Steve Carey&

Robbie Terras

Project Scope Goal: Determine the optimum location for sorting logs, leading to the most

efficient and cost effective log merchandizing process

Objectives: Gather information from both operational and financial perspectives

1. Estimate potential log procurement, harvesting and delivery savings ($/MBF)

2. Estimate increase in log yard scaling, handling and equipment costs3. Evaluate equipment, manpower and space requirements4. Determine any operational or logistical constraints

Analysis: Determine the most cost effective solution without operational and/or logistical constraints

1. Use traditional decision making criteria to analyze the financial data 2. Perform a thorough review of operational issues & constraints

Limitations: Considerations outside the scope of this analysis1. Environmental and productivity impacts of reduced landing size were not

taken into consideration

Interviews The Forester at each mill in the initial scope (6) provided insight on potential

savings and operational constraints. Six Logging Contractors were interviewed at active job sites to assess

potential saving in logging rates and review the sorting and loading process. Sawmill Managers at each mill provided input on handling costs and log yard

constraints. Log Yard Supervisors were consulted regarding handling and space

constraints. SPI Trucking Manager & Log Truck Supervisor helped determine potential

reduction in load time and dispatch efficiency, particularly impacted on “cleanup” loads.

Our company Check Scaler was consulted regarding mixed species sampling and additional scaling requirements.

Sawmill Accountants assisted with log handling and equipment costs. Corporate Accountants provided additional information on equipment costs

and annual expenses. IT Support provided base volume and cost data as well as technical expertise

on sample weight processing options.

Initial Observations Interviews with mill managers and foresters quickly established a physical and

logistical constraint preventing scaling of every mixed species load; therefore, a mixed species weight sample would be required.

Fee timber sales would continue to pay log and haul rates based on weight to avoid complications with mixed species sampling.

For a variety of reasons, mixed species sampling rules out timber sales on private and government land, further constraining the analysis to company owned timberlands (“Fee” Timber).

Considerable debate was generated when considering mixed species sampling, indicating the need to consider multiple sampling levels.

Currently, all mixed species loads are scaled, partially offsetting the increased sampling frequency required for mixed species loads.

The initial scope identified 6 California sawmills; however, it became apparent a policy change would affect all mills so the analysis was expanded to include all 9 CA sawmills.

Separating scaling costs from other log handling expenses was not feasible for “company scalers”; therefore, Bureau scaling costs were used exclusively.

Delays unloading trucks at the mill could offset reduced load times in the woods.

Data Collected for CA Mills 2012 Log Plan – Separating by Timber Source (Fee, Government & Private)

o Estimated delivered volume by Millo Estimated delivered cost by Millo Weighted average log and haul costs, converted to $/MBF

2011 Log Scale History - Separating Fee from Non-Fee Timber Sources and Bureau from Company Scaleo 100% Scaled (non-sample sales)o Sample Scaled Loadso Weight only Loads (“Deck”)o Average NMBF/Loado Average Green Tons/ Load

2011 Bureau Scaling Invoices o Total bureau scaling costs by millo Average bureau Scaling costs by Millo Weighted average scaling cost for CA

Estimated Savings and CostsPotential Savings @ 3 Levels of Efficiency $/MBF Annual Estimated Savings

Reduced Rate Low (1%) Med (3%) High (5%) Low (1%) Med (3%) High (5%)

Logging $ 1.33 $ 3.98 $ 6.63 $ 527,479 $ 1,582,437 $ 2,637,396

Hauling $ 0.89 $ 2.66 $ 4.43 $ 352,562 $ 1,057,686 $ 1,762,810

Annual Cost Increase

Handling: Initial Cost $/MillInitial Cost All

Mills Annual $/Mill Annual Increase in Handling Costs @ All Mills

Labor $ - $ - $ 39,000 $ 351,000 $ 351,000 $ 351,000

Equipment $ 250,000 $ 2,250,000 $ 25,000 $ 225,000 $ 225,000 $ 225,000

Fuel (50 gal/day) $ 35,200 $ 316,800 $ 316,800 $ 316,800

Scaled Annual Increase in Scaling Costs @ All Mills

"Deck" Loads Low (1%) Med (3%) High (5%)

Scaling: $/MBF 10% $ 155,250 $ 155,250 $ 155,250

$ 5.84 50% $ 776,249 $ 776,249 $ 776,249

100% $ 1,552,498 $ 1,552,498 $ 1,552,498

Financial Analysis – 1Annual Cost/Savings: Scaled Annual Savings by Log/Haul Efficiency Factor

