CHARACTERISTICS OF THE EASTERN "GRADE" HARDWOOD SAWMILLING INDUSTRY.
GEORGE BARRETT [+]
This paper presents a current analysis of an important segment of the hardwood lumber industry termed "grade mills" or sawmills that primarily produce lumber graded under National Hardwood Lumber Association rules. The analysis found considerable differences between mills that use bandsaws for initial log breakdown (band mills) and mills that use a circle saw for initial log breakdown (circle mills). On average, band mills were found to be larger than circle mills, have a greater kiln-drying capacity, and export a higher proportion of lumber relative to production. The analysis also found that mills that used high-cost, computerized edgers and bin sorters are more likely to be band mills. A regional analysis of this industry showed that mills in the Southern and Appalachian regions are larger than those in other regions of the eastern United States. However, New England mills exported proportionally more lumber than mills in other regions, while firms in the Midwest had considerably greater dry-kiln capacity .
The hardwood lumber industry has long been characterized as consisting of small, independently operated sawmills that manufacture products ranging from railroad crossties to high-grade lumber. However, as the hardwood resource has grown, so has the sawmilling industry [5,8]. Over the last 10 years, multiple-mill operations have become considerably more common, as have firms that produce more than 20 million board feet (MMBF) per year [1,4]. Dry kilns associated with sawmills also have become more numerous, in part because of increased export demand. These changes along with a decrease in softwood supplies have generated increased interest in the hardwood industry by local, state, and federal agencies.
Given the increased interest, it is important to understand the characteristics of firms operating in the hardwood industry. Unfortunately, any analysis of the hardwood lumber or other hardwood industry has been problematic because of a lack of timely data on industry structure. Commercial directories of the forest products industry published by Miller Freeman  and others list only a fraction of the hardwood sawmills in operation. State directories are published infrequently and there are large inconsistencies between states. Directories developed by trade organizations provide information useful to lumber buyers but are of little use to researchers. Recently, however, a survey was conducted by the Weekly Hardwood Review (WHR) of its readership in an effort to provide more information about the industry. Still, interpreting this survey remains problematic because they tend to provide data only for a segment of the industry.
Because the data used in this analysis were collected from only a segment of hardwood lumber manufacturers, our first objective was to explore what part of the hardwood industry is represented by this data. Our second objective was to examine differences in band and circle mills with respect to production capacity, kiln capacity, export volume, and the use of increasingly expensive downstream equipment. This analysis is followed by an examination of regional variations in production, kiln capacity, export levels, and the propensity to have dry kilns and to export.
DATA COLLECTION AND REVIEW
Data from the 1998 survey (for calendar year 1997) were obtained from questionnaires faxed or mailed to 600 WHR subscribers believed to be saw-milling firms.
The surveyed firms provided information on production, number of mills, volume exported, kiln-drying capacity, and downstream equipment. However, few firms with multiple mills provided information on individual mills.
In general, sawmilling firms that subscribe to the WHR and the competing Hardwood Market Report are eastern "grade" lumber mills or mills whose primary product is boards graded using National Hardwood Lumber Association (NHLA) rules. These mills may also produce railroad crossties, pallet cants, or other industrial products from the lower-quality material in the center of logs. Mills that do not normally subscribe to a price reporting service include small operations that produce less than 1 MMBF a year and mills that specialize in industrial products such as pallet parts.
Although there are no estimates of the volume of production for different types of hardwood sawmills, a rule of thumb is that about two-thirds of the eastern hardwood lumber (approx. 7 to 8 billion board feet (BF)) is produced by mills with annual production exceeding 3 MMBF and the remaining third is produced by small or industrial mills.  This proportion of grade mills production is supported by U.S. Census data indicating that one-third of reported hardwood lumber production was listed as not specified by kind and that an additional 11 percent was listed as mixed species . In general, the small or industrial mills that do not produce grade lumber also do not keep records on species produced. Only 2 firms that participated in the WHA survey listed a portion of their production as mixed hardwoods, and the volume of mixed hardwoods totaled less than 1 MMBF.
