A Better Organized Lumber Industry

By W. B. Greeley, Secretary-Managef,, West Coast Lumbermen's Association (Delivered at Annual Meeting of the West Coast Lumbermen's Association, Tacoma, Wash., January tO, lgtl)

Out of th'e welter of argutrretrt and discussion over business events in 1930. there are two faits of outstanding significance to us. The first is that the volume of West Coast lumber business held up better than most American industries. For example, while iron ore shipments from the Great Lakes dropped ofr 27 per cent.{rom the previous year, automobile production 38 per cent, and building permits 44 pir cent, sales of West Coast woods declined not quite 25 per cent.

The second fact, however, is that the prices received for West Coast lumber sufiered greater losses from 1928 to 1930 than the general run of commodities. While the various groups _of iron_ and steel products dropped lrom 5% to 131 per cent in value, and the average world-wide commodities dropped 15 per cent, the composite West Coast lumber price fell oft 3l% per cent.

The first of these facts is a source of real satiqfaction' In a year of general and serious depression in construction-as well as in praCtically all business-our product has more than held its own.

The second fact should cause keen dissatisfaction. The year has shown our industry up as poor sellers. We have been at the mercy of a buyers' market. We have not been able to make any profit on the 7 r/a billion feet of lumber that we have sold.

Now, without reaching for the moon or striving for the impossible, what can be done in 1931 to organize the West Coast lumber industry for profitable sales?

We cannot expect a normal volume of business this year. We may expect a gradual recovery toward normal. We sold 521 per cent of our capacity last year as compared with 70 per cent in 1929. In l93l we may sell 60 per cent-possibly more. It is futile to stake the chances for profit in 1931 on volume. If it proves to be a profitable year, it will be because we have made it so by individual management and industry organization designed to obtain a fair margin on the business which actually materializes.

Let me speak first from the standpoint of the individual mill.

The chief demoralizing factor on 1930's prices was the large inventories with which the industry started the year, and the still larger inventories which it piled up during the first five months. There can be no effective stabilization of the market without holding inventories close to the normal stock desired by each mill to move. its current production.

As yet we lack reliable information on t'hat the normal, or desirable, stocks of lumber to move our West Coast production should be. Inventory conditions may thus have a needless, or exaggerated, effect upon the market. The Association is now endeavoring to obtain from each West Coast mill a close estimate of the stocks which it normally should carry to do business satisfactorily with its own particular trade. This inforn-ration should give the entire industry a much clearer picture of its inventory situation and a more accurate understanding of when its stocks are actually excessive.

A normal inventory, of course, implies a well-balanced assortment of items-easy in theory but damnably hard in a sawmill. Nevertheless, it should be the aim of every manufacturer to hold down excessive item stocks as well as excessive total stocks-recognizing that the dumping of surplus items often starts a cave-in of the whole price structure.

To make 1931 a profitable year, I urge the West Coast manufacturer to first set up the inventories desirable at his mill for moving the business reasonably expected in a slow year; second to adjust his production from month to month to the orders actually received, keeping his inventories as close to the desired footage as practicabte; and third, to sell his lumber on firm price lists.

Any possibilities of profit in 1931 will be wrecked if the excess manufacturing capacity on the West Coast is not held in check. And the mo$t effective restraint that could be devised would be to get this industry generally to sell only on a 6rm price and to run its mills onty against current orders and desired stocks.

I know wetl the difficulty besetting the general adoption of such a plan, or any plan where each mill acts for itself. I have learned it at_ the cost of nruch shoe leather and many automobile tires. And

I want to carry our thinking and planning for profitable business beyond the individual mill-into the organization of the industry. West Coast lumber needs the strength of larger units, alike in selling and in production. We are competing in a business world more and more strongly organized in large units. We encounter everywhere the power gained through concentration of production, sales, by-product development, advertising, and market extension. We should take a leaf out of the same book.

I have cited the terrific slump in Douglas fir prices as one of the commanding facts of last year. Little else would be expected from several hundred distinct and independent lumber-selling units, meeting each other's competition in a mutual efiort to sell all the lumber possible on a declining market. But the saddest fact of all is that the result of this sort of competition is not only starvation prices but an actual loss in volume of sales.

