The following list of cost drivers and definitions was provided to participants in the cost driver study to aid in consistent interpretation of the key drivers. While the list is not necessarily comprehensive, no further significant cost drivers were identified as a result of the study. It includes some quite general cost drivers, such as business decisions to increase costs in order to optimize operations and some more specific drivers, such as those associated with government policy and legislation changes.
All of the items on the list are intended to be root causes. For example, yarding costs may have increased because piece size decreased and volume per set-up decreased. These are the direct cost drivers, but knowing this makes little contribution to the objective of the study. In providing definitions to the participants, and through interviewing participants once the cost driver questionnaire had been filled in, an attempt has been made to identify the root causes of cost increases such as the yarding example above. For example, the reason piece sizes and volumes are decreasing may be due to historical levels of harvesting now requiring the harvesting of smaller logs in less dense stands higher on the mountains or it may be green-up and adjacency requirements, or visual quality objectives or a combination of all three factors.
Note that within the context of this study, cost drivers are defined as root causes of logging cost increases during the period 1992 to 1996.
This driver is intended to capture the impact of price and rate increases in the following categories:
2. Items under government control
(a) Land use issuesRLP-Regional level planning impacts
Regional level planning initiatives such as CORE and LRMPs may have put upward pressure on logging costs through restrictions on harvesting practices, increased road building to access other areas, etc. Any such costs should be attributed to this cost driver.
PAS-Area designations that have exclude timber harvesting
In recent years a number of protected areas (PAS interest areas, class A park designations, etc.) have disrupted logging operations and forced licensees to redirect planning, road construction and harvesting activities to other areas. The associated upward pressure on logging costs should be attributed to this cost driver.
SIA-Special issue areas
This cost driver refers to the impact that special issue areas and any associated harvesting restrictions (e.g. Clayoquot Sound scientific panel recommendations, spotted owl activity centres and conservation areas, caribou habitat deferrals, etc.) have had on licensee operations and logging costs.
(b) Non-Code regulation
PT-Property Taxes
The impact of any property tax increases (in relation to TFL private land and managed forest land) should be captured in this cost driver.
CR-Changes in contracting regulations
Changes in contracting regulations have given logging contractors greater security, but may have acted to shield logging contracts from free market forces. Any cost effects of changes to these regulations should be attributed to this cost driver.
WCB-Worker safety/increases in WCB assessments
This driver refers to changes in worker safely regulations and the substantial increases in WCB assessments that the industry has seen over the last few years.
WM-Changes in waste management requirements and other environmental regulations
This driver captures the upward pressure put on logging costs created by changes to the Waste Management Act and other environmental legislation. For example, cost increases attributable to restrictions on burning of dryland sort debris and fuel tank farm improvements should be captured here.
PC-Impact of pre-Code guidelines
This cost driver refers to the impact that pre-Code guidelines may have had on logging costs. For example, a number of forest districts developed their own harvesting and streamside management guidelines that may have put upward pressure on logging costs between 1992 and 1995. In addition, although the Coast Fisheries Forestry Guidelines were put in place in 1988, the increased emphasis on their implementation following a number of audits (both current and backlog work required under Action Implementation Plans) may have also increased costs. Certain TFLs had biodiversity guidelines applied to them since 1992 and some Code requirements (e.g., green-up, VQOs, FENS, etc.) were in place in a number of districts prior to the Code. If these were included in the Code unchanged, they should be attributed to the appropriate Code cost driver.
(c) Tenure administration
TSR-Timber supply review and AAC determinations
The latest round of timber supply reviews and AAC determinations has resulted in reduced AACs and/or partitioned AACs (e.g. requiring a proportion of the harvest in difficult, lower quality stands) in some areas of the province. This may have made some operations less economic as fixed costs are prorated over smaller harvest volumes and licensees are forces to operate in more expensive areas. Any such cost increases should be captured by this cost driver.
CA-Chart areas and planning cell allocations
This cost driver refers to any chart area or planning cell reallocations made during the 1992 to 1996 period that have required licensees to adjust their operations and incur higher costs.
