The FOBIA project has been underway for close to two years now and I have spent a lot of time with a range of forestry contractors (or service providers) wading through the issues that impact their businesses, profitability and ability to operate effectively. One theme that has emerged emphatically is that these issues mostly come from external pressure, underlying culture of the industry and current practices. His does not mean that there is no room for improvement of business practices and skills but movement internally and externally needs to occur to have real impact and support a healthier contracting landscape.
Tonnage versus volume
This is at the heart of the profitability issue, “we have no control over want we earn from a job, we are contracted to cut but cannot rely or plan on what we take out, as it might be left at roadside for 6 weeks, and if it’s hot we might loss a third or half of the weight, and therefore half our money – nothing will change dramatically unless we switch to payment for volume”.
Without resolution in this area contracting will remain for many an unstable business. However this requires a high change of the industry that will have knock-on effects to other parts of the supply and require a period of adjustment a transition. Majority of industry professionals believe dealing in volume rather than tonnage is a more useful metric.
Procurement
The current procurement system or the process for tendering for jobs is a strain and frustration for both small and large contractors. They all spend inordinate amounts of time and money on the process, which they do not always fully understand subsequently effecting their success in such tenders. Also the system is reliant upon metrics primarily based upon economics rather than more qualitative criteria that would emphasise quality and build upon best practice and planning for the future. However this problem in itself has created a gap to be filled by professionals who can prepare a competitive bid and navigate the complexities of national procurement systems. “Procurement takes up half of my resources, it is too complex and unnecessary, which really hurts many businesses, especially the smaller ones who have no chance to take the administrative hit”.
Help or more streamlined systems are needed for many experienced contractors let alone those who are entering the sector. Perhaps this is a job for the new FOBIA Boost site or Forestry Schools.
Stuck between a rock and a hard place (power of pricing)
Priced-out, under-priced and no benefit to timber prices rising…the power of price resides elsewhere in the supply chain and the contractors place has little room for growth, as their prices remain competitive rather than benefiting from market peaks and booms in the sector. That power is with the seller or buyer and undercutting standard prices that fairly represent professional quality and reasonable profit undermines the industry as a whole and will knock-on to the capacity for quality of work and therefore the environment being created for future forests. “Contractors have a tendency to price one another out, it is commonly a race to the bottom, which is hurting the industry and if we are powered by procurement metrics over professional judgement and experience then this trend will continue”.
Lack of funding and external support
“I do not know where to turn for support, not much funding out there for start-ups and expansion of forestry contracting businesses, even for innovative proposals to adapt machines or try something new. Banks basically see us as too high risk and it is a terribly expensive business… Not sure how to begin to get ahead”.
This impacts many contractors and just heightens the risk and financial insecurity that will deter many entering or remaining in the sector – some coordination around investment areas in forestry structural funds, national forestry agencies and banks needs to be established to address these concerns. Also a one stop shop from a bridging body to facilitate knowledge exchange and disseminate important information would be useful. A potential expansion of the FCA’s or skills council role, subject to funding and resources.
Overheads and capital costs
This will effect most sectors and companies but with profitability decreasing, stability of income uncertain and potentially expensive initial investment for any new job, as well as the need to mitigate against unforeseen problems (especially mechanical), finances and upfront costs are key for any business and most will lack this capacity. Therefore most companies will take financial hits during the job, which will most likely reduce their profit margin and subsequently destabilise ability to work on the next job, this will destabilise the business. Cumulatively over this will result in suffering businesses and suffering workers.
Lack of mentorship and development
Leadership, mentorship and support are key activities whether formal or informal in developing professionals, standards, best practice and ultimately a healthy and resilient sector. Talking to not only success stories in the business but also those that have bleaker stories of how and why their business did not succeed could provide crucial insights into operating businesses. However, industry mentorship does happen but usually organically – there might be use for young entrants or struggling contractors to be assigned a mentor through a support scheme that works from best practice, sector quality and resilience point of view. “Contracting world can be a little Mafia-like, therefore it is hard to strike out on your own, it is a close-knit community, not very open to cooperation and somewhat suspicious of fellow contractors, as we are all competitors but we all need help but there is not always a convenient or clear place to turn to”.
Next steps for IC Scotland
In Scotland we will be running contractor/student workshops in September and October with the Leadership and well-being module designed by our team, as well as the other available modules. This will be our pilot and hopefully help refine the training platform and identify areas for improvement. We also plan to be at the Forestry Expo in Lanarkshire (Seed to Sawmill) and CONFOR Woodland show in Warwickshire to showcase our work and the FOBIA Boost training platform.
A new researcher Sarah Pohlschneider has been recruited to the FOBIA team, she is an expert in forestry education and will help with the remaining deliverables and reports of FOBIA.
Text: Euan Bowditch, IC-UHI