Of the questionnaires distributed, 130 (22%) were returned and considered usable. The 130 responding firms operated a total of 217 mills, produced more than 1.9 billion BF of hardwood lumber, and exported nearly 250 MMBF. These volumes correspond to roughly 25 percent of lumber produced by grade mills and 21 percent of the hardwood lumber exports [2,6]. It should be noted that the responding firms probably represent considerably more than 21 percent of eastern sawmills that export lumber since significant amounts of the total hardwood lumber exports are shipped by western mills and eastern concentration yards.
A second way to examine the surveyed mills is to look at a histogram of the production levels of the surveyed firms. For reasons of disclosure, Figure 1 includes the two largest firms that participated in the survey as producing more than 80 MMBF. The 130 firms that participated in the survey produced from 1 to over 80 MMBF of lumber in 1997 (Fig. 1). The mean production was 14.6 MMBF per firm and 8.8 MMBF per mill. Over 93 percent of the surveyed firms produced more than 3 MMBF annually and over 75 percent produced over 5 MMBF.
Luppold  estimated that in 1992 mills that produced more than 5 MMBF represented 53 percent of the production and 14 percent of total sawmills. However, state primary processing directories published since the early 1990s indicate that mill size has continued to increase. For example, the average capacity of West Virginia sawmills that produced more than 5 MMBF annually increased from 10.2 MMBF in 1992 to 11.2 MMBF in 1997 or 10 percent [11,12]. Still, this information indicates that the average firm that responded to the WHR survey operates mills that may be larger than the average eastern grade mill.
The two initial log breakdown methods used at most hardwood grade mills are a fixed-placed band blade or circle saw blade. Such mills are termed band and circle mills, respectively. The ad vantage of a band mill is lower kerf loss and smoother sawn surfaces. A smoother surface allows mills to cut a slightly thinner board and still maintain grade specifications. The combination of lower kerf loss and smoother surface allows grade mills to gain a greater volumetric yield for a given log.
The advantage of a circle mill is lower capital, operational, and maintenance costs. Circle mills can be cost efficient in many situations. For example, a mill owner may use a circle mill if cutting mid- to lower-grade logs when a large proportion of the log is not sawn into grade lumber but into railroad crossties or pallet cants. Thin-kerf circle saws are available but usually have a lower feed or production rate than traditional band or circle mills.
Both band and circle mills may be teamed with a downstream band or circle resaw, gang saw, edger, or combination gang saw and edger. Edgers range from fairly simple devices to highly complex computerized edgers that are programmed to make cutting decisions desired by the mill operator. An additional piece of equipment at some larger mills is a bin sorter, which replaces the labor intensive green chain.
The firms surveyed fell into five categories: those with a single band mill (SB), multiple band mills (MB), a single circle mill (SC), multiple circle mills (MC), and firms with both band and circle mills (MBC) (Table 1). The most common survey respondents were SB firms. On average, SB firms produced more than 10 MMBF of lumber annually, exported more than 1.4 MMBF, and accounted for nearly 30 percent of the lumber produced by firms surveyed. The 11 MB firms operated 44 mills and accounted for 32 percent of lumber production, 36 percent of the lumber exported, and 40 percent of the kiln capacity.  This level of dominance by the MB firms may indicate economies of size in lumber distribution.
Fifteen of the responding firms operated both band and circle mills. Although these MBC firms are more numerous than the MB firms, the average mill produces about one-half the amount of lumber and total firm production level is less than one-half compared to MB firms. Per-mill kiln capacity and volume of lumber exported by these MBC firms are considerably less than SB or MB firms.
The SC operations are smaller than their band counterparts, averaging 6.4 MMBF per year. Kiln capacity and volume exported also are smaller. Average production levels of the MC operations exceeded 9 MMBF per year per firm and 3.6 MMBF per mill. These firms also had the lowest mill kiln capacity and export volume but the highest percentage of firms producing railroad crossties.
