There is a longer, quite fascinating tale to be pondered on the subject of this year’s historic western Canadian shipment backlog, however, for now let’s skip the conspiracy theories and stick to the confirmable facts.
The source for this article’s information is the Canadian government and the American Association of Railroads (AAR). First, lumber. Canada professed early in the year that lumber production in 2018 would decline by about 7%. Additionally, western Canadian mills claim they would ship 20% less to the U.S. as a result of the 20% tariff.
Now, the railroad. The AAR reported that the average number of Canadian rail originations in 2017 was 3369 cars per week. If Canada is producing 7% less in 2018, we can infer that 3133 cars per week are needed to ship that Canadian production. The green line on the chart shows the base line of cars needed to ship production. The red line shows AAR’s Weekly Rail Traffic in the lumber category as reported by the railroads. Note this is what the railroads themselves documented as cars loaded.
Also, note the time line. Week #12 was when the industry was put on notice of the car shortage. From week #52 – week #12, weekly loadings averaged 2918, creating a backlog of 2795 cars. From then until the present, there has been no shortage of cars necessary to ship production, but initially there was a shortage needed to catch up the winter backlog.
Since week #12, the average AAR Weekly Rail Traffic originations has been 3500, an 18-week surplus of 6606 The argument after week #12 was how long would it take to catch up. Not knowing how the CN railroad would respond, Canadian mills had to guess. If the shortfall of cars continued, the problem could last forever. Through the months of March and April, fearing the worse, buyers were panic stricken, stretching SPF–W mill order files out four weeks and shipments out to eight weeks. March and April saw prices rocket to all time highs dragging every specie along for the wild ride.
May was the pivotal month. The CN was inconsistently spotting cars, although providing enough to carve away at the backlog. The big swing came when buyers reached maximum comfort levels with inventory bought and on hand. They collectively ran for cover.
In the month of May, western Canadian mills sold less than half of what they made. This allowed them to completely alleviate the backlog and order file, looking at a June with nothing to support the market. And we crashed. The blue line on the graph illustrates weekly price vs. rail loadings.
In conclusion, the car shortage was real. The inability to know how long it would last was real. Whether the whole thing was contrived or not, we do not know. We have had proven time and again that our lumber market can be manipulated, and, as long as buyers continue to react to the manipulations, they will continue.
Good news is...LLG helped its members profit from these shady contortions. One multi-family builder saved $220,000 by following the delayed purchasing strategy. I will pay you to let me make you money.
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.