Let me cite specific examples from our export markets. The American Trade Commissioner in London made the following report last November:

"The continued decline of Douglas fir prices quoted English buyers has been most unfortunate for all concerned. The extent to which prices have been cut has arnazed, the English trade which cannot understand why lumber of such quality is sold at prices understood below costs and also below priies for lumber from other sources generally considered inferior. Perhaps more important is the resentment and loss of confidence on the part of many important importers resulting from severe losses due to earlier purchases. Considering the quality of this wood and the probable price trend in the lumber trade, they felt safe in buying earlier this year. When certain reductions were made they again bought at lower prices to average up their losses. However, they were seriously disappointed because prices, instead of recovering, dropped again. Certain importers have lost considerable money and they see no justification so far as the English market is concerned for the extreme price reductions. Two or three importers have stated that they could have sold larger quantities of Douglas fir had prices been maintained at a reasonable level. At least two important importers, as a result of their unfortunate experience with Douglas fir 'prices this year, intend in the future to have as little as possible to do with this wood."

Douglas Fir Merch, now bringing about $13.60 at the mill, is selling in England at $8.00 per thousand under competing grades of other American woods. We condemn Soviet Russia for her dumping policy, but our lumber is today underselling Russian lumber in Great Britain'. Is it any wonder that disgusted buyers turn to other woods ?

The low price of West Coast lumber was an important cause of the adverse Japanese and Australian tariffs. Our cheap lumber was a shining mark for assessing higher tarifi revenues; and the tariff was demanded by local lumber dealers in each country because the unstable prices of West Coast woods had injured the security and profit of their business. And now our manufacturers have targely absorbed the new duties by still further reductions in their lumber prices.

A well-posted Japanese lumberman has told us that a great weakness in Japan's lumber irade with the West Coast has been our declining lumber values in recent years and the effect of losing transactions upon bankers who were financing the lumber trade. He doubted if Siberian lumber would now be much of a factor in the Japanese market if the unstable prices on the West Coast had not caused such financial losses among the importers and bankers and created a demand for a source of supply where prices could be controlled and profits assured.

A Holland importer, discussing the same uncertainty as to West Coast prices, said that when the lumbermen of his country find the value of any wood declining, with future shipments taking the profit out of their stocks and commitments, they do their best to get along without that wood.

Very frequently do I get the same reaction from lunrber dis- tributors and industrial buyers in the United States. The stable instir.r'tion, either manufacturer or merchant, with its own investment and trade to protect, \ 'ants security in the value of the materials which it uses or merchandises. We are, of course, surrounded by a throng of a different kind of buyer who has no interest in our indls- try except to take advantage of its selline weakness and disunion Stable prices on the West Coast would protect the manufacturer from the gambler and invoice-shaver, andjn the long 1un-in6163ss our sales to the responsible wholesalers, dealers, andlndustrial buvers, both at home and abroad, upon whom we'depend for our reil market.

Jh-e.excess_ive_price competition of the last two years, which wrote 9ff $q.49 per. M feet for this industry and cost it a total 6f Eft,OOO,OOO, has defeated its own purpose. It has not increased the voiume oi our sales. It has actually reduced our volume.

The.firm price-sales plan adopted last fall by a large number of mills in their rail trade was a definite and ionstruitive step to better this situation. It has had a good efiect. We should by all m_eans continue it, bring more milli behind it, and extend it to additional markets. But the organization of this industry for profit should go much further. In sales as in production control, we-need the strength of larger units.

The production and merchandising of goods today are constantly tending toward mass warfare. Whole Divisions and Arriries .r. en'- gage.d. The pride of the individual mill-owner, his gameness in playing a lone hand, the skill and shrewdness of 'his sa'ies manager -at best are poor weapous for this modern conflict and insecire supports for the vast amount of money and vast numbers of men committed to the keeping of this industiy.

Our West Coast mills represent a wide diversity in financial strength, manufacturing methods, sales, and channels of distribution. IJnder our intense competition, the tendency is inevitably to draw the whole industry down toward the level established bv its weaker or more fiercely competitive members.

On account of financial exigiencies or individual policies, some mills.do not curtail production. Ilence, invariably ttie difficulty in securing a general curtailment, no matter how evi-dent its necesiitv. Pressure to move stocks prevents some mills from adopting firin selling prices. Hence, hard competition and discouragement fir the mills which are on firm lists. Manufacturing or competitive considerations induce some mills to up-grade their lumber.- More hard competition and discouragement for the mills which adhere to standard grades. And so I might run on with commissions and shippins weights and almost the whole gamut of business activities. Gintte-men, we are a disorganized army of squads and companies; and our guns are more often turned upon one another than upon the enemy.

