Bites from the Blog, June 22: How should contractors respond to cost of living crisis?

The questions to those in power are always the same: “What are you going to do about it?” So far, rather than offer any real solutions, those at the top have been advising people to buy cheaper food, wear more jumpers and work harder.

Leaving the first two suggestions aside (which aren’t worth engaging with anyway) it’s rare these days for anyone to be fortunate to find themselves in a job where working harder is actually rewarded with more money.

Alex Laurie

For forestry contractors, it sometimes seems like the busier you are, the tighter margins get. And, again, the question is asked, not only of those at the top, but of everyone: “What are you going to do about it?”

It has unsurprisingly been a subject of much debate on the Forest Machine Operators Blog over the last month, after one member posted the following: “What’s the thoughts on prices by contractors now, as everything is going sky high? Been talking to my accountant and he’s saying we need a rise of 25 per cent across the board. Have talked to a few contractors and they are in agreement it needs to be about that percentage. Would like to hear what other contractors think.”

Another contractor responded: “It now couldn’t be more black and white. Prices have to go up and that’s it. Anyone who remains where they were will go bust within 12 months, especially as, personally, I feel a recession is on the cards too. We have put all our prices up to the end user, paid our subbies and hauliers more and told customers the rates are going up, etc. No one has refused or looked at it negatively.

“However, it’s the same as always. No one forced any of us to buy anything – from a spade to a pair of machines – and there’s no gun to your head to do a job. You can just say ‘No’. Fingers crossed finally people will stick together and we can actually earn a good living.”

Others didn’t sound optimistic. 

Jed Cole

“I’ve only got small tractors and my costs have gone up considerably,” said one. “I was told to put my prices up by one company, which I did, and they have given me bugger all work since!”

Another said: “It should be going up, but it isn’t. In fact, it’s near impossible to get the same money as last year on some jobs. And people still cutting for £5–8 less a tonne doesn’t help.”

According to one contractor: “Rates have needed to go up for ages now. They’ll only go up when people stop putting daft prices on jobs. Rates could go up 50 per cent if someone wasn’t going to do it for less.” He added: “I’d like to be wrong, but I don’t believe we ever stick together in our industry when it comes to prices. Unfortunately, it’s an old argument. As you say, though, some will possibly go bust.”

A contractor from the north of England argued the problem is most contractors are tied to finance agreements and the companies that they work for know they can’t afford to stand their ground and park machines up. 

“So most take on these jobs at lower rates than they need to make anything and most lose money on jobs because of this,” he said. “But they do it as it’s better losing a £1,000 a month working than park up and lose £4–5,000. It’s how the industry has been and the agents and timber merchants know they can manipulate and play contractors against each other as it’s the contractor that has his neck in a noose with investment – not the middle men.”

Nick Jones

The previous poster disagreed, saying: “They chose to buy the machine and put their name on the door. They knew what the rates were, what the finance was, etc. With the price of a fixed cost going up, you simply have to pass that on. If there are people out there like you’re describing, then they are the problem in the industry, not the agents, etc.”

The contractor responded: “I agree, it’s contractors that will undercut. That has always been the problem. And the reason they do is why I stated in a previous message – that agents and timber merchants have used this to their advantage for decades. If contractors all stood their ground then there would be no issue.”

He told how he’d turned down a job from a major firm after calculating the costs. “Their reply was that I couldn’t afford not to do it and park up my machines. I said I could at their terms, explaining it would cost me around £15,000 to mobilize and do the job to completion. My margin was £5,000 for a 4–6 week job. On their terms I’d have to spend £15,000 of my money to then wait 8–10 months for payments from work done to come in, which would be affected by weight loss at roadside for four months, losing 30 per cent moisture, so if I cut 1,000 tonnes I’d only get paid for around 700 tonnes, at £20 per tonne, making £14,000. So, having spent £15,000 of my money doing the work and getting £14,000 back over 8–10 months, I’d lose £1,000. 

“So I said I could afford to park the machines up as it cost me nothing and I could do a day a week on a saw somewhere for five weeks and make £1,000 instead of doing their job and losing money. Another contractor did the job for their price and terms the following year and ended up losing £8,000.”

