69-16,195 WYND, William R ussell, 1933PULPWOOD TRANSPORTATION FROM MICHIGAN'S UPPER PENINSULA. Michigan State U niversity, Ph.D., 1969 Agriculture, forestry and w ildlife University Microfilms, Inc., Ann Arbor, Michigan PULPWOOD TRANSPORTATION FROM MICHIGAN’S UPPER PENINSULA By William R." Wynd A THESIS Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOCTOR OF PHILOSOPHY Department of Forestry 1969 ABSTRACT PULPWOOD TRANSPORTATION FROM MICHIGAN'S UPPER PENINSULA By William R. Wynd Michigan's Upper Peninsula is a pulpwood supply area for pulp mills in northern and central Wisconsin. In 1966, almost 80 percent of the pulpwood produced in the Peninsula was shipped to Wisconsin, while the remaining 20 percent was consumed by five pulp mills within the Peninsula. Secondary transportation, which may consist of several stages, represents a sizable portion of the total delivered cost of a unit of pulpwood. If the cost of secondary trans­ portation can be reduced, a pulpwood supply area such as the Upper Peninsula may be able to compete more effectively with adjacent supply areas. The primary purpose of this study is to examine possible changes in pulpwood transportation methods that would stimulate more efficient raw material flow between selected producing locations in Upper Michigan and major pulping centers in Wisconsin, given current transportation facilities. The specific objectives are: (1) to inventory current transporta­ tion facilities within the entire Peninsula, (2) to determine the current pattern and costs of transporting pulpwood from five selected counties in the Upper Peninsula to five major pulping centers in Wisconsin, and (3) to determine if possible concentration of volume or better allocation between William R. Wynd origins and destinations would reduce the cost of secondary transportation. Five counties in the Upper Peninsula producing the great­ est volume of pulpwood in 1966 were selected for detailed analysis of pulpwood movement and costs. During that year, these five study counties accounted for 49 percent of the pulpwood produced by the Upper Peninsula. Eighty-five percent of the pulpwood produced in these counties was ex­ ported to Wisconsin. Seventeen pulp mills received 92 percent of the pulpwood exported from the study area. These mills were grouped into five '’pulping centers" and designated as destinations for pulpwood exported from the study area. Railways are the chief mode of transportation for pulpwood exported from the study counties. One rail loading point occurs about every seven miles in the study area; but, 80 percent of the wood is shipped from 10 to 12 loading points in each county. Pulpwood moving to domestic mills is shipped almost exclusively by truck. Applying 1968 transportation rates, the total cost of ex­ porting pulpwood from multiple rail loading points within the study counties amounts to nearly $10 per cord. Concentrating pulpwood in single loading points per county would lower rail transportation costs, but it would increase trucking costs necessary to reach these points such that the total cost per cord would increase to over $11. A linear program was employed to allocate pulpwood volume from multiple rail loading points to destinations in Wisconsin William R. Wynd in order to achieve the lowest theoretical transportation cost. The program indicates a savings of only $0.07 per cord over current methods. Thus, the cost of 1966 transporta tion methods were surprisingly close to the theoretical minimum. ACKNOWLEDGEMENTS Sincere appreciation is expressed for the cordial cooperation and information supplied by major shippers and carriers of forest products in the Upper Peninsula. In particular, thanks are expressed to the North Central Forest Experiment Station for supplying certain essential data and the funds necessary to conduct this research. In addition, I am deeply indebted to my major professor, Dr. Robert S. Manthy, and to Dr. Lee M. James and the other members of my committee for their encouragement and constructive criticism in the conduct of this research. Lastly, thanks are expressed to my dear wife for the encouragement she has given and for the self-sacrifice she has so willingly endured in the typing and preparation which culminated in the presentation of this thesis. TABLE OF CONTENTS Chapter I. II. III. IV. V. Page INTRODUCTION .................................. 1 Purpose and Objectives...................... 1 Study Area................................... 2 Procedure.................................... 3 REVIEW OF LITERATURE .......................... 7 Industry Location and Development.......... e Methods of Movement......................... 7 13 Studies of the Upper Peninsula.............. 19 TRANSPORTATION FACILITIES .................... 26 Railroads.................................... 27 Trucks.................. 32 CURRENT PATTERN AND COST OF PULPWOOD MOVEMENT .................................... 35 Regional Movement........................... 35 Pulpwood Movement from the Study Area...... 40 Volume..................................... 40 Method of Movement........................ 45 Cost....................................... 49 IMPROVING PULPWOOD TRANSPORTATION COSTS ...... 59 Physical Facilities......................... 59 Optimum Distribution Pattern................ 60 Single Loading Points....................... 62 iii Chapter VI. Page SUMMARY AND CONCLUSIONS ........................ 68 Pattern of Pulpwood Movement.................. 68 More Efficient Raw Material Flow.............. 69 LITERATURE CITED ...................................... 73 APPENDIX A. APPENDIX B. APPENDIX C. Interview Schedule for Shippers of Forest Products..................... 76 Pulp Mill Questionnaire Concerning Inbound Transportation Mode............ 83 Pulpwood Shipper Questionnaire Concerning Rail Loading Points......... 86 tm* iv LIST OF TABLES Table 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Page Railroads serving the Upper Peninsula of Michigan, 1965 ................................. 28 Pulpwood production and destinations, selected states in the North Central Region, 1966 .................................... 37 Pulpwood requirements by method of delivery, selected states in the North Central Region, 1965 .................................. 39 Pulpwood production and exports to Wisconsin from selected Upper Peninsula counties, 1966 ................................ 41 Pulpwood exports to Wisconsin and to five pulping centers in Wisconsin from selected Upper Peninsula counties, 1966 ............... 43 Total pulpwood production by species in selected Upper Peninsula counties, 1966 ..... 44 Pulpwood volume received at selected pulping centers from five county origins in the Upper Peninsula by truck and rail, 1966 .................................... 46 Most frequently used pulpwood rail loading points in selected Upper Peninsula counties, 1966 ................................ 48 Average pulpwood trucking cost per round trip mile in Upper Michigan, 1968 ............ 53 Average trucking costs per cord for transporting pulpwood to the most frequently used rail loading points in selected Upper Peninsula counties, 1968 rates .................................... 55 Weighted average cost per cord for transporting pulpwood by rail from multiple loading points in selected Upper Peninsula counties to Wisconsin pulping centers, 1968 rates .......................... 57 v Table 12. 13. 14. 15. Page Average trucking cost per cord for transporting pulpwood to single rail loading points in selected Upper Peninsula counties, 1968 rates ................ 64 Weighted average cost per cord for transporting pulpwood by rail from single loading points in selected Upper Peninsula counties to Wisconsin pulping centers, 1968 rates .................................... 66 Average cost per cord for transporting pulpwood to Wisconsin pulping centers from multiple rail loading points and from single loading points, selected Upper Peninsula counties, 1968 rates ......................... 67 Average cost per cord for transporting pulpwood from five Upper Peninsula counties to Wisconsin pulping centers by three different methods, 1968 rates ......... 71 vi LIST OF FIGURES Figure 1. 2. 3. 4. 