CC-Cut control regulations
Although cut control regulations are nothing new, 1996 was the 5th year in the cut control period for many licensees. Any upward pressure in costs incurred as a result of adjusting operations to meet cut control requirements should be attributed to this cost driver.
3. Items under company control
UTIL-Changes in wood utilization levels
In recent years, local (and sometimes provincial) shortages of logs and chips have led some companies to increase their utilization levels (harvesting smaller trees, utilizing smaller logs and those with considerable defect, etc.) in order to address those shortages. Any related increase in logging cost due to smaller piece size, etc. should be attributed to this cost driver.
STU-Stumpage, royalty and rent increases
This driver is expected to address the impact that changes in stumpage, royalty and rents charged by the crown in respect of crown timber have had on other logging costs. For example, increasing stumpage rates for high quality stands may drive logging into low quality stands which increase other logging cost elements such as road construction, etc.
BD-Business decisions
This cost driver refers to the upward pressure put on logging costs as a result of business decisions. For example, some operators may have chosen to harvest different timber or haul longer distances in order to meet mill diets that changed as a result of decisions taken by management.
HL-Impact of historical level of harvesting in an area
In some areas of the province, historic harvesting practices have taken the best, most accessible timber, leaving behind poorer quality stands with more difficult access. The influence of prior practices on current logging costs should be attributed to this cost driver.
4. Other
FN-Impact of First Nations issues
This cost driver refers to the impact that first Nations issues have had on logging costs. Examples include costs increases related to restrictions to access (where licensees may have had to build roads around reserve lands to gain access to timber, resort to more expensive aerial systems, etc.), joint ventures with native groups and training of aboriginal crews.
GM-Global market influences
Global market influences refer to the impact that changes in global demand for wood products, species harvested, forest practices (e.g., pressures for sustainable forestry certification) have had on B.C. logging costs. If, for example, market demand has led some companies to shift logging operations in order to harvest higher value species (which may be more difficult to access or more expensive to harvest), the logging cost increases would be attributable to global market influences.
WS-Impact of work stoppages
This cost driver captures the impact on costs attributable to work stoppages resulting from labour disputes, and fire, rainfall and snow closures. Except in extreme weather years or during prolonged labour disputes, it is expected that the impact of this cost factor may be relatively minor (i.e., there will always be a background level of work stoppages-this driver is intended to address incremental stoppages above the norm).
ONC-Other non-Code-related cost drivers
This designation is expected to capture the impact of other non-Code-related cost drivers that have not been addressed elsewhere.
1. Planning and administration
IPR-Increased planning requirements
The Code requires increased planning requirements, including additional plans that were not required before the Code came into force, resource inventories to support those plans (e.g. stream inventories, gully assessments, watershed assessments, etc.) and referral obligations. The incremental increases (some planning requirements existed prior to the Code) attributable to these plans and inventories should be attributed to this cost driver.
ADM-Administrative delays in the approval process
The introduction of the Code has led to delays in operational plan approvals in many districts. These, in turn, have resulted in curtailment of some licensee operations, localized wood shortages and shifts in licensee operations as they try to adapt. Some examples of associated problems include operating an inefficient number of machines in an opening in order to achieve cut control volumes and keep crews working, hauling on green road, etc. The associated cost increases should be attributed to this cost driver.
C&E-The penalty systems component of the FPC
This driver refers to the impact that the heavy emphasis on fines and penalties in the Code has had on licensee operations. Operators sometimes err on the side of caution in relation to weather shutdowns and start-up, log more summer ground in the winter, put in more culverts than actually required, etc. in order to limit the risk of penalties. In addition, many operators have increased logging and road contractor supervision, developed Standard Operating Procedures (SOPs) and introduced internal audit programs as a way to manage risk. Any inefficiencies or cost increases associated with these issues should be attributed to this cost driver.
MS-Regional and district differences in MoF and MELP management systems and Code implementation
This cost driver is intended to address differences in the way that individual district offices of MoF and MELP interpret and implement the Code, particularly where misinterpretations of the Code have resulted in the development of local standards that exceed regulatory requirements.
