Problems of The West Coast Lumber Industry

By W. B. Greeley, Secretary-Manager We* Coa* Lumbemca's Ascirtbn.

An address before the Western Divicion Meeting, Chambcr of C.'ommcrce of the United States of AmeriePortland, Onegon, Decembcr 9, 19tO.

The forests of the Rocky Mountain and Pacific States were the last to be reached and utilized in the natural development of industry. They still constitute a vast national reserve of timber, containing 75 per cent of the softwoods in the United States and sufficient, iircluding the public holdings, to sustain their present rate of use for probably forty years to come.

llence, the problems of forest industries-while nationwide in scope-are particularty acute in the western states. Here is the great proving ground which challenges our ability to work out a sound industrial program, backed by constructive public policies, for the sane use of a great natural resource.

The lumber industry was the pioneer in exploring, acquiring, and utilizing these forests of the West. It came here from the timbered regions of the East with the accepted convictions of its craft. Lumber u'as a great national staple. Its consumption was bound to increase rateibly with population. Timber would enhance in value as the virgin supply diminished. The ownership of timber was an open door to financial success.

\I/ith these impelling motives, lumbermen entered the new virgin 6eld with tremendous energy, courage, and mechanicat efficiency. They developed a great industry, and with it the states and communities in which they operated and the transportation systems which served them. The logging, lumber and other forest industries today provide 65 per cent of the payrolls of Oregon and Washington and over 60 per cent of the railroad tonnage originating in the two states.

In the conquest of the western forests, timber supplies for half a century to come passed into private ownership. They were placed upon the taxrolls. They became subject to all the costs and processes of capitalization incident to private ownership. And this factor-of carrying an imrnense reserve of raw material with realization projecled far into the future-shortly began to dominate the industrial situation.

Meantime, the picture of the lumber rnarket began to change. National habits in the use of wood were changing. Many other inaterials, aggressively developed and merchandised, were competing with lumber. In the last twenty years, the per capita consumption of lumber has declined about one-third and the total consumption about one-fifth. Lumber no longer sold itself. It had to enter a highly competitive field and hqld its markets by quality, service and salesrnanship.

And so the new tumber industry of the West began to find itself between an upper millstone of raw material which it had taken upon its shoutders and a nether millstone of markets which were diminishing and more difficult to hold.

As it seeks to meet these problems, a progressive change is taking place in the industry itsetf. It is emerging from the old order in which its main reliance was upon the ownership of a natural resource. It is entering a new order whose keynote is industrial efficiency.

That means intensive research to improve the old products of the tree and develop new ones. It means the manufacture or further fabrication of specialized products adapted to the exact requirements of various groups of discriminating consumers. It means the carefut selection of raw material for specific uses, like a high-grade structural timber; and the exact identification of its quality to the architect or engineer who uses it.

It means lumber whose quatity is certified by grade marks, and lumber dried to definite specifications for the trade which requires it. It means not only the utitization of logging and mitl waste for pulp and like products, but a much greater correlation of manufacturing processes so as to find other outlets for the low-grade portions of the tog which will not return their cost as boards or scantlings.

The search of the lumber industry for greater efficiency is taking it back into the a7s6d5-1s study afresh its raw materiat before the process of conversion is begun. "Selective logAing" has become a famitiar term to the timber operator and a frequent practice in the pine forests of the West. It ilvolves simply' harvcsting thc species arrd grades of timber which yield a pro6t under prescnt ccononrc conditions, and leaving as far as practicable-for latcr conversiocthe trees 'which show red in the operator's books. Even in the dense stands of the Douglas fir region, there arc large possibilities in selective logging for ieducing industrial losscs in the manufacture and disposal of low-grade material.

Above all else, the new order in the lumber industry mcans pr<> gressive merchandising to suppty the prescnt-day requirements of ihe consumer for quality and service, and the aggressive development of markets to meet the intensc competition now encountered in almost every field of lumber use.

It is important to emphasize these facts at the outset. It would be futile for the lumber-industry to invite public discussion of certain of its major probtems, and particutady to suggest -further public co-operation in their solution, without clearly recognizing the necessity for many internal betterments which the industry alone can accomplish.

There still remains a most important phase of industrial eftcienqr: namely, an efiective adjustment of the current production of lumbcr to ths consumptive demand. The lumbcr industry sbarcs sith thc petroteum, coai and other naturat resource industrics the fundamenial problem of conserving enormous supplics of raw material elready acquired, and avoiding thc waste of destructiv,c compctition in their uie. It stands in nCed of some neans of balancing supply with demand in an orderly, effective way, in order to secuc a living return, maintain stabte employment, and avoid excessive loss of raw material.

Let me refer specifically to the situation in western Oregon and Washin6on.

A survey as of September 30 of this year revealed 695 living sawl mills, of which 291 had produced no lumber during the preceding quarter. The capacity of the 695 actual or potential producers, as normally and customarily operated, is in excess of fifteen biltion board fiet of lumber annually, or at least 25 pcr cent more lumber than the industry has yet sold in its most favorable year.

Behind these sawmitls stands some thirty years' supply of timber in private ownership. This vast amount of timber, in excess of 3X) biltion board feet, has been subject for many yc.rs to thc taxcs, protection costs, interest, and other carrying chargcs incident to private ownership. There has thus been creatcd a trcncndous finan- -ial pressure for liquidation. At the samc timc, the trcnd in timber values and the rate at wbich taxes and other carrying charges eccumulate largety restrict opportunities for thc salc of timber to arcas in the path of speedy manufacture. Hencc, the liquid'ition of brlrdensome investments in raw material is forcing timbcr into the sawmitls. Trees must be converted into dollers to pay taxcs, interest. and bond maturities; and sawmills opcratc in thc red ntl:r than incur the greater loss of shutting down.

