Shipping Jobs to China?

George Schmidbauer graduated from Willits High School in 1947 and worked his way through college like many other young men at the time, by pulling green chain — grabbing and stacking freshly milled lumber as it came off the line. After college he was drafted, served two years in the Army and was discharged in 1955. Then he headed straight back into the timber business — or “bidness,” as he says it — founding his own company, Schmidbauer Lumber Inc., in 1972.

At 81 he still has the broad chest and strong hands of a mill worker, though his eyes, which nest in the shadow of his furrowed brow, betray a certain weariness. This air of fatigue could have a lot to do with the fact that he was forced to shut down his Eureka sawmill a couple weeks back, placing 60 of his company’s 140 employees on unemployment. (The planing mill and machine shop are still operating, and a stockpile of milled lumber keeps the shipping department active.)

The sawmill closure was necessary due to a lack of supply, Schmidbauer explained last week while sitting in a wood-paneled conference room on the second floor of the mill’s office building. On the wall opposite him was a pair of windows overlooking the dark, mechanized innards of the shuttered mill. Weather’s a factor in the log shortage, Schmidbauer said, as is the still-sluggish housing market. But there are logs to be had. In fact, many timberland owners have refrained from harvesting in recent years in the hopes that market prices would rebound.

Many of those landowners are now ready to sell their logs, but not to Schmidbauer. He simply can’t pay them the price that’s being offered by international exporters, who in recent years have been buying up more and more lumber and logs from across the Pacific Northwest and beyond, then shipping it overseas — primarily to China.

The explosion in forest products exports, which began a few years ago in British Columbia and has now spread into Washington and Oregon, has provided a welcome income stream to timberland owners battered by the 2008 housing market collapse and the subsequent recession. This bullish demand from the Far East shows no signs of flagging. Last year, the value of North American softwood logs and lumber exported to China exceeded $1.6 billion according to Wood Resource Quarterly, an industry magazine. That’s up from just $125 million five years ago.

All of which has been welcome news for many West Coast lumber towns, particularly Canadian ones. British Columbia’s Minister of Forests, Mines and Lands was recently quoted in another industry publication saying that China’s seemingly insatiable demand for wood products “means more forestry workers are back on the job, more mills are running, and forest-dependent communities are enjoying more economic stability.”

If this sounds like opportunity knocking for Humboldt County, well, the equation here isn’t quite so simple for a number of reasons. For one thing, our port has a less-than-ideal dock configuration and lacks the modern infrastructure found at many other West Coast shipping centers. Secondly, the weather and terrain on the North Coast make logging a seasonal business. And thirdly, Canada has mostly been shipping cut lumber, whereas U.S. suppliers have focused more on whole-log exports.

That’s what’s happening here on the North Coast as local timber companies and entrepreneurs try to tap into this emerging market: They’re bypassing mill operators like Schmidbauer. This is happening despite a rebound in the prices he’s offering for logs. A couple years ago, he said, he could only offer $300 to $325 per thousand board-feet. “Now we’re payin’ $425,” he said. But that’s no match for exporters, who are offering more like $525, he said. So while Schmidbauer could potentially make a profit selling these exporters cut lumber for the same price they’re now paying for raw logs, there’s simply no incentive for timberland owners to cut him in on the deal.

If you were to walk out of George Schmidbauer’s office last week, go down the stairs and through the shipping yard to the entrance gate on Waterfront Drive, you could have looked directly across the street at the Schneider dock yard. There you would have seen thousands of shimmering, wet, telephone-pole-straight fir and spruce logs, stripped of their bark and stacked in massive piles. If you’d wandered through the yard’s main gate you might have encountered a dock worker puttering amidst the stacked-log peaks in a tiny loader, and if you’d asked him who the logs belonged to, he’d have answered The California Redwood Company, which is a Korbel-based subsidiary of Green Diamond Resource Company.

