Sawmills and Planing Mills, General

SIC 2421

Companies in this industry

Industry report:

This industry includes establishments primarily engaged in sawing rough lumber and timber from logs and bolts, or re-sawing cants and flitches into lumber, including box lumber and softwood cut stock; planing mills combined with sawmills; and separately operated planing mills that are engaged primarily in producing surfaced lumber and standard workings or patterns of lumber. The industry also includes establishments primarily engaged in sawing lath and railroad ties and in producing tobacco hogshead stock, wood chips, and snow fence lath. Establishments primarily engaged in manufacturing box shook or boxes are classified in wood container manufacturing industries; those manufacturing sash, doors, wood molding, window and door frames, and other fabricated millwork are classified in millwork, veneer, plywood, and structural wood industries; and those manufacturing hardwood dimension and flooring are classified in SIC 2426: Hardwood Dimension and Flooring Mills.

Industry Snapshot

The largest companies operating sawmills and planing mills cut a large percentage of the total North American production. Products manufactured by this sector are used in a wide range of applications, including construction, millwork, cabinetry and furniture, paper, and sporting goods. The industry is affected by governmental, environmental, and land-use policies that regulate logging. In recent years those policies have contributed to consolidation of companies.

The U.S. Census Bureau reported that 3,582 sawmills operated in the United States in 2007, down from 3,775 in 2005. Sawmills employed 89,507 workers in 2007, compared to almost 105,000 workers in 2005. According to Dun and Bradstreet's 2009 Industry Reports, states with the most establishments involved in this industry included Pennsylvania, Michigan, Wisconsin, and North Carolina. Michigan accounted for $2.4 billion, or 24 percent, of the $9.9 billon in nationwide revenues in 2008, followed by Virginia with $740.7 million, Washington with $554.0 million, Oregon with $513.5 million, and Pennsylvania with $391.6 million. In the late 2000s, any growth in the industry whatsoever was an unexpected and welcome development for sawmills and other wood product manufacturers.

Background and Development

The first sawmill in the United States was reportedly built in York, Maine, in 1623. Sawmills quickly became a common sight in frontier settlements. Most were small enterprises with one or two workers, and nearly all these mills were on rivers, using running water as their power source. As railroads spread across the country in the nineteenth century, the best spot to put a sawmill became the bank of a log-driving stream where a railway crossed it. With the shift from water to steam power, mills became larger and more complex. One mill on the Saginaw River produced 14 million board feet during the first half of 1874 and employed 150 men. Circular saws replaced the old-fashioned up and down saws in the 1860s, and the contemporary invention of a method for repairing worn or broken teeth greatly extended their useful lives. Electric power began to replace steam power in the early twentieth century, and by 1929, it accounted for 45 percent of all energy sources.

The mid-1990s were the best and worst of times for sawmill owners. With the economy healthy and interest rates low, housing starts climbed and lumber demand was buoyant. However, while strong demand led to higher prices, lumber quotas continued to be highly volatile. Moreover, the supply side of the equation remained perilous. Conservationists remained committed to restricting timber harvesting, and the fight for control of the nation's forests was as polarized as ever. Thus, mill owners had to scramble to find adequate supplies of raw material.

Relatively small mills without their own timber holdings were under increasing pressure as logging on federal lands declined between 1987 and 1995, when the Western lumber industry lost almost half its mills. The major, integrated forest products companies with large timber holdings of their own, however, remained competitive. While the big firms were not insulated from losses related to environmental legislation, they generally were in a stronger position to benefit from the higher prices that followed restricted supplies.

There also was a notable shift in lumber production from the Northwest to the South, where most timberland was privately owned. During the 1980s, the seven largest forest products companies cut their mill capacity in the Pacific Northwest 35 percent, while they increased it in the South by 121 percent. In the 1990s, lumber production continued to shift to the South, where softwood output was approaching production in the West.

Even without any impact from curtailments of logging due to environmental issues, there was a trend toward consolidation in this industry. One study completed on the lumber industry in Idaho noted that in 1956, the state had 311 sawmills, with 37 producing more than 10 million board feet. By 1990, the number of sawmills had fallen to 80, with 40 producing more than 10 million feet. In 1956, some 73 percent of lumber production came from mills producing more than 10 million feet annually. By 1979, mills with yearly output of 10 million feet represented 93 percent of the state's lumber supply. In 1990, the 40 mills in this category produced 98 percent of Idaho's 2.06 billion feet of lumber.

Pricing
The rise in new home construction and the increasing restrictions on the lumber supply caused lumber prices to rise dramatically in 1993 to about $500 per thousand board feet. For most of 1994, lumber prices were still quite high, fluctuating between $350 and $400. The high prices drove wood consumers to search for alternative materials, and the use of engineered wood and non-wood substitutes increased. In 1995, as prices eased further, the amount of lumber used per square foot of construction rose. In 1996, when prices again increased, users returned to lumber substitutes. Prices remained high until the 2000s, at which time they began to level and slowly decline. According to David Aschcraft, in a 2003 Forest Products Society report, forest products at that time were experiencing a 2 to 3 percent decline in return on revenues and return on assets.

