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In the past few years, the winds of change have been blowing hard through Western Canada’s forests – and more than just leaves are being rustled. An industry that used to hum along comfortably is being hit by a myriad of issues, including chronic labour shortages, housing start slow-downs in the U.S. (the largest global consumer of forest products) and the spread of pine beetle infestations. Yet the single biggest blow is coming from the Canadian dollar’s steady increase in value.
Anand Pandarinath, a manager with MNP’s Forest Industry team, describes the gravity of the situation: “Canada’s forest industry supplies around 30 per cent of the U.S. market. Their economic downturn, coupled with the increase in our dollar, has erased a huge advantage for Canadian lumber exporters - and cost the industry nearly 30 per cent of their margin.”
An industry dominated by the lowest cost producer means any pressure on lumber pricing is passed down through every level of the industry, from the mills to loggers, tree planters and nurseries.
Planning for Regrowth
Despite the challenges facing the industry, Anand asserts businesses have a variety of options to help them stand out from the competition:
Invest in technology. The forest industry is known for its ability to leverage the latest technologies. Continued investment can improve efficiency and cost control by providing better and more timely information to operators and foresters, as well as introducing new methods to plan, measure, harvest, and haul timber resources. Businesses that learn how to use new technologies effectively will enjoy an advantage in management and cost controls, resulting in better profit margins.
Invest in training. Equipment assets are the most capital-intensive aspect of the forestry business. Training operators to use them properly and practice managed maintenance can enhance machine productivity and prolong their lifespan, reducing the need for costly replacements and repairs.
The next generation of forest workers will need to become well-trained in the use of equipment that is increasingly high-tech. This training will result in better asset protection, greater productivity and efficiency, and increased worker attraction and retention.
Maximize log quality and merchandized value. The most important log merchandizing decisions are made at the stump; all decisions afterwards are limited by the loggers’ ability to maximize a log’s value in the initial bucking and quality process. Implementing an effective quality management system in the bush that addresses log age, cut quality, merchandized lengths, and log sorting will improve the consistency of the delivered product and the relationship with the log yard and mill. Log quality management in the bush is becoming a dominant factor in maintaining overall industry profit margins and identifying preferred logging vendors of excellence.
Use assets effectively. Forest industry consultants can help you perform an operational analysis to determine the efficiency of your current operations. In looking at production performance, equipment utilization and logging plans, you can discover opportunities for improved equipment allocation and production rates. Benchmarking performance against peers in the industry and looking at recognized best practices can also provide insight to improve management and operational activities.
Enhance recruitment and retention strategies. The forest industry is facing two challenges with respect to labour shortages: Fewer young people entering the workforce and long-time workers leaving the industry, either through retirement or the lure of high wages from the booming oil and gas industry.
By their nature, forestry companies operate in non-urban settings. As a result, Anand suggests companies identify people in the communities they are already in to procure their next generation of workers.
“Not many people are aware of the level of sophistication involved in this business,” remarks Anand. “It’s not just a guy out there with his axe anymore. We need to work together to inform the next generation of the career potential in the forest industry.”
Anand suggests companies work with their communities and industry associations to promote the positive aspects of the forest industry: “We can’t assume someone else will do this for us. We need to do it for ourselves.”
Competition for labour is another major challenge – especially when a job in the forest industry, such as trucking, is also available in the oil and gas industry and pays twice as much. Forest industry employers will have to come up with more creative compensation and retention strategies to compete.
Businesses should consider offering more attractive benefit packages, profit-sharing, share issuances, or bonus structures based on performance.
Companies can also identify strategies to extend their operating seasons to increase workforce stability and consistency. As workforce pressures in the West are not the norm across Canada, creative options exist in employing seasonal work forces from other regions.
Support safety and the environment. Safety in the forest industry is paramount. Every company is expected to implement some form of safety system to ensure employees are well-informed of safety and emergency procedures. This includes plans and procedures embedded in company operations.
Environmental management systems are also a mandated requirement for most companies operating on tenured forest land. These systems inform all workers of the environmental stewardship requirements that accompany timber harvesting operations and processes that ensure the environment is managed according to contract.
Forestry consultants with expertise in preparing these types of documents and systems can save companies significant time and money - as well as mitigate the litigation risks if the company fails to comply with the tenured licence holder or WCB.
Consider consolidation. A growing industry trend involves consolidation flowing down from the larger primary forest companies to the entire forestry supply chain. Cost control pressures associated with industry consolidation are forcing loggers and truckers to find greater efficiencies and higher production rates in their operations. Improvements can be realized through increased harvest volumes and accordingly, increased size of operations.
Succession planning. One company’s exit is another company’s growth opportunity. Whether you’re going to sell or buy, you need a plan regarding how your company should progress in the future.
Looking Down the Road
Anand expresses mixed optimism for the future: “We’re going through a fundamental structural change in the forest industry. Constant pressure on productivity, rates and labour resources will force increased consolidation and change the relationship among companies.”
Yet Anand is confident industry changes represent a positive opportunity for companies to reinvent themselves - and for the industry to work together more closely to become more competitive and profitable.
“Growing pains are ahead, but forestry is still a fundamental part of North American culture — especially in the West — and isn’t going away any time soon.”
To find out more, please contact your local MNP advisor.
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