Monday, October 17, 2022

State Of The Industry, Fall 2022 (Tree Planting in Western Canada)

“Conflicting Economic Data.”  That seems to be the current theme of Canada’s financial reality.  And the same phrase may perfectly describe the situation that western Canada’s planting industry currently finds itself in.  Bear with me for couple paragraphs of economic commentary, before I go more directly into the outlook for the 2023 planting season.  Economic analysis matters, because I believe that a major recession is coming our way like an oncoming freight train.

Around the globe, inflation is running rampant.  It doesn’t really matter how you define inflation, because all indicators are on the rise:  Food, fuel, other energy, consumer goods, services, etc.  Economists could argue for weeks about the current reasons for inflation, but the basic pressures are heavily rooted in energy supply shocks and a couple years of barely-restrained printing of money by various nations’ central banks (mostly to support global economies during Covid).  The current consumer price index inflation numbers are running at slightly over 7% annually in Canada.  As a result, the Bank of Canada has been pushing up the interbank lending rate, which causes banks to increase their prime rates and all other interest rates.

Higher interest rates generally cause people to pay down debt, rather than spending their earnings on fun things.  Therefore, the goal of higher interest rates is to cut down on consumer spending, which reduces demand for goods and services.  In turn, reduced demand normally puts downward pressure on prices for goods and services.  But higher interest rates also hurt a lot of people, because most of Canada’s population has mortgages, credit cards, and/or loans of various types.  We’re getting attacked from both sides, paying more at the pump, more at the grocery store, more for other goods and services, AND dealing with higher interest rates on top of that.  Sure, the higher interest rates will eventually stop prices from rising so quickly, but as I mentioned earlier, I believe that we’re in for a lot of short-term pain over the next 12-24 months.

In terms of wages, the economy is still quite strong, and there are more job opportunities than there are people to fill them.  The current unemployment rate in Canada is pretty low when compared with historical data.  When unemployment is low, employers need to compete harder to attract employees, so wages go up.  Although there are various ways of measuring this, it is likely safe to say that by year-end, wages in Canada will have increased by at least four percent compared to last year.  Unfortunately, a four percent increase in your wages doesn’t seem so great when everything that you buy costs ten percent more than it did a year ago.

The planting industry’s economic health varies from year to year according to many factors, but usually the most significant impact depends on the basic supply/demand of planting contracts, ie. how many trees the industry needs to plant each year.  When overall industry numbers go up (as they did a few years ago, after the 2017 and 2018 wildfire seasons in BC), tree prices go up at a company level.  And sometimes this trickles down to a corresponding increase in planter prices.  When industry volumes go down, companies bid aggressively to chase a diminishing amount of work, and prices go down.  We saw that happen these past twelve months.  The “boom & bust” periods are especially visible in public government work, which accounts for roughly 20% of the trees planted in BC each year.  However, work for private clients makes up the other 80% of industry volume.  Private client pricing (mills, logging operations) is more stable than public tenders, because a lot of that work is based upon multi-year agreements between mills and planting contractors who work together year after year.

Going into 2023, industry volumes are decreasing.  In 2022, we think that BC planted about 286 million trees.  The estimate for 2023 is roughly 262 million trees.  Planting contractors are therefore competing for a piece of a smaller pie.  Supply/demand economics dictate that public bid prices would normally decrease during the Viewing Season (for 2023 projects), which is just starting to ramp up.  But a drop in prices is the last thing that we need right now.

Company owners have numerous expense items to worry about.  Fuel has obviously jumped significantly in the past 12 months.  Buying a truck is more expensive.  Truck rental costs are rising significantly right now for 2023.  Prices for parts are higher, and maintenance/repair costs are way up.  For companies that have a Business Line of Credit or Payroll Credit Facility, interest rates are now double what they were six months ago.  Employer contributions on CPP and EI are also increasing, by 4.38% and 5.56% respectively (which of course is compounded if labour costs are increasing).

