BMATWT 352 - Building Materials and Forest Products Marketing

Selling Softwood Lumber

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Source: Leckey, Dave, Buying and Selling Softwood Lumber, pp. 3-8, Random Lengths, Eugene, OR, 1998

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Overview of the Lumber Marketplace

BIG INDUSTRY

The softwood lumber industry in the U.S. is big - Some 7,500 Truckloads (T/L) of lumber are sold EACH DAY.

 

COMMODITY MARKETS, ECONOMIES OF SCALE, CONSOLIDATION

The market is characterized by having many buyer and many sellers (close to pure competition)

Structural lumber has evolved into a COMMODITY product through the help of widely recognized STANDARDS.

Commodity items are marked by mass production, and usually are subject to ECONOMIES OF SCALE.

Economies of Scale means that average costs of production generally decline with increased size of manufacturing.

Commodity markets are usually marked by many buyers and many sellers where the individual players are so small

that they do not have any control over price. This provides an incentive for manufacturers to get bigger and drive

down their costs of production.

When manufacturers get bigger this causes CONSOLIDATION to occur in industry with the smaller mills being driven out of business.

Since they have higher COSTS of production and no control over PRICE of their product, their profit margins are less than the

bigger firms over the long run.

 

WESTERN SOFTWOOD LUMBER DISTRIBUTION CHAIN

A) Sawmill Sales Offices tend to have minimal staffing, they sell large quantities of lumber to a few buyers.

B) Reman Plants - Take sawmill output and perform value added manufacturing to it (Treating, or moulding/millwork are examples)

C) Office Wholesalers - Coordinate sales and deliveries from the mill to buyers. (they never actually take posession of the material)

i) Examples are Buyer Owned Cooperatives (ACE, is an example in the hardware business, with some lumber capability)

Regional COOPs specializing in lumber are Lumbermen's Merchandising Corp. (LMC), and ENAP

ii) Also, private office wholesalers Seaboard International is an example of a privately held office wholesaler.

D) Merchant or Stocking Wholesaler - Buys lumber for their own account, takes delivery at their own warehouse, or reload center

then sells to retailers or other commercial customers. Rex Lumber is a local example. Orgill is a full-line stocking wholesale distributor.

Produced and maintained by David T. Damery
Building Materials and Wood Technology
Department of Natural Resources Conservation
College of Natural Resources and the Environment
University of Massachusetts, Amherst.