Lumber versus Logs

Dr. Scott Bowe highlights the key findings of a research study looking at a cost-benefit analysis of importing value-added lumber versus logs

A recent report shows that over the last ten years India's trade deficit in forest products has soared from USD 1.0 billion in 2001 to more than USD 5 billion in 2011. Moreover, due to the scarcity of domestic timber resources and a rapidly growing demand, log imports in India have doubled since 2006 in order to meet the country's growing appetite for wood products. As such, India is demonstrating demand for wood products that far outstrips domestic supply, strong GDP projections and positive demographic indicators. All of these point to further growth in the demand for imported wood and wood products, particularly in material suited for furniture, packaging and pallets, and interior, architectural and decorative uses.

Given the potential for increased timber exports into India, the Wisconsin Department of Agriculture, Trade, and Consumer Protection (DATCP) spearheaded a research project that was funded by the United States Department of Agriculture Federal State Marketing Improvement Program (FSMIP). According to Dr. Scott Bowe, Professor & Wood Products Specialist at the Department of Forest and Wildlife Ecology College of Agricultural and Life Sciences at University of Wisconsin, USA, the project's aim is to increase exports and improve market share for value-added hardwood lumber products from Wisconsin and the Lakes States to India and countries in Asia. The goal is to demonstrate that it is more profitable for Indian/Asian companies to import kiln-dried value-added hardwood lumber products vs. hardwood logs from the U.S. Timber Design & Technology caught up with Dr. Bowe whilst he was at MUMBAIWOOD 2013 to learn more about the study.

The growing acceptance of American hardwoods in India makes species such as American red oak popular with designers and architects. Like all businesses, Indian wood manufacturers must watch their raw material costs to remain competitive in the marketplace. Manufacturers will tell you that the cheapest price is not always equal to the best value. This is the case when comparing the import of American hardwood logs vs. American hardwood lumber. On the surface, importing American hardwood logs appears to be less expensive than buying pre-manufactured American hardwood lumber. However, let's consider this common perception and examine the true cost of importing logs vs. lumber.

To understand why logs are still in demand in India, we need to firstly look at the two distinct markets in India - a production market and a craft market. The production market includes the large joineries and has the potential to use large volumes of American hardwoods. This is the market segment that would benefit from using American manufactured kiln dried lumber. The craft market includes small furniture shops using very small and custom sawn orders. The small Indian sawmills serve this market segment. Secondly, the lower tariffs on logs vs. lumber play a role as well. In the end, it is important that Indian manufacturers examine their costs very closely. Log shipping costs quickly overwhelm any perceived savings. Lastly, quality is a real issue. Shipping logs is full of pitfalls. Fungal stain, enzymatic stain, mold, fungal decay, and end checking are just some of the problems with shipping logs. All of these factors reduce the quality of the final sawn product. These degrade factors can be avoided by shipping American sawn kiln dried lumber.

To understand log and lumber pricing, we must first understand grades. American hardwood lumber can be broken into the following grade categories (Table 1). FAS, F1F, and Select is the highest grade group, has the highest percentage of defect-free wood, and commands the highest price. #3 A & B is the lowest grade group, has the lowest percentage of defect-free wood, and commands the lowest price.

When purchasing pre-manufactured American hardwood lumber, you can specify a particular grade or mix of grades on the order invoice. This is not the case when purchasing logs. Logs will yield a mixture of grades when sawn. The resulting lumber grades depend upon the quality of the log. Table 2 shows the standard log grades for American hardwoods. Veneer represents the highest grade group which is typically too valuable to be sawn into lumber and is used for veneer production. The grades of F1, F2, and F3 are typically sawn for lumber.

Notice that all lumber grades are produced when processing a log into lumber. The highest grade sawlog, F1, will produce the largest percentage of FAS, F1F and Select lumber at 49 percent. The lowest grade sawlog, F3, will produce a much lower percentage of FAS, F1F, and Select lumber at 7 percent (Table 2).

