Forest companies say they can no longer get enough rail cars to move their products to market at a time when the U.S. housing market is going through a major recovery.
U.S. housing starts topped one million in March on a seasonally adjusted rate, more than double the low point hit during the recession, prompting a run on rail cars that Canadian mills use to get their wood products to market. It’s not just lumber that’s being affected. Oriented strand board, plywood and even pulp inventories are building at the mills, forcing companies to turn to trucks – which are also in short supply.
“If you had a pickup truck, we would use it,” Bob Hayes, transportation vice-president at Canfor Corp. said Tuesday.
Earlier this year, Canfor came within four hours of shutting down a pulp mill because of a rail car shortage. Pulp production is also up and because it is perishable, it cannot be stored outside, Hayes said. Canfor has erected a big-top style tent at one of its Prince George pulp mills to store inventory but so far hasn’t had to use it.
However, the rail car crunch is adding to costs, from additional trucking to causing ships to be delayed in port, he said.
“We were trucking this week from Prince George to Squamish terminal. We have never done that before. We had to find emergency trucks this weekend to go from Prince George to Squamish to keep the product flowing to the vessels and to keep the warehouses from overflowing,” Hayes said.
“I think transportation and the lack thereof, is going to be the biggest challenge for B.C. forest products companies to get their product to market in 2013 and beyond. Usually economics will drive solutions, but right now, that solution is to constrain the industry.”
Catherine Cobden, executive vice-president of the Forest Products Association of Canada, said the rail car shortage is systemic, with both CN and CP unable to deliver enough cars to meet growing demand.
“It’s very disappointing at a time when markets are rebounding and we are gearing up to support and supply, not just our traditional markets but our growing emerging markets,” she said.
“Our members are saying in some cases they are only getting half the cars they need to service their marketplace. Obviously this is a very difficult and untenable position for us.”
U.S. housing starts reached 1.036 million units in March on a seasonally adjusted rate, seven per cent higher than February and 46.7 per cent above March 2012, according to the U.S. lumber publication Random Lengths. March’s rate was the highest since 2008. The 2013 forecast had been for from 885,000 to 985,000 starts.
Doug Routledge, acting president of the B.C. Council of Forest Industries, said B.C. sawmills have responded by returning to two shifts. Employment in the forest industry has climbed marginally, from 51,490 direct jobs in 2009 to 56,340 in 2012, according to Statistics Canada.
“Most mills are back on a two-shift capacity which would be equivalent to normal production levels. A few mills, not many, have added in a graveyard shift. But it’s being buffered by transportation issues – not just railcars – where people are not able to get rid of finished inventory. That is buffering the ability to put on that third shift here and there,” Routledge said.
“We aren’t currently not supplying the U.S. market with quite as much product as I think they would like. It’s shortage of rail cars, a shortage of trucks and generally, a shortage of all transportation vehicles.
Further, a shortage of skilled labour is hitting the supply chain.
“There’s no question: There’s a shortage of drivers and a shortage of trucks, whether lumber or log, to move the product,”
The rapid rebound in housing coupled with the rail car shortage has forest industry leaders wondering if the two rail companies will be able to provide enough cars on a long-term basis to meet the U.S. appetite for Canadian wood products.
In an email statement, CN said since January, CN has been challenged by extremely cold weather in Western Canada, snowfall and several line disruptions.
“As a consequence, train velocity has declined, while terminal dwell times at classification yards have risen. These factors have adversely affected the productivity of the rail network, as well as service levels for all customers,” CN spokeswoman Emily Hamer said in the email.
“Throughout the winter we have been in close communication with our customers to keep them informed of these situations. We continue to work with customers to address their service needs.”
Routledge said CN has told the industry that rail cars got sidelined and then frozen in the snow.