Our industry needs the cohesiveness and strensth that is possible only through larger units, I grant there are individual milli which will "get by" through exceptional products, service, or management. But for the 700-odd West Coast mills in Oregon and Washington- by and large-there is onty one real answer. And that is coniolidation.

Unquestionably, the most effective fornr of consotidation is the physical -m€rger, carrying control from the raw material through all stages of production, merchandising, and market extension. I have nothing new to offer on this old and much-discussed idea. I am un_able to point to a model merger among the various exhibits in this room, much as I would like to do so. I believe it most practicable not to attempt the single, all-embracing West Coast institution 9o qlten proposed. I urged that we concentrate rather upon more feasible local consotidations of timber properties and mill- and tog- ging facilities, grouped by natural geographical districts.

I want to recommend with the strongest conviction a determined an{ open-minded study of the possibilities of district mergers. The difficulties are largely within ourselves-in the unwillingness to surrender something and to give and take as men always must when working for a common goal. Pride of opinion and of possession are fine qualities, but poor substitutes for profit in busintss. And the critical need for our industry today is to put behind itself the old divisions and ruts and self-sufficiCncy which have filled your annual statements rrith red ink, and organize itself for profit,

I ask the West Coast loggers and manufacturers to take seriously the lesso-ns of disorganization with its staggering losses; and to undertake in each operating. district a serious study of the possibility of merging your properties. If from such a itudy, four or fivL strong, consolidated units could be brought about. the industrv would be strengthened immeasurably in eiery respect where it ii now weak. Most of you are convinced that this must be done in time. The time'is now.

Another form of consolidation which I urge for your consideration is collective setling. It may take the place of a physical merger wher-e one is not yet possible. A grouping of miili for joint merchandlsing lnay, indeed, be a first, step towlrd more complete consolidation. But-whatever progress is made in property mergers -in certain markets at least the consolidation of- saies is a p'iain necessity of our situation.

I know something of the past history of West Coast selling agen- cies, and some of the reasons why a number of them have niot iurvived foul weather. I only ask their critics to turn the same spot- light of cold analysis upon our present disorganized methodj of s-elling lumber.and.see what sources of complacency or satisfaction they can find_ theryin. No man-made institution cari be expected to work perfectly. But I am convinced that the selling abiliiies present -in this industry can merchandise its products at i much griater profit than is now obtained, if organized with the power of cincentrated volume and unified policy behind them. We can evolve effective and lasting sales organizations which represent the mills and operate in their interests, if we tackle the job with determination to see it through and with a willingness to subordinate individual preferences and asiumed advantages for the greater gain of profit in our business.

The. expor,t market is an outstanding instance of the need for collective .selling. Irt !!"t market, West-Coast woods are constintly encountering more highly organized competition from foreign cartelj. mergers and selling associations. Witness a single syndicale in EngJ land handling the -entire sale of Russian lumber-in tLe United Kin;- dom. Every foreign trade specialist has urged American industriEs to likewise consolidate their offshore sales uider the specific author- ity given us by the Webb-Pomerene Act. The examples I have cited to-day,_ which- many 9_f .you.can duplicate a dozen times over, qhpl" -tlt" deploralle condition into whlch our export sales have drifted_,-b.o.-th in prices.and volume., because we are io disorganized.

I would like to make it an objective of the West Coast luriber industry..during 193.1 to bring 90 per cent of its export business into one selllng organtzatton.

Our Atlantic Coast market is constantly imperiled and often wrecked by_transit.shipments, gambling in ipace, and freight rates that are seldom uniform at the same time and never stablJ for any length of time. The lone-handed mill-and there are ,10 or 50 whic[r sell regularly in that market-is powerless to stabitize the delivered price and hence to plotect its own F.A.S. price. Collective selling, in large volumes under single t_qrge single management, would go far in con- trolling these adverse factors on the East Coast, in ;tabilizins that important market, and in returni n stabilizing ing greater profits to the mills. Constructive efforts have already been made in that direction by several of West Coast manufacturers. The rest of the -industry groupg or west Loast 'I-he the industry should be organized to do its part. I urge that the mills not now De organrzeo ro oo rts part. I organized for direct.sales_on the Atlantic Coast form strong selling groups_in,that market; let us say one on Puget Sound,"on. oi Grays Harbor, and one on the Cotumbia River.

One of our oldest, nearest and best m4rkets is California-and how have we abused it! Let there be an irpward spurt in demand -we smother it with dumped lumber. Let the southern yards buy (Continued on Page 37)