5. Page Five study counties in the Upper Peninsula in relation to five pulping centers in Wisconsin ............................. 4 Railroads in the Upper Peninsula of Michigan ...................................... 29 Major highways in the Upper Peninsula of Michigan ...................................... 33 Steps in calculating the average cost per cord for moving pulpwood from an Upper Peninsula county to pulping centers A through E ..................................... 50 Single rail loading points in each of the five study counties .......................... 63 CHAPTER I INTRODUCTION Wisconsin is a major market for pulpwood produced in Upper Michigan. In 1966, nearly 80 percent of the pulpwood cut within the Peninsula was exported to Wisconsin mills (Blyth, 1966). The remaining 20 percent is consumed by five mills in the Upper Peninsula. Transportation is an important cost element in harvesting pulpwood.. . The transportation of pulpwood occurs twice in the pulpwood harvesting process: (1) primary transportation which consists of skidding or otherwise moving individual units to a concentration point, and (2) secondary transport which is the movement of raw material from the concentration point to market destinations. Secondary transportation, which may have several stages, represents a sizable portion of the total cost, man-days, and mechanical energy attributed to logging. Gardner (1966) reports that in a typical Lake States logging operation, 33 percent of the total cost, 40 percent of the man-days, and 90 percent of the mechanical energy are accounted for by secondary transportation. Purpose and Objectives The purpose of this study is to examine changes in secondary pulpwood transportation methods that would stimulate more efficient raw material flow between selected producing locations in Upper Michigan and major pulping centers in Wisconsin, given existing transportation facili­ ties. The specific objectives are : (1) to inventory current transportation facilities within the entire Peninsula, (2) to determine the current pattern and costs of transporting pulpwood from five selected counties in the Upper Peninsula to five major pulping centers in Wisconsin, and (3) to deter­ mine if possible concentration of volume or better allocation between origins and destinations would reduce the cost of secondary transportation. Transportation facilities are examined on the basis of their ability to handle current demands, and their capability to transport a substantially increased volume. The current pattern and cost of pulpwood movement serves as a basis for highlighting apparent ineffi­ ciencies in secondary transportation. Study Area Michigan's Upper Peninsula is an area of 10.6 million acres forming roughly the southern boundary of Lake Superior and the northern boundary of Lake Michigan. Transportation facilities in the entire area are inventoried. Although nearly 80 percent of the pulpwood produced in the Peninsula was exported to Wisconsin in 1966, the amount of wood exported varies among counties. In order to contain the study within managable proportions, five counties produc­ ing and exporting the greatest volume of pulpwood in 1966 were selected for detailed analysis of pulpwood movement and transportation costs. These five counties are Menominee, Iron, Marquette, Dickinson, and Delta. About 90 percent of the pulpwood produced by these counties in 1966 was exported to Wisconsin. Pulpwood exported to Wisconsin is composed of seven sepa­ rate species and a group of miscellaneous hardwoods. Three of these separate species were produced in small quanties and are not considered. The volume of aspen, balsam fir, hemlock, pine and miscellaneous hardwoods represents 90 percent of the volume of pulpwood exported to Wisconsin from the study counties and is used in the analysis. Forty-two wood pulp mills in Wisconsin are potential destinations for pulpwood produced in the five study counties. But not all mills consume pulpwood originating in the five county study area. On the basis of confidential information from the North Central Forest Experiment Station, seventeen wood pulp mills consuming a substantial volume of pulpwood produced in the study area were grouped into five separate "pulping centers" having average radii of 10 miles each. These five pulping centers were the market destination for over 90 percent of the pulpwood exported from the five county study area in 1966. The Upper Peninsula and the five study counties in relation to the five major Wisconsin pulping centers are shown in Figure 1. Procedure The extent of transport facilities within the Upper Peninsula are well documented by the Michigan State Department 4 "1 M ARQUETTE UKNOM/NEC* !Q IQ iCALt //V JO 40 M/Cfj LEGEND Q P U LP ! NO ceN T £ P S Figure 1. Five study counties in the Upper Peninsula in relation to five pulping centers in Wisconsin. 5 of Commerce. Opinions concerning the adequacy of the rail and road network to handle current and additional demands were obtained by structured personal interview with eight major shippers of forest products in the Upper Peninsula during the summer of 1966. Pulpwood is most frequently transported to Wisconsin by truck to a rail loading point, and then by rail to destina­ tions. The number of potential rail loading points in indi­ vidual study counties vary from 20 to 50. In order to reduce the number of potential rail loading points to managable proportions, representatives of the three major railroads serving the study counties and four major pulpwood shippers were sent a questionnaire asking them to indicate those loading points within each county which accounted for 80 percent of the wood exported. In addition, they were asked to select the best loading point within each county to con­ centrate and trans-ship pulpwood by rail to Wisconsin. Rail rates from selected loading points to each of the five pulping centers are rates effective in November, 1968. Rates for all railroads were graciously supplied by the Soo Line Railroad. The cost of trucking pulpwood to rail loading points and directly to pulping centers, where applicable, are obtained by calculating the average distance traveled over each class of road to reach rail loading points and applying appropriate 1968 Forest Service trucking cost estimates. Average size of vehicle and cordwood capacity per load were obtained from Timber Sale Officers in both the Ottawa and Hiawatha National 6 Forests. Transportation costs for moving pulpwood from origins in the five counties to pulping center destinations in Wisconsin are obtained by (1) calculating the cost of moving pulpwood by truck direct to pulping centers, where appropriate, and (2) calculating the cost of trucking wood to rail loading points and the cost of moving wood by rail from respective rail loading points to pulping center destinations. The total average cost per cord, for moving the volume of pulpwood under consideration (90 percent of exports) from the five counties to Wisconsin pulping centers in 1966, results from adding the weighted average cost of direct trucking and the weighted average cost of truck-rail shipments to pulping centers. Total costs per cord are compared for movement from multiple and from single rail loading points in each county. A standard linear program transportation model was used to vary the volume of pulpwood moving over existing transpor­ tation facilities in an effort to reduce the total transporta­ tion cost per cord. Through a progressive series of mathe­ matical calculations, the program determines the combination of volumes available at selected multiple rail loading points in the study counties that would satisfy requirements at pulping center destinations at the lowest total cost per cord. CHAPTER II REVIEW OF LITERATURE Transportation is an important factor in the successful operation of almost every business. In recognition of this importance many books are devoted almost entirely to describ­ ing the operation of our nation's private and regulated trans­ portation. But only a limited number of forestry references discuss the transportation of forest products in any detail. The importance and relation of transportation in the movement of various forest products has been reported in two broad ways: (1) studies aimed at the location and development of wood-using industries in a particular geographical region and, (2) studies reporting existing marketing methods. The first two sections of this literature review are devoted to these two broad catagories. The third and final section deals with studies pertaining directly to the Upper Peninsula of Michigan. Industry Location and Development The initial location or expansion of industries is par­ ticularly important to the economic health of an area. And for a region endowed with an abundant supply of timber it is appropriate that it seek to expand the utilization of its native resource. Studies seeking to supply information neces­ sary for the decision to locate or expand a forest-based industry have emphasized the transportation factor in varying degrees. 