While quantity exported or proportion of production exported may be an indicator of the consumption of higher-grade logs and the production of higher-grade lumber, crosstie production is an indicator of the consumption of lower-mid- and lower-grade logs. Less than 27 percent of the SB firms reported crosstie production compared to more than 42 percent of the SC firms. In multiple-mill firms, there is a greater likelihood that at least one mill will produce ties because of local tie or log/stumpage market conditions. Still, as firm type changes from MB to MBC to MC, the percentage of mills producing ties increases from 54.7 to 73.3 to 87.5, respectively. The information on export levels and tie production shown in Table 1 supports the commonly held belief that on average, band mills use higher-quality logs to produce higher-valued lumber, while circle mills use lower-quality logs to produce a greater volume of industrial lumber.
Resaws are a common piece of equipment in eastern hardwood mills and they allow the headsaw operator to concentrate on opening up the log and allow the resaw operator more time to extract higher-quality lumber from the cant. In general, resaws facilitate maximum grade yield without slowing the head-saw, thus increasing capacity and grade yield. Table 1 shows that 60 percent or more of the SB, MB, SC, and MBC operations used resaws.
Two other pieces of downstream equipment that are being used increasingly by the eastern hardwood grade industry are computerized edgers and bin or automatic sorters. There is a large difference in the use of this high cost equipment between band firms and circle firms. Twenty-five percent of the SB firms used computerized edgers compared to 12.5 percent of the SC firms. Less than 10 percent of the MB firms used such edgers. However, over 25 percent of MB firms had at least one bin sorter. The relatively low level of technology used by MC firms is evident in that none of these firms reported using a computerized edger or bin sorter.
It is apparent from Table 1 that band mills produce more lumber than circle mills. Although the band mills surveyed also had marginally more resaws than the circle mills, this small difference in resaws cannot explain the large difference in production capacity. What is known is that the higher the quality and the greater the diameter of logs processed, the greater the production per minute of mill operation . The information resulting from the WHR survey combined with what is known about the effect of log size and quality on sawing time suggests that future research should examine the type of logs and products being processed by band and circle mills.
REGIONAL ANALYSIS OF FIRM CHARACTERISTICS
For purposes of analysis, the responding firms/mills were separated into six regions (Table 2). The two largest firms were excluded from this analysis since both operate mills in several regions.
A comparison of mill and firm production levels, kiln-drying capacity, and export volumes is presented in Table 3. Southern and Appalachian mills and firms were found to be larger than those from other regions. Firms in the Penn/York region were the smallest because of a combination of smaller mills and few multiple-mill firms. The relatively low average dry-kiln capacity of the Penn/York firms was mainly the result of low production levels; however, the ratio of kiln capacity to production level is similar for both Penn/York mills and New England mills. Central mills had the highest kiln capacity and the highest ratio of kiln capacity to production. The Appalachian, Lake States, and Southern mills had relatively low ratios of kiln capacity to production.
Although the ratio of kiln capacity to production is a useful indicator of a firm's propensity to sell dried lumber, it is not necessarily indicative of the volume of lumber actually dried. For example, the high kiln-drying capacity in the Central region may, in part, be due to the greater difficulty of drying white oak (an important species in this region). Similarly, mills in the Appalachian region may have lower kiln-drying capacity because they dry a larger amount of yellow-poplar.
The volume of lumber exported seems to be a function of the level of production and the region. Southern and Appalachian firms are considerably larger than those in the other four regions and therefore export more lumber. New England firms are close to Canada (our largest trading partner) and major Atlantic container ports (most hardwood lumber is shipped by container). Lake States firms export the least lumber, probably because of the long distance to coastal ports that handle containers of lumber. Central firms export a relatively large quantity of lumber given the location of the region, mainly because the white oak grown in this region is highly desired in Germany and other European markets.
