This industry includes establishments primarily engaged in sawing rough lumber and timber from logs and bolts, or resawing 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.
321912 (Cut Stock, Resawing Lumber, and Planing)
321113 (Sawmills)
321918 (Other Millwork (including Flooring))
321999 (All Other Miscellaneous Wood Product Manufacturing)
Despite a strong U.S. economy in the late 1990s, which spurred demand for wood products in residential and light commercial construction, as well as for residential repair, remodeling, and home improvements, this industry experienced only modest growth. Nevertheless, sawmills and planing mills are the second largest sector in the forest products industry and the largest sector in the solid wood products industry. Their major product is sawn softwood (from coniferous trees) and hardwood (from deciduous trees) lumber. The industry's product shipments of $23.4 billion in 1998 increased to $25.0 billion in 1999. In 2000, however, the value of shipments declined to $23.4 billion.
Several factors affected the industry. Although sawmills were closing, primarily due to curtailment of logging in Western federal lands, those still operating maintained active production, creating an oversupply that dampened market prices. Lumber prices peaked in 1996 at $480 per thousand board feet. In mid-1998 they were at a low of $260 per thousand board feet, but in 1999 they rebounded to $340. Conditions in foreign markets also are contributing to oversupply. In the late 1990s, imports grew from 29.5 percent of consumption to 30.1 percent of consumption, while exports dropped from 6.4 percent to 4.9 percent. Japan is the largest export market for U.S. softwood lumber Canada and Spain are the second and third largest export markets, respectively.
The largest companies operating sawmills and planing mills cut a large percentage of the total North American production. According to the U.S. Industry & Trade Outlook, "commodities manufactured by this sector are used in a wide range of applications, including residential construction and repairs as well as nonresidential construction, paper and allied products, millwork items, cabinetry and furniture, prefabricated housing units, and sporting goods and toys." 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 first sawmill in the United States is said to have been 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 of 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. But while strong demand led to higher prices, lumber quotes 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 came under increasing pressure as logging on federal lands declined—between 1987 and 1995, the Western lumber industry lost almost half its mills. The major, integrated forest products companies that had large timber holdings of their own, however, remained competitive. While the big firms were not insulated from losses related to environmental legislation, they were generally in a stronger position to benefit from the higher prices that followed restricted supplies.
There also was a notable shift in lumber production away from the Northwest and toward the South, where most timberlands are privately owned. During the 1980s the seven largest forest products companies cut their mill capacity in the Pacific Northwest by 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 that in the West.
In 1994, the 20 largest lumber producers in the United States cut a total of 22.5 billion board feet, or some 38 percent of total North American production. These 20 firms operated 252 mills—down from 283 mills in 1991. The 100 largest companies in North America cut about 43 billion board feet, or about 71 percent of the industry's total production.
Even without any impact from curtailments of logging due to the spotted owl controversy, there was a general 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, 73 percent of lumber production came from mills producing more than 10 million feet annually. In 1979, mills with yearly output of 10 million feet represented 93 percent of the state's lumber supply. In 1990, the forty mills in this category produced 98 percent of Idaho's 2.06 billion feet of lumber.
Lumber consumption increased about 6 percent in 1996 to 50.5 billion board feet, compared with 47.7 billion feet the year before. Annual housing starts increased by 9 percent to 1.48 million units from 1.35 million units in 1995, and were about level with 1.46 million starts in 1994. Repair and remodeling also did well, rising 6.5 percent.
Pricing. Because of the rise in new home construction and the increasing restrictions on the lumber supply, lumber prices rose 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 nonwood substitutes increased. In 1995, as prices eased further, the amount of lumber used per square foot of construction rose. In 1996, when prices again turned up, users once more considered lumber substitutes.
Wood Alternatives. Despite the frustration with lumber's price volatility, users were not rushing to buy other materials. As lumber prices climbed above $500 per thousand board feet in 1993 and future supplies became uncertain, steel producers envisaged a windfall from the construction sector. But it never materialized because lumber prices retreated in 1995. However, there were also significant, underlying impediments to switching over to steel. Building codes were written mostly for wood and masonry, and carpenters, accustomed to working in wood, had little desire to use steel. Thus steel's share of the market for home frames was just 2 percent in 1996. Still, users were 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 did enable Western mills to pay the hefty quotes private owners demanded for their logs. But clear, blemish-free lumber comes from the mature trees of old forests, which environmentalists had mostly put under wraps; younger trees have a smaller percentage of clear wood. Thus the industry has become more sensitive to grade distinctions, with "better" (i.e., blemish-free) grades selling at a premium. Builders discovered that home buyers who watch their houses being built often demand this perfect lumber, even if other grades meet all structural requirements. But sometimes the difference in grades isn't purely cosmetic. Some of the wood of the faster-growing, younger trees that private tree farmers harvest is less strong, and thus more wood must be used to cover the same span. While this is usually not a crucial matter in a typical single-family home, for light commercial builders it had become an important issue. Thus builders continued 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 1990s, primarily because of environmental legislation and regulations that limited harvesting of federal timber lands. Even relatively small sales of federal timber lands became tangled up in lawsuits and court actions. In 1987, almost 10 billion board feet of timber was harvested from federal forests, compared with about 2.2 billion board feet in 1995—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 by 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; at the end of 1995, there were just 357 left. While the trend toward consolidation has been evident for decades, the difficulty of obtaining adequate supply certainly put increasing pressure on small mills.
