Knowledge Can Combat Lumber Volatility During Rail Strike

Originally published by the following source: SBC MagazineNovember 25, 2019
by Sean Shields & Kirk Grundahl with contributions by SBCA staff

   

Editor’s Note: The following article is intended to provide background and current information regarding the Canadian National Railroad (CN) strike and its potential impact on softwood lumber supply. The goal is not to incite a panic. Rather it is to provide greater transparency for component manufacturers to help them make better lumber purchasing decisions. The more insight we are able to gather from our members on what they are seeing and hearing in their local markets will help our effort to provide solid facts to everyone. If you have any insight, please share it at editor@sbcmag.info.

The relatively stable softwood lumber market North America has experienced over the past year may be disrupted in the short term, but it is the mid-term effect that is important to focus upon. In late 2017, the Canadian National Railroad (CN) was facing a potential reduction in its shipping capacity and affected lumber companies made this potential constraint well known to their customers. This announcement led to one of the largest and swiftest cost increases in the North American lumber market on record, roughly $200 per thousand for both SPF and SYP. As a consequence, component manufacturer (CM) contracts and profitability were directly harmed and the industry experienced a period of panic.

The costs charted below are monthly averages printed in Random Lengths for April 2017 through May 2018.

Conversely, the second half of 2018 experienced one of the largest lumber cost decreases in the North American lumber market, down by roughly $175 per thousand for both SPF and SYP. 

The costs charted below are monthly averages printed in Random Lengths for June 2018 through November 2018.

It is possible history could try to repeat itself, so there is a real need for caution when purchasing lumber. What are the current conditions?

  1. CN currently has more than 3,200 employees are on strike.
  2. The Teamsters Canada Rail Conference  wants a 40 percent increase in wages and benefits and more opportunities for rest.
  3. CN has offered a two percent increase in wages and benefits, so the two sides are far apart.
  4. As of Monday afternoon, the union has indicated there is still “no substantive progress has been made” in negotiations.

So far, it appears the impact to the North American lumber market has been minimal. Why? It isn’t clear. Uncertainty generally leads to commodity market volatility, but knowledge is the power that reduces uncertainty.

Hence, those of you that are in the market listening to lumber and shipping suppliers every day, please let us know (editor@sbcmag.info) what you are hearing and we will provide further updates to everyone on this story as it develops. The more information transparency our industry has, the less likely CMs will experience unexpected pain from lumber cost volatility.

Background

Editor’s Note: The follow article was published last week to alert the industry to the CN rail strike.

The Canadian forest products industry, which has already been rocked by natural disasters and several mill closures over the past six months, now finds itself stuck between a rock and a hard place when it comes to getting its products to market.

A long train running on tracks

Almost 3,200 members of the Teamsters Canada Rail Conference began to strike this past Tuesday, November 19, against Canadian National (CN) railroad, which controls roughly half the rail capacity in Canada. The union, which represents conductors, trainspersons and yard workers, walked away from their jobs apparently due to issues related to safety, working conditions and benefits. 

The Forest Products Association of Canada (FPAC) estimates that the lumber industry represents roughly ten percent of the tonnage transported on Canada’s railways.  "While FPAC respects the collective bargaining process, and the right of workers to go on strike, we are concerned about the devastating economic impacts this dispute will have on our industry, which is already facing significant headwinds, not to mention the impacts on forestry families and communities," chief executive Derek Nighbor stated yesterday.

With freight trains halted across Canada, lumber mills are forced to turn to the trucking industry.  Unfortunately, Canada is also facing a significant truck driver shortage. The Trucking Alliance of Canada recently estimated that the Canadian industry will be short by 34,000 drivers by 2024 (compared to 300,000 current drivers).

Joel Neuheimer, FPAC’s vice-president of transportation, said that while no lumber mills have been forced to shut down yet because of the strike, if they do the association estimates the cost to each mill would be $150,000 to $500,000 per day.

Unfortunately, that cost will ultimately be borne by lumber users if the rail strike drags on. The lumber market has remained relatively stable over the past year (see chart above), but this constraint could ultimately threaten short-term supply similar to the situation in late 2017-early 2018 when trucks were not available but logs and lumber were plentiful.

 

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