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Pursuing the profits of value-added timber products.

Pursuing The Profits Of Value-Added Timber Products

BEFORE NORTH SLOPE crude, before coal or zinc mining or gold fields, even before furs, Alaska was recognized for its timber. A continuation of the great Pacific Northwest rainforests, these woodlands stretched from the shore to the 2,500-foot level of the mountain ranges. Today they look much the same as they did in 1741, when the first Russians stepped ashore on Alaska.

From the Kenai Peninsula alone, the Russians harvested nearly 3,000 board feet of lumber annually in the late 1700s. After the United States purchased Alaska, a single sawmill in Southeast cut 1.2 million board feet of logs in 1900.

The logs shipped from Alaska were turned into furniture, building supplies and other wood products. More importantly, uses for those logs created jobs in other parts of the United States and in foreign countries. But in Alaska, timber-related employment essentially meant cutting wood. By exporting its natural resources as raw materials, without manufacturing finished products, the state also was exporting jobs.

Today, the growing recognition of lost opportunities in the timber industry is generating support for turning timber into valued-added products and keeping jobs here in Alaska. By creating shingles, shakes, paneling, flooring, cabinetry--anything that adds value to the wood--profit as well as employment is increased.

Manufacturing wood products is a small but fast-growing industry in the state. Some companies and their value-added wood products:

* Star Cedar of Thorne Bay, cedar shakes and shingles;

* Black Bear Cedar Products of Thorne Bay, cedar shingles;

* Trapper Creek Timber of Wasilla, wood paneling;

* United Builders Supply of Anchorage, log home kits;

* Chugach Forest Products, owner of the Seward Sawmill, kiln-dried, dimensional lumber.

Alaska is rich in timber resource, with thousands of acres of wooded land within the state's boundaries. But much of the wooded land is owned by the federal government, which is responsible for defining uses. One complication is land transfers under the Alaska Native Claims Settlement Act have not been completed. Until ownership and usage of the land is finalized, a consistent source of raw material won't be available.

For instance, the Tongass National Forest covers 80 percent of Southeast Alaska. Its 17 million acres--greater in size than the states of Maryland, New Hampshire and Vermont combined--make it the largest national forest. Mandated for multiple use (recreational and commercial use), it is managed by the U.S. Department of Agriculture through the U.S. Forest Service.

Timber policy for the Tongass was set in 1980 by the Alaska National Interest Lands Conservation Act, which stipulated, among other things, the amount of logging that could take place in the national forest. But a new Tongass bill currently before Congress could reduce the amount of timber available for logging, thus revamping economic planning for timber production.

James Murchy, co-owner of Black Bear Cedar Products in Thorne Bay, near Ketchikan, started his company four years ago. Richard Rapp has been a partner in the business for the past year and a half. Their company buys waste from the Louisiana-Pacific mill nearby and processes it into cedar shingles, employing 12 people.

The business at various times "has just been hanging on," says Murchy. 1988 was a good year, while 1989 was not. A decline in Lower 48 housing starts resulted in less business for the cedar-shingle enterprise. But the owners of Black Bear Cedar Products are optimistic about 1990, feeling that the market for their products is improving.

Murchy says his biggest concern now is a steady supply of wood from the mill. With Tongass production in limbo, he can't plan beyond this year, he adds. Any cuts in timber allowance from the Tongass will affect Louisiana-Pacific, in turn affecting his operation. Black Bear has worked at diversifying its production source, buying wood waste from other companies. But those sources also would be in peril if Tongass production is limited.

Building Business. Dick Evans, president of United Builders Supply, doesn't have a problem with getting wood. He's using beetle-killed timber from around Cooper's Landing on the Kenai Peninsula. There's plenty of the wood available for log home kits the company ships to buyers in Japan.

In one of the ironies of commerce, trees killed by the spruce bark beetle make good logs for home kits. Most of the killed trees are mature and are the right diameter for log homes (8-10 inches finished). Because the trees die standing, they dry naturally and are not susceptible to dry or wet rot. The low-moisture content ensures against later shrinkage, and the trees maintain structural integrity in spite of beetle infestation.

Evans says United Builders is proceeding cautiously with this new product line. "The demand is there. We've kind of eased into it. We're improving our business as we go along," he explains.

The log cabin kits are offered for sale in Japan through a brochure distributed with various house plans. Once ordered, the kits are produced from eight inch logs and notched. Reinforcing rods are placed in the logs for support. Cabinets, interior partitions and additional lumber are included in the kits. Because of differences in building codes, the homes are shipped without electrical or plumbing systems. Those are placed later by Japanese contractors.

Most other wood product exports from 49th state businesses also are sold to buyers in Pacific Rim nations, primarily Japan and Korea. Japan is a good market for value-added wood products, says Eric Downey, research analyst for the Alaska Center for International Business.

Importing 70 percent of its wood products, the country faces shrinking production from its traditional sources in the Far East. Concern over rainforest viability in Southeast Asia has led to restrictions on timbering operations there, forcing the Japanese to look elsewhere for wood sources.

Increasing demand for "natural" products and a rising standard of living make the Japanese market very attractive to Alaskan producers. That nation's interest in wood products stems from a connection with its Shinto religion that stresses interaction with nature, as well as a desire to live in wood houses for status.