8 Studies by Hughes (1962), Spindletop (1964), Macdonald (1963) , and the New Hampshire Agriculture Experiment Station (1966) are examples of reports designed to supply almost all information pertinent in the location decision. But most of these studies are too limited in scope to provide all the information necessary for the location decision. Generally speaking the most detailed analysis is given to one or more of the variables considered most important. With forest- based industries' the location and extent of raw material resources is usually considered the most important variable. In a study by the Rocky Mountain Forest and Range Experiment Station, Hughes elaborated on pulp and paper making opportunities in west central Colorado. Statistics concerning the raw material resource and proposed market advantage constituted the bulk of the report. Transportation, which definitely affects market advantage, was treated only nominally. Spindletop's Research, in contrast to Hughes, placed much more emphasis upon the transportation factor. In a con­ tract with the Area Redevelopment Administration, Spindletop considered a pulp and paper mill location in western Kentucky. Costs of transporting raw materials and finished products by rail, truck, and barge were presented in an effort to facili­ tate comparison. The detailed transportation information developed in this report stimulates a more realistic examina­ tion of the transportation function in the location decision. In two separate reports for the Area Redevelopment Administration, Macdonald Associates, Inc., and the New Hampshire Agricultural Experiment Station analyzed several different forest products industries. Macdonald Associates developed an integrated forest products manufacturing and marketing complex for eastern Kentucky. This study recognized the importance of freight rates and gave them considerable attention in the report. Furthermore, the authors presented a detailed organizational design including plant layouts, financial operating data, and corporate organization structure. This is probably one of the most comprehensive and detailed studies of its kind. The New Hampshire study was similar in many respects to the work of Macdonald Associates. The New Hampshire report, however, did not formally propose an integrated complex for the industries considered profitable for the study area. Freight rate levels for transporting forest products from the study area were presented as being competitive. Another group of studies is less comprehensive than those previously mentioned. These reports concentrate more on information concerning the transportation function. Hagenstein (1964) identified the importance of transpor­ tation as a factor in the location decision of four selected wood-using industries in the northern Appalachians. Concen­ trating on the production side of the overall location decision the author found that the costs of wood, labor, and transportation were the most important factors affecting the choice of location in the four industries examined--lumber, particle board, woodpulp, and furniture. The study showed the relative importance of each factor varies with the 10 particular industry. It is significant to note that the cost of transportation rated second only to the cost of wood as the most important factor in both the lumber and woodpulp industries. Transportation cost rated third in importance behind labor and wood in the location decision for the particle board and furniture industries. Other factors such as state and local taxes, local financial assistance, and the cost of industrial sites were indicated as being relatively unimportant to the wood-using industries. But Hagenstein indicated that these ’’other" factors have been stressed in the past by development agencies. Thus the author concluded that development agencies should concentrate on providing potential firms with information organized in terms of the most important requirement of each industry. Carpenter (1964) also recognized transportation as one of the most important factors affecting the location decision for wood-using industries. His study investigated the trans­ portation resources of five-northeastern Minnesota counties in relation to the potential for expanding their forest-based industries. Carpenter presented the extent and direction of commodity flows in and out of the study area. He described the rail and highway system and the services provided by railroads and truckers. In addition the services of the harbor at Duluth and the potential for ocean shipping was also discussed briefly. The author concluded that the growing population of the nation and the midwest coupled with the application of technological advances as they became feasible, gave the five 11 county study area a good opportunity to expand its wood-using industries. The area's transportation facilities are con­ sidered adequate in most respects with minor deficiencies being solved as product shipments expand. Another recent study in the upper Great Lakes also con­ centrated on transportation. In a report prepared for the Area Redevelopment Administration, W. B. Saunders and Company (1964) identified transportation and distribution disabilities for selected industries in northeast Minnesota and northern Wisconsin. One of the industries selected for the study was timber and forest products; the other two were taconite and agricultural products. The Saunders study included the area studied by Carpenter, although it took a slightly different approach. Whereas Carpenter reported transportation facilities and rates in general, Saunders concentrated on the development of wood chipping as a means of improving transportation efficiency. Their study indicated that the use of chips: (1) expedited loading and unloading, (2) improved handling at all stages in the transportation process, and (3) improved logging effi­ ciency through utilization of ends and limbs. A cost analysis was developed to illustrate savings in chipping at woods locations and movement to mills via pneumatically loaded rail cars as opposed to the conventional roundwood system presently in use. While chipping has definite bulk handling economies, the Saunders study did not consider the price stability per cord of chipped wood, nor the volume necessary to justify interme­ 12 diate hauling equipment. The authors also failed to realize that some method must be found for removing bark or toler­ ating a higher percentage in the pulping process before significant use can be made of limbs. Campbell (1965) focused his attention on freight rates as a factor in the development of wood-products industries in West Virginia. His study stressed the development of additional traffic rather than shifting traffic from one carrier to another. He concluded that negotiations with carriers should be a continuous process, without attempting to develop a rigid or formalized rate structure. This allows greater flexibility in adjusting rates to reflect changes such as lower rates for competing areas, greater volumes available for shipment, and improved facilities and equipment. Campbell also recommended three other actions which "seem to be justified beyond question." First, that a traffic manager be engaged to serve the small wood-products industries within the state. An individual familiar with the problems of both carriers and shippers, he concluded, could bring his professional knowledge to bear in the solution of transpor­ tation problems. Second, special emphasis should