This massive stockpile of felled, denuded trees was loaded Monday morning onto the Bright Life, the first of two huge shipping vessels scheduled to arrive in Humboldt Bay in as many weeks. (There’s another mountainous stockpile of logs on the Samoa peninsula.) Otto Van Emmerik, Green Diamond’s operations manager in Korbel, said via email that the exportation market has already had a positive effect on the value of spruce, white fir, hemlock and Douglas fir logs on the North Coast, to the benefit of his company as well as local timberland owners. “The log values will increase the likelihood of additional harvests and result in more work for local foresters, loggers, timber fallers and log haulers,” Van Emmerik said.

Currently, however, it’s doing nothing to help George Schmidbauer or the 60 workers he laid off. In past seasons, many of the logs that were loaded onto the Bright Life Monday morning would instead have been sold to Schmidbauer, then milled into lumber and re-sold to his own customers. Needless to say, it’s frustrating to see such a wealth of logs mere yards away and know that they’ll be milled not in his own facilities but thousands of miles across the Pacific — sort of like dying of thirst in the middle of an ocean.

“Sure, yeah,” Schmidbauer said. “If you’re gonna export a big percent of the raw material out of Humboldt County, it’s gonna be a big problem for us.” But, displaying the diplomacy of a seasoned businessman, he said that he doesn’t really begrudge Green Diamond or the other interests for capitalizing on the export market. He knows that the forces of supply and demand are as implacable as the tides. He cautioned, however, that the deal might not be as sweet as it appears. Exporters only want the highest-quality logs — no crooked or knotty ones — so sellers shouldn’t assume that the price being offered will apply to their entire stand. Plus, the export companies don’t abide delays, which could arise from any number of complications.

In other words, it’s a risky enterprise all around, as local businessman Bob Figas discovered last year when he brokered the county’s first major export deal to China (“Going Global,” July 29, 2010). According to several sources Figas lost a bundle and is now being sued by the charter company. (Calls to Figas were not returned by press time.) He was nonetheless hailed as a pioneer by local business magnate Rob Arkley at a recent logging conference. The profitability of the deals now being executed may well determine the future course of timber activity in and around Humboldt Bay, which leads to this question: Is this model — shipping raw logs rather than cut timber — good for the local economy? Will the rising tide of exports lift all ships, or are we unnecessarily exporting valuable jobs atop those mountains of logs?

Let’s start the analysis with those 60 laid-off workers at the Schmidbauer mill. Dennis Mullins, a research analyst at the local office of the California Employment Development Department, said not all jobs are equal. Sawmill jobs in particular have a strong “multiplier effect” on the larger workforce: Statewide studies have found that one sawmill job adds another two-and-a-half to three jobs to the surrounding workforce due to the higher-than-average wages and the impact on surrounding industries. “So if you added 100 sawmill jobs you’d add an additional 250 or 300 jobs in other industry sectors,” Mullins explained. “The consequences of shipping the logs out rather than milling them locally is fairly dramatic,” he said.

On the other hand, there has been a sharp increase in timber employment in recent months. Logging and mining jobs have doubled since the same time last year, from 200 to 400 jobs, with roughly 95 percent of that growth attributable to logging, Mullins said. These new jobs were the largest single factor in reducing the county’s unemployment rate by 7/10ths of a percent over the same time last year; our preliminary February mark is 11.6 percent, placing Humboldt 18th among the state’s 58 counties.

Many who work in and around the bay are optimistic that our jobless rate could continue to fall. In a phone call from Washington, D.C., Humboldt Bay Harbor, Recreation and Conservation District CEO David Hull said he believes the arrival of more ships into the bay is good for the community, not to mention the financially strapped district. Hull was in the nation’s capital with fellow members of a statewide port association lobbying Congress to maintain federal funding for dredging the state’s waterways — including Humboldt Bay, where the Army Corps of Engineers is paid to keep the entrance clear of sediment. The high cost of this ongoing project was easier to justify (and finance) when the Evergreen Pulp Mill was bringing in 25 ships per year. Renewed shipping activity will help convince the feds to keep contributing funds toward those dredging costs. Hull believes the value of overseas timber exportation extends even further. Indeed, the multiplier effect isn’t limited to sawmills.

