Forestry veteran looks beyond sawmills
Lumber trader opts for prudent risk-taking over industry volatility
Jake Kerr is not very worried about the price of lumber these days.
While many sawmill operators fret about future prices, Kerr is enjoying life on the margins. He spent 35 years running a sawmill company, Lignum Ltd., but now serves as managing partner of Vancouver-based lumber-trading firm Lignum Forest Products LLP.
While the name is basically the same, the game has changed for Kerr, who served as Canada's chief negotiator on the original and since-tweaked - some might say twisted - softwood deal with the United States.
The three-year-old company makes money on the profit margins, so Kerr doesn't worry about spot prices. What are his chances of someone selling him another sawmill firm?
"Not even close," says Kerr, 64. "I have been offered participation, but it's a big corporate world out there as far as sawmills go. Mind you, there will always be a role for the small player, the small entrepreneur. But at my age, I don't need the agony."
The old Lignum merged with Riverside Forest Products, which was quickly acquired by Vancouver-based Tolko Industries, one of Canada's largest lumber firms.
"In retrospect, I'm delighted, because I'd hate to own a sawmill right now," says Kerr. "The economics ain't going my way."
1. Your father had a long career in the forest industry. What did your mother do?
"She was a concert pianist. She toured, particularly in Europe, and the United States, when I was growing up. She was quite a well-known pianist in the 1950s and then was the first dean of piano at the University of British Columbia in the music department in the '60s."
2. What lessons did you learn from your parents when you were growing up?
"From my mother particularly, hard work. When she wasn't on the road, she practised religiously, eight hours a day. She was a very hard-working person. So was my father, who was very entrepreneurial. We were a really unique family in Vancouver, the combination of a concert pianist for a mother and a father who was a European entrepreneur who managed to go broke in the 1940s. So I grew up with my mother basically bringing home the bacon and my father trying to restart (a business) in the forest industry. Nobody thought the timber industry was worth anything. He went to Quesnel (B.C.) in 1950 and started up the first plywood mill operation up there. He really got it going in the mid-'50s. The lumber business is no different today than it was 50 years ago. It's always been very up and down. My mother was a really stabilizing influence of the two."
3. How did your dad go broke?
"He bought a sawmill in Whistler Mountain in the mid-1940s, when I was about two years old. He didn't know much about Whistler Mountain or British Columbia. He bought it in the summertime and everything was running fine. Nobody told him there was eight feet of snow there in the winter - so he didn't make it through the first winter. He lost his money and came home with his tail between his legs. But he was determined. My grandmother, with whom he didn't get along very well, thought he'd make a good bus driver. He wasn't very happy about it ... He never talked much about it, but I think going broke was a really low point for him. I think he was very proud of the fact that he was able to turn it around in the '50s and '60s."
4. You apparently didn't aspire to a career in the lumber industry. What was your boyhood dream?
"I don't know that I had a boyhood dream, other than that I went to Berkeley and I really enjoyed going to school there. I went to the University of British Columbia and enjoyed that, too, but I really liked California and I got a good position in marketing. I would have been quite happy staying in San Francisco in the advertising business. I was quite unhappy having to come back here. My father was ill. He'd had some heart trouble in the late '60s, and I really came back here to help him sell the business. The business wasn't saleable. It wasn't in good financial shape when I got here, and then he died in 1972. I again tried to sell the business and couldn't find a buyer, so I was sort of stuck. I kept thinking: 'Well, I'm going to go back to San Francisco in six months.' I'm still here 30 years later, so it didn't work out. But as time went by, I quite enjoyed it."
5. How did you develop your interest in baseball?
"When I was a real little kid, I had a neighbour who had a baseball mitt and a ball. I've been throwing a baseball since I was literally five years old ... I remember when the (Pacific Coast League) came in (to Vancouver), when I was 12 years old. It was a huge event. We had season tickets and I went to a lot of the games in the mid-'50s and I became an addict."
6. What steered you toward marketing and advertising?
"When I took my MBA, the thing that interested me the most was consumer and human behaviour. I found it fascinating to try and figure out why people bought things. I was just more interested in the creative side of the advertising, TV and print business than I was anything else."
7. What did you do at International Paper?
"International Paper was my first job out of university. I did market research. We produced a lot of packaged goods at the time. We did testing on different designs, so it was kind of connected to advertising and packaging and all that."