Wood Alternatives
Despite the frustration with lumber's price volatility, users did not rush to buy other materials. As lumber prices climbed above $500 per 1,000 board feet in 1993 and future supplies became uncertain, steel producers envisaged a windfall from the construction sector. However, it never materialized because lumber prices retreated in 1995. In addition, there were significant underlying impediments to switching over to steel. Building codes were written mostly for wood and masonry, since carpenters, who were accustomed to working with wood, had little desire to use steel. Thus, steel's share of the market for home frames was 2 percent in 1996, but users were still not happy with the lumber situation.

With harvesting of federal lands severely restricted and demand healthy, mill owners scrambled to find logs. High lumber prices enabled mills in the West to pay the hefty prices private owners demanded for their logs. However, clear, blemish-free lumber comes from the mature trees of old forests, which environmentalists had mostly put under wraps, and younger trees have a smaller percentage of clear wood. Thus, the industry became more sensitive to grade distinctions, with "better" (i.e., blemish-free) grades selling at a premium. Builders discovered that homebuyers who watch their houses being built often demand this perfect lumber, even if other grades meet all structural requirements. However, sometimes the difference in grades is not purely cosmetic. Some of the wood of the fast-growing young trees that private tree farmers harvest is less strong, and more wood must be used to cover the same area. While this is usually not a crucial matter in a typical single-family home, for light commercial builders it became an important issue that had building continuing to search for reliable alternatives.

Move to the South
The wood products industry began to shift from the Pacific Northwest to the South in the late 1980s and into the 1990s, primarily because of environmental legislation and regulations that limited harvesting of federal timberland. Even relatively small sales of federal timberland became entangled in lawsuits and court actions. In 1987, almost 10 billion board feet of timber was harvested from federal forests, compared to about 2.2 billion board feet in 1995 for a drop of 78 percent in eight years. Overall, annual lumber production in the West fell by one-third over the period. Meanwhile, production of lumber from southern pine (mostly on private lands in the South) rose about one-fifth.

Many sawmills in the Pacific Northwest, particularly those that had relied on old-growth trees from federal lands for their logs, experienced dramatically reduced profit margins and struggled to survive. The western lumber industry had 702 mills operating in 1987, but at the end of 1995, there were just 357 left. While the trend of consolidation was evident for decades, the difficulty of obtaining adequate supply added pressure on small mills.

Nature's Impact
Sawmills and planing mills were affected by policies concerning logging in government forests. Curtailment of logging on federal land began in the early 1990s when the spotted owl was placed on the endangered species list and its nesting areas were made off-limits to loggers. Further restrictions were imposed because of concerns about other species, including salmon. In 10 years, the timber harvest on federal land fell from a peak of 12.7 billion board feet to 3.3 billion board feet, or 75 percent. In 1999, the Clinton Administration proposed to protect another 40 million acres of undeveloped forest from logging. This policy chiefly affected Western national forests, and consequently adversely affected the western sawmills that relied on a supply of logs from federal lands. Many mills went out of business or consolidated. Eastern and southern sawmills, which generally relied on logs cut from private land, on the other hand, saw some improvement in production levels.

In 2005, Hurricane Katrina, which destroyed several coastal towns and cities, including New Orleans, Louisiana, created a separate and exigent domestic demand for planed lumber for housing reconstruction. However, a national housing slowdown reduced demand for wood building products in the mid-2000s. As prices fell along with demand, sawmills and millwork plants reduced production, consolidated production, and trimmed employment. In Oregon, the largest U.S. producer of lumber, the number of logging jobs fell from 11,300 in 1990 to approximately 7,000 in 2006.

Production, however, became more efficient, and rebounded to pre-1990s levels. Some $13.9 billion in millwork products were sold in 2003 for an annual increase of 1.2 percent. Annual growth was expected to continue at this rate through 2014, when total sales were expected to reach $15.9 billion. "In the early '90s, people talked as if the industry was going to go completely," said Richard W. Haynes, an economist with the U.S. Forest Service, in ORian, continuing, "What happened is it went through a severe transition--we have less workers, but we're producing more wood than before."

The housing market continued to direct the wood products market in the mid- to late 2000s. Some experts claimed that the housing market had surpassed expectations. Although housing starts dropped, the falloff was not as sharp. A steady building trend was sustained across much of the nation, with spikes of increased activity in certain hot spots. Remodeling, too, provided a demand for building products, including wood flooring, decorative wood moldings, stairwork, and ornamental woodwork.

