BRATTLEBORO — The parking lot at Cersosimo Lumber Co. has been a little emptier these days.
Market conditions have forced the company to cut one of four sawmill shifts at its operation on Vernon Street, and declining demand has lowered prices just as transportation costs have spiked.
In addition, increasing demand from Asia has diverted some of the log supply, meaning less work for local sawmills that would otherwise create dimensional lumber and thus further affecting the economy.
This combination of circumstances has challenged Vermont's second largest industry.
“Anyone that's in the sawmill business is having a very difficult time staying profitable,” says Dan Harrison, Cersosimo's vice president and general manager.
Cersosimo, which normally employs 275 at seven facilities in Vermont, New Hampshire, Massachusetts, and New York, is the largest hardwood sawmill in New England and the biggest dry-kiln operation east of the Mississippi.
A series of factors
The industry's troubles started a few years ago when manufacturing customers (such as furniture manufacturers) started moving overseas, Harrison said.
While Cersosimo set up an export division in response, the lumber business hasn't been easy for the company or its local competitors.
Annual hardwood lumber production in the United States declined from 14.5 billion board feet ten years ago to 10.5 billion board feet before the latest economic troubles.
More than 50 percent of all furniture sold in the United States is imported from overseas, according to the trade publication Furniture Today.
Both Cersosimo and Allard Lumber sell overseas to customers in China, enough so that Cersosimo's Web site now offers links in Chinese. The companies are increasingly offering their product to customers in Vietnam.
But as the U.S. economy has suffered, those countries have cut back on purchasing raw materials, since they ship less product back to North America.
In addition, as less product is shipped East across the Pacific, fewer containers are available to return, contributing to a rise in transportation costs beyond that prompted by fuel prices. While the dollar's decline makes American product more attractive, higher transportation costs more than cancel that advantage, Harrison said.
When the housing bubble burst, housing starts dropped from 2.4 million to 900,000. U.S. and Canadian lumber production has correspondingly dropped by as much as 20 percent over the last year.
“We see the less-efficient, less-well-capitalized sawmills going out of business,” observed Richard Holden, treasurer of Allard Lumber.
Allard Lumber, which employs 35 at its facilities on Old Ferry Road, is holding its own, according to Holden. “I think that the explanation is that we have a reputation for producing a good quality product and we do what we agree to,” he says.
“As the demand has gone down for lumber, some of the producers that were filling some of that demand, if their reputation and quality was not the best, then they are the first ones that get cut off the list to supply the lumber,” Holden said.
Canadian producers have been harder hit, owing to the decline in the American dollar. “There are sawmills just north of the U.S. border in Quebec that are shuttered,” Holden noted.
Cersosimo has felt the impact of the troubles in Canada, having supplied many Canadian flooring plants.
The drop in demand has put pressure on prices. Allard Lumber is an efficient producer, thanks to new technology. Holden credits that significant investment with enabling Allard to withstand the drop in product value.
“Over the last several years we have spent lots and lots of money on equipment that gets the most lumber out of a log,” he says.
Framing lumber composite price also declined 12 percent over the last year, according to industry trade publication, Random Lengths.
And the price for the logs themselves have dropped as well.
Windham County Forester Bill Guenther said that as he worked on one timber sale for Brattleboro Technical Center, he's seen the price for logs decline from $170 per thousand feet to $150 per thousand feet before the product has even become available.
“I called the owner of the mill [in Massachusetts]. He said, 'Bill, things are pretty tight and pretty tough.' When I called yesterday the mill owner was willing to make a commitment to buy the logs but he couldn't guarantee a price. He's a real honest guy but I have a feeling we're not going to get $150.”
Double whammy
Just as prices for product have dropped, costs have spiked, driven by rising fuel costs measured in millions of dollars for logging, running the mill, transporting the logs, and shipping the finished product.
“Sourcing the 40 million board feet that we can use profitably at our mills has been a huge challenge,” says Harrison.
As transportation costs rise, the distance the mills can afford to go to get logs shrinks.
At the same time, logs are being exported to Asia, keeping prices steady but reducing the amount those logs contribute to the local economy.
“Some of the numbers I've seen show a 9-to-14-percent value added if we keep that whole process in state,” says Guenther.
Lack of logs (mostly) and challenges marketing the product have forced Cersosimo to reduce production by 20 percent and lay off one of four shifts in Brattleboro. Attrition has allowed the company to rehire some employees.
The others? “We've heard they've all found other work,” Harrison said.
Allard Lumber has kept all its employees working.
Positive future
Harrison believes things will get better for the industry.
“By this time next year, building starts will be up, people's attitudes will be more positive, people will have worked out all of these impacts on their life, whether it be fuel costs and transportation costs,” Harrison said. “We've seen these cycles before; we understand how these things work.”
Both Allard and Cersosimo remain fundamentally strong companies, according to their respective managers, a good sign for what Guenther, the forester, calls “the timber capital of Vermont.”
“We watch our receivables very carefully,” says Harrison. “We deal with strong customers. We don't take big risks financially.”