be placed on improved roads and highways throughout the state and especially in the timber-producing regions. Third, the author recommended further study of the transportation costs of various wood products including freight rates charged by railroad and truck companies. Harper (1961) lends strength to Campbell's recommendation 13 concerning the hiring of a traffic manager by reporting how small manufacturing firms in Minnesota plan and organize their transportation expenditures. Harper experienced "con­ siderable difficulty" in attempting to secure information because respondents had little or no idea of what their trans portation costs were. He concluded that someone within the organization should be given the responsibility for transpor­ tation-related activities in order to insure economic utiliza tion. A traffic manager for example could be responsible for his company’s planning, direction, selection, purchase, and use of transportation and transportation service. Methods of Movement There are five possible methods for transporting semi­ finished and finished forest products: rail, truck, water, pipeline, and air. The method used depends largely on the value, volume, and handling characteristics of the product being moved. Most forest products move by truck and rail, although a large volume of bulk commodities such as lumber and woodpulp move by water where facilities are available. In addition a small volume of forest products with a high value-weight ratio may be transported by air, where speed is essential. There is also a growing interest in the transpor­ tation of wood chips by pipeline. Wackerman (1966) indicates that the method of transporta­ tion is an important factor in planning the timber harvesting operation. Methods for bucking, skidding, and loading cannot 14 be determined unless the type of transportation has been selected. Thus the first decision in planning the harvesting operation is the selection of the transportation method. Although transportation cost often represents the most important single cost factor in the harvesting operation, estimates of the proportion of transportation cost to total cost vary with local conditions. James and Lewis (I960) reported that hauling costs to pulpwood shippers in Lower Michigan commonly range from one-fifth to more than a third of the total costs of delivered wood. Moreover, Manthy and James (1964) estimated that secondary pulpwood hauling costs in the North Central region ranged from 12 to 35 percent of the delivered price of wood. In the United States Wackerman estimated that, in general, total transportation costs average approximately 40 percent of the direct cost of logs or pulp­ wood delivered to the mill. Thus there is little doubt that transportation costs are important to the harvesting operation. But the exact costs are somewhat difficult to generalize because of differing local conditions. James and Lewis (1960), Manthy and James (1964), and Wackerman (1966) suggest that the intensity of forest management practiced depends to a large extent on transpor­ tation costs. In general, the higher the percentage of transportation costs to total costs the less return on stumpage. Thus the costs of transportation directly affect the value of the stumpage and, indirectly, the management practices designed to increase that value. Indeed, transportation costs strongly influence whether or not the timber will be harvested 15 at all. Pulpwood movement to mills in the Lake States is mostly by truck. James (1957) reported that in 1954 about 53 per­ cent of the pulpwood volume used in Michigan mills moved by truck, 24 percent by rail, and 23 percent by water. By 1957 this percentage, as reported by James and Lewis (1960), had changed to 61 percent by truck, 17 percent by railroad, and 22 percent by water. In an even later survey, Manthy and James (1964) reported that 67 percent of Michigan's pulpwood was transported by truck and 23 percent by rail. The later study also reported that the percent of pulpwood volume delivered to mills sampled in Minnesota was 56 percent by truck and 44 percent by rail in 1959. Of the major pulpwood-using states in the North Central region, only Wisconsin moves pulpwood to mills primarily by rail. In 1959 as high as 70 percent of the pulpwood used in Wisconsin mills was transported by railroad (Manthy and James, 1964). This is a decrease from 1954 when the percent of pulpwood transported by rail was reported as 84 percent. Wisconsin mills reach out farther for wood thus making rail haul more economical. Hamilton (1965), however, felt than even for relatively long distances pulpwood transported to Wisconsin mills may be better moved by truck. He indicated that some gains could be made in transportation efficiency if a greater percentage of the total pulpwood receipts were delivered by truck. The distance pulpwood is shipped varies widely. Manthy and James (1964) reported that in the Lake States rail haul 16 is generally not used for distances of less than 100 miles. Truck haul was used for shorter distances, although in isolated cases it went beyond 200 miles. Average truck haul distances were reported as 71 miles for Michigan, 30 miles for Minnesota, and 28 miles for Wisconsin. In a study of pulpwood trucking in Maine, Schroeder and Cocoran (1965) also indicated a wide variation in the distance pulpwood moved by truck. In general, small operations shipped shorter distances than larger ones. Pulpwood harvesting agencies, excluding company producers, shipped most of their wood to markets located within 70 miles. In a later study Thompson and Corcoran (1966) investigated the physical and financial nature of independent pulpwood trucking firms in Maine. They concluded that the independent firm cannot be realistically typified because of wide varia­ tions. Since truckers adapt to varying situations, the size and type of firms differ both within and between groups of firms transporting pulpwood to various mills. Most lumber in the Northeast moves via rail and truck. Whitmore (1963) indicated that 60 percent of the lumber pur­ chased by wood products manufacturers in the Northeast is delivered by truck. The remainder is delivered in railroad carload lots. Lumber movement in the Southwestern United States is also predominately by truck. In a study of the efficiency of lumber transportation from New Mexico to out-of-state markets Long (1966) observed that trucks were used to trans­ port 73 percent of the lumber exported from the state. 17 Generally trucks were used for distances of up to 600 miles and railroads for greater distances. Of the companies surveyed, one quarter used trucks exclusively to transport their lumber to markets. The remainder utilized both truck and rail. In still another study of the primary wood industries of West Virginia W. H. Reid (1961) indicated that trucking was the most frequently used method for transporting raw material to primary processing sites. Approximately 40 percent of the operators of wood-using industries use their own trucks exclusively in transporting wood raw material, and nearly 20 percent use contract trucking exclusively. The balance of the operators use combinations of their own trucks, contract trucking and railroads. Small and medium sized sawmills tend to use their own trucks for transporting material to the mill whereas large mills used a contract means, either truck or rail, to transport 85 percent of their logs. hauling distances are relatively short. But average Small mills hauled logs an average of 10 miles, medium size mills 17 miles, and large mills 36 miles. The study made no mention of the distance or mode of transportation for finished products. The movement of finished printing papers to market is largely by rail and truck. Spindletop (1964) surveyed print­ ing and fine paper merchants and converters in Pennsylvania, Maryland, New York, Massachusetts, Indiana, Illinois, Georgia, Missouri, Ohio, Tennessee, Louisiana and Kentucky. Thirty-eight percent of the respondents stated that the ma­ jority of their orders were shipped from the mill by truck 18 while 33 percent indicated rail as the primary carrier. The remaining 29 percent indicated that truck and rail facilities were used on an approximately even basis. A particular method