In the first part of this series, Wood Supply Chronicles, I highlighted three events that have changed wood supply in the US South: timberland divestment, the timing and intensity of the housing bust and inattention to-and an inability to react to-global policy changes.  

In this post, I would like to focus more closely on the unintended consequences of timberland divestments from a perspective that few have considered and that might not seem apparent on the surface. It is, however, a viewpoint that is ultimately very important to maintaining the health of both individual forests and the larger forest products industry.

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The merger of MeadWestvaco and RockTenn caught many by surprise when it was announced earlier this year. According to the press release, the combination will create a global packaging company with $15.7 billion in sales and a projected cost savings of $300 million in three years. More than likely, after the merger is complete in June, a significant top-down analysis will occur (if it is not already underway) to consolidate sales, realign mill production with demand and reduce costs throughout the newly formed company. One of the costs under the microscope during the due diligence process will be wood fiber costs. Because they represent a significant portion of mill operating expense, a thorough examination of wood fiber costs across the new company's system of mills will take place.  

This type of systematic review of wood fiber costs is beneficial for a company even when it is not going through a merger. Many of Forest2Market's customers conduct regular review of their system's wood fiber costs, a practice that helps them identify the issues that drive their costs higher than the market average.

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Like all forests, all wood supply chains are different. Some are longer and more complex than others, but one thing they all have in common is that they nearly always have at least one weak link. Some of these weaknesses are inherent and systematic in ways that seem beyond control. Others might not have been weaknesses originally, but develop into issues over time as inevitable changes occur. Some, in fact, might have been strengths initially.  

The most sound and sustainable mills have a survival instinct. They persevere because they are aware of the idiosyncrasies of their supply chains and are agile when it comes to adaptation.

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Raw material inventory management-the process that ensures a sufficient raw material supply to sustain production goals-involves a certain degree of risk management. Procurement organizations must strike a delicate balance between having enough woodyard inventory and minimizing holding costs. How much risk should a mill be willing to incur?

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As the incredibly mild winter of 2015 makes its all too subtle transition into spring, current Asian log buying trends coupled with favorable weather conditions have resulted in an improved market position for the forest products industry in the Pacific Northwest region. Notably, we are beginning to see a significant shift in log merchandising, flow and log yard inventories.

The favorable climate during Q1 has also helped to create ideal operating conditions for regional mills. Most Westside operations competing directly with the export markets were able to fill their log yards due to below-average rainfall, and mills in the Inland region took advantage of warm temperatures and weight restriction reprieves to schedule just-in-time deliveries.

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The 2014-2015 winter harvest season has come to an end in the Lake States region. Now that I have had a few days to catch my breath, I have been thinking about many of the industry-specific conversations that I was involved in over the long winter months and I want to take this opportunity to briefly share my takeaways about the Lake States timber market.

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