We lumber types have come to expect the unexpected. Hence, there is great value when we can identify, well in advance, what the next price manipulating phenomenon might be. 2018 has been a year of looking for an elusive lumber market top. Early in the year I went so far as to call 2018 a bear market year once making the spring reversal high. I stick by that, however, we have new insight into one very critical area of under estimation...logistics.
In February and March, one railroad, the CN, single handedly up-ended the lumber market’s rhythmic cycle with shipment disruptions from British Columbia, creating an unprecedented 6-week shipment time for SPF-W. Even worse, there was no rapid remedy. The situation is scabbing over, though not healed. (Like that analogy?)
Lumber buyers, fearing further shipment delays and lumber outages, cut short their spring inventory liquidation, banking a $50 price correction. Fearing further logistics snags, they began a precautionary inventory positioning in April.
Ultimately, the result will be a lumber market that is more than adequately inventoried at a time when component manufacturers and their lumber purchasing companions would rather be liquidating inventories. But there is more pain ahead...not price pain, rather accessibility pain.
80% of SYP, the primary specie used to build trusses in over half of the country, moves from mill to market by truck. At this writing at the end of April, there are over 100 loads of assorted merchandise ready to pick up for each flatbed truck in service. As if that were not troublesome enough, May and June is produce season, which demands service and pays a premium for it. The Loads-To-Trucks Ratio is 103 this week.
So now...buckle up for the next 2018 lumber market crisis...trucking...particularly in the southeast where Canadian-owned sawmills have little experience with produce season. In the good old days, a broker could make or break a trade on freight. Trucks were abundant and $1 per mile could easily be arranged, especially if you kept half a dozen owner operators busy along a repeating lane.
Occasionally, the truckers of choice were unavailable and, after a week or two, the mill would threaten to cut the trader off unless they allowed the mill to ship for their rate, which 9 times out of 10 made the trade not worth taking. But now the situation is inverted. After a decade of producers training the industry to let the mill arrange the trucking, the shoe is on the other foot. Trucks have sat for weeks this year because the mill cannot cover the quoted freight rate. However, if the customer wishes to send in a truck and pay more to get the load out of shipment purgatory, that’s cool. No, it’s not cool. It’s predatory.
May and June promise to complicate shipping just as much as the winter rail problems. That is why the lumber market made a mid-April rally...precautionary purchasing for inevitable trucking delays. The lumber market will likely go in scattered directions. Rail car loadings will ship on time while truck loadings will be delayed.
This situation has created quite a phenomenon at these all-time high lumber prices...more concern about accessibility than price. That, my lumber buying enthusiasts, is the perfect storm for the end of a bull market...right here.
Note that this week is the reversal high on the 10-year average chart below. It was last year as well.
Looking Forward ...ml
A veteran lumberman, Matt Layman publishes Layman's Lumber Guide, the weekly forecasts and buying advisories that help component manufacturers save money on lumber purchases every day. You can reach Matt at 336-516-6684 or matt@laymansguide.info. Recent copies of Layman’s Lumber Guide / FORECAST/ BRIEFING / BLUEPRINT available at www.laymansguide.info.