What Happens When Lumber Shortages Run into Transportation Shortages

The susceptibility of the global supply chain to suffer from major pinch-points and headwinds has never been clearer than during the ongoing COVID-19 pandemic. There was a significant underestimation of how much products and services would be needed, resulting in major supply chain issues in everything from lumber, to semiconductors, to shipping capacity and labor. According to Joe Weisenthal, Co-host of the Odd Lots podcast and ‘What’d You Miss?’ on Bloomberg TV, we are experiencing a “short squeeze in the real economy.” A lack of investment and a quick recover in the economy has now sparked higher prices for sought-after-goods, with lumber a notable example. The question now is what happens when short squeezes meet other short squeezes? Resolute Forest Products was one of the first sawmills to report in this earnings season. What should have been bumper revenues with lumber prices up 85% this year along, was instead the company earnings-per-share that came in below analyst expectations. Why? It seems the supply shortage in wood bumped into a supply shortage in transport.

From Resolute earning statement: “The wood products segment generated operating income of $221 million in the quarter, a $93 million improvement from the fourth quarter, due to a $266 per thousand board foot increase in the average transaction price, or 44%, on strong lumber demand. But shipments fell by 50 million board feet because of seasonal shortage in rail cars and trucks, pushing finished goods inventory up by 46 million board feet, to 143 million board feet. The operating cost per unit (or the ” delivered cost “) rose by $49 per thousand board feet, or 13%, reflecting a higher variable compensation provision, higher fiber costs and the CEWS credits received in the previous quarter. EBITDA in the segment improved by $93 million, to $232 million.”