.§ Reliance on increased growth and natural timber is key – and

risky.§ If not, supply could still become an issue.

§ Resource is not currently a supply chain limiting factor.

GROWERS CONCERNS

§ Prices§ Its that simple§ And some worry about what the “republicans” might do

with the tax code.§ “No man’s life, liberty, or property are safe while the

legislature is in session.” (Mark Twain or Gideon J. Tucker)

SOFTWOOD STUMPAGE PRICES - NOMINAL

SOFTWOOD STUMPAGE PRICES – 2016 DOLLARS

HARDWOOD STUMPAGE PRICES - NOMINAL

HARDWOOD STUMPAGE PRICES – 2016 DOLLARS

CHANGES IN PRODUCTION COSTS & YIELDSNominal Costs

1982 2016Volume (tons/acre) 108 168Reforestation costs* ($/acre) $154 $183Land Rent ** (3.5% of 60% of land value/ac) $6 $19Total Production Cost*** $960 $1,875Production Cost Per Ton $9 $11

Real Costs (2016 $)1982 2016

Volume (tons/acre) 108 168Reforestation Costs* ($/acre) $306 $183Land Rent** (3.5% of 60% of land value/ac) $13 $19Total Production Cost*** $1,444 $1,418Production Cost Per Ton $13 $8

20

*Source 1982 reforestation cost: "2014 Cost and Cost Trends for Forestry Practices in the South" by Rebecca Barlow and William Levendis, Forest Landowner, Sept/Oct, 2015. Source for current management reforestation cost: Reported costs on F&W managed properties. **The value of bare timberland is 27% of the published USDA farmland values. Source: Jack Lutz, Ph.D.; Jon Caulfield, Ph.D.; Harrison Hood, Ph.D.; Tom Harris; and Ben Slui; Southern Timberland Index – Base Case; Timber Mart-South – In Depth & In Focus; 3rd Quarter 2016; pp. 54-57. Land value in 1982 = $289 (nominal) and $625 (2016 $). Land value in 2016 = $914. 60% of the land value was allocated to timber production, and the other 40% in intrinsic value was not quantified in this analysis. Forecasted inflation = 1.4%.***Total Production cost = yearly land rent + reforestation costs both compounded @ 3.5% until the time of harvest (period 28).

GROWER SUMMARY

§ Prices are bad – but out of our control§ Cost per unit produced is real success story§ How do we keep driving costs down, yields up?§ Grower’s role in the supply chain is to continue to manage

production costs, make sale process efficient§ Larger well organized sales drive down logging cost

LOGGERS, TRUCKERS, AND MILLS

NUMBER OF FLORIDA WOOD-USING MILLS OVER TIME

FLORIDA LOGGING BUSINESS DEMOGRAPHICS

Source: Bureau of Labor Statistics

U.S. LOGGERS ARE AGING


U.S. SOUTH - LOGGING EQUIPMENT OPERATORS & TRUCK DRIVERS


DIESEL FUEL PRICES

UGA LOGGING COST INDEX (2005-PRESENT, CUT AND LOADED)(THE LOGGERS COST, NOT THE LOGGING RATE)

COASTAL PLAIN LOGGING RATES

LOGGER/WOOD DEALER COMMENTS

§ Younger generation doesn’t have work ethic or pride§ Margins on bid sales so low most are break-even – keeps crew

working. Sales with 9 or 10 bids no-saled§ Cost of machinery is prohibitive – purchase and maintenance§ Some mills late paying§ Fuel prices are down§ Profits are cut down, 2 to 3%.§ Mills think logging capacity is like a water faucet.

§ Focused on trucking rates and logging rates – instead of quoting a delivered price and letting the wood dealers manage the allocations.

§ GP may be switching hardwood fiber to eucalyptus. Loggers are concerned about losing their markets, swamp logging equipment.

§ Mills need to do a better job of scheduling wood and managing inventory, can’t cut off in the middle of the week – loggers have to pay personnel and make payments. No consequences to shutdowns and re-openings.

§ Mills aren’t taking this seriously, could lead to shortages. Most mills have arms length approach, so they are out of touch with what is going on the ground.

§ Not enough communication§ Plenty of loggers, not enough truckers

TRUCKING

§ Raised weight limits for fires – that’s good.§ Young truck drivers can find more lucrative jobs. Aging trucking

force.§ Trucker insurance rates as high as $19,000 per truck – due to litigation.§ Can’t find qualified truck drivers – drug test issues, reliability.§ Trucking rates are the problem. Haven’t kept up with costs. Loggers

subsidize so they can deliver the wood.§ Plenty of loggers, not enough truckers.§ Wood suppliers are starting trucking crews to have a means to get the

wood to the market. § One way trip hurts – less deadheading in other industries.

LOGGERS AND TRUCKERS SUMMARY

§ Feeling squeezed by costs§ Not profitable§ Aging – not attracting youth at a time when demand should

grow§ At risk due to quotas, mid-week cutoffs§ As part of supply chain, loggers/truckers need to think

about their role in “overproduction”.

WHAT’S GOING ON WITH MILLS?

§ Cross City Lumber, LLC to open in Cross City, FL (Former GP Saw Mill). Planned start date first week of February 2018. GP closed this facility in late 2007.

§ West Fraser buys Gilman Building Products - $430 million investment§ GP announces new paper machine in Palatka, FL - $400 million

investment§ GP – Palatka is experimenting with eucalyptus as a possible alternative

to hardwood pulpwood in their paper making process. § Gainesville Regional Utilities (GRU) to purchase Gainesville

Renewable Energy Center for estimated $750 million investment. § Mills are expanding, plenty of wood at low prices – supply not a

limiting factor.

PLENTY OF WOOD AND WORK, WHY ISN’T EVERYONE HAPPY?

§ Growers hate low prices:§ may have to accept lower prices, but really need to recognize that

production costs are down, and need to keep driving them down.§ Need to recognize that sale size, layout affect efficiency.§ Need to know market before advertising sales

§ Loggers/truckers hate quotas and mid-week shutdowns§ Tensions exist in the supply chain§ Uncertainty about the future


HOW ARE WE DOING?


§ WSRI defines effectiveness in a supply chain “as the optimization of inputs and outputs, eliminating waste of both human and material resources.

§ They define a high quality supplier-consumer relationship as follows:§ Each side conducts business with mutual respect§ Interactions proceed in an open manner§ All parties act in an ethical framework aided by consistent

communications

REPORT CARD

§ Mutual respect – A§ Interactions proceed in an open manner – C

§ Quotas and mid-week shutdowns indicate lack of communication§ All parties act in an ethical framework – A§ …aided by consistent communications – C

§ See above, but short-term contracts are probably not the right way to manage long term delivery cycles.

§ Failure to optimize logger/trucker utilization increases cost per ton delivered.§ An overproducing logging force isn’t efficient – cost per ton is higher.

§ Uncertainty and short term contracts do not foster “optimization of inputs and outputs”

OVERALL GRADE

§ Optimization of inputs and outputs, eliminating waste of both human and material resources – B§ Short work weeks indicate lack of coordination by loggers and

mills§ This drives up cost of production per unit, long term increase in

cost to mill, reduces prices to growers

Documents

SUPPLY CHAIN MANAGEMENT HOW ARE WE DOING?