Business Columns & Blogs

Bill Virgin: When old becomes new again

Even when the economy appears to be stagnating it really isn’t stagnant. Old companies, technologies and industries are eclipsed and replaced by the new. It can be brutal for those whose livelihoods are tied to the economy as it was, but change is necessary to avoid an economy that has moved beyond stagnation and is headed straight for fossilization.

So we see it vividly illustrated in this region, as old industries, former mainstays of the economy, such as forest products, are succeeded by the industries of the future ... such as forest products.

Last week’s announcement of plans to reopen a mill at Satsop to produce a composite wood-plastic material is good news for a part of the state that has been beleaguered by the loss of jobs, most notably in paper and wood products.

But it’s not an isolated event, even for that corner of Washington. Earlier this year, a private equity group announced the acquisition of the former Weyerhaeuser specialty pulp mill in Cosmopolis. Late last year, a local group announced plans to buy and restart the closed Pacific Veneer mill, also a former Weyerhaeuser property, in Aberdeen.

Casual observers might be excused for thinking that the production of forest products, at least in Washington, was not just a sunset industry but one that had fallen into complete darkness, what with the spotted owl, restrictions on harvesting timber on federal lands, mill closings, lumber imports, reduced paper consumption by an increasingly wired and wireless society and the clobbering that the recession gave housing construction.

Certainly the numbers wouldn’t suggest forest products as a growth industry. Employment in the wood-products sector in Washington was 13,200 as of September 2010, according to data compiled by the state; it was 24,000 at the start of 1990. Employment in paper production fell from 16,500 to 9,100 over that same period.

The Western Wood Products Association reported lumber production in 2009 in the 12 states it covers was the lowest since it began compiling data in the late 1940s and had dropped 46 percent since 2005.

But even in the midst of such short-term calamities and long-term declines, the industry still had some kick left in it, and enough promise to convince people it’s worth committing fresh capital to it.

For as old and tradition-laden as it was, the forest products industry has been innovating in the past two decades, not just for the usual competitive reasons like cutting costs but because of the very real problem of limited supply. So companies experimented with plantations of fast-growing species once dismissed as “weed trees” as a potential source of fiber for paper. They reconfigured mills to handle the smaller-diameter logs that were increasingly the standard of timber harvests in Washington. They developed new engineered wood products – laminated veneer lumber and glued laminated beams and all the other configurations of assembling small pieces of wood into larger pieces that could replace what used to be sawed directly out of big logs that are no longer available.

The big trend of the moment is energy projects – cogeneration units that use scraps, trimmings and waste wood (“biomass” is the favored buzzword) from forests and mills to fire boilers that produce steam that can, in turn, be used to make lumber, pulp and paper and to generate electricity. From Port Angeles to Wallula, companies are proposing to spend millions of dollars, or already have, on such systems.

While those systems have generated, pardon the phrase, more controversy than electricity in some communities over potential emissions, the industry sees them as hugely important to its competitive future. Producing more of their own electricity insulates those mills from market prices for power, which are destined to go up as utilities add more expensive “green power” sources to their lower-cost hydro base. Cogeneration systems also create a new revenue source for those mills, which can sell electricity they don’t need onto the regional power grid, thus taking advantage of those higher prices.

The Satsop mill will produce a product made of recycled waste wood and polyethylene plastic, for fruit bins, pallets, crates, concrete forms, siding and fencing. It’s a technology that Washington State University’s Composite Materials and Engineering Center has been working on, and it’s another potential area of growth for the industry.

The days of building giant integrated complexes, the sort that once characterized lumber and paper mill towns, are likely gone, but that’s not the same thing as saying the industry will be gone too. In their place will be smaller, technology-intensive mills that squeeze every usable fiber out of whatever wood they work with, in the form of lumber, paper or electricity. Even big existing mills will get new leases on life if they can adapt themselves to new processes and products. The more that occurs, the more likely it is that the industry will not only arrest its decline but begin adding companies, factories and jobs.

The larger economic-development lesson is that writing off entire industries as history means missing out on intriguing opportunities within them. There’s a missing-the-forest-for-the-trees analogy in there somewhere – and we’ll find it, even if we have to build that metaphorical forest out of bits of wood, resin, plastics, steam and electricity, much like the industry is doing with its future.

Bill Virgin’s column on business and economics appears Sunday in The News Tribune. He is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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