(Not counting initial investment) "Deck" Loads Low Med High

10% $ (168,009) $ 1,592,074 $ 3,352,156

50% $ (789,008) $ 971,074 $ 2,731,157

100% $ (1,565,257) $ 194,826 $ 1,954,908

Payback Period: Scaled Payback of Initial Investment (Years)

Number of years to payback "Deck" Loads Low Med High

initial investment = $ 2,250,000 10% N/A 1.4 0.7

50% N/A 2.3 0.8

100% N/A 11.5 1.2

Financial Analysis – 2Net Present Value (NPV): Scaled NPV for 10 Years @ 6.0%

(10 Yr period at 6%, taking into account "Deck" Loads Low Med High

initial investment = $ 2,250,000 10% $ (3,486,558) $ 9,467,800 $ 22,422,158

50% $ (8,057,166) $ 4,897,192 $ 17,851,551

100% $ (13,770,425) $ (816,067) $ 12,138,291

Internal Rate of Return (IRR): Scaled IRR Over 10 Years

(Calculated over 10 Years, taking into account "Deck" Loads Low Med Highinitial investment = $ 2,250,000 10% N/A 35.5% 88.6%

50% N/A 14.0% 70.3%100% N/A N/A 46.9%

Results Potential Savings:

1. Logginga. Improved loader efficiency thru smoother movement from one

landing to the next (loader is not needed in 2 places at one time).2. Hauling

a. Simplifies dispatch, easier to determine how many trucks will be needed any given day.

b. Reduced wait time, particularly “cleanup” loads.3. Due to variability in estimates from the interview process, log and haul

rate savings were evaluated at three levels: 1%, 3% & 5% Costs – Log Yard:

1. Increased scaling costs were calculated at a flat $/MBF rate from 2011 Bureau Scaling costs for California

2. Potential increase in scaled loads was viewed as a reduction in “Deck” loads at 3 levels: 10%, 50% and 100%

3. Handling / Sorting Requirementsa. 1 additional person per mill, for a duration of 8 monthsb. On average, the need for one additional piece of equipment capable

of sorting logs at each mill

Other Concerns1. Mixed Species Weight Sampling vs Pure Load Sampling

a. Major point of contention and confusionb. Currently all mixed species loads are being scaledc. Mixed species sampling frequency was questionedd. Inventory accuracy and statistical validity were challenged

2. Log Yard Issuesa. Available space in the log yard for sorting every fee timber loadb. Species sorting in unconventional manner -“circle sort” or other

method to avoid “rolling out” every load

3. Effectively negotiating reduced Log & Haul ratesa. Communications and credibility are the key

4. Landing Sizea. Little to no discernible impact, except steep terrainb. Most logging operations would be roughly the same

Future Considerations Future Capital Expenditures

1. Potential need for more sorting equipment at some mills2. Log Yard expansion and/or paving

a) Mitigated by more aggressive mixed species samplingb) Requires innovation in sorting techniques to minimize space

requirements

Other Potential Problems1. Breakage-especially cedar mills2. Availability of Scalers- continued training

Future Expansion of Sales and Savings1. Sale Type- Stumpage vs delivered on private, state & federal2. Push cost savings beyond current levels of low, med or even high3. Terrain, distance, and other environmental issues also involved4. Improve our bidding and negotiating process5. Communications and credibility are the key to “selling” this opportunity

now and expanding it in the future

Conclusion While some logging and hauling efficiency is likely gained on all loads, startup

and cleanup loads from each logging operations provide the greatest opportunity for savings.

Mixed species sampling is the key to effectively reducing species sorts on the landing.

Additional testing and education will be required to increase confidence in mixed species sampling.

Following positive experience and adequate testing, private timber suppliers could be approached about potential savings from reduced sorting in the woods.

Recommendations Start slow - consider allowing loggers to deliver a small percentage of volume

from fee timber sales as mixed species loads, focusing on the “start up” and “clean up” loads from each landing.

1. Maximizes impact – focusing on the most expensive loads.2. Minimizes impact at the mills, potentially eliminating the need for

additional equipment and manpower.

Setup mixed load sampling for all mixed species loads at each mill.

Determine optimum log yard sorting procedures without requiring a full rollout of each mixed species load.

Setup a number of scaling tests to verify the accuracy of mixed species sampling in a variety of log sizes and species.

Finally, compare logging and hauling rates on fee vs private sales to evaluate the effectiveness of reduced sorting on the landing.