Managing Logging Costs Shawn Baker Dale Greene University of Georgia Louisiana Forestry Association Annual Meeting August 27, 2014
Overview Introduction Drivers of Logging Costs UGA Logging Cost Index Cost Management Strategies Summary Questions
Introduction Information on logging costs is difficult to find No central source of data to track changes in costs or allow contractors to benchmark their operation against others Can be difficult to identify areas for improvement
Logging Business Changes UGA has surveyed Georgia loggers every 5 years since 1987 with a mailed survey Now provides a 25-year time series Similar surveys in MN, WI, MI, VA, SC, ME in recent years without 25-year history
Weekly Production vs. % Clearcuts Logging businesses have increased avg. production Declining proportion of harvest from clearcuts Source: UGA Georgia Logger Survey, 2012
Tons per $1000 Capital GA
Logging Cost Change Indicators Gathered business information and cost data through on-site interviews with logging contractors Employee and equipment details Detailed cost data from P&L statements (2011) Annual production Developed cut and load cost change indicator based on cost distribution Emphasis on major cost centers using publicly available data
Interview summary data 23 contractors interviewed (July Sept.), 19 shared cost data Companies averaged 21 employees with 12 in the woods All contractors used feller-buncher/ skidder/knuckleboom systems 45% of hauling was contracted
Southern Cut & Load Cost Components 2011 1% 5% 5% 35% Labor 22% Depreciation Repair and Maintenance Fuel Interest Expense Administrative 14% 18% Insurance Range: $9 - $15 per ton
Labor Costs $800 Labor is the largest component (35%) Avg. logger wage data is reported by the Bureau of Labor Statistics We averaged costs across 11 Southern states Average Weekly Logger Wage $700 $600 $500 $400 $300 $200 $100 $- Quarterly Logging Cost 4-Quarter Moving Avg
Diesel Fuel Fuel and other petroleum-based consumables are 21% of total cost Weekly retail diesel prices are reported by the Energy Information Administration Diesel Price ($/gal) $5.00 $4.00 $3.00 $2.00 $1.00 $- http://www.eia.gov/petroleum/gasdiesel/
Equipment and Repairs Depreciation and repair costs are 19% and 14% of cut and load respectively Producer Price Index series are available for heavy equipment and for heavy equipment repairs from the Bureau of Labor Statistics Producer Price Index 250.0 200.0 150.0 100.0 50.0 0.0 Heavy Equipment Equipment Repairs
Insurance and Administration Insurance costs (5%) vary by state, but we have not found a reliable cost indicator Administrative costs include a variety of additional cost for the business. Both of these are adjusted by the Consumer Price Index (without food or fuel)
UGA Logging Cost Index 2013 start Developed an index of cut & load cost/ton No hauling cost included Reported quarterly in Timber Mart-South Replaces the index reported by Stuart & Grace annually Re-validation underway 2014
UGA Logging Cost Index $14 $13 Logging Cost Index $12 $11 $10 $9 $8 $7 $6 Stuart Index UGA Logging Cost Index
Cut & Load Trends Rates vs. Costs $14 Logging Cost Index $13 $12 $11 $10 UGA Cost Index TMS Cut&Load
Median Machine Age 10 8 Age (yrs.) 6 4 2 2007 2012 0 Feller Buncher Skidder Loader Trucks Source: UGA Georgia Logger Survey, 2012
Cost Index Validation Underway Goal is to collect 30 interviews Personal, on-site interviews Gather business information and cost data Type of operation Profit and loss statements Income tax forms Production data Compare findings with published trends in UGA Logging Cost Index
Reported vs. Actual Costs New technology has driven machine costs higher Are the national indicators capturing this shift? Average Skidder Price ($,000) 350 300 250 200 150 100 50 Reported 300 250 200 150 100 50 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 PPI Equipment
Cost Management Strategies Cannot manage what you don t measure Focus on what you can control Weekly production Fuel consumption Truck utilization Truck payloads
Production Variability Fixed costs represent half of total cost Keeping a constant production minimizes periods of poor cash flow Identify causes of low production Production is far more variable than cost Weekly Production Weekly Production 7000 6000 5000 4000 3000 2000 1000 0 7000 6000 5000 4000 3000 2000 1000 0 Logger A Logger B
Tract Level Costing Record total tons and total days (or hours) required to harvest a tract With reasonable data on fixed and variable costs, can estimate the cost per ton of your operation for that harvest Attempt to estimate the cost of logging a tract before you cut it. How many days and what type of daily production do you expect? Comparing your before and after estimates develops your ability to predict.
Tracking Fuel Usage This is data available to you Around 20% of cut and load cost, more in trucking Haul Truck Miles per Gallon Can help identify 1 problem areas 0 6 5 4 3 2
Value of Fuel Use Records What effect does a $0.25 per gallon increase in diesel cost have on cut & load cost? Assume cut and load is $13.00 per ton If fuel is currently $2.75 per ton or 21% of total cost An increase from $4.00 /gal to $4.25/gal increases cut & load $0.17 to $13.17
Fuel Record Observations Few logging contractors make fuel record keeping a priority even when equipped with fuel meters. Can be difficult to get crew members to record numbers. Also takes effort to enter and track data. There are not many good baselines for comparison between contractors.
Fuel Use per Hour Gallons/Hour 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 CV = 24% 6.46 5.05 CV = 20% CV = 20% 3.65 Feller-Buncher Skidder Loader
Fuel Use per Ton 0.25 Gallons/Ton 0.20 0.15 0.10 0.05 0.15 CV = 31% 0.14 CV = 37% 0.09 CV = 27% 0.00 Feller-Buncher Skidder Loader
Fuel Use Study Summary Fuel consumption to cut/skid/load wood averaged 0.38 gallons per ton in our study. These crews work flat (but often wet) ground harvesting pine plantations with a limited number of sorts. These consumption rates likely set a floor rather than an average baseline.
Do you know your haul costs? Records on hauling costs are difficult Require multiple data sources Fixed and variable costs (separate from cut & load) Payloads Miles hauled (loaded vs. empty) Rates are paid on a $/ton-mile, but few companies track costs this way
Haul Costs Hauling costs can be as great as cut & load depending on the haul distance Fuel can represent 40-50% of the total haul cost Idling time and empty miles add up quickly GPS systems help identify inefficiency Waiting time at mills and in-woods Added unnecessary mileage Poor driving behavior
Truck Payloads Getting full payloads reduce the total number of trips needed This is information that already comes to you through scale tickets The use of in-woods scales has been the subject of many studies over the past 20 years A number of these studies have shown the financial benefit
GVW vs Legal Max Percent of total loads 40 30 20 10 With scales, 53% of loads within 2% of legal max GVW Much more underloading without scales No Scales Scales 0 70% 74% 78% 82% 86% 90% 94% 98% 102% 106% 110% 114% 118% GVW U2liza2on Source: Reddish et al. 2011
Summary The major costs associated with logging continue to increase We are trying to track the changes in logging costs over time It is important to understand the areas of your operation you can manage to reduce costs
Questions?