2. Forest practices
VQO-Visual quality objectives
This cost driver should be used to quantify the impact of visual quality objectives (VQOs) under the Code. Examples may include the costs required to shift operations to ensure VQOs aren't exceeded, opting for more expensive partial harvest systems to extract some volume while maintaining visual quality, etc. It should be noted, however, that VQOs were established and implemented in several areas of the province prior to the Code coming into force. Where they have been included within the Code unchanged, they should be considered to be a Code-related cost driver.
GU-Green-up and adjacency requirements
This cost driver is intended to address the upward pressure on costs associated with green-up requirements, where licensees may be required to shift operations, accelerate planning, build and maintain more road, etc. to address Code adjacency requirements. However, as with visual quality objectives, it should be noted that green-up requirements were a pre-Code requirement in some areas of the province. Where they have been included within the Code unchanged, they should be considered to be a Code-related cost driver.
ROC-Rate of cut restrictions
The Code provides for rate of cut restrictions in some areas, an example of which is the restriction on equivalent clearcut area (ECA) in community watersheds. Any logging cost increases associated with disruptions or adjustments to operations to address these issues should be attributed to this cost driver.
FEN-Old growth and mature reserves
The Code provides for the establishment of old growth reserves, forest ecosystem networks and seral stage requirements as outlined in the biodiversity guidebook. Any logging cost increases associated with adjusting operations to address these issues should be attributed to this cost driver.
IW-Managing for "identified" wildlife requirements
This cost driver is intended to address any cost increases associated with special wildlife habitat management requirements and those required to address "identified" wildlife.
SC-Soil conservation requirements
The soil conservation requirements of the Code may require licensees to conduct terrain stability and gully assessments, assess soil disturbance levels on active blocks, and make changes in harvesting systems and equipment to address the requirements of sensitive sites. As well, they may result in harvesting deferrals in unstable areas. Any cost increases associated with these issues should be allocated to this cost driver.
R&L-Road and landing requirements
This driver refers to the cost impact of the Code in respect of road and landing requirements. Some of these include the requirement for smaller (or fewer) landings to address soil disturbance requirements, higher road construction standards, greater emphasis on road maintenance and inspections, more aggressive road deactivation and rehabilitation of some roads and landings. These issues should be attributed to this cost driver, except where the work was required under pre-Code guidelines (e.g. CFFG road deactivation, interior road deactivation work required by the district manager in response to the Donna Creek slide, etc.).
WTR-Wildlife tree requirements
The Code requires that certain stand level biodiversity objectives be included in operational plans, including the retention of such features as wildlife trees, wildlife tree patches and coarse woody debris. The impact of these issues should be included in this cost driver, unless they were a local requirement that pre-dates the Code (e.g., in some northern districts, retention of a component of aspen or Douglas-fir may have been required before the Code came into force) that were not subsequently included within the Code. Where this is the case, the cost impact should be attributed to PC-pre-Code guidelines.
RMA-Riparian reserve and management zone requirements
The Code requires riparian management areas along all streams, and may also require timbered riparian reserves and/or partial harvest riparian management zones as well. These features may slow production, require licensees to use different logging equipment and make equipment moves more frequently, carry out additional planning, layout and logging supervision. The associated cost increases should be attributed to this cost driver.
CBS-Cut block size requirements
This driver is intended to capture the cost implications of reduced cutblock sizes under the Code, examples of which may include increased planning, accelerated road building programs, more road maintenance and deactivation, less than optimum yarding and skidding distances, etc. The associated cost increases should be attributed to this cost driver.
PROT-Protection requirements
This cost driver is intended to address any cost increase related to additional protection requirements under the Code. Examples include the district manager's authority to require licensees to undertake pest management activities and the requirement for post-logging hazard assessments within 30 days of completion of logging.
OC-Other Code-related cost drivers
This designation is expected to capture the impact of other Code-related cost drivers that have not been addressed elsewhere (e.g., pre-free growing spacing requirements). These other cost drivers should be identified and defined on the form provided with the questionnaire.
A number of issues are relevant to the decisions made regarding the Code-related/pre-Code driver determination:
- A number of pre-Code guidelines existed during the 1992-1995 period which increased logging costs (e.g., Coastal Fisheries Forestry Guidelines, Okanagan Timber Harvesting Guidelines, etc.) during the pre-Code period. The impact of these guidelines on logging costs were allocated to the pre-Code guideline cost driver.
