November 9, 2017 10:15 AM, EST

Canadian Lumber Tariff Raises Questions About Ramifications on Trucks, Railroads

A customer shops for lumberGene J. Puskar/Associated Press

The Commerce Department slapped a 20.83% tariff on Canadian softwood lumber Nov. 2, a decision that may boost the U.S. flatbed market but suppress demand for trucking and railroad companies that operate across the nation’s northern border.

Some Canadian sawmills are raising prices to offset the countervailing duties of 14.25% and anti-dumping duties of 6.58%, according to Kevin Mason, managing director of ERA Forest Products Research.

They are “hoping to jack up prices at the Canadian mills to offset final duties,” he said in reports.

In the transportation sector, if the inbound costs to purchase lumber rise, then it could lower demand to move the items on the rails. It would also raise the allure of locally sourced forestry products, likely moved on flatbed trucks, according to some analysts and interest groups.

“Canadian rails have big fleets of center beam flatcars, designed primarily to haul lumber. The rails view those costs as sunk, as they aren’t really capable of handling much else. If we need to source more lumber domestically, it would stretch the limits of an already stretched flatbed industry, which downsized dramatically in 2008 and 2009 during the Great Recession. Most of that capacity was never added back,” said John Larkin, industry analyst at Stifel, Nicolaus and Co.

For Canadian Pacific Railway Ltd., forestry revenue and carloads have trended downward in 2017. Through Sept. 30, revenue was 5% lower than last year at C$202 million. Nevertheless, it should be noted that forest products only account for 4.3% of revenue.

For Canadian National Railway Co., forest products contribute about 15% of revenue. Through Sept. 30, revenue was C$1.35 billion, essentially flat year-over-year.

Both railroads declined to comment on the tariff.

Whether the tariff does shift supply chains to produce softwood lumber remains to be seen.

The Associated Contract Loggers & Truckers of Minnesota believes that manufacturers will gravitate toward U.S. suppliers, which will benefit truckers hauling to sawmills. Potlatch Corp., for example, operates facilities in Minnesota and Idaho, two states that share a border with Canada.

“As more boards [2x4s] are made in Minnesota using Minnesota wood, more trucks will haul logs to the mills and lumber from the mills to market,” explained Scott Dane, executive director of the Associated Contract Loggers & Truckers. “If we can support that mill, it will become more stable and profitable and that will benefit loggers and truckers in the long run.”

The U.S. Lumber Coalition also believes the tariff will revitalize the intra-U.S. supply chain.

“The massive subsidies the Canadian government provides to their lumber industries have caused real harm to U.S. producers and their workers. With a fair-trade environment, the U.S. industry, and the 350,000 hardworking men and women who support it, have the ability to grow production to meet much more of our country’s softwood lumber demand,” said Jason Brochu, co-chair of the coalition and co-president of Pleasant River Lumber Co.

Ken Graham Trucking Vice President Gary Graham told Transport Topics that his Canadian business has slowed in the last several months. The Brimley, Mich.-based company transports pine 1x4s manufactured in Thessalon, Ontario. Until this summer, the carrier handled up to eight loads per week, but now the average is less than five per week.

“My feelings are mixed because the tariff adversely affects our Canadian business, but it could help our U.S. business, even though it’s two totally different lanes with different equipment on our end,” Graham said.

But Jeff Foster Trucking Inc. hasn’t noticed any deceleration yet. The Superior, Wisc.-based carrier recently landed a Canadian customer, hauling dimensional lumber from Atikokan and Thunder Bay, Ontario to northwestern Wisconsin.

“When we heard about the tariff, we thought this opportunity would dissolve. But instead, they said ‘no, we still want to move forward.’ We haul 30 loads a week to our distribution center then ship orders when they come in,” said Leo Naumann, president of Jeff Foster Trucking.

The National Association of Home Builders staunchly opposed the decision because it argues the tariff would raise construction costs, harming the U.S. consumer. The association contends that the duty would eliminate 11,336 full-time jobs and increase single-family home prices $1,701 on average, although the analysis was based on the initial 26.75% tariff under consideration.

“Home builders and home owners are already dealing with the monumental rebuilding efforts in the aftermath of the devastating hurricane season and California wildfires. This tariff only adds to the burden by harming housing affordability and artificially boosting the price of lumber. It is nothing more than a thinly-disguised tax on American home buyers, home builders and consumers,” said Granger MacDonald, chairman of the National Association of Home Builders.