of transportation is generally favored for a number of reasons. Habit, economy, speed, lack of knowledge, reputation, and special services are but a few. A New Hampshire Agricultural Experiment Station study (1966) reported that truck transportation was favored by woodusing industries in the study area because it permitted truck­ load as well as less-than-truck-load lots. Motor carriers are considered flexible where infrequent small lot shipments are moved and can provide a high degree of service where large volumes are involved. Spindletop, in its sample of printing and fine paper merchants and converters, indicated that respondents preferred outbound truck shipments because of speed, convenience, and dependability. In addition, truck shipments of small quantities involved less handling, thereby holding damage to a minimum. The prevailing reasons for preferring rail trans­ portation were: (1) cheapness of long distance shipping, (2) ability to handle large tonnages, and (3) merchant's convenience in unloading shipments. Long rail transportation may sometimes be preferred by pulp mills even though costs may be higher than truck delivery. James and Lewis (1960) and Manthy and James (1964) indicated that one of the reasons is the fact that mills want to avoid overcutting the wood supply within short distances of the mill. Another reason is that negotiations with producers at 19 greater distances may make them quick to respond when the mill needs large additional volumes in the future. Some companies also think that rail delivery can be more easily controlled. Studies of the Upper Peninsula Toward the turn of the century forestry and mining were still the mainstay of the economy of the Upper Peninsula. Shortly thereafter, however, as the pine forests were cut over and the mines exploited, people began to leave the area. Since then the Upper Peninsula has been faced with chronic unemployment and a slowly declining population. But the potential of forestry and mining are still all important in the economy of the Upper Peninsula. The cut-over pine forests which originally dominated the area have been largely replaced by a maturing northern hardwood forest. In addition, new mining methods and discoveries of additional ore bodies have again placed mining in an important position. Realizing the potential of the Peninsula's natural resource, various governmental organizations have funded studies designed to recommend ways of stimulating economic growth. Although a number of factors are necessary to bring industry and people back into the region, transportation facilities and cost are among the most important. The studies examined here are those which deal, in varying degrees, with the adequacy of transportation. Ebasco Services (1953) undertook the first major study of 20 the Upper Peninsula oriented toward economic development. The purpose of the study was (1) to evaluate the economic and cultural climate of the Upper Peninsula, and (2) to recommend comprehensive programs for economic improvement. The report, which was prepared for the Michigan Economic Development Commission, was quite comprehensive. It recommended, among other things, more extensive utilization of the forest resource by developing both primary and secondary forest products industries. In general the Ebasco report treated transportation very lightly. The study considered transportation facilities within the study areas as "fairly good", although it stressed the need for a better link with lower Michigan--a link which came several years later in the construction of the Mackinac bridge. The study also recognized freight rates as extremely important and recommended that they be given further study. Ten years later, Ebasco Services (1963) submitted another report to the Commission. This report was designed to examine what had occurred during the intervening 10-year period and to recommend future action programs. It indicated that in general good progress had been made but suggested there was room for more completely integrated wood-using operations. They recommended the development of marketing agencies to sell the related products of a number of small manufacturers and furnish them with required sales, advertising, and sales promotion services. Although physical transportation facilities and service were considered adequate, the report also recommended that 21 consideration be given to the possibility of establishing a general cargo port in the study area. They felt that since the port of Escanaba is able to operate on a year-around basis it should be considered favorably for such a facility. Several years prior to the second Ebasco report James (1961) completed a comprehensive review of the economy and growth potential of the Upper Peninsula for the Committee on Public Works of the United States Senate. James also indi­ cated that the timber resource of the Upper Peninsula could support a large expansion of its wood-using industries. He saw the greatest potential for expansion in the pulp and paper industry and recommended integration of the various stages of production in the other forest products industries. On the subject of transportation facilities James indi­ cated that the transportation network was "fairly well" developed within the study area and the connections with con­ suming markets were good. In discussing freight rates, he concluded that the total costs of transporting raw material to mills and manufactured products to consuming markets are less than they are in most timber products exporting regions of the country. Freight costs for chemical deliveries were indicated as probably being lower than in most important pulp-producing regions. James further showed that pulp freight rates from Sault Ste. Marie to Midwestern markets are substantially lower than from Southern pulping centers. In early 1964, Nathan Associates, Inc. (1964) completed a report for the Transportation Committee of the Upper Peninsula Committee on Area Problems. This was the first 22 study of its kind to deal strictly with transportation. The report was comprehensive and presented numerous tables con­ cerning freight rates, traffic volumes, and origins and des­ tinations of various products. Nathan Associates emphasized, as other studies have done, that the Upper Peninsula is tied economically to Wisconsin, Minnesota, and Illinois. Among other things, they recommended that the Upper Peninsula develop highly coordinated transpor­ tation planning with those states. In recognizing the potential of the forest resource Nathan Associates stressed the development of industries to utilize it. They indicated that transportation facilities and service routes which serve all industrial development were adequate to meet the current and foreseeable future needs of the area. Freight rates were seen as favorable for the forest-products industries. Indeed, on the subject of rail shipping costs, the report stated: Anticipated growth in manufacturing in the U.P. is likely to be in the wood products sector selling to the major Midwestern markets of Chicago, Milwaukee, Detroit and Minneapolis. The cost of shipping wood products such as lumber, wood pulp, printing paper, paper board, pulp board, wallboard and plywood to these markets is substantially less from the U.P. than from competitive resource areas such as the South, New England and the Northwest. Aside from differences related to minimum weights and other rate factors, the cost of shipping these products from the U.P. to markets enumerated is about half of the cost from other regions. (Tariff data provided by the Soo Line Rail­ road Rate Department) The Nathan report concurred with the Ebasco report (1963) in recommending a study of rates and tolls on the Mackinac Bridge. The Nathan report was particularly concerned with 23 the effects of lower rates on commercial truck traffic over the bridge. Effective January 1, 1969 rates over the Mackinac Bridge were lowered an average of 60 percent. In view of the potential importance of low-cost water­ borne transportation, the Nathan report recommended an allyear port facility. Unlike the Ebasco report (1963), however, Nathan recommended Menominee as a location (rather than Escanaba) because of its greater diversification in products handled. In 1964 the Soo Line Railroad (1964) produced a report designed to up-date the timber resource data as presented by the Forest Service for the period 1946 to 1954. The report concentrated entirely upon the location, growth, and cut of commercial forests in the Upper Peninsula. It concluded that the resource base would allow increased utilization by all segments of the forest products industries. In particular, the report indicated that pulpwood production could be in­ creased by 25 percent without deteriorating the resource base. The Soo Line report did not mention transportation specifically. The Soo Line, however, is one of the two major suppliers of rail transportation in the Upper Peninsula and, as such, depends on forest products for freight revenue. A report to the Institute of Wood Research, Michigan Technological University, by Arther D. Little, Inc. (1965) concentrated on the opportunities for pulp and paper manu­ facture in the Upper Peninsula. This report indicated that one of the principal advantages for pulp mill location in the study area was low-cost transportation to major markets. 