Food costs are much higher than a year ago.  The kitchen team from my camp did a comparison study of invoice prices from GFS for 2022 vs. 2021, using a basket of approximately thirty commonly purchased items, and the average price increase was 35.5%.  That’s stunning.  The only people that benefit from this are planters who work out of camp-based operations with kitchens, because they are shielded from these food cost increases (except when buying their own food in town on days off).  But these higher food costs are certainly hurting the companies that run camps.

There may be significant other challenges that companies have to navigate.  I’m a bit out-of-the-loop on this right now, but there were rumours of enhanced requirements for on-site dressing stations in 2023, and also for more ETV’s spread throughout the workforce.  Having more first aid gear available is unquestionably a benefit for workers.  But who is going to pay for this?  The workers?  If company owners don’t recognize and budget for these potential costs, and bid accordingly, that’s exactly what might happen.

Commercial regs for flight crew fatigue are changing for small operators in mid-December (large operators had to implement these same changes 24 months earlier).  Although the exact rules are quite complex, a general starting point is that the maximum length of a pilot’s "duty day" is being cut from 14 hours to roughly 12 hours per day (the exact length will vary based on certain criteria).  This means that if a pilot arrives at the hanger to start pre-flight planning at 5am, they have to be home with the machine parked and flight plans closed by 5pm, which of course means that they will have to leave the field worksite earlier than most of us are accustomed to.  The maximum hours of daily "flight hours" is also being cut, to 8 hours per day, although this won’t have significant impact since the machine isn't usually running that many hours in a day (except maybe up in High Level).  However, the minimum length for the "rest period" from night to morning is being raised from 10 hours to 12 hours.  It thus becomes essentially impossible for a pilot to fly trees out to stock up a block in the evening, then to return early the next morning to move crews. 

Going back to the length of duty day, the 12 hour day is a best-case scenario.  The exact regs are very complex, and depend on things such as the number of flights per day (that's the number of start/stop cycles of the machine's engine, not take-offs and landings).  The duty day length will also depend on the start time in the morning.  When a pilot starts especially early in the morning, their duty day becomes shorter.  So for example, a pilot doing seven or fewer flights in a single duty day, whose flight cycles are typically between 30 and 50 minutes duration, can only have 11 hours for duty day if they start at 5:59am or earlier.  Let's say that you need a pilot on site at 7am to start slinging trees before the planters arrive, but the ferry time from the airfield to Staging is 1hr.  The pilot will need to start their duty day with the pre-flight inspection and filing of flight plan no later than 5:30am in order to get in the air by 6am, and even that is optimistic because most rotary wing operators will budget a full hour from start time to being airborne.  Because the official start of the duty day is earlier than 6am, the pilot is now only allowed to have a duty day length of 11 hours.  So that could mean that the duty day runs from 5:30am to 4:30pm.  But since the pilot needs an hour of ferry time after planting to get back to the airport, AND time for post-flight and closing the flight plan, they really need to start flying home at 3pm.  Which means that planters might need to fly out of the block starting at 2:15pm.

One solution would be to run two pilots with each machine, to give planters a longer day, but helicopter companies would be reluctant to do this because it would double their labour costs.  Machine costs would also increase significantly if a helicopter needed to return to the airfield mid-day for a crew swap.  And on top of that, the industry doesn't have enough high-hour qualified pilots to make that scenario to work on a broad basis.

There are slight variations and allowances to these changes for certain situations, and a commercial pilot will have a better understanding.  Some details are available here, but again, the CARS regs are very complex.  The bottom line is that these changes will probably impact almost all planting operations that use helicopters extensively, so Project Managers need to contact their preferred helicopter providers and get a full understanding of these potential changes, before putting together any more heli budgets.  Helicopter use may become increasingly associated with constrained production.

There is also a good chance that minimum wage will jump significantly before next summer.  That’s great for workers in many underpaid industries.  It’s also good for tree planters, because companies that hire first-time workers must pay everyone at least the equivalent of minimum wage (including overtime) if their piece-rate earnings are not sufficient.  Will companies that hire large numbers of first-time planters have the foresight to plan for this possibility, and adjust bid prices upward?  A rising tide floats all boats.

