Under-Your-Nose Timber Scams

Under-Your-Nose Timber Scams
An slightly abridged version of this article was published in the May/June 2000 Massachusetts Woodland Steward.

Background

Most readers of the Woodland Steward are pretty savvy when it comes to selling timber.  They know from personal experience that it pays to have timber marked and tallied and put out to competitve bidding.  They also know from reading a recent article on this subject (Dave Kittredge and Bill Haslam. 2000. What the market will bear: The range of lump sum prices offered for standing timber in Massachusetts. Woodland Steward 29(5): 3-5). 

Unfortunately however, readers of the Woodland Steward--and other active forest managers--are far from the majority of landowners in the state.  Only about 15% of private land in the state is under active management.  The other 85% is periodically cut without any real management strategy. 

On these properties, cutting may occur just before a change of ownership, or when there's an unexpected financial need in the family.  Other sales occur in response to the "knock on the door" type proposal from loggers or lumber companies. Such sales are likely to take place with very hasty planning, or no planning at all, and can lead to very adverse consequences--both silviculturally and financially. 

While most loggers are honest and pay fair market value for all the timber they cut, there's a significant minority that doesn't, and has no interest in doing so.  Paying for less volume than they cut, and paying less than fair market value for what they do cut, can be very profitable for these individuals.  This is why there's an the inherent conflict of interest among loggers/lumber companies when it comes to paying for timber.  Some deal well with this conflict.  Others do not.

There are many methods for paying for timber.  Commonly used methods include 1) lump sum payments based on buyers' estimates of stumpage volumes and values; 2) mill payments based on mill tallies of volume and value, either by the log or by the truckload, and after deducting for logging and trucking costs; 3) foresters' tallies of scaled trees and competitive bids by loggers and mills.

Lump Sum

Lump sum payments may be very tempting, particularly if the payment offered is for more than the owner thought his/her timber was worth.  Not having to deal with a lot of weekly payments and all the attendant bookkeeping is another plus for the lump sum method.

Some landowners will solicit lump sum offers from different local mills and loggers, and thereby get competitive offers.  But if the trees are not marked or otherwise carefully designated in advance (as in some kind of diameter limit and/or species prescription) there's no guarantee that trees that the landowner wants to retain won't be taken too. 

Lump sum payments usually entail a contract that commits the landowner to terms and conditions that he/she may end up regretting before the job is done, but which cannot be changed without significant legal expenses.  Such contracts typically also commit the logger or lumber company to terms and conditions which are standard for the industry. 

Mill Tally

Suspecting the potential for deception and contract problems with lump sum payments, many landowners prefer to be paid on mill tally, and often without a contract.  Unfortunately, where logs are scaled individually, tallies can be underestimated by scalers with "big thumbs" or "short sticks."  Where timber is paid for by the truckload, some truckloads may be "missed," or the average volume per load may be consistently underestimated. 

Even if volumes are accurately reported, there is still opportunity for deception in the species and grades of timber tallied.  High-grade hardwood logs may be tallied as pallet or tie logs.  Pine logs may be tallied as hemlock logs.

Selling timber "on shares" is a common variation of the mill tally method.  Shares on "woods run" timber might be 50-50 for logger and landower, based on mill tallies and values.  If logging and trucking costs are $120 per Mbf and mill values average $240 per Mbf, this would be a fair arrangement.  But if mill values turn out to be $400 per Mbf, a 30-70 split would be more appropriate.  Of course actual logging and trucking costs will vary, depending on the difficulty of the logging job and the distance from the mill.

If the logger's share is at or slightly above the actual cost, he has an incentive to shop around and get the best price for the logs.  But there's still the potential problem of the logger switching to a 100-0 split by not reporting a load every now and then, or sending a few to a different mill that doesn't report to the landowner.

Tree selection on mill tally sales is often by the "logger's choice" method.  These choices usually turn out to be the biggest and the best.  The result is often what is known as high-grading, and is not in the forest's or the landowner's long-term interest.  High-grading may also result from diameter limit and/or species prescription sales, whether by lump sum or mill tally. 

Forester's Tally

Many landowners depend on the services of consulting foresters to accurately estimate volumes and grades of timber in trees before they are cut.  This method, along with competitive bidding or negotiated sales, has advantages of the lump sum and mill tally methods.  The landowner gets paid a lump sum (or fractions thereof on a predetermined schedule), and he/she gets paid for scaled volumes.  Well-written contracts and performance deposits protect landowners' property values.

In other parts of the country, it's standard practice for consulting foresters mark trees in the woods, but not to tally them until they are in log form at the landing, and before they are trucked away.  This of course is very time consuming, and there's still room for cheating because an unscrupulous logger could always sneak out a load every now and then if he really wanted to.

