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Management Side

Catastrophic Conditions in Canada

Most readers are probably well aware of the declining fortunes of the paper industry, particularly in Canada. Several problems have come to a head in the past couple month that emphasize just how bad the situation is.

I will not attempt to put a value on the number of recent mill closures, because not all are necessarily permanent, although there are, sadly, more grounds for pessimism than optimism at most sites. Even among mills remaining in operation, several are closing part of the plant.

Newsprint mills have been the hardest hit, largely because of the continuing decline in demand of the grade, but it is noticeable that some modern, efficient newsprint mills seem to be flourishing overseas. The reality is that the market is very competitive and only the mills with the lowest operating costs will survive.

In the case of newsprint, the advanced age of most of the mills in Canada is a serious and long-recognized problem, and I do not see a realistic solution without major investment.

Several mills are receiving taxpayer subsidies, but history does not suggest that these will be sustainable. In today’s business world, taxpayer subsidies are widespread, despite the obvious inequities where one working person is taxed to pay another’s salary. Some will argue that to obtain the maximum subsidy is part of a good manager’s job. They may be right, but only because “everybody” is doing it.

In several situations, management has asked unionized employees and staff members to accept reductions in salaries and benefits to keep a mill running. Results have ranged from acceptance of cuts up to about 30% (which kept the mill running, but only for a few years) to outright refusal by unions to accept any cuts.

In general, the pulp and paper industry pays above average salaries for most skills, so there is a reasonable case for cutting remuneration when times are tough. Few employees of mills that close can find better jobs elsewhere. That said, it is sometimes hard to justify cutting salaries of people in the mill and middle management when top management’s remuneration is in the million dollars per year league, and we do not hear of cuts at that level.

At the time of writing, the future of the mills at Port Alberni, Powell River, and Crofton, all on the British Columbia Coast, seem to depend on a union agreement with reduced benefits by 31 January.

St. Mary’s paper workers at Sault Ste. Marie accepted a cut some time ago, but even that failed, and the mill now seems likely to be broken up.

White Birch in Quebec City seems likely to close, after the union members voted strongly to reject any pay cuts.

The program announced by United Steelworkers and the Communications, Energy and Paperworkers Unions on 27 December to vigorously reject any cuts by Resolute Forest Products mills (formerly Abitibi) bodes ill for those mills.

The Port Hawkesbury, Nova Scotia, mill has been purchased by a group allied with the successful Alberta Newsprint company, which has a track record of building efficient operating teams, so that is hopeful, although the new owners propose to keep only one of the two paper machines running, and will cut staffing radically. I am optimistic about this situation because the buyers know the industry, which is a contrast to some other situations where financial organisations buy a mill, and seem to work harder at imaginative accounting than in improving mill operations.

A series of announcements that pensions will be cut is a particularly cruel blow to people who thought they had a deal with their employer. At least some of the problem stems from the much lower interest rates that can be earned today than when the pension plans were agreed upon, but when deficiencies of 30% or more in pension plans are suddenly announced, I have to wonder about the competence of management and the provincial pension regulators. In addition to the blow to the former employees, pension cuts are a disincentive for people to join the industry.

Many staff and skilled tradesmen have simply found jobs elsewhere. Of course, these are generally the best and most ambitions workers, so are a serious loss to the industry.

Although the newsprint mills have been worst hit in Canada, some kraft mills also are in trouble. The fact that they have to compete with their U.S. counterparts who received multibillion dollar subsidies from the taxpayers for burning black liquor is an additional difficulty.

This is an awful tale of gloom to start the New Year. Let’s hope for better times ahead. There is room for younger people to waken up the better and larger mills and even attract new investment. World demand for many paper products is still rising, and only a few countries have the fiber resources and the infrastructure to produce it.



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