by Jean Francois Larue, Chief Economist, FPAC
The forest products industry accounted for 12% of Canada’s manufacturing GDP in 2013 but, more importantly, the industry provides high paid employment across more than 200 forest dependent communities across the country. The Industries’ sales were $58 billion including about $30 billion in exports to 180 countries across the globe. The main destinations for those products were the United States, numerous countries in Asia, and the European Union.
It is therefore no surprise that the forest products industry is one of the most important industrial users of the surface transportation system in Canada. In 2001, the forest products industry shipped more than 60M tonnes of freight: half of it via trucks and the remainder via rail. Of this total, about 13M tonnes were also ultimately shipped through Canadian ports to other continents mainly Asia and Europe.
As a result, the forest products industry is the third most important rail shipper in Canada after coal and chemicals products with about 11% of all the freight on the rail network. This also means that the forest products industry provided $1.6 billion in freight revenues to both Class I railways, Canadian National and Canadian Pacific. It paid one of the highest revenue per tonne-miles dividend at 4.8 cents compared to a Canadian average of 4.6 cents in 2013. The average revenue per carload was about $3100, also one of the highest for comparable commodities. The latter is largely attributable to the longer shipping distances for an industry that has its plants often located in remote communities.
The forest products industry makes an intensive usage of rail transportation in most Canadian jurisdictions. For instance, in British Columbia, the forest products industry is the second most important shipper with 23% of all rail freight shipped in the province after coal. In Quebec, the forest products industry is the most important shipper with 21% of all rail freight with oil products being second.
Why is rail so important for the forest products industry’s future? The mills are often located in remote regions with no competitive alternative means of transportation. Trucking is often not a viable alternative in remote regions because of the logistical and human resources implications. For instance, it takes an average of 3.5 trucks to compensate for one rail shipment and remote regions simply do not have the industrial capacity to provide the number of truckloads a typical pulp mill operation would require. For instance, a 350 thousand tonne pulp mill would require 14,000 truckloads annually or close to 40 empty trucks each and every day at the mill assuming the mill operates 365 days/year. Furthermore, the trucking industry already reports a significant shortage of truck drivers. As a result, it is not hard to understand how the industry is really “captive” to rail transportation.
This matters a lot because the forest industry is growing again. In fact, the Forest Industry, through its Vision2020, has set the ambitious goal of making $20 billion more in new products and new markets. And with the above average growth from some sectors in the economy throughout the rail network, we fully expect that the overall transportation system will continue to be heavily solicited over the next few years given the economic recovery. In fact, our forecast suggests that the forest products industry could ship some 10M of additional freight tonnage per year over the next few years on the rail system alone. This represents an additional 33% over the current rail tonnage. No doubt that an efficient transportation system will be a critical underpinning of the forest products industry’s competitiveness and export performance. That is also key to ensuring job-creation and prosperity in Canada, especially for rural communities.