Labor Shortages and Inflation Among Impacts to Intertwined Forest and Trucking Industries
The forest products supply chain is an interlinked network comprised of timberland owners, loggers, truckers and manufacturers. Forest health and sustainability — a cyclical process that involves planting, growing, harvesting and replanting — and the rural economies that service the forest products industry are dependent on each participant across the wood value chain remaining viable.
Loggers and truckers are the critical links that connect forest raw materials to the mill facilities that utilize them. Even a temporary disruption in these links can cause cascading impacts that will be felt at the mill level, and longer-term disruptions can cause structural issues that erode sector health over an extended period.
The interruption of this delicate relationship — in combination with labor shortages and worsening inflation — has stressed the forest products supply chain from the woods to the mill over the last year.
Rising Costs
Logging and trucking are separate operations, but there is some crossover in costs and variables associated with each. They are both capital-intensive, low-margin businesses, which typically bear the brunt of economic pain during periods of high inflation. Input costs for each sector — for insurance, labor, maintenance parts (which are also impacted by scarcity), lubricants and diesel fuel — continue to rise unimpeded, such that the inflationary pressures loggers and truckers face exceed the average rise in costs for American consumers.
Chip Capps, a logger at Arcola Logging Co. in Macon, North Carolina, recently noted in a Forest Resources Association article that “most logging operations will face annual cost inflation of 10 percent to 18 percent this calendar year 2022, with off-road fuel, labor costs, equipment costs, and parts/repairs leading the way.”
Fuel prices have been rising for much of this year, impacting everyone’s finances via increased costs that are driving prices for everything higher. This increase is especially poignant for the trucking industry. While 2020 data from the U.S. Department of Energy shows that the average fuel economy for cars was 24.2 miles per gallon, it was 5.29 miles per gallon for heavy trucks with a gross vehicle weight rating exceeding 33,000 pounds — such as a five-axle log truck (Class 8 Truck).
Retail prices for No. 2 “on-highway” diesel were generally between US$2 and $4 per gallon from 2007-21. But in response to rising global demand — as well as reduced domestic production and fallout from the Russia-Ukraine war — the average price in September was around $5 per gallon, a 58 percent year-over-year increase.
Since trucks are vital for moving forest raw materials from the woods to mill consumers, rising fuel prices have significantly impacted the cost of those deliveries.
The Supply Chain Impact
Charlie Blinn, professor at the University of Minnesota’s Department of Forest Resources in St. Paul, Minnesota, recently did an analysis that illustrates this impact in real data — and dollars.
His analysis: Per the U.S. Department of Commerce’s 2017 Economic Census: Transportation, the average roundtrip distance to transport “logs and other wood in the rough” is 138 miles. The U.S. Forest Service estimates that the current harvested timber volume across the U.S. is roughly 446 million green tons annually, and transporting that volume of material from the woods to the mill takes approximately 15.4 million truck deliveries (based on an average of 29 green tons per load).
Using an average haul distance of 138 miles at an average fuel efficiency of around 6 miles per gallon, the change in diesel price from 2020 to 2022, Blinn found, has resulted in an estimated average cost increase of $2.88 per green ton of forest raw material delivered to a mill facility. The total impact to the forest supply chain is estimated at more than $1.2 billion in added fuel costs from 2020 to 2022, Blinn found.
As the global economy navigates the uncertainty associated with unprecedented energy concerns, the immediate challenge for a number of manufacturers — including the forest products industry — is ensuring that all stakeholders across its value chain remain viable. With rising costs and associated pressures, it’s in the manufacturing sector’s best interest to find creative ways to unify and pursue a strategy of blended outcomes that supports the entire supply chain.
(Photo credit: Getty Images/ Diana Robinson Photography)