Current Conditions

Due in part to a slow economy, many in the lumber industry in general were struggling to stay afloat as the first decade of the twenty-first century neared a close. Business Wire reported in May 2009 that "all areas of business that depend on the nation's forests are suffering." U.S. production of softwood lumber fell more than 30 percent in the first two months of 2009, following a 17 percent drop for the year in 2008. Figures from the Western Wood Products Association (WWPA) showed that U.S. production dropped to 5.47 billion board feet in the first quarter of 2009, a 28.3 percent decrease from the previous year. In the 12 western states specifically, softwood lumber production at sawmills fell for the third year in a row in 2008, and the production figures that year represented the lowest (approximately 13 million board feet) recorded since the 1950s. Wholesale value of this lumber was also down, reaching only $3.66 billion in 2008 as compared to $6.1 billion in 2007. The Bureau of Labor Statistics (BLS) predicted the overall forestry industry would represent one of the fastest declining industries in terms of output through 2016. According to a report by Fitch Ratings in early 2009, "a turnaround for the industry is not in sight."

Correspondingly, employment in the sawmills and wood preservation sector declined in the first decade of the 2000s, based on figures from the BLS. The BLS reported that in 2008 16,010 workers were earning an average of $12.87 an hour as wood sawing machine setters, operators, and tenders, and 6,100 were woodworking (except sawing) machine setters, operators, and tenders earning an average hourly wage of $12.49.

Industry Leaders

Companies of all sizes engage in sawmill and planing mill activities. Many also engage in manufacturing products other than those classified under this category. The largest forest products manufacturer in the United States in 2009 was International Paper Co. of Memphis, Tennessee. Paper and packaging accounted for approximately two-thirds of the company's $24.8 billion in revenues in 2008. In the late 2000s, the firm sold most of its 6.3 million acres of forest land, retaining only about 300,000 acres in United States and 250,000 acres in Brazil.

Another industry leader was Plum Creek Timber Co. of Seattle, Washington, which acquired the timber operations of former lumber giant Georgia-Pacific in 2001. Plum Creek owned about 7 million acres of timberland in 19 states and also operated a number of wood-products conversion plants that produced lumber, plywood, and fiberboard. Sales totaled $1.6 billion in 2008. That year, Plum Creek announced plans to sell 310,000 acres to environmental groups.

Founded in 1890, Simpson Investment Co. of Tacoma, Washington, was one of the oldest privately owned forest products companies in the Northwest. Its Simpson Lumber Company subsidiary owned timberlands and produced lumber and plywood in California and Washington. Weyerhaeuser Company of Federal Way, Washington, owned 6 million acres of timberland in the South and the Pacific Northwest and leased 30 million acres in Canada. The firm's Wood Products division produced lumber, plywood, and other building materials. These businesses, along with related operations in containerboard, packaging, recycling, and pulp and paper, enabled Weyerhauser to post revenues of $8.0 billion in 2008.

Other leading companies included Rayonier Inc. of Jacksonsville, Florida, which produced logs and other wood products for sale in 60 countries and managed some 2.5 million acres of timberland in the United States and New Zealand. Sales for Rayonier in 2008 were $1.2 billion. Temple-Inland Inc. of Austin, Texas, produced lumber from the nearly 2 million acres of timber it controlled and posted sales of $3.8 billion in 2008. Hampton Affiliates of Portland, Oregon, manufactured approximately 1.9 billion board feet of softwood lumber in seven sawmills in Oregon, Washington, and British Columbia. Also important in the industry were Anderson, California-based Sierra Pacific Industries, which produced millwork products and lumber from its 2 million acres of timberland in California and Washington and had 2007 sales of more than $1.0 billion, and American Wood Moulding LLC of Hanover, Maryland, which manufactured wood mouldings and other millwork products in the United States, Mexico, Brazil, Chile, and New Zealand.

Research and Technology

New technology and automation greatly improved productivity in the industry. Mills use computerized controls and laser scanners to maximize the amount of lumber obtained from a log. By the 2000s, automated graders were replacing humans. Waste materials were used to fire boilers that provided mills with electricity, while some were being creatively marketed to consumers as dyed planer shavings and shrink-wrapped bundles of firewood. Because of improved machine and saw technologies, companies increased profits by consuming the same or lower amount of wood. They also expanded their markets by offering cut-to-size parts, shaping beyond planing, panels, and other products and services to customers.

One of the technologies in the lumber industry that was well established in North America by the late 2000s and catching on in other areas of the world such as Europe was the use of an environmentally friendly protective coating called Bluwood (for its blue color). Robert Seaman of Bluwood International told TTJ--The Timber Industry Magazine, "We have found a way to not only keep the borates in the wood, but to keep the moisture content constant as well." Seaman added that the coating has a lifetime guarantee and contains no harmful chemicals.

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