Trade Conditions. The industry also was affected in the mid-1990s by international markets. Softwood lumber exports fell 3.2 percent in 1996 to 1.9 billion board feet. Exports to Europe and Japan were down 4 percent and 3 percent, respectively, while shipments to Australia and Mexico dropped 36 percent and 17 percent, respectively. In April 1996, Japan agreed to accept lumber grades that may have a few more imperfections but are still structurally sound. Lumber exporters hoped the agreement would shore up shipments to Japan, although some domestic users expressed concern that it would exacerbate lumber price inflation in the United States.
To meet expanding demand at home, the U.S. increased its lumber imports. In 1994, softwood lumber imports, mostly from Canada, rose 16 percent to $5.8 billion. To help even the flow of lumber between the two countries, on April 2, 1996, Canada agreed to restrict its softwood lumber exports to 14.7 billion board feet between April 1, 1996, and March 31, 1997. Lumber prices rose sharply after the agreement went into effect, and U.S. builders protested what they felt was the agreement's impact on lumber markets. However, the effect of the pact on prices was a subject of dispute—some in the lumber industry argued that strong demand and lower inventories importantly contributed to the short-term price changes.
In the late 1990s, sawmills and planing mills were being affected by policies concerning logging in government forests. Curtailment of logging on federal lands 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, from a peak of 12.7 billion board feet of timber, the timber harvest on federal lands fell to 3.3 billion board feet—a drop of 75 percent. In 1999, the Clinton Administration proposed to protect another 40 million acres of undeveloped forest from logging. These policies chiefly affected Western national forests, and consequently adversely affected Western sawmills, which relied on a supply of logs from federal lands. Many mills went out of business or consolidated. Eastern sawmills, which relied on logs generally cut from private lands, on the other hand, saw some improvement in production levels. Eastern lumber production increased from 29.1 billion board feet to 29.3 billion board feet in the late 1990s, while western lumber production decreased from 17.5 billion board feet to 17.2 billion board feet.
The outlook for the industry appeared mixed. Moderate growth was expected through 2003. Despite economic turmoil in the U.S., a healthy single-family housing and home remodeling market, both bolstered by historically low interest rates in the early 2000s, has sustained demand for lumber and other products produced by sawmills and planing mills; this demand has helped to offset declines in exports in ailing foreign markets.
Large and small companies are engaged in sawmill and planing mill activities. They also are engaged in manufacturing products other than those classified under this category. The following sales figures cover all products produced by the companies. According to Manufacturing USA, in 1998 the top lumber producer in North America was Georgia-Pacific Group, with facilities in the United States and Canada. It had sales of $13.22 billion and was second in the forest and paper products category. Weyerhaeuser Company, in second place in 1998, had sales of $10.76 billion. Hoover's Company Capsules notes that "Weyerhaeuser is the world's largest private owner of softwood timber, with about 5.7 million acres in the southern U.S. and the Pacific Northwest and cutting rights to about 33.5 million acres in Canada."
Champion International Corporation ranked third in 1998 with sales of $5.65 billion. It controls about 5 million acres of timberland. Louisiana-Pacific, which controls some 950,000 acres of timberland, mainly in Texas and Louisiana, had $2.3 billion in sales in 1998. The company's "customers include large-volume building-products retailers and manufactured and traditional home builders," according to Hoover's. One of the oldest privately owned forest products companies in the Northwest, Simpson Investment Co., is the fifth leading company, with sales of $1.5 billion.
Other leading companies include: Rayonier Inc., which manages 1.5 million acres of timber, operates two lumber mills in the United States, and sells its products in 60 countries; Temple-Inland Inc., which produces lumber from the approximately 2.2 million acres of timber it controls; Crown Pacific Partners, L.P., which produces 570 million board feet annually from its six sawmills and some 800,000 acres of timber; Hampton Affiliates, which produces 825 million board feet of lumber annually from its five mills and some 182,000 acres of timber; Sierra Pacific Industries, which produces millwork products and lumber at its 12 planing mills and sawmills using timber from its 1.4 million acres; Plum Creek Timber Company, Inc., which owns 3.3 million acres of timber; and Pope & Talbot, Inc., whose chief wood products are specialty lumber and wood chips.
New technology and automation greatly improved productivity in the industry. In the 1990s, mills used computerized controls and laser scanners to maximize the amount of lumber obtained from a log. Automated graders were replacing humans. Waste materials were being used to fire boilers that provided mills with electricity, and 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 were able to increase profits by consuming the same or a lesser 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.
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United States Census Bureau. "Production and Mill Stocks," November 1999. Available from http://www.census.gov/ftp/pub/industry/1/ma24t98.pdf .
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