When a ship arrives at the opening to our harbor it’s greeted by a Harbor District-employed bar pilot in a rented tug boat. A second tug, with its own local crew, is usually employed to assist the ship into port. Once the ship arrives at the dock, longshoremen secure the vessel. Later, these workers will help with the loading. While the ship is in port, a stevedore company works to provide whatever the crew needs, be it groceries, water, fuel, sewer service — all supplied by local retailers. Plus, depending on the length of time in port, many crew members will disembark to spend money at local stores.

“The stevedores did a calculation a couple years ago,” Hull said. “Not counting [bar] pilots, having a ship in port has about a $140,000 value to the community.” Another benefit, he said, is that it keeps the local forests active. Yes, he acknowledged, ideally we would be exporting value-added products — processed lumber and manufactured goods rather than raw logs. “But, you know, the market’s just not there right now,” he said.

He expects that to be a temporary situation. As Schmidbauer himself noted, increased American exports will inevitably force domestic prices upward — again, those irresistible forces of supply and demand. Plus, Hull said, you shouldn’t underestimate the ingenuity of mill owners. “These guys are clever, and they’re survivors,” he said. “I think they’ll come up with something creative that will help the economy of our area.”

Just what that something might be remains to be seen. Aside from sitting around, waiting on the outcome of the local experiment with Chinese exports, Schmidbauer said he doesn’t see many moves available to him. “The only thing we’re doing [is] we’re buying a new piece of equipment to cut smaller logs more efficiently.” He wouldn’t say exactly how much this new slabber will cost — “a lot” was as specific as he’d get. “And, uh, I hope it’s not a waste of money,” he added, looking beleaguered.

A commonly accepted economic principle is that expanding exports helps to create jobs and grow the national economy. That may be true on the macro level but as this situation reveals, things aren’t always so simple up close. Last year, President Obama set a national goal of doubling U.S. exports in five years, a much-lauded objective. Large-scale log exports to the Far East may help the country reach that mark. And, as distasteful as it is to benefit from the suffering of others, rebuilding efforts in Japan, following the tragic March 11 Tohoku earthquake and subsequent tsunami, will also increase demand for timber exports.

Humboldt County now has an opportunity to contribute more toward those national exportation stats than it has in the past, but some business interests — Schmidbauer, for one — and elected officials wish that there was more acknowledgment of the nuances involved in the equation. One such official is Harbor District President Mike Wilson. “Personally,” he said, “I would hope that [federal goals] could include expanding our potential for value-added exports so it’s not purely predicated on resource extraction.”

Still, Wilson believes that if log exports out of Humboldt Bay prove successful they could potentially restart the engine of the local timber industry. The ensuing momentum, he said, could lead to new opportunities for adding value to our raw materials, whether it’s cutting dimensional timber or, as mills around the Port of West Sacramento and elsewhere have been doing, producing wood pellets that are being used in China to reduce carbon emissions from coal-fired power plants. Wilson said, who knows what other possibilities might present themselves?

International exportation is rife with complexities, from the intricacies of maritime law and port logistics to the fluctuating world of currency exchange. A robust export market depends on all sorts of personal relationships, business arrangements and government cooperation. Those things have already been established around ports in Oregon, Washington and British Columbia. There are hints that Humboldt Bay may be the next player in this high-stakes game: South Korean export company DK Korea is in the process of establishing an office in Eureka, and in recent months there has been an influx of export company representatives holding meetings around town, according to Schmidbauer.

The challenges of exporting from the Humboldt Bay region are well known. There are choppy seas, a treacherous bar crossing, and narrow bay channels in continuous need of dredging. Then there is the relative isolation of this port compared to those with better access to transportation corridors. But the emerging economies across the Pacific — China in particular — suggest that the future vitality of the local timber industry may depend on figuring out how meet those challenges.

Over the past 60 years, Schmidbauer has seen markets from around the globe experience building booms, but nothing like what’s happening in China today. He’s been there twice now. On his first trip, three years ago, he was shocked at the pace of development. “I couldn’t believe the amount of apartments they were building that weren’t inhabited at all,” he recalled. “We asked ’em the question, ‘What are they for?'” The response? “‘Well, they’re for the future.'”

Patric Esh, a student at College of the Redwoods, contributed to this report.

This article appears in Shipping Jobs to China?.