Another member argued: “It doesn’t help that there are too many middle men taking a cut out the profit margin and screwing the contractor down on price while we are doing the hard graft and dirty work, dealing with the breakdowns and headaches while they can sit back and take a cut hassle-free.”

Voicing support for the middle men, one contractor replied: “It still comes down to contractors undercutting each other. When it comes to rates, us contractors never stick together.

“You mention the middle men, which I agree is a fact, but without them most people would be out of business because not many can afford to buy standing timber from the Forestry Commission due to them wanting payment up front and then the contractor having to wait 60 days to get paid himself. They may well turn contractors against each other, but they do a decent job. Imagine trying to market 100-plus tonnes a day (from just one pair of machines). They take a lot of financial risk, sales and haulage headaches for anyone who is just contracting.”

Regardless, there are those of the opinion you will always get cowboys willing to undercut anyone and everyone to win jobs. But one member said he’d never found that a good way to keep in work. 

He said: “I remember, going back about 20 years now, I was doing a lot of hand cutting for the Forestry Commission. Two or three of us locals were working together, but it was getting a bit too much, so we were quite happy when someone wanted to either tender for one of the upcoming jobs for himself or share it with us. I discussed with him what price I thought we should offer and his first words were, ‘No, I think I can do it cheaper than that’. He decided to bid himself, with a good idea of what I was going to offer. He probably undercut my price by a few pennies, but we won and he ended up with no job. Building up a good reputation is what keeps you busy and paid well, long term. It’s not always the lowest price that wins.”

Sebastian Økern Holmsen

If there’s a silver lining to the crisis of rising costs, perhaps it will be that it will clear away some of the chancers who build their business by undercutting everyone else?

Could we finally be reaching the point where undercutting is no longer possible?

One member didn’t think so. “It just never happens,” he said. “I’ve been doing forestry work for 40-odd years. Every time the bloke that came in and undercut everyone goes bust or moves on, a new company or individual comes in to take his place.”

He advised: “Set your rates at a sensible level, stick with them and do a good job. But in order to do that you need enough reserves to keep operating when you’ve lost that local peachy job to the latest idiot. Look at the rash of mechanical tree felling equipment... I rest my case.”

Elsewhere on the Blog, members gave their first impressions of the new Komatsu Centipede concept vehicle. Unveiled in last month’s issue of Forestry Journal, this is a forwarder which runs on an innovative tracks system designed to improve sustainability.

“Not exactly a new idea,” said one member, which is true. Forwarders on tracks have been tried before, but they’ve never quite caught on, and a range of comments threw up suggestions as to why that might be.

“They’ll get torn to pieces.” “Forever throwing tracks.” “Looks the tits but I can see it ripping tracks off all the time with the weight and stumps.” “More moving parts means more breakages.” “Will never work, certainly not in the rough sites we do! And rubber tracks? They’ll be ripped to bits in no time!”

One member summed up: “Great for reducing damage to the ground. But on rough dirty uneven ground I think eight wheels and tracks is still the winning formula.”
We might reasonably describe that response as ‘sceptical’, but we’ll see what the future holds for the Centipede.

READ MORE: Centipede: Forwarder concept running on tracks unveiled in forests of Sweden

Readers may also recall the tale of a forestry contractor’s dispute with a holiday resort, covered in last month’s Bites. The client had refused to pay for the work done and was withholding the timber he had promised the contractor. 

After making the Blog aware of the situation – and receiving advice and support from others who promised to spread the word and ensure no one else bought the timber – he offered an update, beginning: “Sorry if this is getting boring.”

He said: “The customer is still trying to sell the timber but is struggling. Thanks to everyone for giving it a wide berth and helping spread the word. He’s been sent an invoice, but in a turn of events, when he was asked if he had received it, he replied that Trading Standards had advised him not to communicate with us (bizarre). I presume it’s just another tactic. Anyway, I guess it’s just a waiting game now. I’ll let you all know how we get on.”

READ MORE: Bites from the Blog, May 2022: What to do when client refuses to pay?

A member responded: “Why would you apologise for it getting boring? This is better than Emmerdale!”

Indeed. To keep up with the latest debate and drama (better than any soap opera), check out the Forest Machine Operators Blog on Facebook.