8. What was it like when you came back to Canada and took over your dad's business?
"Sheer terror. I didn't have any idea what I was doing - and I wanted to get out. Luckily, my dad had a very good chief financial officer, a Czechoslovakian guy who had been with him for years, and he was very much a mentor for me. I knew nothing about the sawmill industry and, really, I didn't want to (know). In the mid-'70s, I went to something called the Sawmill Clinic in Portland, Ore., and was lectured to by a guy named John Ailport, an expert in sawmills. I happened to be seated next to him by sheer chance at lunch. He seemed like a very nice guy. He happened to be going through a divorce and he lived in Spokane, Wash. The long and short of it is, I talked him into moving to Williams Lake (B.C.), because he wanted to start again. He ran our operations there for close to 20 years, and he really was a great partner.
Between Sydney, my old financial guy, and Ailport, who knew how to run a sawmill, I knew a little bit about marketing and was able to talk to the bank, and after some years of false starts and stops, we got lucky. We had a bunch of sawmills when I first started in the business. We sold off everything else - except Williams Lake. We had probably half a dozen (B.C.-based) sawmills, most of them in the southern Interior, down toward Kamloops and Salmon Arm. We sold them ... We ended up in a unique situation throughout my career in that we had one really good mill. Any number of times, we could have bought something else - and I never had the nerve to do it."
9. How did the deal with Riverside come about?
"I had been in the business for 30 years by then and my brother was my partner. That was the way my dad left (the company). He had retired 10 years earlier and was doing other things. I have to thank him, because he kept saying: 'Look, it's time to get out' - and I didn't want to get out. I was having fun at the time. He finally came to me. He was very nice about it, but he said: 'Either you buy me out, or I'm going to sell (this half) to somebody else.' So I thought maybe I would think about selling. I was on a flight home late one night from the softwood lumber negotiations, and I was flying with Gordon Steele (the chairman, president and CEO of Riverside Forest Products). I mentioned something about my brother riding me about selling. He asked, 'What do you want (money-wise)?' I threw it back and forth with my brother ...
We picked a number that we thought was way up there. I went and told Steele, and he said: 'Good. It's a deal. There's only one hook - I don't have the money. You're going to have to come with me to Wall Street and we're going to have to raise the money to pay you.' So, that's what we did ... he made me agree to leave 10 percent of my shares in and remain as vice-chairman, because I was running the marketing side. Then, within six months, Al Thorlakson from Tolko came in. They did an unfriendly takeover - and we were out. But it worked out well financially."
10. Why was it unfriendly?
"Because Thorlakson had owned (18.6) percent of Riverside for years. He had never bought any other shares. When we came ... he decided maybe he'd like to own the whole (thing). Instead of coming and making a deal with Steele, he just started buying stock again. Steele didn't want to sell, but I was ambivalent. As far as I was concerned, it was fine. Still, Steele didn't like it very much."
11. How did you end up getting the Lignum name back?
"Riverside absorbed the company and they owned the rights to the Lignum name. Some of my old lumber-distribution guys came back and wanted me to go back into a partnership with them. I was OK with doing that and quite happy to finance them, but we always thought it would be nice to be Lignum. But we couldn't, because we didn't own the Lignum name. To give Al Thorlakson his due, he was very classy about it. He said: 'Look, you guys invented that name. Your father did.' Thorlakson's father and my father knew each other from way back. He didn't try to charge us anything for it."
12. What is your take on the state of the industry?
"I think it's in terrible shape. It's a sad situation. We (had in parts of 2008) the lowest lumber prices since, I think, 1984, in real dollars. There is no end in sight as far as the housing industry in the U.S. goes. The only good news I can think of is that in my experience over 40 years, when things are the bleakest ... chances are it may be about to turn around pretty soon."
13. Your company's $100 million in revenue still seems pretty good, doesn't it?
"Yeah. You have to understand that we're not making any lumber anymore. All we're doing is acting as the middleman - the trader - so we're not at risk. That lumber price is bad news for the sawmill. It's not particularly bad news for us. We trade on the margins."
14. Where are you selling to mostly?
"Same markets as always, but much smaller volumes. Arizona. California's sunbelt. All over the place, really. We sell Canadian. We sell Midwest. Not a hell of a lot (internationally). That's usually currency-dependent. Would we go to Japan? No, we wouldn't."
15. What is your take now on the softwood lumber deal?
"It will never go away. There is a deal in place. It will hold together for a while. The U.S. has already appealed a couple of technical issues. They're being arbitrated. But Canada and the U.S. have been fighting over lumber for 125 years and they'll continue to do that. As long as U.S. trade laws are like they are, it's in the interest of the U.S. manufacturers to restrain Canadian lumber, because it improves their economics. Some days, it's better than others. Today, it's fairly calm. There's a deal in place. Something is going to happen to blow that up some day."
16. What were some memorable times when you were negotiating the deal?
"I think, probably, the best of times was 1996, when we actually did the original lumber-quota deal which was, I thought, a very good deal for Canada. I was the chief negotiator on that. The worst of times was around 2000, when the governments decided to cancel the deal and the U.S. really piled (more penalties) on. We had a number of bad years after that."
17. What kind of personality do you have to have to be a mill operator and a trader?
"They're completely different things. The mill operator needs to be patient and have a long-term view and, hopefully, have enough capital to survive the ups and downs of the business, because it's a very cyclical business. The lumber trader, on the other hand, is not an acquired skillset. You either have the stump for it or you don't. It's a matter of being a prudent risk-taker and knowing when to hold 'em and when to fold 'em. Most sawmill operators are not good traders, and vice-versa. I was, essentially, a sawmill operator and a guy who ran the business end of the trading. I would no more be a floor trader than fly. I don't have the nuts for it at all. I watch what these guys do and I observe the risks they take.
"Hopefully, we've put enough constraints in the model to make sure they don't blow their brains out. It's a young man's game. There are not a lot of old lumber traders around."
18. As the owner of the Vancouver Canadians baseball team, what skills can you apply to the lumber business?
"The biggest thing I learned is, just because you know how to run a big company doesn't mean you know how to run a small company. The skillsets required to be the owner of the Canadians are very unique. You need to be very hands-on, detail-oriented and know how to work with a small group of people and know how to keep the costs down. It's a very hands-on model, whereas running a big lumber company, you've got a lot of staff - a lot of people to do stuff for you."
19. What's the hardest part of your job?
"I don't have a hard part of my job. One of the nicest parts about where I am in my life is, I do four things and I like them all. I like the (Lignum) investments just because I enjoy that. I've been in forest products all my life and I enjoy the guys. Baseball I like a lot, because I'm a baseball guy. And, I enjoy working with the Vancouver Foundation and I think I will enjoy Emily Carr (University) because I feel like I'm giving something back to the community."
20. If you weren't overseeing Lignum or the Canadians anymore, what would you be doing?
"Hopefully, playing more tennis. That's the only thing I kick myself around about. But I'm liking what I do. I know this: I don't have the mindset to be retired."
Lignum Forest Products
* Brass: Jake Kerr, managing partner; Craig Stuart, lumber trader; Ian Leask, lumber trader.
* Profile: Lignum markets and distributes machine stress-rated products as well as other lumber products for the residential and industrial structural building-component sectors. The firm serves the United States, Canadian and export markets. Lignum derives its name from Lignum Ltd., also headed by Kerr, which operated sawmills and 32 building-material distribution centres across North America.
* Stats: Kerr says Lignum, which has about 20 employees, generated revenues of $100 million last year.
* Corporate Structure: Private limited partnership.
* Website: www.lignum.com * HQ: 1330-999 W. Hastings St., Vancouver, B.C. V6C 2W2 * Phone: (604) 484-5000
* Title: Managing partner, Lignum Forest Products.
* Born/raised/age: Vancouver/64.
* Education: Kerr studied at UBC before obtaining an MBA in economics and finance from the University of California-Berkeley. He also holds an honorary doctorate from Simon Fraser University.
* Family: Kerr is married and has five children and four grandchildren.
* Career: After graduating from university, Kerr worked for the International Paper Co. in New York and with Botsford Advertising in San Francisco.He then returned to Vancouver and took the helm of his father Leslie Kerr's forestry company, Lignum Ltd. He ran Lignum until March 2004, when it merged with Riverside Forest Products Ltd. Kerr remained vice-chairman with the newly combined company, but a short time later it was acquired in a hostile $340-million takeover by Tolko Industries Ltd. He left and was soon approached to invest in, and head up, a new lumber-trading company. The firm reacquired the Lignum name from Tolko and became Lignum Forest Products LLP. In addition to running Lignum Forest Products, Kerr also serves as president and CEO of Lignum Investments, which invests largely in real estate. He is also co-owner, holding the majority stake, of the Vancouver Canadians minor-league baseball team.
* Moonlighting: Serves as a director with the Bank of Nova Scotia, the Vancouver Foundation, past chairman of Council Of Forest Industries and past chairman of the B.C. Softwood Lumber Trade Council. In 1996, he served as Canada's chief negotiator on the softwood lumber agreement with the U.S. He is also the new chancellor of Emily Carr University in Vancouver.
* Awards: Kerr is a member of the Order of Canada and Order of British Columbia.
* Passions: Baseball, grandchildren, fly fishing, tennis, golf.
(Monte Stewart can be reached at email@example.com)