David Elstone Market REPORT THE DEPARTURE FROM PERFECT MARKETS AND ITS IMPACT “perfect market” is one that fea- of allowable annual cut from Crown- the affiliation. However, with the subse- A tures many buyers and sellers of owned tenures. quent announcement of a single CEO and a product or service, and each has com- In 2007, Interfor roughly doubled its management team for the two compa- plete information about each other. In a Canadian company's lumber capacity in nies, one must wonder if the contracting perfect market, it is easy to compare pric- BC after buying mills and tenure from of services and timber supply dynamics es between products and services because the bankrupt Pope and Talbot. Then, in will be impacted as they work as a single they are the same as each other. Transac- 2016, Canfor bought Wynndel Box and entity to optimize operational costs. tions between buyers and sellers typically Lumber Ltd. and its associated Crown And finally, in 2018, Mercer Interna- result when an agreement is reached on a tenures (located in the Creston Valley) to tional signed a deal to acquire the western product or service’s value versus cost. augment its previous purchase of Tembec Canadian mill properties of Daishowa- However, where markets are restricted in the East Kootenay region. Marubeni International (DMI). This in- by the number of buyers, the playing field As each of these transactions occurred, cluded its Peace River pulp mill in Peace is typically tilted in their favour. This is the market for logging and forestry ser- River, Alberta, a 50 per cent ownership the case in the BC forest industry con- vices was reduced; as a result, contractors of the Cariboo pulp and paper mill in tracting sector, where there are many had fewer and fewer entities from which Quesnel, BC, and a 50 per cent interest sellers of logging, tree-planting and en- to choose. Evidence suggests that rates in the Peace River Logging Corporation gineering services, and it seems almost for services were negatively impacted and associated Limited Partnership (a every day the buyers’ side of the market and, in the logging sector specifically, joint venture with the Woodland Cree for those services is shrinking (to the det- many contractors left the business. First Nation). This transaction effectively riment of sellers). Paper Excellence, which owns Howe reduces BC Interior pulp and chip buyers Over the past decade, there has been a Sound Pulp & Paper, among other assets by one more. significant contraction of the forest sec- in BC, recently announced entering into As the number of companies in the tor; today, it is dominated by a few large an agreement to acquire Catalyst Paper industry continues to fall, the regional players, causing a departure from a per- Corporation—including its three facili- distribution of their control is also in- fect market. Canfor acquired Slocan in ties located in Crofton, Port Alberni and tensifying. Whereas in the past it was 2003 and effectively made itself one of Powell River, its Surrey distribution cen- not uncommon to see many companies the largest forest products companies tre, and its headquarters in Richmond, operating within the same region— in Canada. Shortly after, in 2004, Tolko BC. This agreement effectively reduces the providing some diversity of market for swallowed up Riverside Forest Products number of pulp log and chip consumers contractor services—today we see the to take its place in Canada’s top five, and on the coast from three to two (given that few remaining companies becoming in- West Fraser took over Weldwood’s assets Neucel Specialty Pulp remains closed). creasingly dominant in each region. This in BC and Alberta. In August of this year, the owners of trend only further intensifies the impacts In 2006, Western Forest Products TimberWest and Island Timberlands en- of company mergers. bought Cascadia, (what was left of the tered into an agreement to provide for So, has the continued departure from MacMillan Bloedel Crown coastal assets shared use of facilities, alignment of best perfect markets in the BC forest industry previously purchased by Weyerhaeuser), practices and enhanced forest stewardship. had an impact? For the answer, one need followed by the purchase of Canfor’s The company’s press release stated that only look at the underlying cause of the coastal assets (the Englewood logging TimberWest and Island Timberlands ongoing Contractor Sustainability Re- division on Vancouver Island). By amal- would continue to be standalone compa- view and the dilemma for tree-planting gamating three large coastal companies nies, with no change in control and shar- contractors struggling to recruit work- into one, these acquisitions gave Western ing corporate services, and that there will ers (increasingly the latter cannot make over 1.5 billion board feet of annual lum- be no significant changes anticipated to reasonable wages; see story on page 45). ber capacity and 6.8 million cubic metres sustainable harvest levels, contractor and Simply put, when markets are not per- field workforce employment as a result of fect, winners and losers emerge. The Market Report is brought to you by: STAFFORD LAKE BENWEST Logging & Road Contractors LOGGING LTD. LOGGING LTD. Campbell River Tel: 250-287-7932 Email: [email protected] 20 Truck LoggerBC Winter 2019.