24 Some sites were indicated as having a freight rate advantage of around $4.50 per ton over Southern mills also supplying North Central markets. The most comprehensive study of transportation and dis­ tribution facilities in the Upper Peninsula was compiled by EBS Management Consultants, Incorporated (1967). Developed as a technical assistance project for the Economic Development Administration, this study concentrated on transportation problems in the Upper Peninsula and the northern 32 counties of the Lower Peninsula. Although the EBS report discussed almost all current and potential users of the various transport modes, forest products were given particular attention. Lumber and pulpwood were recognized as products having a relatively low value per unit of weight and a high percentage of delivered costs in the form of transportation. The report indicates these products move primarily by rail over any distance greater than 70 to 80 miles. Furthermore, interviews indicated that shippers were concerned about poor rail service and the lack of railroad cars, while the carriers complained that lumber and pulpwood were poor revenue producers. Because the large number of small producers and frequency of small loadings contributed to the poor revenue situation, the EBS report recommended that pulpwood be concentrated in relatively few locations during the production seasons and shipped to mills at a steady volume throughout the year. This arrangement, they felt, would insure the carriers a steady commodity flow and thereby provide an incentive to increase service. 25 Since relatively high value wood products produced by small independent manufacturers are usually sold on an f.o.b. factory basis, manufacturers are largely ignorant of transpor­ tation costs and services. Those who are concerned with service are frequently dissatisfied with the quality of common carriage and in many cases resort to private and/or contract carriage as an alternative. In most cases, however, these shippers are unaware of the actual costs of providing their own service. The EBS report concluded that both rail and truck facilities in the Upper Peninsula were generally adequate, although common carrier service was below standard in some cases. The report recommended a number of actions which would help break the vicious circle of lack of traffic which in turn stimulates lack of service and discourages further traffic. Cooperation and communication between shippers and carriers was a major element in all recommendations. CHAPTER III TRANSPORTATION FACILITIES The demand for transportation facilities is a product of the demand for goods produced; it is a derived demand. Accordingly, the demand for wood raw material and resulting products from a producing area stimulates the development of railroad facilities and roads to link resources to manufac­ turers, and manufacturers to consumers. Moreover, facilities ordinarily develop only after a demand has been established, and they may remain after the demand for them has diminished. Largely because of the growth in extractive industries, notably mining and timber, the Upper Peninsula possesses an adequate rail and highway network. Rail facilities developed rapidly until around the turn of the century when mining and lumbering operations reached their peak. Today, most railroad trackage remains active although the volume moved has declined substantially on some lines. A continuing highway development program over the years has increased general accessibility to all counties in the Upper Peninsula. In addition, logging roads constructed during the early lumbering days can usually be reopened at modest cost. However, due to the apparent geographical remoteness from midwestern markets, concern has been expressed over the Peninsula's so-called transportation disability. In recent years several studies have examined transportation facilities 26 in an effort to point out existing "disabilities." One such study (James, 1961), conducted for the Committee on Public Works of the United States Senate, indicated that the geogra­ phical remoteness of the Upper Peninsula was more of a psy­ chological obstacle than a physical one. It concluded that the transportation network as a whole was fairly well developed within the Peninsula, and that the connections with consuming markets were good. Railroads The Upper Peninsula is served by eight railroads, three of which are classified by the Interstate Commerce Commission as Class I railroads having annual gross operating revenues of five million dollars or more (Table 1). These three rail­ roads have the longest trackage in the Upper Peninsula, and all have direct connections with Milwaukee and Chicago. Class II railroads in the Upper Peninsula are primarily local roads serving as feeder lines either to ports or to inter­ change points with Class I railroads. The longest Class II railroad operates over 134 miles in Marquette and Alger Counties and a small portion of Schoolcraft County. The shortest line extends north of the city of Marquette for 24 miles along the shore of Lake Superior. Most of the railroad routes are oriented toward the region' mineral resources in the western end of the Peninsula (Figure 2) The longest operating road, the Soo Line with 656 miles in the Upper Peninsula, is generally oriented east and west, 28 Table 1. Railroads serving the Upper Peninsula of Michigan, 1965 Railroad Miles of track in the Upper Peninsula (Miles) Class I — / Soo Line Chicago and North Western Milwaukee Road 656 468 148 Class II Lake Superior and Ishpeming Copper Range Escanaba and Lake Superior Manistique and Lake Superior Marquette and Huron Mountain 135 71 67 38 24 ft/ — Class I railroads are those having $5,000,000 or more in annual gross operating revenues. Source: Michigan Public Service Commission, 1965. O N T ON A G O N BARAGA MARQUETTE Vt /^.j^ IRON CHOOL C R A F T N > Q42 6.711 = 5.484 II X2 = --- ------ 4.673 «= 2.038 III X 3 = — -yyj 2.114 = 2.559 IV X4 = — -jyj 1. 