VE YEARS

tly to MakeWest ard of Excellence dged.

-8. D. Kingsley west is or could possibly be more manufactured and prepared for . From the selection of the logs hipping, WestOregon Fir is given re end that its quality and character most satisfactory. Our water shipf deep water docks at ourown mill. ng mill we prepare for market our er high grade products. AII our manufactured and graded under

(Continued from Paee 48)

:'(a) Hire capable technicians to study ways and means of bettering the efficiency of the logging and manufacturing operations and to study by-product possibilities, to the end of utilizing profitably the existing enormous waste of wood, both in the forest and at the mill.

"(b) Establish and carefully adhere to a simplified set of grading rules-possibly the adoption of the American Lumber Standard grading rules would be sufficient.

"(c) To build up good will value through the careful manuiacture and seasoning of the lunber product; through the elimination in whole or in part of the wholesalers and the establishment of direct contacts with the retail lumber dealers and the large individual consumers; through advertising; through trade-marking and through grade-marking.

"(d) Make a comprehensive study of markets, domestic and foreign, and act on the findings of such study, io retur! to my own thought in the situation, there is one point more that I want to discuss before summarizing my conclusions as to what the consolidation could do. That is, I want to emphasize the soundness of timber securities. Timber seaurity issues, property set up, with the proper sinking fund provisions applying to the timber as cut, using the sinking fund for the purpbie oi retiring funded obligations, together with the increasing value of standing timber, results in a constantly increasing ratio of property value to funded debt. There is no other security within my knowledge that equals the security of a timber issue, providing it has been properly set up. The 6re hazard, is the only hazard we have on the Pacific

"(.) Possibly establish distributing yards in California and on the Atlantic Seaboard. Certainly establish selling offices and an adequate sales organization.

"(f)- Work toward a position of leadership in the industry so that there would be a strong tendency for the rank and file to heed its recommendations, follow its action, and adopt its practices.

"(g) And, most important, pay interest, sinking fund, and principal on its obligations and realize increased earnings for its siockholders."

Coast, and it is infinitesimally small when we compare fire loss to; property value. The figures developed from the actual fire losses, as feported by the Forestry Departments of the States of Washington and Oregon, indicate thit the average annual fire loss is .OO0l93%. A fire loss might be considerable on any one property, but w-hen spread over the total prop€rty value, it- is veiy small. The fire losses of a company, such as the proposed contolidated company, with its properties scattered from California to British Columbia, would be so diluted that it would secure the industry's average annual expectancy in this regard. Therefore, I wish to say that I do not believe there is any real hazard to such a security frorn such fire losses. The company could set up .00027o for fire losses and would be in a position to meet any average yearly expectancy with an ample reserve.

To summarize the situation as I see it:

First, the exp€cted decline in Southern Pine production, anticipated in l9l9 to occur in 1924, began to materiatize substantially in 1926, and will be continual from now on;

Second, with normal consumption the present capacity of West Coast production is fully employed, and can only be substantially increased through the provision of new facilities and new timber;

Third, since 1923 Southern Pine prices have declined 82c per thousand feet, and Fir prices $8.37. The difference between the declines in the two woods can at least be recovered;

Fourth, additional values can be secured through proper pr€paration of the product for the market;

Fifth, by shipping dry lumber, l5.39Vo of the rail freight rates can be saved, and by manufacturing lumber according to American Lumber Standards, water freight rates can be reduced l0/o;

Sixth, by careful grading of the product, Fir lumber can be made comparable with other woods, and higher values can be secured;

Seventh,-savings can be created in administrativg manufacturing, and selting costs;

Eighth, while direct sales costs would probably show an increase, the direct sales costs which the industry now stands could be saved and an actual reduction in cost of sales could be made. and the full amount of sales price received;

