Canada is the world’s leading forest products exporting nation. In 2005 the industry had sales of C$84 billion, accounted for 60% of Canada’s merchandise trade surplus and three percent of total GDP. The industry employs 900,000 people, directly and indirectly. Due to economic challenges, it has been forced to shut down 50 mills in the past year.

Total U.S. exports of paper and paperboard reached almost 10.1 million metric tons in the first 11 months of calendar 2007, up 14.5% over the comparable prior year according to figures released by the American Forest & Paper Association. For the same period, the dollar value of these exports rose a full 15% to nearly $8.18 billion U.S.

To understand the differences between the two countries, you don’t have to look much further than the impact of the change in the value of their currencies. The 60% appreciation in the value of the Canadian dollar against the U.S. dollar over the past 18 months has hit the Canadian forest products sector very hard. Compounding the problem have been low price levels and a difficult ocean shipping environment. A lack of space, a shortage of containers, constant rate changes, and the fall-out from big carrier mergers over the past year have had an impact.

Forest products constitute Canada’s third largest export to the United States and Europe. The industry is driving efforts to penetrate markets in the Asia-Pacific region and is achieving some success. While Canadian newsprint exports to the United States fell by 13.2% in 2007, overseas shipments increased by 5.4%. Forest products are currently Canada’s largest export to India, China and Japan and there is growing penetration in Korea.

The weakness in the U.S. dollar has helped spur exports of paper products from the United States. According to the American Forest & Paper Association, the leading destination for paper and paperboard exports is Canada, with increases of 3.8 and 4.3% respectively over the past year. Mexico, ranked second, saw a modest 2% gain. Much larger increases were seen in the number three market, Western Europe with a gain of 32.2%.

To cope with higher energy and transportation costs, manufacturers in both countries are refining their supply chain and transportation strategies. Eastern Canadian manufacturers use the ports of Montreal and Halifax and at times Norfolk when the shipping lines have offered space. The rates of the shipping lines are being carefully scrutinized to determine where there may be favourable backhaul rate opportunities.

In the United States, a number of strategies are being employed to mitigate transportation costs. Production plans are being adjusted to ensure multiple grades of paper are manufactured and that the right mill is selected to serve each customer. Others have adopted strategies such as switching to barge or truck service to help reduce the cost of moving pulp. Some companies are using rail, rather than truck on short distances, to move freight directly to the ports.

Of course, one of the challenges resulting from an increase in exports brought on by a cheaper U.S. dollar is a decline in imports. This has changed the balance of import versus empty containers and helped make it more of a carriers’ rather than shippers’ market. With the bulk shipping market at an all time high, this is driving more freight into ocean containers. Container pools are gaining increased use to ensure there is an adequate supply of export containers.

It should be noted that paper producers in other countries are not standing still. With labour, energy and fiber costs that are below North American levels, Brazil, Russia, Indonesia, China and Eastern Europe are moving aggressively to capture market share. Some of these countries face less pressure to address social and environmental issues. In the case of newsprint, younger people are receiving more of their news from the internet rather than newspapers, resulting in annual erosion is domestic newsprint sales. The global market for paper and paperboard products will continue to evolve and North American producers will have to continue to develop innovative marketing, production and distribution strategies to grow their businesses.