As you can see, a problem with shipping logs from the United States and sawing them in India is the large amount of low grade lumber that will be produced from these logs. In the United States, low grade material such as #3 lumber is used by the pallet and container industry; #2 lumber is used by the hardwood flooring industry. If an Indian manufacturer needs #1 Common or higher grades for their production facility, as much as 70 percent of the lumber could be low grade material if they are processing F3 logs.

Shipping logs vs. lumber poses another problem with the shipping container. As you would expect, rectangular lumber packages easily fit into standard ocean cargo shipping containers. Square edged kiln dried lumber stacks well and fits nicely within the rectangular container. Round logs pose more challenges. Logs take up more space and weigh more than the lumber that could be produced from that log. When shipping logs, you ship the bark, sawdust, and other waste products that are generated during the sawing process. Typically, these waste products account for 50 percent of the log. In addition, you ship a great deal of moisture (natural water found in the log). This water is not present in kiln dried hardwood lumber, which weighs about half as much as green lumber that has not been dried.

If you take into consideration the grade recovery when converting logs in to lumber, as well as the increased space requirement for shipping round logs, it takes several containers of logs to equal the equivalent of lumber. For example, shipping F1 logs would require 3 containers to generate the equivalent of 1 container of #2 and better lumber; shipping F3 logs would require 5 containers to generate the equivalent of 1 container of #2 and better lumber. As shipping costs continue to increase, one needs to carefully consider the added costs of shipping logs vs. lumber.

If we consider grade recovery, shipping costs, sawing costs, etc., the costs of sawing and shipping grade F1 American red oak logs exceeds the lumber value by USD 302 per thousand board feet (USD 128 per cubic meter) of logs. The costs of sawing and shipping grade F3 American red oak logs exceeds the lumber value by USD 377 per thousand board feet (USD 160 per cubic meter) of logs. Clearly, pre-manufactured American hardwood lumber provides the best value, saving hundreds of dollars per thousand board feet of finished lumber. However, this is not a problem associated just with India. The low price vs. quality issue can be found in every country as there will always be a low-end market where imported raw materials cannot compete where low cost local raw materials are available. These markets become more accessible when local sources of materials become scarce. If these manufacturers move into high quality markets, the consistent quality manufacturing of American hardwoods become more competitive.

To facilitate log vs. lumber cost comparisons, we have developed a costing tool, which is available here: www.fwe.wisc.edu/wood-products-publications. This simple spreadsheet can be adapted to your company and specific production costs. Shipping costs, lumber costs, logs costs, labor costs, and exchange rates can be modified to reflect your company's needs. The results will show the true cost of shipping logs vs. lumber. Funding for this costing tool was provided by the Wisconsin Department of Agriculture, Trade, and Consumer Protection (DATCP) and the United States Department of Agriculture Federal-State Marketing Improvement Program (FSMIP).

In conclusion, tariffs in India pose as a major obstacle in the decision to import value-added lumber. Further, the perception that importing logs is less expensive than importing lumber is a second major obstacle. However, once a manufacturer understands that the recovery (useable portion of lumber) is much greater for higher quality raw materials in comparison to low quality raw materials, the manufacturer can decide to pay more for high quality lumber since the useable volume is so much higher. Targeted research projects such as the Lumber versus Log Import Estimator have been developed with the aim to give foreign companies the knowledge and tools to make informed decisions for purchasing logs or value-added lumber products.

*FAS, F1F and Select refer to the top grades of US hardwood lumber. See www.americanhardwood.org for a full description. 

About the Author
Dr. Scott Bowe is a Professor and Wood Products Specialist in the Department of Forest and Wildlife Ecology at the University of Wisconsin. He earned his Ph.D. in Forest Products at Virginia Tech, a M.S. in Forest Products from the University of Minnesota, and a B.S. in Forest Science from the University of Wisconsin. Scott works closely with the wood products industry in Wisconsin and neighboring states. His current projects focus on forest products markets, wood product life-cycle analysis, and wood manufacturing process improvement; all strategies for remaining competitive within a global forest products marketplace.

© Timber Design & Technology 2014