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Financial State of the Forest Industry and Delivered Wood Cost Drivers

IV Increases in B.C. Delivered Wood Costs: 1992-1996

A. Delivered wood cost increases: 1992-1996

Average delivered wood costs have risen to $86.74/m³, an increase of $37.17/m³ or 75% since 1992 (see Figure IV-1).

Figure IV-1. Increase in B.C. delivered wood costs (1992-1996)

The major factor influencing delivered wood costs was provincial stumpage and royalty payments, which have increased by $16.55/m3 (197%) since 1992, to an average of $24.94/m3 in 1996.

The increase in average delivered wood costs is detailed in Figure IV-2 below. Excluding stumpage and royalty, the most significant increases were in the Tree to truck phase ($6.27/m³) and Road expenses ($4.84/m³). The greatest change on a percentage basis was in Forest management and engineering, which increased by $4.47/m³ (146%). This cost element comprises the cost of preparing operational plans, block and road layout and supervision. See Appendix D for detailed definitions of the cost categories used in this study.

Figure IV-2. B.C. delivered wood costs (1992-1996)

	1996 $/m³	1992 $/³	Change $/m³	Change %

Tree to truck	22.43	16.16	6.27	39%
Hauling	8.00	6.69	1.31	20%
Dump, sort, boom and rehaul	4.97	3.60	1.37	38%
Total logging and transportation	35.40	26.45	8.95	34%

Road expenses	10.01	5.17	4.84	94%

Forest regeneration	4.11	2.42	1.69	70%

Forest management and engineering	4.47	1.82	2.65	146%
Other overhead	7.81	5.32	2.49	47%
Total overhead, forest management and engineering	12.28	7.14	5.14	72%

Total log cost before stumpage and royalties	61.80	41.18	20.62	50%

Stumpage and royalties	24.94	8.39	16.55	197%

Total log cost	86.74	49.57	37.17	75%

The log costs before stumpage presented in Figure 1 are somewhat higher than the estimates included in the "Industry on the Brink" presentation, possibly due to the inclusion of additional participants in this study. The stumpage amounts are somewhat lower because the presentation used estimated stumpage levels for the month of December while the amounts reported above are averages for the year. Stumpage rates increased with higher lumber prices over the course of 1996.

An analysis of the increase in delivered wood costs by region (Coast, Northern Interior, Southern Interior) is presented in Figure IV-3. Detailed financial data for each region is presented in Figures IV-4 through IV-6, with a summary for Interior operations in Figure IV-7.

Figure IV-3. Analysis of increase in B.C. delivered wood costs (1992-1996)

	Northern Interior $/m³	Southern Interior $/m³	Interior (combined) $/m³	Coast $/m³	B.C. (combined) $/m³

Tree to truck	4.45	5.77	5.06	8.63	6.27
Hauling	1.44	1.56	1.50	0.94	1.31
Dump, sort, boom and rehaul	0.50	0.18	0.35	3.37	1.37
Total logging and transportation	6.39	7.51	6.91	12.94	8.95

Road expenses	3.29	3.37	3.33	7.80	4.84

Forest regeneration	1.78	1.41	1.61	1.83	1.69

Forest management and engineering	1.82	2.90	2.32	3.29	2.65
Other overhead	0.82	1.86	1.31	4.79	2.49
Total overhead, forest management and engineering	2.64	4.76	3.63	8.08	5.14

Total log cost increase before stumpage and royalties	14.10	17.05	15.48	30.65	20.62

Stumpage and royalties	18.46	15.29	16.98	15.70	16.55

Total log cost increase	32.56	32.34	32.46	46.35	37.17

Figure IV-4. Coastal B.C. delivered wood costs (1992-1996)

	1996 $/m³	1992 $/m³	Change $/m³	Change %

Tree to truck	27.12	18.49	8.63	47%
Hauling	6.70	5.76	0.94	16%
Dump, sort, boom and rehaul	12.63	9.26	3.37	36%
Total logging and transportation	46.45	33.51	12.94	39%

Road expenses	16.53	8.73	7.80	89%

Forest regeneration	3.31	1.48	1.83	124%

Forest management and engineering	5.38	2.09	3.29	157%
Other overhead	15.84	11.05	4.79	43%
Total overhead, forest management and engineering	21.22	13.14	8.08	61%

Total log cost before stumpage and royalties	87.51	56.86	30.65	54%

Stumpage and royalties	25.84	10.14	15.70	155%

Total log cost	113.35	67.00	46.35	69%

Note: Following completion of data compilation and analysis, it was brought to our attention that a recompilation of Coastal logging cost data had resulted in a $0.10 reduction in total log costs for the Coast (total log cost was reduced to $113.25). This small change was determined to be not material for the purposes of this study and as a result, no adjustments to our analysis have been made to reflect this change.