The burden of thirty years' reserye of raw materiat is thus rlesponsible: first, for creating an excessive manufacturing cepecity; and second, for keeping more of it emptoyed much of the time than the orderly supply of our markets would warrant

In 1928, a relatively favorable year, a strcnuous educationd cfiqrt within the Douglas fir industry kept its production at 75 pcr cclt of capacity and suppty was fairly balanced with dcrnand.

In 1929, the mills operated at about 70 pcr cent of their norml capacity, but still manufactured too much lumbcr as the {cmid sla'ckentd ad"g the tast half of the ycar. Exccssivc ltocts rele accumutated, prices steadity forced down, and raste increescd.

In 1930, to the end oI October, the production dropped to 54 pFr cent of capacity. Since Juty 6rst, it has avcregtd but {5 pcr cc4t, and inventories have been materially dccreascd. Tbe sherp dcclitfc in business this year incident to the general deprcssion hes bccn rts fected in West Coast lumber ordcrs to tbe end of OctoDcr rcprF senting but 55 per cent of thc industry's capecity; in a dcclirc pf 30 per cent in the average price of tumber sold es conpud dF the spring of 1929; in the complete shutdown of 291 mills: and in throwing from 4O to 50 thousand mill and logging camp workers out of employment.

While this year's situation is, of course, abnormal, it pictures in vivid colors the basic weakness of an industry which must perforce carry a long-time supply of raw material. bver-production is its chronic ailment. At times it is under fair control. Then it breaks out afresh in acute form. And every cycle of a few months of overproduction brings in its train demoralized markets, irregular employ- ment or unemployment of labor, and excessive waste of raw maierial as the hard-pressed operator discards low-grade logs or lumber whose manufacture would only add to the burden of his losses.

The West Coast Lumbermen's Association has valiantlv attacked this giant.with the weapons of fact, education, and persuision. We have persistently p.ut before the manufacturers the iurrent facts as to production, orders, stocks, and market trends. We have unremittingly urged moderate production programs to keep the situation in balance from month to month. We have preached the economic gospel of-manufacturing what can be sold at a fair price rather than running full time and then selling what has been manufactured at any prrce.

We have had a fair measure of success. But the problem is too deep-seated to yield to educational methods alone. A more definite and business-like basis for a continuing, orderly control of produc- tion by concerted action throughout the industry must be found. _ Considering this need in connection with the other things the lumber-industry,should do in world-wide merchandising, developing by-products, and the like, I am convinced that no soluiion will bi effective without a large dggree of consolidation within the industry. This need not take the form of a single, giant merger of tirnbir h_oldings and operating facilities. It may come about most practic- ably thro rgh a number of consolidations, formed by grouping mills or timber hol_dings in each of the principal lumber producing districts of Western Oregon and Washington.

The industry- today is widely dispersed in timber and plant ownerghip-. Its. hundreds of independent units represent a great diversity in financial strength, manufacturing methods and co-sts, and meichandising policies. The first and most important step in stabilizing its production and in manufacturing and ielling its products mosi effectively under present-day competition is to consolidate in a smaller number of stronger units.

But grarrting that this is done, there will still remain the need for a more effective coordination of operating policies between the various producing units if current production is to be kept within the bounds of current demand. That requires concerted action on some definite, continuing basis. It is not possible without agreement between compet_itors in the same industry. And with this background, I make a plea for greater freedom of self-government by the industries which carry the responsibility of conserving natural resources.

At the present time, the right of the law-abiding manufacturer to cooperate with his neighbors in maintaining a sound relationship between supply and demand is practically limited to'-gatheiing.and disseminating statistics. Beyond that point he enters a twilight land of legality at the risk of frustration of his plans and criminal prosecution for himself. Every industry which has attempted to deal collectively with its production problems has come -up against this barrier. Last year a plan was presented to the Department of Justice, in behalf of the West Coast lumber industry, which proposed to aid in keeping production, sales and stocks in balance by an advisory service to the mills. It was not pronounced "illegal" but we were warned that if the plan were attempted the government would probably find it necessary to test its legality in the courts. It is questionable how far the constructive work .of the Federal Oil Conservation Board can be carried before it will be blocked by the antitrust laws.

Hence, it is my judgnrent that to enable the natural resource industries to exercise the silf-government necessary in their own and the public's interest, there must be some further clarification or liberalization of the present statutes dealing with restraint of trade.

The anti-trust laws are predicated upon the theory that public interest demands solely the most wide-open and unrestrained competition between producers of the same commodity. That theory is wholly inadequate to meet present-day-economic.and social needs of the United States. The public today dernands much more of industry than free competition. It wants efficient and dependable service. It wants stable employment of labor. Witness the appeals in recent months to all industries to reduce unemployment and the organization of special committees by the President to work with the industries of the country to that end.

The public demands that industry provide high standards of health, safety, and social well-being for its workers. And it demands that industries which convert natural resources conserve them from wasteful exploitation and rerrew them if, as in the case of forests and fisheries, they are renewable.

Over-production in the forest industries of the Northwest involves particularly direct and serious public losses. Urremployment in the (Continued on Page 39)