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Financial State of the Forest Industry and Delivered Wood Cost Drivers

Regional increases in delivered wood costs varied as follows:

Figure IV-8. Summary of delivered wood cost increases on a regional basis

Region	Increase in delivered wood cost before stumpage and royalty $/m³ (%)	Increase in delivered wood cost after stumpage and royalty $/m³ (%)
Northern Interior	14.10 (43%)	32.56 (80%)
Southern Interior	17.05 (51%)	32.34 (80%)
Interior (combined)	15.48 (47%)	32.46 (80%)
Coast	30.65 (54%)	46.35 (69%)
B.C. (combined)	20.62 (50%)	37.17 (75%)

Coastal operations have been impacted the most by operational (i.e., excluding stumpage and royalty) cost increases on both a $/m³ basis and a percentage basis although the range of cost increases between regions (43% to 54%) is not very wide (see Figure IV-8). The increase in tree to truck costs, forest regeneration costs and forest management and engineering costs was significantly higher for Coastal operations.

Within the Interior, operational cost increases have impacted the Southern Interior operations more than Northern Interior operations, especially within the tree to truck phase and forest management and engineering. Overall, for the Interior, road expenses, hauling costs and rehaul costs all increased at a greater rate than on the Coast.

Considerable variability exists between individual operations with respect to the amount of cost increases. On the Coast, cost increases varied between 22% and 183% before stumpage and royalty. In the Interior, there was a similarly wide range from 8% to 118% in the Southern Interior and from 18% to 124% in the Northern Interior.

B. Major cost drivers

Within the context of this study, cost drivers are defined as the root causes of logging cost increases during the period 1992 to 1996 (see Appendix E, Cost Driver Definitions). For the purpose of this discussion, major cost drivers are defined as those which have impacted logging costs in one or more cost categories by a total of $0.25/m³ or more in any region. Only those drivers which meet this test are discussed below. Regional increases in delivered wood costs by cost driver varied by the main cost driver types as outlined in Figure IV-9.

Figure IV-9. Increase in delivered wood costs by cost driver (1992-1996)

	Northern Interior $/m³	Southern Interior $/m³	Combined Interior $/m³	Coastal $/m³	Combined Provincial $/m³
Non-Code-related Cost Driver
Price and rate increases	2.71	4.88	3.72	6.63	4.72
Land use issues	0.33	0.37	0.34	0.35	0.35
Non-Code-related regulation	0.47	0.63	0.54	2.19	1.11
Tenure administration	0.08	0.58	0.32	0.99	0.53
Items under company control	2.41	1.16	1.83	0.63	1.40
Other	0.32	0.31	0.32	0.18	0.29
Sub-total	6.32	7.93	7.07	10.97	8.40
Code-related Cost Drivers
Planning and administration	2.30	2.89	2.57	8.21	4.52
Forest Practices	5.48	6.23	5.84	11.47	7.70
Sub-total	7.78	9.12	8.41	19.68	12.22
Total Cost Increase	14.10	17.05	15.48	30.65	20.62

A comprehensive set of tables is provided in Appendix B which details the impact of all cost drivers on delivered wood costs for each cost category and region studied and for the province as a whole.

Regionally, non-Code-related cost increases account for a greater proportion of the cost increase in the Interior. In the Southern Interior, 47% of the cost increases were non-Code-related (range 38% to 65%), compared to 45% (range 36% to 61%) in the Northern Interior) and 36% (range 18% to 52%) on the Coast. In all three regions there was considerable variability between the cost drivers identified by individual respondents, as a result of the varying impacts of land use, local terrain and tenure agreements across the province and company-specific impacts of historic harvesting practices and business decisions.

1. Non-Code-related cost drivers ($8.40/m³)
Non-Code-related cost drivers accounted for a total of $8.40/m³ in logging costs for the 1992 to 1996 period, which is equal to approximately 41% of the total increase of $20.62/m³.
The non-Code-related cost drivers have been grouped within the following categories:

Price and rate increases, which capture the inflationary impact of increases in wages (including benefits), insurance rates, power and fuel prices and other price increases. Note that this category does not include contractor rate increases, except to the extent they are driven by price and wage increases.
Items under government control, which include drivers related to land use issues, non-Code-related regulation and tenure administration. This category is intended to capture the impact of all non-Code-related cost drivers which arise as a result of government decisions.
Items under company control, which captures the impact of those non-Code-related cost drivers which are linked to discretionary business decisions made by forest company management, including recent and historical decisions.
Other non-Code-related cost drivers, examples of which include the impact of First Nations issues, global market influences and the impact of work stoppages.