Let’s go back to the lower industry volumes.  Can anything be done about this?  A few years ago, we thought that volumes would be historically strong for the next several years.  Part of that was based on the assumption of strong growth of federal tree planting projects, from programs such as the federal “2 Billion Trees” initiative.  But the 2BT program is struggling to scale up quickly, which isn’t a real surprise.  I’m quite familiar with the program, having acted as a project lead proponent for small projects both this year and last year, but my work (on the east coast) has been with very small numbers of seedlings.  For 2BT to work, big players need to design projects that will result in tens of millions of trees being planted, and there are a lot of challenges associated with designing such a project (especially in figuring out where to plant the trees).

In a perfect world, several of the dozen largest planting contractors would each purposefully plan to scale back operations in 2023 by retiring a camp.  I know of at least one major contractor that has already made a conscious decision to do exactly that.  If several companies planned to downsize this way, there would be less concern about the limited number of trees that are available for 2023.  But wait, why should we expect just the biggest companies to save the day?  If every company (regardless of size) downsized by just 8.3%, then the overall 2023 volume would be appropriate for the slightly smaller planting industry.  In such a scenario, supply-based downward pricing pressure would disappear, and bid prices would undoubtedly jump significantly.  Company owners AND their workforces would benefit.  Our industry is nimble enough to do this, but do company owners have the resolve?  Again, it’s the company owners that are hurting themselves if they don’t understand the need for every company to scale back slightly.

Planters expect wages to increase in 2023.  They know that wages are increasing in just about every other sector, and they know that workers are scarce.  What will happen if bid prices decline this fall, and owners have to tell planters after Christmas that planter prices are staying the same?  How many planters will seek employment elsewhere?  Will planting companies be able to hire enough people to get through 2023?  A lot of companies struggled to get their trees planted last year due to hiring challenges, and million of “spring” trees didn’t get planted until July.  Hiring will likely be even harder this year, considering the general labour market situation, so why risk chasing too many trees?  It’s better for companies to aim to scale back.

What else can planters (and companies) expect from 2023?  Well, from what I’ve seen so far, there are a few challenges to look forward to:

-        Head Protection:  WorkSafe has mandated the use of head protection on ALL understory planting in BC from now on.  While a hardhat may not protect you if an entire tree falls onto you, it could make a difference if you get hit by a dead branch.  Of course, hard hats bring their own separate problems, and planters hate wearing them.  Incidentally, we’re also seeing an increase in expectations for due diligence with more detailed DTA assessments.

-        Wildfire Planting:  There has been a LOT of wildfire restoration work in BC in the past four years.  Probably more than twenty companies have worked in the Elephant Hill fire alone since 2018.  Planting continues there, but so does grass encroachment.  As the grass spreads each year, the difficulty increases.

-        Plastic Ribbon:  The Cariboo-Chilcotin region (ranchland) banned the dropping of plastic flagger this past year, to protect cattle from eating plastic.  The full impact of this change was not felt in 2022, as a lot of multi-year contracts were still in progress.  But several multi-year contracts just ended, and the flagger ban throughout this region will be more ubiquitous in 2023.  Couple this with thicker grass in the burns, and we’re going to see a lot of double plants in 2023.  The industry MUST find a cost-effective supply of biodegradable ribbon soon, or loosen up spacing rules.  There are now a limited number of 500' rolls of corn starch ribbon available from Motion for $2.87 per roll, which is approximately three times the cost of polyethylene plastic flagger.  But if everyone bidding on no-flagger contracts were to add another 1.0 cents per tree to their bid price, that would be enough to purchase one roll of biodegradable flagger for roughly every one box of trees planted.  Bidders can pass the cost of this product on to clients!  We just need to make sure that every bidder factors that cost into their bid prices.  Easier said than done, of course.  Also, that price might eventually come down some, if the industry starts buying the corn starch product in large quantities.

