Northwest: axes fly, but it isn't in the chips
Longview, Wash. — Things are booming at the Weyerhaeuser Company's 670-acre complex here on the Columbia River - the world's largest integrated wood products site, the company says. Things are also hissing, whining, crashing, and banging as Douglas fir logs are barked and cut up, variously, into timbers, boards, and ''dimension lumber'' - the two-by-four and its brethren - or ''chipped'' for pulp.
A sawyer in a glassed-in control booth uses computerized controls to slice up a log as swiftly as the machine at your corner deli slices up a turkey breast. The sweet tang of newly sawed wood wafts through the air, pleasant enough to compensate somewhat for the thundering of logs and machines.
But throughout the Northwestern forest-products industry, executives are eager for sweeter profit margins. Production has been good - ''near normal'' - over the past year and housing starts fairly healthy. But prices for producers have not been good, and so profit margins haven't been strong. Some mills are running at a loss because it's easier to do that than to shut down altogether.
Each observer has his own list of reasons for the problems, and each ranks them a little differently.
''Overcapacity is our biggest problem,'' says William A. Whelan, vice-chairman of Pope & Talbot Inc., in Portland, Ore., and president of the Western Wood Products Association. ''We've dropped a couple hundred mills since 1980, but our production capacity is up 50 to 70 percent. Lots of other (producers) have made similar gains.''
Lumber producers added capacity during the late 1970s, when housing boomed (in part because inflation was in double digits).
''In 1979,'' says Mr. Whelan, ''green random-length two-by-fours were going for $280 per 1,000 board feet, and a shortage was expected. Prices were going to hit $500, we thought.''
But then recession and high mortgage rates stymied the housing market. Whelan says 1983 was ''a pretty good year,'' although it took some time for the market to absorb the excess capacity. And then, by the time prices firmed up, producers increased their capacity again, short-circuiting the incipient recovery in the early months of this year.
Whelan adds that part of the problem, from the wood products companies' point of view, is that their customers have changed the way they order and inventory lumber. In times past, ''Every time the market jumped, our customers would order twice - once to fill their own orders, and once for inventories. There would be concern about a shortage, and so prices would go up - and so we'd get a decent return on our investment.''
Nowadays, though, customers practice just-in-time inventory, and customers order just once. ''Inventories are backed up to the mills,'' Whelan says.
At Weyerhaeuser's headquarters, nestled in a wooded site at Federal Way, Wash., economist Lynn Michaelis identifies the strong dollar as at the heart of Weyerhaeuser's current difficulties. ''Economists like Paul Craig Roberts, who writes in Business Week, say that our exports continue to be high - but that's looking at volume, not price. Our export market has seen a $300 million decline, even though the volume has held steady.''
Weyerhaeuser has emphasized its export markets over the years, and one of its prime markets is Europe, where it sells Douglas fir ''clears'' - unknotted and unstained pieces of wood for paneling, doors, and other high-quality products. ''Because of the exchange rate, the prices we get from the Italians, for example , are off 50 percent - but the price to them has doubled,'' Mr. Michaelis says.
Labor costs are another piece of the puzzle. ''The fact that wages in the South are lower than they are here is not the only factor,'' says Barry Lacter, public relations manager at Louisiana-Pacific Corporation, Portland. ''But it's the one we have control over.''
Accordingly, when Louisiana-Pacific's contract expired in June 1983, the company pushed unions to accept a ''significantly lower'' wage scale for new employees, while protecting wages and benefits of current employees.
Negotiations broke down, and a strike ensued at 19 Louisiana-Pacific mills and plants, involving some 1,500 employees. Two of the plants are still struck; decertification elections have been held at the 17 others.
Of these, the workers have clearly come out for the union in one case. In all the other cases, Louisiana-Pacific is claiming victory on the grounds of ''overwhelming'' votes against the union. But there are enough challenged votes to swing the election, should they prove to be votes for the union.