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Small can be profitable

It’s one thing to cut down a tree, but quite another to process it properly and then to sell the timber at a good profit!  It is most often in the middle and final sections where operators get stuck.  Processing and trading require more than technical skills as one cannot buy experience or patience since both are functions of time.

The capacity to properly process logs to timber is founded on the capitalisation of the business, as many hardwoods need up to 24 months of drying, and even Pine takes a year to air-dry.  This simple fact presents small operators with a significant cash flow challenge.  When it comes to selling timber, corporate players dominate, with an ability to flood the market with whatever message, price or product they are able to deliver.  Medium and small operators and independent entrepreneurs need strategic skills, perseverance and mobility to fill the niche gaps left by the big boys.  The mobile sawmill business is one such niche gap that corporate timber operations cannot fill.  A Google-search for South Africa returns 3950 hits for ‘mobile sawmills’.  Is there good money to be made here?

As in all markets, the timber trade is built on a supply and a demand side.  The supply begins with the sustainable and accessible availability of affordable, quality product.  The value chain ends with the demand side where knowledgeable customers are able to pay for the products needed.  Simply put, operators bridge the gap between the tree and the usable, finished product.  The mobile sawmill business is most often project or contract-driven, where operators conclude a deal with a landowner to remove trees from a property for whatever reason.  Depending on the volume, complexity and risk profile of the project, payment for the work can take the form of a trade exchange and/or cash.  Once the trees have been logged, logistical challenges begin, as the operator is now keen to be paid and move on to the next contract.  Logs and timber are heavy, energy-intensive materials to move, requiring equipment, manpower, facilities and time – in short, producing quality timber requires money!  This challenge is exacerbated if the client of the operator wishes to use the ‘cleaned’ land immediately.  Furthermore, timber felling and processing equipment and machinery require regular maintenance and even replacement, workers must be properly trained, safety measures must be strictly managed, and the business well managed.  The challenge to achieving a profitable outcome has now begun.

If the operator is able to successfully balance his cash flow the final trading element of the business awaits him – the trading or selling of the timber.  Typically, mobile sawmill operators try to sell the newly processed timber from the site of the contract, but if unsuccessful need to transport it to a facility for storage.  With insufficient time between contracts, many operators utilize social media and websites to offer their products for sale – Gumtree seems to be a favourite !!  A recent scan shows 173 offers of timber, wood and beams for sale.  Sacrificing proper marketing invariably means that the best price is not achieved.  Time constraints and pressures also take their toll when it comes to the maintenance of equipment and machinery, safety measures and skills training.  These enterprises soon enter a repetitive boom-and-bust cycle where subsistence becomes the ‘best case scenario’.  I would like to propose a business solution to this situation.

The establishing of a Mobile Sawmill Operator’s Depot as a stand-alone business, could address the following value-chain challenges for such operators :

  • a secure, low-cost facility for the storage, drying and even processing of timber
  • a well-equipped and dedicated maintenance workshop including loan equipment
  • marketing, selling, auction and distribution services for the trading and transport of timber
  • safety accreditation, insurance and licensing services,
  • an admin, legal and reference resource centre
  • human resources database
  • the economies of scope and scale of the depot could create access to discounted prices from suppliers on clothing, tools and equipment needed by operators
  • a training function and facility for technical, product and safety skills and knowledge directly related to timber and sawmill operations
  • a professionally managed website for exposure

Access to the facilities, services and discounts offered by the depot will be by way of three levels:

  • annual membership – full suite
  • pay-as-you-go – usage fee per service (excl. discounts, licensing, insurance, licensing, HR database & website)
  • on commission – timber sales only

Until fully capacitated and functioning, membership of the depot will be by invitation as I want to ensure premium quality service from the beginning.  Amounts due to be paid for access to the same services will differ across the three levels with depot members receiving the best value for money.  A further vision for this depot will be the seeding and/or franchising of Mobile Sawmill micro-businesses.  We will offer a basic level of skills certification, and provide access to entry-level equipment.

In terms of location of the depot, my focus is on the servicing of the Southern Cape Corridor, from Nature’s Valley in the east to Still Bay in the west, including all communities and markets adjacent to the N2 and to the coast.  Proximity to the largest markets in this stretch will be critical as transport costs of timber often cripples operations.  George and Mossel Bay are the two largest commercial centres.  Please visit www.southerncapecorridor.co.za for the socio-economic motivation for this view.  Potential low-cost centres for the establishment of the depot include the following locations : Little or Great Brak River, Hartenbos interchange or Albertinia.

Each of these four possible locations has its pros and cons, however the important factors for the best choice are as follows :

  • proximity to supply
  • proximity to market
  • access on and off the N2
  • cost of the site
  • supply of electricity
  • security of site

The Mobile Sawmill Operator’s Depot offers small and medium sized operators affordable access to foundational enterprise requirements, freeing them up to concentrate on servicing their clients and completing the projects profitably, on time and safely.

pj

0823307184

email:  info@southerncapecorridor.co.za

11 October 2017

www.southerncapecorridor.co.za

www.redrivertimber.wixsite.com/home

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