-        Unwrapped Trees:  Again on the theme of saving plastic, more planters may see boxes being shipped this year without bundle wrappers.  It’s a great concept.  Single-use plastic is no good for anyone.  If western Canada plants 400 million trees per year including the prairies, that’s probably 30 million bundle wrappers per year that end up in landfills and occasionally scattered across blocks.  And aside from the plastic, if it takes 5 seconds to unwrap each bundle, that’s costing planters 2.5 million minutes each year.  I’m all for reducing plastic, and I’m quite familiar with planting trays of unwrapped trees on the east coast.  But when planters have to share boxes and each person has to do a count of their share of the box, unwrapped trees become a challenge.  We've also discovered that some nursery packing crews can’t count, resulting in boxes that don't have the correct number of seedlings in them.  When boxes are overfilled, it hurts the nursery, it hurts the planters, and it indirectly hurts the planting companies.  Nobody benefits except the Clients, who get free trees.  Nurseries that are moving in this direction need to implement working quality control systems BEFORE unwrapped trees become more widespread.  Perhaps it would help to tie the bundles with twine?  Or even better, wrap them in a band of light kraft paper or wax paper with a small piece of masking tape to seal the wrapper.  That would continue to protect the plugs better than a box of loose trees, which the forestry clients would prefer.  And it would allow for better monitoring of counts (both on the planter side and the nursery side), while still eliminating plastic wrappers.

-        Vehicle Safety:  I'll cautiously comment that vehicle safety seems to be improving slightly throughout the industry in the past few years.  Yes, I'm aware of some exceptions, and some accidents.  But we're generally seeing more common sense.  I have to give a shout out to ABBA here.  My crews meet a lot of other companies on the road, and this year, ABBA wins my award for the most professional radio use and cautious driving, at least when we worked in the same area back in April/May.  There seems to more of a safety-driven impetus from some Clients recently, a few of whom are asking for GPS trackers and/or dash cams (audio off) in their contractors' vehicles.  These devices probably make some people drive more cautiously, which is good.  A side note:  For anyone working in the Sparks wildfire area in 2023, be careful.  Some of those roads are going to be pretty sketchy when they're wet.

-        Access:  I’ll focus again on the regions where wildfire planting has been happening for the past few years.  It’s safe to say that in those regions, the low-hanging fruit has been plucked.  Each year, the blocks become more difficult to access.  Helicopter work is becoming more common.  And that brings up a good point.  What happens if someone gets hurt on a block where it’s impossible to extract a seriously injured patient without a helicopter?  Do companies have helicopters on standby for emergency situations such as this?  This is a good time to put in a plug for the services of the TEAAM helicopter recovery service for remote workers.

In terms of fire activity, as of October 17th there were still 202 active wildfires burning in BC.  That's crazy.  I've never seen so much active smoke during a Viewing Season.  Many of these fires will impact our industry in 2024 and beyond.

This year’s Viewing Season is really just getting under way in earnest in the past two weeks, and companies are on the edge of their seat about what will happen.  Will we see lower prices, due to decreased industry volumes?  Will we see higher prices, due to a recognition of how inflation is significantly affecting the cost of running a company?  We’re in the middle of an economic tug-of-war.  Now you see why I started off with the phrase, “Conflicting economic data.”  If company owners are smart, most of them will downsize slightly.  If that happens, bid prices will increase this year DESPITE the lower industry volumes, and companies will be able to react appropriately to general wage and inflation trends.

Considering what we had to deal with for the last three years, it seems crazy to say that 2023 may be the most challenging year that the industry has seen in decades.  But this time, the challenge will be economic rather than a global health pandemic.  Let’s hope, in the coming weeks, that company owners will bid appropriately …


Jonathan “Scooter” Clark


Comment, December 15th - Many companies chased volume, and bid prices are down overall (sometimes significantly) from the levels of two years ago.  I'll put together a full report by the time the WFCA Conference happens at the end of January, and I'll link that here.




Links to Previous "State Of The Industry" Posts:

Fall 2021:

Spring 2021:

Fall 2019:

Fall 2018: