Some people might (wrongly) assume that lumber shortages are always due to a low supply of standing trees due to past over-harvesting. Many species, such as African Mahogany and Poplar, have lacked enough supply to keep up with the global demand, simply due to a decline or full cessation of mills harvesting and sawing the lumber. Essentially, the decreased market price has forced mills to stop producing these species, because they cannot afford to continue doing so.
Of course, this kind of quandary is not unique to the lumber industry. Many other raw materials have been hit hard in recent decades. Understanding how and why these shortages have occurred can help us prevent future potential shortages due to what appears to be a benefit to the customer: low, low prices.
Some market analysts can see the issue beginning during the 1950s, but most agree that the biggest shift didn’t occur until the 70s and 80s. What happened was that manufacturing began to shift from being primarily North American to occurring mostly overseas.
The entrance of developing countries into the equation was a truly game-changing component in the business model. Lumber companies began losing customers, but the lumber companies remained afloat, thanks to the housing boom that prompted the construction industry to keep business alive and thriving.
The explosion of home loans with low interest rates, as we now realize, led to great economic dilemmas on a national scale — and the lumber industry was greatly affected. Without continued new construction, the demand for lumber plummeted. Globally, that decreased demand led to lower supply. However, overseas competitors continued to drive prices down both here and abroad.
One new market that has developed in recent years is represented by China’s growing economy. As the Chinese continue to purchase our domestic species and have it shipped en mass across the ocean, the prices are being driven lower and lower. Even though profit margins are low, the sheer volume still amounts to money in the pockets of lumber companies that are struggling to keep their heads above water.
These container export jobs aren’t as positive for the industry as they may seem: As a result of the low amount of profit, saw mills and lumber distributors alike are being forced to close their doors. We’re not talking opportunistic up-starts here: Companies that have been in business for decades and even centuries are having to call it quits. With price points rivaling those from the 1960s, these lumber companies can no longer turn a profit.
While the emergence of offshore competition and new markets may cause the global lumber market to appear hopeless, the story is not over, yet. As competitive labor contributes to the gloomy forecast, some natural consequences and surprising developments (see Part 2) encourage optimism. We truly believe that the future of the lumber industry has a bright and sunny future.
J. Gibson McIlvain Company
Since 1798, when Hugh McIlvain established a lumber business near Philadelphia, the McIlvain family has been immersed in the premium import and domestic lumber industry. With its headquarters located just outside of Baltimore, the J. Gibson McIlvain Company (www.mcilvain.com) is one of the largest U.S. importers of exotic woods.
As an active supporter of sustainable lumber practices, the J. Gibson McIlvain Company has provided fine lumber for notable projects throughout the world, including the White House, Capitol building, Supreme Court, and the Smithsonian museums.
Contact a representative at J. Gibson McIlvain today by calling (800) 638-9100.