- Where pre-Code guidelines existed which have been subsequently rolled into the Code unchanged (e.g., soil disturbance limits for roads and landings), these have been deemed to be a Code-related cost driver (i.e., if they are a part of the Code, they are a Code-related cost driver, regardless of when they were first introduced).
- Although the Code was not proclaimed until June 15, 1995, it actually passed third reading on July 7, 1994 and was widely distributed at that time. In a number of districts, various parts of the Code came to be enforced prior to its actual proclamation on June 15, 1995.
- The government introduced an amendment to the Silviculture Regulation in 1994, stating at that time that it was a temporary measure and would be rolled into the Code once it became law (the intent here was to proclaim the amendment to the Silviculture Regulation as a means to move towards increased regulation, while giving industry and government some time to digest and prepare for the other requirements of the Code). As a result, and since the contents of the revised Silviculture Regulation were rolled into the Code essentially unchanged, this was determined to be a Code-related cost driver.
- Owing to the fact that it often takes two or more years of planning in order to take a cutblock up to the stage of cutting permit approval, many licensees voluntarily began implementing components of the Code in their operational plans as early as 1994, rather than run the risk of going through time consuming plan amendments once the Code became law.
- The determination of the individual Code-related cost drivers was as follows:
(i) IPR-Related to increased planning requirements in the Code, therefore a Code-related cost driver.
(ii) ADM-Related to administrative delays in approving operational plans under the Code, therefore a Code-related cost driver.
(iii) C&E-Related to licensee response to the penalty system in the Code, therefore a Code-related cost driver.
(iv) MS-Related to differences in district and government agency interpretation and implementation of Code requirements, therefore a Code-related cost driver.
(v) VQO-Only implemented (in varying degrees) in portions of some regions pre-Code under regional planning guidelines. Became law province wide under the Code and are now universally applied across the province. Since rolled into Code and now uniformly enforced, VQOs were deemed to be a Code-related cost driver.
(vi) GU-As with VQOs, these were implemented as guidelines in varying degrees in some regions during the pre-Code era. They were rolled into the Code and became a provincial requirement under it. Since rolled into the Code and now uniformly enforced, GU was deemed to be a Code-related cost driver.
(vii) ROC-Related to rate of cut restrictions in community watersheds and other areas under the Code. Where rate of cut restrictions existed pre-Code (e.g., as a result of prior regional planning initiatives such as IWMPs, LRUPs, etc.) and were rolled into the Code unchanged, these were addressed as a Code-related cost driver.
(viii) FEN-Related to the landscape biodiversity requirements of the Code, therefore a Code-related cost driver.
(ix) IW-Related to identified wildlife requirements of the Code, therefore a Code-related cost driver.
(x) SC-Related to the soil conservation requirements of the Code, therefore a Code-related cost driver. Where pre-Code requirements existed (which generally only covered roads and landings), these were incorporated within the SC cost driver because they have been retained within the Silviculture Practices Regulation.
(xi) R&L-Related to road and landing requirements of the Code, therefore a Code-related cost driver. Where pre-Code guidelines for roads and landings existed, these were considered to be a Code-related cost driver if they were incorporated within the Code unchanged. If substantially different from what is now in the Code, they were allocated to the pre-Code guidelines cost driver.
(xii) WTR-Related to the stand level biodiversity requirements of the Code, therefore a Code-related cost driver.
(xiii) RMA-Related to the riparian management requirements of the Code, therefore a Code-related cost driver. Where pre-Code riparian guidelines existed (e.g., Coastal fisheries forestry guidelines), which are substantially different from what is in the Code, these were deemed to be part of the pre-Code guideline cost driver.
(xiv) CBS-Related to the cutblock size requirements of the Code, therefore a Code-related cost driver.
(xv) PROT-Related to the additional protection of the Code, therefore a Code-related cost driver.
(xvi) OC-Related to the requirements of the Code, such as the requirement for pre-free growing spacing. As this was introduced during the 1994 amendment to the Silviculture Regulation (which was subsequently rolled into the Code intact), this requirement was deemed to be a Code-related cost driver.
