Log exports: is the tide turning?

The spotted owl and market forces may be achieving what decades of political activism could not--stemming the flow of unprocessed Northwest logs overseas.

Even after a century of intensive logging, the forests of the Pacific Northwest contained astronomical volumes of old-growth timber in the 1950s. Large landowners, wanting to capture the value of the resource and restart the growing cycle with vigorous young trees, found their best market in the export of logs, initially to Japan. For more than 30 years, log exports have been an important source of revenue for the landowners, an integral part of U.S. foreign trade policy, and a source of often bitter controversy because many in this country believe the logs should be processed in the U.S.

The importing nations were willing to pay 25 to 30 percent more for the logs than U.S. mills would. In recent years, this premium has often been around $150 per thousand board-feet. There was even a brief period when the export price was over 66 percent more than domestic mills would pay. Since markets for western timber are driven by price, the logs flowed naturally toward the fleets of ships specially designed and built to carry them across the Pacific.

In most years, the log volume shipped across the Pacific exceeded three billion board-feet. It reached more than 4.5 billion board-feet in both 1988 and 1989. However, exports began to decline in 1990 and continued to slip through 1992 as high U.S. prices drove the importing nations to other suppliers.

Meanwhile, restrictions on logging in the federal forests--imposed to protect the habitat of endangered species, most notably the spotted owl--have resulted in severe wood shortages among domestic mills. As a result, sawlog prices are 35 to 50 percent higher than at the end of the 1980s, creating a domestic market that competes effectively with overseas buyers. In short, the northern spotted owl and market forces may be achieving what decades of political activism could not.

"Either you travel or you starve," said Paul Iddings, president of the Longview, Washington, local of the International Longshoremen's and Warehousemen's Union.

Iddings, referring to a fourth year of decline in log shipments from Port Longview, pointed out that the average number of hours worked by members of his local were down about 11 percent in 1992 from a year earlier. The 270-some members of the Longview ILWU are having to travel to other ports in the Pacific Northwest to find work. "That's going to be the future on the waterfront," according to Iddings.

For 30 years, Port Longview has been the center of a bustling log trade with Japan, Korea, and China. For example, in 1988 long-shoremen loaded 425 million board-feet of logs destined for Asia. Late in the third quarter of 1992, port officials were projecting a decline in shipments to 240 million board-feet, a drop of 44 percent.

Of course, even 240 million feet is a lot of logs. Some, who have opposed the export of unprocessed logs for 30 or more years, would point out that this volume would sustain four or five medium-sized sawmills in the Pacific Northwest for a year. If each of those mills employed a typical 75 to 100 workers, there might be a net gain in employment over the export trade. Some of the same observers would also say that such a volume would go a long way toward replacing the timber no longer being sold from the national forests because of efforts to protect the habitat of the northern spotted owl. In fact, it appears that much of the 185-million-board-foot difference between 1988's shipments and 1992's projection has already gone to domestic mills that once relied on federal timber.

Port Longview has not been alone in experiencing a decline in log shipments. The ports at Coos Bay and Newport, in Oregon, were off by about 50 percent in the first six months of 1992 as compared with a year earlier. Other ports, such as Anacortes and Olympia, Washington, and Astoria, Oregon, are also seeing a decline in log shipments. Overall, exports from the three Pacific Coast states of Washington, Oregon, and California were reported at 2,056 million board-feet through August. This was a decline from a year earlier of 15 percent, or almost 400 million board-feet, and of 55 percent from 1988, when total log exports from the Pacific Northwest were 4,600 million board-feet.

There are a number of conjectures about the decline. The conventional one is that Japan's weakened economy has discouraged purchases, as illustrated by the 19 percent drop in exports from the U.S. in 1991. However, Japan's worldwide log purchases declined only one percent that year as the country appears to have shifted much of its business to New Zealand and Chile, both of which have extensive radiata-pine plantations and have had relatively stable prices.

Other observers maintain that heavy logging by industrial landowners has wiped out the supply. They cite the decisions by Weyerhaeuser and Georgia-Pacific to cease shipments from Coos Bay and Newport, respectively, as a sign that these companies no longer have exportable timber.

However, an increasingly accepted explanation is that the curtailment of timber sales from federal forests, done to protect the spotted owl, has created a domestic market for logs from privately owned forests that can compete with the Asian market.

The federal government's recent declarations that the owl and, more recently, the marbled murrelet are endangered has required that programs be established to protect their habitat. As readers of AMERICAN FORESTS know, these programs have been challenged in court by environmental groups, often resulting in injunctions against logging.

This has sharply reduced sales of timber from public forests, which until 1989 contributed about half of the Northwest's timber supply. The volume of national-forest timber under contract to be logged in areas affected by the spotted owl or under litigation has dropped from five billion board-feet as of September 30, 1990, to an estimated 1.75 billion board-feet at the same time in 1992. This has led to the closure of 117 wood-products manufacturing plants in the three coastal states, according to Paul F. Ehinger & Associates of Eugene, Oregon, consultants to the timber industry. Sixteen of those closures occurred after March 1992, and resulted in the layoff of more than 1,500 workers (data do not include logging operations).

As less public timber has been sold, lumber and plywood manufacturers in the Northwest have scrambled to obtain raw material from other sources, principally privately owned forests, including both industrial owners and farm lots.

Allyn Ford, vice president of Roseburg Lumber Company in Dillard, Oregon, has said that Roseburg has replaced about 25 percent of the raw material that it would ordinarily buy from the Umpqua and Siskiyou National Forests and the O&C lands in Oregon with logs that come from private lands. "A very significant amount of wood" that had been exported is presently being sold domestically, he said.

Historically, the export market has paid a premium of as much as one-third over local manufacturers. Now, says a Portland, Oregon, log broker, "Domestic mills are often outbidding exporters for logs from private lands."

To illustrate: Log Lines, a Mount Vernon, Washington, price reporting service, said the primary export log grade in the Longview area jumped 52 percent from January through August 1992 as exporters and domestic mills sought to outbid each other. The bidding pushed prices to just under $900 per thousand board-feet.

The sale of unprocessed logs to Pacific Rim nations that do not have enough timber to supply their domestic needs has been a cornerstone of U.S. trade policy since the late 1950s. Even at the slower pace in 1992, the Foreign Agriculture Service of the U.S. Department of Agriculture reported the value of softwood log exports at more than $1.2 billion through August.

In the Northwest, exports have been widely unpopular--except to timber owners, log brokers, and the ports and longshoremen of the region. In hearings before Congress and a number of federal, state, and regional bodies, proponents of exports have argued in favor of free trade, private property rights, and the local ports. Opponents have argued that the logs are a raw material that is vital to a domestic manufacturing industry, and is in chronic short supply.

The controversy did not become moot, but has been muted, since the late 1960s when Wayne Morse, then representing Oregon in the U.S. Senate, sponsored legislation that prohibited the export of nearly all timber sold from western forests managed by the federal government. That prohibition has been renewed annually, but some say that it merely increased the pressure on private lands to supply the demand from overseas.

The U.S. log-export business developed through the convergence of needs in both Japan and the U.S. In the early 1960s, Japan began a program to improve its housing. This was the payoff from an understanding between the Japanese people and their government that gave postwar economic recovery a priority over living conditions. By the 1960s, Japan was becoming an economic power and the government set out to fulfill its obligation to improve the standard of living.

The Japanese had a dilemma, however. Japan's well-managed but small forests could not provide the raw material for the building program that was envisioned. At the same time, the politically powerful sawmill industry (most sawmills in Japan were small family operations) demanded protection from imported building products. The solution, in Japanese eyes, was to complain that North American mills would not produce to their metric specifications, requiring that they import raw material and manufacture it domestically. The program began quietly enough in the late 1950s with material imported from the Philippines and Southeast Asia, but soon it spread to North America.

The second need was that of major U.S. timber owners to find markets for vast stands of mature timber. Since these stands were no longer "adding fiber," it was widely felt that the prudent landowner would remove the "decadent" material and replace it with new, vigorous plantations of Douglas-fir. The problem was that major timber owners, such as Weyerhaeuser and ITT-Rayonier, needed to find profitable markets for the huge volume of logs that would be produced.

Although U.S. markets were usually strong because of a high rate of house construction in those postwar years, it was doubted that they could absorb the increased volume of lumber and plywood that would result--even if the timber owners could build facilities to process the logs.

In addition, it was anticipated that timber sales from the national forests and O&C lands would increase substantially. The Forest Service, in particular, was coming under increasing pressure from industry and congressional delegations to raise commodity production, following the same rationale as that adopted by the managers of private lands. The increased sales of timber from federal forests meant that even stiffer price competition would face owners of private timber if they limited themselves to domestic markets.

In addition to the higher prices in the export markets, tax regulations that were designed to encourage all exports provided a further benefit. Those companies that established sales corporations overseas were allowed to exempt from 15 to 30 percent of their offshore profits from the U.S. corporate income tax.

According to Congress' Joint Committee on Taxation, the tax exemption for log sales averaged about $100 million a year during much of the recent past. Attempts to revoke this exemption for forest products have not been successful. However, a principal opponent of the tax break--Representative Peter DeFazio (D-OR)--has indicated he will resubmit legislation in the new Congress similar to bills he proposed in 1992.

Even should DeFazio be successful, the demand from Pacific Rim markets for North American timber will remain strong.

Growing populations and overall economic growth require that these countries have access to raw materials. Generally, they have demonstrated a willingness and ability to take the necessary steps to supply their needs.

Meanwhile, the decline in federal timber sales, partly because of endangered-species habitat and partly because the resource have been depleted significantly, means that the historically plentiful supply of low-cost public timber is shrinking. This was underscored in a recent report by Ehinger & Associates: ". . . the federal forests cannot be relied on as a dependable provider of the needs of the citizens of this country . . ."

As a consequence, the value of privately owned timber in the West has increased in domestic markets to closely reflect world market prices. This has good and bad aspects: The bad is that wood products used domestically in construction and for industrial purposes will cost more; worse, from a forestry standpoint, is that the present paralysis in national-forest management policy is creating a temporary market for timber that would be better left standing for another 20 years of growth. The ultimate good, however, is that the private owner of timberland will have an even more powerful incentive to maintain the highest level of forest management.