As We See It: Long-Term Contracts

Daniel J. Dructor –  Executive Vice President

Most organizations today rely on long term contracts to help them model business plans and foster relationships between businesses and creditors to ensure a successful operation.  In a recent article published in the summer 2012 edition of the Forest Resources Association, Inc. Forest Operations Review, equipment manufacturers throughout North America were asked, “With today’s “credit crunch,” what advice do you have for loggers that may help them finance new equipment,” and “Any advice to landowners and mills to help loggers make the best of today’s operating environment?”

One overarching theme in response to these questions was the need for long term contracts for loggers to better equip themselves for both financial and productivity successes:

Jerry Morey, President, Bandit Industries, Inc. – “It would help if the mills were able to supply long-term contracts.  Loggers need to have much better financial statements and great business plans if they are expanding.  Long term contracts are important, and they need to keep their payments current.”

Pekka Ruuskanen, President and CEO, Ponsse North America – “Long-term contracts, to which both parties commit themselves, will help loggers make important investment decisions.”

Brian Gray, Sales Manager, Eastern North America, Peterson Corp. – “In today’s forestry market, the customers will have a greater ease of procuring financing if contracts are issued that they can present to their lending institution.  These can be difficult to obtain, depending on area and markets.”

Mike Duncan, Industry Manager, Caterpillar Forest Products – “Most landowners should recognize the skill and experience of a logger will have on both the financial return and condition of a logging site.  It is in everyone’s best interest to work toward rewarding loggers with longer term contracts to help them get financing to replace aged equipment, to adjust rates to reflect changes in fuel and labor costs, and otherwise to ensure the health and viability of the logging force.  This action will reduce overall cost over time.”

Carl Lockhart, Forestry Product Consultant, John Deere – “The more that mills and landowners work together with loggers to improve communication and teamwork, the stronger the entire wood supply chain would be.  Plan ahead – the worst time to start thinking about having to buy a new piece of equipment is when a machine begins to give trouble or breaks down completely.  So, long before you get to that point, sketch out a rough plan to replace all of your equipment – whether it’s next year or five years.

John Foote, Vice President, Sales and Marketing, Morbark – “The best advice is to work with (not against) each other along the supply chain to understand each other’s requirements, reduce transactions, and improve efficiencies, so everyone can benefit and share in those savings.”

Tony Iarocci, President, Tigercat Industries, Inc. – “Logging practices as they exist in the U.S. today are really a product of the business environment, government regulations, and the actions and practices of the mills and the inputs that the mills require.  I suppose in an ideal world, the mills and the harvesting contractors might act more like partners, rather than adversaries in a zero-sum game.”

Our hat’s off to all of these business leaders for their frank responses to these questions.  There leaves little reason to doubt following the like-minded answers given by all, that long term contracts between the loggers, landowners and the mills, could have positive impacts on the industry.  Logging operations are no different than any other business, and there needs to be long term contracts in order to formulate business models and secure capital for investment.  The one question that remains unanswered is, “How long will it take for this to happen?”, and that is how we see it.

The American Loggers Council is a non-profit 501(c)(6) corporation representing professional timber harvesters in 30 states across the US.  For more information, visit their web site at www.americanloggers.org or contact their office at 409-625-0206.