Unfortunately, consultants have been known to cheat landowners too.  A few have been known to deliberately undertally on sales, and only provide the accurate tally to one bidder (in exchange for a kickback), so that that bidder will an advantage over competitors. 

Other foresters present themselves as consultants when they're really procurement foresters for particular mills.  They might cruise or mark your timber and then tell you there's not that much of value out there, so you might as well negotiate a sale, oh, and here's a good mill to work with.  Or they may solicit bids informally, and their sponsor will be the one who gets the bid.

Service foresters who are "friendly" with certain loggers may tell you that you don't really need a consulting forester, and will propose certain logging contractors who you can trust, thereby avoiding the expense of marking and tallying your timber.  While you may save the 10-20% on forester's fees, you may end up paying 20-30%--or more--in the form of short tallies.

Incidentally, having trees marked and tallied in advance by a consultant will not necessarily mean that a logger or mill will get the same tally.  The logger may get an overrun, particularly if he has very good utilization.  Conversely, the logger can come up short if he doesn't cut everything that's marked, or if he doesn't utilize to the same specifications as the forester tallied to.  

If the forester has been practicing for awhile, the loggers and mills will know how he/she tallies, and will adjust their bids for his/her tallies accordingly. 

Other Factors

Fortunately, here in Massachusetts we don't have the mutiple log rules that are common in other parts of the country.  In these regions, you may find some mills using International tally, while others use Scribner or Doyle, all of which will come up with different tallies for the same load of logs.  Some mills may even use Scribner for grade logs, and International for tie and pallet logs.  This can get very confusing. 

Procurement foresters for mills may mark timber once they have contracted to purchase it.  Timber marking under these circumstances may have advantages over "logger's choice," but may not include the same degree of silvicultural consideration as may be found in marking by consulting foresters. 

The stumpage value of low-grade timber and wood/pulp removed in silvicultural operations marked by consulting foresters usually equals or exceeds their entire fees.  Since loggers and mills don't make as much money on low-grade material, they often leave it in the woods. Leaving this low-grade material behind results in slower growth rates on other residual trees, and often leads to losses of biodiversity as well.

SIDEBAR

Statistics from a 1988 study suggest that undertallying on timber sales is extremely widespread, and constitutes a very significant abuse of the property rights of landowners.  The incriminating data are contained in a survey done by J C Mawson and B W Kling (Analysis of 1986 Cutting Plans Under Chapter 132. Massachusetts DEM. 1988).  The data indicate that the average volumes reported in cutting plans in a representative year were 1.8 Mbf plus 2.1 cords per acre.  The average reported acreage was 38. 

These numbers may seem reasonable to the untrained eye, but to an experienced forester, they appear grossly underestimated.  Actual per acre volumes are probably two to three times those stated on cutting plans. Some simple calculations will disprove the first glance acceptance of these numbers. 

First, most of the cutting in Massachusetts occurs in the central and western parts of the state.  This region is more productive than the eastern part of the state, which is more urbanized and has poorer growing sites, and where the above numbers might be reasonable.  The five western counties (Worcester, Franklin, Hampshire, Hamden, Berkshire) have average site indexes somewhere between 60 and 65. 

Second, if the average site index is 65 for harvested sites, then the average production would be about 300 bf per acre per year for mixed softwoods and hardwoods.  While the average cutting cycle on managed land may be in the 10 to 20 year range, the average cutting cycle on the 85% of unmanaged land would be in the 20 to 30 year range, and probably closer to the high end of this range.  Even at the low end of this range, the periodic harvest on unmanaged land would be about 6,000 bf per acre, or over three times the average volume reported on cutting plans.  

These calculations don't necessarily mean that landowners are getting paid for less than a third of their timber.  It could be that loggers and lumber companies are deliberately underestimating volumes in cutting plans in order to "err on the side of caution," and that volumes actually paid for on mill tally are greater.  Unfortunately, we don't have the information needed to confirm or reject this hypothesis. 

Corrections to volumes estimated in cutting plans are rarely, if ever made by loggers or landowners after the cutting is done.  However, we can probably safely assume that where timber is paid for by lump sum, and where payments are based on volumes estimated in advance in cutting plans, that there may well be some underestimation occuring.

In fact, some unscrupulous loggers will actually use estimates stated in cutting plans to actively defraud landowners.  We know of instances of loggers telling landowners that they can trust the volumes estimated in their cutting plans because they are approved by DEM service foresters.  Of course this is not the case.  DEM service foresters make no effort to confirm volumes estimated in cutting plans.  Nor do they generally confirm the appropriateness of silvicultural practices stated in cutting plans.