845 = V Xc =---- ttt — .269 - 1.845 The miles traveled on each class of highway were then multiplied by the US Forest Service estimates of the cost of hauling for that class as shown in Table 9. The average cost per cord for moving pulpwood by truck to multiple rail loading points in each county are shown in S3 Table 9. Average pulpwood trucking cost per round trip mile in Upper Michigan, 1968 Road class Trucking cost per cord —/ (Dollars) High speed (45 mph) $0.08 Class I (35 mph) 0.12 Class 11 (25 mph) 0.17 Class III (16 mph) 0.24 Class IV ( 8 mph) 0.43 Class V ( 4 mph) 0.78 Standby, delay, load, unload 1.65 3-/ — Flat bed 6 x 4 tandem axle truck with mounted hydraulic loader, gross weight 37,000 lbs., six cord capacity. Source: U. S. Forest Service Handbook on Timber Appraisal, Region 9, 1968. \ 54 Table 10. Costs per cord ranged from a high of $5,274 in Marquette County to a low of $3,811 in Menominee County. The range of $1,463 per cord can be accounted for primarily by differences in the mileages for various classes of road. The weighted average cost per cord for the five counties was $4,648. In calculating the average cost per cord for moving pulpwood from rail loading points in the five county study area to pulping centers in Wisconsin, rail rates in cents per hundred pounds must be converted to rates per cord. Three variables must be considered in this conversion: species being shipped, (1) the (2) whether the wood is peeled or rough, and (3) the rail rate per hundred pounds. Almost all hemlock, balsam, and pine were shipped as roughwood from the study counties in 1966. Significant amounts of aspen and miscellaneous hardwoods, however, were peeled before rail shipment. A composite weight for these two species was cal­ culated in order to reflect differing volumes of peeled and unpeeled wood actually shipped in 1966. Weights in pounds per cord for each species are as follows: Species Aspen Hemlock Balsam Pine Misc. Hwds Weight (bounds) 3,646 4,500 4,700 4,400 4,036 The rail rate per hundred pounds depends primarily on the distance between loading points within each county and 55 Table 10. Average trucking costs per cord for transporting pulpwood to the most frequently used rail loading points in selected Upper Peninsula counties, 1968 rates Upper. Peninsula county Trucking cost per cord «*/ (Dollars) Menominee $3,811 Iron 4.987 Marquette 5.274 Dickinson 4.593 Delta 4.253 3-/ — Trucking cost per cord is not influenced significantly by different species. 56 each pulping center destination. Consequently, there is a rail rate from each loading point to each pulping center. The total number of rates from all origins to all destinations is 275. These rates are used to calculate the cost per cord for transporting various species from origins to destinations. Table 11 summarizes the average cost per cord for transport­ ing the 1966 volume of pulpwood from each county to each pulping center. Applying 1968 rail rates, the weighted average cost of transporting a cord of pulpwood by rail from multiple load­ ing points in the study area was $5,403. On the basis of average truck and rail rates, the total cost of transporting a cord of pulpwood by this combined mode from the study area to Wisconsin Pulping centers was $10,051 per cord. As shown earlier in Table 7, in 1966 only 31.0 thousand cords of pulpwood moved from the study area by truck directly to pulping centers in Wisconsin. Moreover, Menominee county accounted for almost 90 percent of the volume shipped by this mode. The cost per cord for trucking direct to pulping centers was developed in the same manner used to calculate trucking costs to rail loading points. The average cost per cord for transporting pulpwood by truck direct to pulping centers in Wisconsin was $8,986 per cord. Costs per cord are somewhat higher than trucking to rail points within each county owing to the longer distance of travel over high speed highways necessary to reach pulping centers. 57 Table 11. Weighted average cost per cord for transporting pulpwood by rail from multiple loading points in selected Upper Peninsula counties to Wisconsin pulping centers, 1968 rates Upper Peninsula county Wisconsin pulping center A 6 C D E (Dollars per cord) $4,738 $4,340 $5,055 $6,977 $6,321 Iron 5.473 4.670 5.202 6.597 5.812 Marquette 5.824 4.773 6.227 7.890 7.546 Dickinson 5.635 4.407 5.483 7.823 7.051 Delta 5.293 4.722 5.924 7.422 6.826 Menominee Applying 1968 transportation costs, the weighted average total cost per cord of exporting 298.1 thousand cords of pulpwood by truck+rail and truck direct from the five study counties to pulping centers in Wisconsin was $9,940. CHAPTER V IMPROVING PULPWOOD TRANSPORTATION COSTS Physical Facilities Many factors affect the mode and cost of transportation used to move raw material to processing facilities. Dis­ tance, volume and frequency of movement, weight per unit, ease of handling, possibility of damage, flexibility of the carrier, and speed of delivery are some of these variables. Because pulpwood has a low value per unit of volume, it is most often transported by truck and rail. Pulpwood ex­ ported from the study area moves either by truck to rail loading points and then by rail to destinations, or by truck direct to destination. Improved transportation costs could take place by increasing the hauling capacity of trucks and by concentrating pulpwood for shipment by rail in 10 car lots. Volume, however, must be sufficient to provide for full equip­ ment utilization. In addition, the inventory and species re­ quirements at particular mills could affect the method of movement. As a result the transport system for a particular mill is usually unique. This study does not attempt to evaluate either the large number of alternative transport means available to individual mills, or the effect of one mill's transport policy on adja­ cent mills. Rather, the purpose is to seek a more efficient method of transporting pulpwood from the study area to 59 60 Wisconsin pulping centers, given existing transportation facilities. Therefore the total cost of transporting the volume of pulpwood actually moving between origins and des­ tinations by specific mode in 1966, which was calculated in the previous chapter, will be compared with two costs: 1. Optimum distribution pattern.--Linear program solution of least total cost for transporting pulpwood after assuming volumes available at multiple rail loading points per county and volumes received at pulping center destinations are the same as in 1966, but allowing actual allocations to assume least cost proportions. 2. Single loading points.--Total cost of transporting the same volume of pulpwood actually moved between the study area counties and Wisconsin pulping centers in 1966, but assuming single rail loading points within each county. Optimum Distribution Pattern The weighted average total cost per cord for transport­ ing pulpwood actually moved in 1966 from multiple rail origins in the study counties to Wisconsin pulping centers was $9,940. But can the allocation of pulpwood between origins and destinations be modified to reduce transportation costs? To answer this question a standard linear programming transportation model was employed. The linear program takes four items as given: (1) the volume available at origins, (2) the volume required at des­ tinations, (3) the transportation cost from each origin to each destination (in this case truck+rail or truck direct, whichever is lower), and (4) an objective function which is to be minimized (in this case total transportation costs per 61 cord). The program calculates a progressive series of feasible solutions each one reducing total transportation costs while still satisfying the constraints. The final solution is the lowest transportation cost possible, given specific volumes available at origins and volume requirements at destinations. As expected, volume allocation in the linear program solution differs from that existing in 1966. Major differ­ ences occur in the volume of aspen shipped from Menominee and Delta Counties. As compared with the actual allocation in 1966, the program indicates that Menominee should reduce the amount of aspen shipped to pulping center A by one-half and double the amount shipped to pulping center B. For Delta County the program indicates that no aspen should be shipped to pulping center B, but shipments to pulping center C should be increased fourfold. In the linear program solution, 6.0 thousand cords of pulpwood were shipped by truck direct to pulping centers as compared with 31.0 thousand in 1966. Furthermore, all truck direct shipments originated from Menominee County. The program indicates that with the origin avail­ abilities and destination requirements as they existed in 1966, the optimum allocation of volumes could be achieved at a total transportation cost of $9,868 per cord. This represents a savings of only $0,072 per cord of one per­ cent over the total costs of shipping under the actual 1966 volume allocation. Hence, the 1966 method of trans­ porting pulpwood from the study area appears to be 62 almost operating in the least costly manner. Single Loading Points There is a possibility that total transportation costs could be reduced by shipping pulpwood by rail from a single loading point in each study county instead of from multiple points. To answer this question, representatives of the three Class I^railroads in the Upper Peninsula and