VANCOUVER — A sudden surge in lumber shipments to the hot U.S. market is creating rail car shortages in Canada as forest companies scramble to ship wood across the border before punitive export duties kick in next month, reports the Globe and Mail.
Major lumber producers such as Canfor Corp. and Slocan Forest Products Ltd., who are faced with paying a 29-per-cent duty on U.S. shipments starting by May 25, transport virtually all of their timber by railway.
As a result, rail car shortages caused by unexpectedly strong demand from the U.S. housing sector and the desire of many companies to ship lumber across the border before the duties take effect is causing a headaches for the industry.
The transport problem is particularly acute in British Columbia and Quebec.
“Everyone is having trouble with rail cars right now,” said Terry Upgaard, vice-president, marketing with Slocan.
“It has been that way for almost a month.”
Ernie Thony, vice-president of lumber sales at West Fraser Timber Co., said the shortage is frustrating because, as the duty deadline looms, his company is having to hold back about 40 per cent of planned lumber shipments.
“Basically, it is the railroad that is forcing the additional cost back onto the lumber producers because they are not supplying the equipment,” he said. “If we order 10 cars, we’d like to get 10 cars, instead of two.”
Officials at Canadian National Railway Co. and British Columbia Railway Co. say they are aware of the problem and are doing all they can to deal with it.
CN has leased an additional 280 centrebeam flat cars in a bid to add more capacity. “We are talking to receivers in a bid to get them to unload cars as quickly as possible,” said Mark Hallman, a spokesman for CN in Toronto.
While B.C. Rail said it too is talking to leasing agents in a bid to make more cars available, the problem isn’t limited to Canada. U.S. railways, which service Canadian sawmills, say they are also seeing a surge in traffic from provinces such as British Columbia as producers boost shipments before the duties sharply increase their costs.
Since the U.S. Commerce Department moved last month to finalize duty rates designed to offset allegations of unfair subsidies, domestic producers have been posting bonds to cover anti-dumping duties averaging 9.7 per cent.
But that is expected to change next month when a 19.34-per-cent countervail duty is added on, and Canadian producers begin paying the duties in cash.
“I would think that anybody that has inventory would want to ship as much as they can now,” said Mike Jones, a U.S. customs broker with Jones & Jones in Blaine, Wash.
He said the bulk of the increase in shipments are coming from B.C.-based producers such as West Fraser, Canfor and Slocan.
However, Mr. Jones said the increase doesn’t mean the United States is being flooded with a “wall of wood,” because inventories being held by many companies are still relatively low.
Forest industry officials say they believe the rail car shortages are temporary. “Three or four months ago, they had more cars then anyone had a need for,” Slocan’s Mr. Upgaard said.
Richard Kelertas, a forestry analyst with UBS Warburg in Montreal, said big box stores and retail outlets in the United States were stocking up on wood amid expectations of higher lumber prices. “So what we will probably see is a slowdown period that may coincide with lower shipments from Canada as the duties become payable in cash,” he said.
Meanwhile, B.C. Rail said it is worried about how its own business will be affected once the duties kick in. “It is possible that the imposition of duties will be disappointing to us [in terms of how it affects rail car demand],” said B.C. Rail spokesman Alan Dever.