SUMMARY AND CONCLUSIONS
This analysis of the eastern "grade" hardwood lumber industries revealed considerable variation between firms based on mill type and whether a firm had a single mill or multiple mills. The average band mill produced more lumber than mills that used circle headsaws. Firms composed of two or more band mills produced disproportionately higher volumes of lumber, had a greater kiln capacity, and exported more lumber. In general, band mills exported a greater volume of lumber, while circle mills had a greater propensity to produce cross-ties. These findings indicate that band mills tend to use higher-quality logs because they are more efficient with respect to volumetric yield than circle mills.
Mills operating in the Southern and Appalachian regions were larger than those in other regions of the eastern United States. However, New England mills exported a greater proportion of their lumber production than mills in other regions, probably because of their proximity to Canada. Firms in the Midwest had a greater dry-kiln capacity relative to production than firms in other regions.
It should be noted that this study provides a one-time snapshot of a continually evolving industry. Since the completion of the survey, there have been more acquisitions by larger firms to increase use of both bin sorters and computerized edgers. Average mill size also has continued to increase as small circle mills continue to go out of business. To what extent these trends will continue is unknown, thus requiring continual monitoring of this industry to insure an accurate characterization.
The authors are, respectively, Project Leaders, USDA Forest Serv., Northeastern Res. Sta., 241 Mercer Springs Rd., Princeton, WV 24740; and Editor, Weekly Hardwood Review, P.O. Box 471307, Charlotte, NC 28247. This paper was received for publication in December 1999. Reprint No. 9065.
(+.) Forest Products Society Member.
(1.) Information on sawmill production volumes relative to sawmill size is based on a sawmill database maintained at the Forestry Sciences Lab. in Princeton, W.V. The USDC (10) estimate for hardwood lumber production in 1997 was 10.7 billion BF while the estimate developed at the Forestry Sciences Lab. was 12.2 billion before.
(2.) It should be noted that the relationship between kiln capacity and the volume of lumber that a firm dries is affected by a variety of factors including the species and thickness of the lumber being dried, the initial moisture content of the lumber, if lumber has been predried or air-dried, or the amount of time the kilns are actually in use. Therefore, the reader should be cautioned that when dry-kiln capacity of a firm is discussed it should not be considered as an absolute indicator of the volume of lumber dried by the firm.
(1.) Barrett, G. 1999. Are mergers and acquisitions the wave of the future. Weekly Hardwood Rev. 14(31).
(2.) Emanuel, D. and C. Rhodes. 1999. Bull. of hardwood market statistics, first half - 98. Res. Note NE-368. USDA Forest Serv., Northeastern Res. Sta., Princeton, W.Va. 22 pp.
(3.) Luppold, W.G. 1995. Regional differences in the eastern hardwood sawmilling industry. Forest Prod. J. 45(10):39-43.
(4.) _____. 1996. Structural changes in the central Appalachian hardwood sawmilling industry. Wood and Fiber Sci. 28(3):346-355.
(5.) _____. 1999. Estimates of hardwood lumber production, an internal database maintained at the Forestry Sciences Lab., Princeton W. Va.
(6.) _____ and G.P. Dempsey. 1994. Factors affecting regional changes in hardwood lumber production. Forest Prod. J. 44(6):8-14.
(7.) Miller Freeman Publications. 1998. Directory of the wood products industry. Miller Freeman, San Francisco, Calif. 945 pp.
(8.) Powell, D.S., J.L. Faulkner, D.R. Darr, Z. Zhu, and D.W. MacCleery. 1993. Forest resources of the United States, 1992. Gen. Tech. Rept. RM-234. USDA Forest Serv., Rocky Mountain Forest and Range Expt. Sta., Fort Collins, Colo. 132 pp.
(9.) Rast, E.D. 1974. Log and tree sawing times for hardwood mills. Res. Pap. NE 304. USDA Forest Serv., Northeastern Res. Sta., Princeton, W. Va. 10 pp.
(10.) U.S. Department of Commerce. 1997. Lumber production and mill stocks. MA24T (97). USDC, Washington, D.C.
(11.) West Virginia Bureau of Commerce, Division of Forestry. 1998. The forest industry of West Virginia 1997. Charleston, W. Va. 73 pp.