But the trade relationship with Japan is complicated -- by communication problems and by the difficulties of breaking into a market that is tightly controlled by Japanese trading companies, essentially cartels. Japanese trade is based on personal relationships, which take time to foster.

Also disquieting are growing fears that the Japanese conomy is volatile and unstable. Companies interested in doing business in the East are looking to Korea, Taiwan and China as additional markets that enhance trade stability.

A major problem with developing foreign markets, as well as domestic markets, is the questionable resource supply. In addition to unresolved problems with federally owned timber sources, state timber contracts are being written only from year-to-year, a cumbersome way to ensure a source for the next decade.

Far Eastern merchants are aware of this management hurdle. In societies that value stability, business people are reluctant to enter into long-term agreements with Alaskan manufacturers who cannot guarantee a stable supply of wood.

Mike McCrary, owner of Trapper Creek Timber Products in Wasilla, is producing wood paneling and flooring for the Southcentral Alaska market. Meeting demand in that market takes all of his product at present, and precludes expansion into overseas markets. His wood products are distributed by Hardwoods Inc., a Canadian firm, through its Anchorage office.

Trapper Creek buys its logging rights from the state and the Matanuska-Susitna Borough. After harvesting the wood, the firm planes and produces the flooring and paneling products. cIt's not that we want to control the whole process," says McCrary. He adds that he'd prefer the firm concentrate only on manufacturing. The company employs 13 people in the plant, with another 3 or 4 contracted for the logging operation.

McCrary keeps his business going year-round, although he admits that ensuring a steady supply of fresh-cut wood makes it a juggling act. Again, his major concern is availability of raw timber. His business is expanding, and he needs both more wood and a steady source of wood.

New Launches. The Wasilla businessman is expanding his business vertically into other manufactured wood products and recently introduced tongue-and-groove paneling. Manufactured from solid Alaskan birch, cottonwood and spruce, the paneling is sold by Spenard Builders Supply.

Dave Carter, Anchorage manager of Hardwoods Inc., the paneling's distributor, is enthusiastic about the product: "It's unique and done very well. It's a beautiful material you can't get anywhere else."

Spenard Builders put a sampling of the paneling for sale in an Anchorage store in February, and when it quickly sold out, they contracted for more product. Carter says the distribution plans will center on Alaska markets. "You can sell Alaskan birch all day long (in Seattle) and not make any money," he notes. He blames that on the slightly higher price for a product that's already common to the Pacific Northwest.

Don Loesche heads a group of 19 local investors who plan to finance a Wasilla sawmill under the name Denali Resources. The mill would turn timber from the region into finished wood products, primarily furniture frames for manufacturers in the Northwest.

Loesche says the sawmill is expected to employ 60 people when completed. But the start-up date remains elusive. Denali Resources had planned a ground-breaking for the structure in the spring of 1990, but a bill introduced in the Alaska Legislature to restrict development in the Mat-Su Borough discouraged investors.

The bill died in committee in the last days of the 1990 legislative session, and Loesche is optimistic that the company can make up for lost time. He expects the enterprise to begin mill construction this summer.

The Denali Resources plan entails purchasing timber leases in the Mat-Su Borough, around Fairbanks and Copper Center. Loesche feels the preponderance of spruce and other hardwood makes the area's resources particularly attractive. With so much hardwood being funneled into paper production, the arrival of a new source for spruce is particularly intriguing to furniture manufacturers, he says. In fact, he feels that Denali resources' biggest hurdle in the future might be producing enough wood product to satisfy the market.

Chugach Alaska Corp., one of the 13 Native regional corporations, invested $20 million in construction of a state-of-the art sawmill. Its Chugach Forest Products subsidiary opened the Seward sawmill in January and is producing wood chips and dimensional lumber, primarily for export to the Pacific Rim. According to Timber Division Manager Paul Tweiten, the sawmill currently employs 55 people in one shift and is expected to employ more than 100 when a second shift is added by year's end.

Tweiten says the sawmill was intended to diversify operations of Chugach Alaska Corp., which previously concentrated on fisheries operations. "We've since expanded into the logging area to maintain an even flow of logs to the sawmill. Now we're looking at other options for additional manufacturing opportunities in association with the sawmill operation,c Tweiten says.

Chugach Forest Products has a steady source of raw wood, utilizing its own holdings in Southcentral Alaska around Prince William Sound, as well as stumpage sales and log purchases from other areas. The company also is buying beetle-killed timber from Cooper Landing on the Kenai Peninsula.

Tweiten says Chugach is looking for other ways to diversify its wood products manufacturing. One possibility being considered is a medium-density particleboard plant that would be built near the sawmill.

Timber production in the state has increased enormously since the Russians first harvested wood. In fiscal year 1989, Alaskan loggers produced more than 1 billion board feet of logs. The state's 1989 wood exports were valued at $612.6 million, a 29 percent increase over 1988.

With wood resources declining in mature forests and established logging areas around the world, Alaska has the potential to capture a larger share of the international market. If the problem of ensuring a steady supply of raw material can be solved, the state may once more become an important exporter of timber. But to maximize the economic potential of those exports and to build a more viable domestic economy, Alaska also must find ways to enter the middle market by adding value to that prized natural resource.
COPYRIGHT 1990 Alaska Business Publishing Company, Inc.
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Title Annotation:Alaskan Wood Products
Author:Williamson, Elaine B.
Publication:Alaska Business Monthly
Date:Jul 1, 1990
Words:2020
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