Ninth, sales resistance could be greatly decreased and values could be materially increased, as for instance, by contracting with large industrial consumers to furnish their entire supply of lumber. such as the United States Steel Corporation does now with the car companies, harvester co:mpanies, and others; guaranteeing them price protection for a year. This would not only result in better values and lower sales cost to the lumber company, but would also operate to stabilize those great consuming industries which are on a competitive purchasing basis and assure deliveries, whereas quotations are not now always protected;

- Tenth, further savings can be made through re-allocation of timber to nearby mills, thereby reducing towage and other transportation charges;

Eleventh, savings can be created through concentrated purchase of supplies;

Twelfth, through the control of a large volume of traffic, the proposed corporation could naturally command more respect from the carriers, and should be in a preferential position when figuring on material for maintenance of ways and facilities;

Thirteenth, shipping. The ownership and control of a substantial portion of the shipping now included in inter-coastal service would place the new company in a commanding position to work out traffic agreements with other shipping companies, resulting in greater revenue and preferential rates. Shipping could be reorganized to provide for shipments on package basis, rather than on cargo basis;

Fourteenth, there is a potential power in the new company through trade-rnarking and grade-marking and advertising its product, guaranteeing and certifying to the public its grade and quality, to establish a good will in the trade which would be measured in differential of values as against the product of its competitors;

Fifteenth, the company, through the ownership of distributing facilities in large centers of consumption, acquired through the consolidation and otherwise, would be in favorable position to provide for the trade's requirements from the tree to the dealer and/or industrial consumer;

Sixteenth, if the company so desired, it could enter into the foreign markets and establish the same character of good will as it could establish in the domestic markets;

Seventeenth, the new company, through ownership of standing timber and control of standing timber back of it, would be in a position to reap the benefits of the natural increase in the value of standing timber owned and controlled;

Eighteenth, the company could, because of its size, afford to enter into the field of chemical and engineering analysis to utilize its woods and mill waste, as well as its power adv3ntages. With mills scattered from California to British Columbia, it could readily untilize the waste which goes into its burners, under its boilers. to manufacture power to be sold and distributed in its territory, as well as the manufacture of newsprint and kraft paper and other by-products. .The cement, steel, and other industri6s in competition with lumber have demonstrated the value of such studies and development flowing therefrom;

Nineteenth, the company could promote the utilization of odd Iengths and odd widths of lumber in American consumotion. the same as they are being used in foreign countries. Such utilizition alone would develop a saving of its forest products to the extent of a-t least l@o without additional cost to the company, lowering its production, costs and extending its life. Lower costs,'greater itilizatjbn, and extension of the industry's life would riatuiaiiy lower the ultimate cost of the consumer.

So, in summing up the possibilities of the situation, such a corpor- ation under_present changing economic conditions in the industry, with control of a substantial portion of production; with propii policies and facilities for manufacture and preparation; witli con- trol of shipping and distributing facilities; -wiih a well-organized merchandising department for the purpose of marketing ils own produc-t, coul4 secure, in my judgment, not only savings in the cost of manufacturing and marketing, but could at least restore the business to the basis of 1923. With Southern Pine depletion and the expansion of demand from this source, and through increased populatioh, its business would naturally expand and should constantly_grow more profrtable. During the period of development of its business, ,the corporation would be able to take a com:manding position in the trade and develop a good will in advance of new production, which should make its business continuously prosperous.

In conclusion, I wish to add this further thought: I consider a consolidation of West Coast lumber producing interests at this time an economic necessity from the point of view of the industry, and also frocn the viewpoint of the communiy. There are many other things that could be said, but, because of shortness of ti,mi, I shall leave unsaid.

I wish to urge you to persuade, not coerce, your clients and friends to enter into the consolidation progr;un, and if they will not become a part of the consolidation, to co-operate with it so far as they can legally thereafter. When the final financial set-up is completed, you may be assured it will be sound. lf and after you have investigated the company and satisfied yourselves, and agree with us, as to its soundness and the soundness of securities, we wish to urge you to recommend to your friends and clients the purchase of these securities as a safe investment.