PricewaterhouseCoopers’ 15th Annual Global Forest Industry Conference event – held in March – attracted a strong line-up of industry leaders who queued up to give the industry a pep talk on how to boost returns in the face of slimmed margins.

Former head of MacMillan Bloedel, Tom Stephens, told delegates that producers were too obsessed with operational efficiency and too distant from customers.

‘As a result, low-cost production is the

key determinant of success and returns are poor. The industry needs a more balanced strategy, incorporating a strong focus on the additional pillars of product innovation and customer intimacy.’

Mr Stephens said that producers should be bringing more ideas to their customers to boost sales of their joint products and should better plan production around market demand.

Urgent change was called for in British Columbia’s forest products industry, by Hugh Sutcliffe, senior vice-president operations at Interfor.

Mr Sutcliffe set out what he termed an industry ‘death cycle’ which had beset coastal producers over the past decade.

‘High costs, excess capacity and insufficient reinvestment are among the factors that have led to what could prove to be a permanent loss of market share,’ he said.

Cost reduction crucial

Mr Sutcliffe said that cost reduction was the crucial starting point in the process of pulling the coastal industry out of its downward spiral. He claimed that the coastal industry’s challenges were in part a result of forgetting that the ‘customer pays its way’.

Speaker Craig Campbell, partner at PricewaterhouseCoopers, set out the industry’s declining performance in 2001. He said that the British Columbia forest industry alone posted an 87% drop in net earnings during 2001, falling from C$1.5bn to C$200m. The return on capital employed was only 3%. He attributed the fall to sharp declines in pulp prices and low and volatile lumber prices.

He identified a strong customer focus as a means by which companies could outperform what were expected to be disappointing industry-wide results in 2002.

‘The truly successful companies will be those that focus on continuous innovation and branding. Offering not just products but solutions for their customers,’ he said.

Dick Rose, senior vice-president Logistics Carolina Holdings Inc, recommended an approach to producer-customer relationships based on the four Cs: communicate better in terms of planning, projections and needs; consolidate to create a smaller number of relationships; collaborate more closely and more broadly; commit to long-term relationships.

Free trade in lumber

During the day-long event, the BC minister of forests Michael de Jong held out the possibility of free trade in lumber with the US.

Mr de Jong said that the elements of a framework agreement had been identified and that this may form the basis for a transition to free trade in lumber. The agreement, as currently envisioned, would include a bi-national commission, a transitional border tax, and the development of more market-based timber pricing systems in Canada.

He added: ‘The real prize will be long-term certainty of access to the US market.’

Kelly McCloskey, president and CEO

of the Wood Promotion Network, told the conference that the US$45m Wood is Good initiative had won the support of 214 companies and 88 associations in the wood industry, representing about two-thirds of North American wood production.

The campaign was designed to address the threats of substitute products and lack of confidence in forest abundance which have together resulted in a 1% market share loss for forest products in each of the past four years.