Strong supply chains look a lot like well-working ecosystems.
According to National Geographic, ecosystems have living and nonliving things that combine to make a viable environment. Everything depends on everything else – when conditions change, it can drastically affect the ecosystem.
If Nat Geo’s explanation sounds familiar, that’s most likely because it’s reminiscent of the supply chain. High-quality supply chains rely on many variables to get raw materials, goods, and services from Point A to consumers’ hands at Point B. Problems occur when delays, shortages, or unexpected situations arise.
When we think about copper wire, copper is the main attraction. But like any good ecosystem, the products electrical distributors and end users buy from companies like Kris-Tech aren’t so simple.
Kris-Tech’s supply chain is complex, relying on everything from the polymers used for jacketing and insulation, logistics for safely and quickly getting raw materials and finished products moved, and even the lumber used to build the pallets and reels the copper wire sits on.
Although it plays a small role in copper, lumber is pivotal in wire manufacturing. But, like any other industry, wood products have faced several challenges in recent years, alongside new opportunities. With that in mind, what does the lumber industry look like, how is it evolving, and what’s in the future for a critical copper supply chain partner?
When commerce slowed dramatically at the start of the COVID-19 pandemic, lumber shipping did, too.
“During COVID, we saw prices sometimes 5-6 times what we were paying per 1,000 board feet of wood product,” Aaron Yaddow with Carris Reels explained. “What we’ve now seen is the fluctuations have ironed out, but we’re seeing prices about two times where they had been. Things have been surprisingly level for most of the year with limited fluctuations and variations compared to the past few years’ steep slopes and deep troughs.”
In the initial months, wood prices exploded compared to 2019, putting an immediate strain on manufacturers, distributors, and end users. Like most other industries, rising lumber costs were caused by a perfect storm of factors, including supply chain breakdowns, sourcing issues, supply problems, and increasing demand.
Though prices have stabilized, there are still several questions for the industry.
“Demand is unknown at this point,” Yaddow explained. “But as we all know, there’s a housing shortage out there, and there are still significant housing starts, though interest rates are certainly affecting some buyers.”
Higher initial costs have been passed through the supply chain from suppliers to manufacturers to distributors to end users, tacking on added expenses. The result has been a severe delay in home building projects that haven’t fully recovered and a massive $36,000 increase in home prices.
Although lumber prices have fallen dramatically from their previous highs, they’re still about two times higher than in 2019.
Lumber prices were on a roller coaster for a long time, but the industry has regained its footing. Still, several factors help dictate wood prices for buyers, including:
Mill production – Lumber mills can control how much material is produced, but they also rely on raw materials coming in from logging companies.
The Housing Market – When there aren’t enough homes, it can spur demand for homebuilders to start projects.
Geopolitical Tension – When tensions rise, it’s harder to do business, as seen with certain materials like Baltic hardwoods from Russia. Suppliers had to quickly pivot to other woods, including more United States-produced softwoods, when supplies were affected.
Ongoing Labor Issues – Low unemployment rates have left many manufacturers and processors struggling to find talent. As a result, plants and mills aren’t as productive as they could be, limiting the amount of lumber entering the supply chain.
The problem has more manufacturers investing in improved automation techniques to streamline repetitive tasks.
Environmental Concerns – This includes severe weather events, climate change, invasive species (like the emerald ash borers attacking ash trees across the U.S.), and ongoing forestry efforts.
One threat the lumber industry is monitoring is warmer winters affecting the boreal forest. The boreal forest covers parts of eight countries, including Canada, the United States, and Russia, and has millions of acres of spruce, fir, and pine trees, along with birch, poplar, and other species.
These forests are generally in regions where temperatures are below freezing for much of the year. But as global temperatures increase, the warmer weather is causing the boreal forests to slowly recede. This is a problem for a couple of reasons. As we lose acres of boreal forests, it reduces the overall amount of forest to sustainably log. Rising temperatures can also impact timber production since much of the logging occurs during the winter to avoid soil, land, and wildlife habitat damage.
“As you might imagine, here in North America, they harvest a lot of wood in the winter when the grounds are frozen for environmental reasons so that there’s not as much erosion and so on,” Yaddow said. “If there are softer winters, if there’s not as much freeze in the winter, we can run into issues with mills getting logs to convert into the various wood products.”
Every company in every industry has had to pivot over time, especially when unforeseen circumstances require it.
Whether it’s a new compound, process, or product, sometimes changes must be made to keep the company moving forward. The same goes for the lumber industry, where challenges ranging from the pandemic to the ongoing war in Ukraine have resulted in changes from the lumber sourced to how products are designed.
For example, when companies shifted from hardwoods to softer ones, innovative designs were needed to maintain the reels’ strength for customers. Although the wood reels may look or feel slightly different, they still perform as well as previous versions of those products.
Beyond finding new sources for lumber, the industry is also looking for ways to keep production moving and avoid supply issues like the ones it faced during the pandemic.
Labor issues aren’t unique to the lumber industry. Many industries face problems finding enough people to run at capacity. The need has created opportunities for more automation, which can be a competitive advantage when used correctly.
Lumber industry leaders at the forefront of innovation are investing heavily in automation practices.
Machine learning and artificial intelligence can quickly determine lumber quality using complex algorithms, even if it hasn’t yet been harvested. Meanwhile, robots have long been the standard of every automated process, handling everything from moving and cutting logs to pelletizing and processing leftovers – all without needing breaks.
Even newly emerging technology like the digital blockchain is becoming more commonplace. Adding blockchain technology to the traditional supply chain helps streamline product tracking and authenticity and ensures materials meet proper standards.
More production is great for the industry and consumers (to an extent, of course), but it doesn’t mean much if it comes at the expense of the environment.
Companies are investing time and resources into implementing more efficient and sustainable harvesting methods that protect environmental, social, and business interests. With the threat of climate change in the picture, supply chain managers must maintain a steady flow of products without overburdening sensitive boreal, hardwood, or pine forests.
Investments go far beyond the standard research and development budgets, too. Drones, GPS, and other mapping systems can help companies find the best trees to harvest, map out logging routes to reduce environmental damage and monitor forest health.
Logging companies are also finding ways to reduce environmental impacts caused by harvesting, including soil erosion, damage caused by machines, and overconsumption. Organizations like the Forest Stewardship Council (FSC) or the Sustainable Forestry Initiative (SFI) offer certifications that prove wood was taken sustainably and with the environment in mind.
Certifications go together with better harvesting efforts, including reduced impact logging (RIL) initiatives. This generally means planning roads to avoid soil disturbance, preventing waterway damage, cutting trees to get as much wood as possible, and upholding practices to ensure a steady wood supply is available.
Although lumber prices aren’t where they were a few years ago, the market has stabilized in the past year. With more price certainty, manufacturers, distributors, and end users have added insight into product supply and quality.
Geopolitical tension and the lingering effects of COVID jostled the lumber market, but the global supply chain has been incredibly resilient. Forward-thinking companies are implementing modern technology to improve efficiency and order fulfillment while maintaining sustainable forest practices. They’ve also shored up and improved a critical supply chain, including sourcing raw materials from domestic locations and innovating products using different, more cost-effective wood types.
“I would say we expect the market to be relatively level and calm,” Yaddow said. “I think we’ve all learned quite a bit from the triage we had to go through over the past two or three years, always putting out a fire around every other turn.”
While we may not see lumber prices drop to what they were in 2019, the industry is in much better shape than it was only two years ago.