(12.) West Virginia Department of Commerce, Labor, and Environmental Resources. 1993. The primary forest industry of West Virginia 1992. Charleston, W. Va. 93 pp.
Camparison of characteristics of surveyed eastern hardwood grade mills. Single band Multiple band mill firms (SB) mill firms (MB) No. of firms 56 11 No. of mills 56 44 Avg. annual production capacity of mills (MMBF) 10.16 14.00 Avg. annual production capacity of firms (MMBF) 10.16 56.00 Avg. annual kiln drying capacity (MBF) 253.4 299.9 Avg. annual export volume (MBF) 1.41 2.01 Percent of mills or firms that produce crossties 26.8 54.6 Percent of mills or firms with resaws 66.1 63.6 Percent of mills or firms with computerized edgers 25.0 9.1 Percent of mills or firms with bin sorters 16.1 27.3 Multiple band and Single circle circle mills (MBC) mill firms (SC) No. of firms 15 40 No. of mills 54 40 Avg. annual production capacity of mills (MMBF) 7.15 6.41 Avg. annual production capacity of firms (MMBF) 25.75 6.41 Avg. annual kiln drying capacity (MBF) 149.0 99.6 Avg. annual export volume (MBF) 0.87 0.75 Percent of mills or firms that produce crossties 73.3 42.5 Percent of mills or firms with resaws 60.0 60.0 Percent of mills or firms with computerized edgers 13.3 12.5 Percent of mills or firms with bin sorters 6.7 5.0 Multiple circle mill firms (MC) No. of firms 8 No. of mills 21 Avg. annual production capacity of mills (MMBF) 3.60 Avg. annual production capacity of firms (MMBF) 9.45 Avg. annual kiln drying capacity (MBF) 61.4 Avg. annual export volume (MBF) 0.14 Percent of mills or firms that produce crossties 87.5 Percent of mills or firms with resaws 50.0 Percent of mills or firms with computerized edgers 0.0 Percent of mills or firms with bin sorters 0.0 Definitions of regions, the number of firms and mills surveyed, and average annual production per mill in each region. States No. of No. of Avg. production Region included firms mills per mill (MMBF) New England CT, DE, ME, MA, NH, RI, VT 13 18 5.19 Penn/York PA, NY 29 34 5.72 Appalachian KY, NC, TN, VA, WV 25 44 9.19 Central IA, IL, IN, KS, MO, OH 20 31 5.22 Lake States MI, MN, WI 20 27 6.06 South AL, AR, GA, FL, LA, MS, SC 21 37 13.76 Comparison of average firm production level, dry-kiln capacity, and volume exported for the six eastern regions, and percent of firms with dry kilns and export activities. Species New England Penn/York Appalachian Avg. production per mill (MMBF) 5.19 5.72 9.19 Avg. annual production of firm (MMBF) 7.18 6.70 16.17 Avg. dry kiln capacity (MBF) 210 170 260 Ratio of kiln capacity to production 29.2 25.3 16.1 Percent of firms with dry kilns 69.2 75.9 64.0 Avg. annual volume exported (MMBF) 1.35 1.01 1.66 Percent of production exported 18.9 15.1 10.3 Percent of firms that export 69.2 72.4 44.0 Species Central Lake States Southern Avg. production per mill (MMBF) 5.22 6.06 13.76 Avg. annual production of firm (MMBF) 8.09 8.18 24.24 Avg. dry kiln capacity (MBF) 450 150 390 Ratio of kiln capacity to production 55.6 18.3 16.1 Percent of firms with dry kilns 90.0 60.0 66.7 Avg. annual volume exported (MMBF) 1.29 0.42 3.80 Percent of production exported 15.9 5.1 15.7 Percent of firms that export 65.0 25.0 66.7
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|Author:||LUPPOLD, WILLIAM; BAUMGRAS, JOHN; BARRETT, GEORGE|
|Publication:||Forest Products Journal|
|Date:||Sep 1, 2000|
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