Segmentation of Ohio’s Logging Industry Based on Productivity and Cost Variables

The objective of this research was to develop baseline information regarding the structure and performance of Ohio’s logging industry. Questionnaires were distributed on-site at logger chapter meetings across the state. Multivariate clustering was used to group similar types of firms based on responses to 15 productivity and cost variables. Three clusters were identified: Local Mill Suppliers, Product Merchandisers, and Volume-Dependent Producers. The clusters were largely homogeneous as far as the overall makeup and administration of their companies. Clusters did differ regarding haul distance, pieces of equipment owned, and equipment age. Volume-Dependent Producers, while not significantly larger in size statistically, viewed the productivity, present, and future cost variables more pessimistically than the other clusters. The key variable of concern across clusters was the cost of consumables, primarily fuel, paralleling more recent findings in other states. Commercial logging in Ohio directly employed 2,300 people and produced $238 million in output in 2010 (McConnell 2012). While employment has increased from 2,145 since 2001, industrial output has declined from $286 million (Letson et al. 2006). Loggers are constrained economically, requiring larger forested tracts to remain cost competitive (Egan 2011). However, woodlot size is shrinking as family property is divided, converted to alternative land uses, or sold, and this trend was expected to continue for the foreseeable future (Kittredge et al. 1996, Egan et al. 2007). Additionally, landowners are generally more nonconsumptive in nature than consumptive (Campbell and Kittredge 1992). Starr (2013) found little motivation present among Ohio tree farmers to obtain timber-based income from their land, and forest products production was an overall lowly rated objective of landownership. These issues are contributing to an everincreasing limitation in production forestry, which is the viability of the logging community. Production forestry depends on a capable logging sector to harvest and deliver timber in a cost-effective manner. Because these are the initial processes in wood utilization, the overall health of the forest products industry can be impacted by the functioning of its logging community. Moreover, the logger’s dollars make valuable economic contributions to rural communities through daily business activities. However, the logging industry by and large is inadequately capitalized and bears an inordinate amount of financial risk (Stuart et al. 2003). The consistent publishing of the Logging Cost Indices for the eastern United States began in 2003 (Stuart et al. 2003). Businesses were largely a standard C or special tax status S corporation with one operating crew, and labor was the number one cost in operations. Equipment (trucks, harvesters, skidders, loaders, etc.) tended to be older, with investments in equipment largely declining since the base year 1995. Consumables were also increasing annually since 1995, with spikes noted following the tropical storms of 2004 and 2005. The overall finding from this series has been that logging costs were outpacing inflation as measured by the Consumer Price Index (Stuart et al. 2008). Logging costs had risen 56 percent since 1995, 36 percent of that beginning in 2004, while inflation had risen only 32 percent. Small and midsized firms were seeing the largest rises in costs. Adjusted costs highly correlated with tons of production at a rate of $13.45 per ton produced. The characteristics of the logging industry have been examined across the eastern United States in the South (Greene et al. 1998, Munn et al. 1998), central Appalachia (Luppold et al. 1998, Milauskas and Wang 2006), and The author is Assistant Professor and Extension Specialist, School of Environment and Natural Resources, The Ohio State Univ., Columbus ([email protected] [corresponding author]). This paper was received for publication in April 2013. Article no. 13-00034. Forest Products Society 2013. Forest Prod. J. 63(5/6):174–181. doi:10.13073/FPJ-D-13-00034