four major pulpwood shippers in the study area were asked the following question: "If you had to choose one location with­ in each of the five counties (in the study area) to concen­ trate and trans-ship pulpwood by rail, where would they be?" (See questionnaire in Appendix C) Respondents indicated the locations shown in Figure 5. The same procedure used to calculate total costs in Chapter IV, using multiple loading points, was used to cal­ culate total costs using single loading points. Average costs per cord for moving pulpwood by truck to single rail loading points within each county are shown in Table 12. The extra distance of travel over high speed highway necessary to reach a single rail loading point in each county makes the cost per cord significantly higher than to reach multiple rail loading points. The weighted average cost per cord for trucking to single rail loading points is $6,501 compared to a weighted average of $4,648 for trucking to multiple loading points. Costs per cord for moving pulpwood by rail from single 63 M TSMPfMtva I r A \ ' R\o N N i ^-v I ' ! /M A R Q U E T T E I l j“ t—~ - — / I/ \ \ -— i I I inon R ivea £ LT A r u/CK! NSO/v\ LARCH LE G E ND CLASS I RAILROADS • - - - SOO L I N E R A I L R O A D CHI CAGO 4 N O R T H W E S T E R N RAILWAY C H I C A G O , M I L W A U K E E , ST. RAUL f PACIFIC RAILWAY MEA/OXM/NEE CLAS S JT RAILROADS ESCANABA 4 LAKE SUPERIOR LAKE SUPERIOR 4 ISHPERHNG ■o MARQUETTE f HURON MOUNTAIN SCALE /N M ILES Figure 5. Single rail loading points in each of the five study counties. 64 Table 12. Average trucking cost per cord for transporting pulpwood to single rail loading points in selected Upper Peninsula counties, 1968 rates Upper Peninsula county Trucking cost per cord SJ (Dollars) Menominee $5,611 Iron 6.784 Marquette 7.835 Dickinson 5.673 Delta 6.305 ^ / — Trucking cost per cord is not influenced significantly by different species. 65 rail loading points to pulping centers in Wisconsin are shown in Table 13. In almost every county, costs are lower than where multiple rail loading points are used. The weighted average cost per cord for transporting pulpwood by rail from single rail loading points to pulping centers is $5,030. This is $0,373 lower than costs from multiple rail loading points. The cost of trucking 31.0 thousand cords direct to mill destinations is the same regardless of whether multiple or single rail loading points are used. As indicated earlier, direct trucking costs average $8,986 per cord. Applying the 1968 transportation costs to the actual movement of pulpwood from the five study counties to pulping centers in Wisconsin in 1966 by truck+rail and truck direct, using single rail loading points, results in a weighted average total cost of $11,265 per cord. Although the cost of rail transportation to destinations from single loading points per county is less expensive than from multiple load­ ing points, the additional cost of trucking to single loading points makes the cost of using single loading points more ex­ pensive by $1,325 per cord. Cost for multiple and single loading points are summarized in Table 14. 66 Table 13. Weighted average cost per cord for transporting pulpwood by rail from single loading points in selected Upper Peninsula counties to Wisconsin pulping centers, 1968 rates Upper Peninsula county Wisconsin pulping center A B D C E (Dollars per cord) $3,913 $3,836 $4,444 $6,732 $5,926 Iron 6.176 3.126 5.202 6.566 5.486 Marquette 5.410 4.940 5. 798 7.929 7.190 Dickinson 4.866 4.462 5.345 8.131 7.138 Delta 3.243 4.391 5.156 7.344 5.869 Menominee 67 Table 14. Average cost per cord for transporting pulpwood to Wisconsin pulping centers from multiple rail loading points and from single loading points, selected Upper Peninsula counties, 1968 rates Method of movement Multiple loading points Single loading points (Dollars per cord) Truck to rail point $4,648 $6,501 Rail direct 5.403 5.029 Truck direct 8.986 8.986 Weighted average 9.940 11.265 CHAPTER VI SUMMARY AND CONCLUSIONS Pattern of Pulpwood Movement Michigan's Upper Peninsula is an important source of pulpwood to Wisconsin pulp mills. Of the 871.0 thousand cords of pulpwood produced in Upper Michigan in 1966, almost 80 percent was transported to Wisconsin. The remaining 20 percent was used by five pulp mills within the Peninsula. Almost all pulpwood sent to Wisconsin is shipped by rail. Wood produced and consumed within the Peninsula, however, is transported almost exclusively by truck. The five counties in the Upper Peninsula producing the greatest volume of pulpwood in 1966 were selected for de­ tailed analysis of pulpwood movement and transportation costs. These counties are Menominee, Iron, Marquette, Dickinson and Delta. Eighty-five percent of the pulpwood produced in these counties was exported to Wisconsin. Aspen, balsam, hemlock, pine and miscellaneous hardwoods were the most important species, accounting for 90 percent of the pulpwood produced in the study counties. Of the 42 potential pulp mill markets in Wisconsin, 17 received 92 percent of the pulpwood exported from the five Upper Peninsula counties. These 17 mills were grouped into five pulping centers and designated by the letters A through E. Of the 298.1 thousand cords exported to these 68 69 pulping centers, 267.1 thousand cords were shipped by a com­ bination of truck and rail, while 31.0 thousand cords were shipped direct by truck. Rail loading points are numerous in the Upper Peninsula. In the five study counties there is one for every seven miles of railroad. But all potential loading points are not used to transport pulpwood. Representatives of the three Class I railroads and four major pulpwood shippers in the study area indicated those loading points most frequently used. They ranged from 12 in Iron County to 10 in Dickinson County. Three pulping centers A, B and C, accounted for 89 per­ cent of the volume of pulpwood received. Pulping center A received most of its wood by truck from Menominee County, and by rail from Marquette and Delta Counties. Iron and Dickinson Counties supplied most of the pulpwood shipped by rail to pulping center B. Pulping center C received sub­ stantial rail shipments from all five counties. More Efficient Raw Material Flow The purpose of this study is to examine possible changes in secondary pulpwood transportation methods which would stimulate more efficient raw material flow between selected producing locations in the Upper Peninsula and major pulping centers in Wisconsin. This is accomplished in three steps: 1. Multiple rail loading points.--Calculating the cost of transporting tne volume of pulpwood actually moved from multiple rail loading points in the five study counties in 1966 to pulping centers in Wisconsin. 70 2. Optimum distribution pattern.--Assuming volumes available at multiple rail loading origins and requirements at destinations as they existed in 1966 and solving a linear program for the volume allocation which would minimize transportation costs. 3. Single loading points.--Calculating the cost of transporting the volume of pulpwood actually moved between county origins and destinations in Wisconsin, but assuming wood moving by rail originated from one rail loading point in each county. Results of these calculations are summarized in Table 15. The optimum distribution pattern (linear program) allocation of volume between multiple loading points in the Upper Penin­ sula and Wisconsin pulping centers is the least expensive. But the linear program allocation represents a savings of only $0,072 per cord over the volume allocation existing in 1966. Consolidating the pulpwood volume shipped from each county into a single rail loading point per county increases total transportation costs over the theoretical minimum by $1,397 per cord. Rail rates from single loading points per county to Wisconsin pulping centers are less expensive than from the average multiple loading point, but the increased trucking distance necessary to reach single loading points increases total costs beyond that of utilizing multiple load­ ing points. Thus, given conditions in 1966, the least cost volume allocation was almost achieved. Additional savings may be possible by taking advantage of the special rail rates for 71 Table 15. Average cost per cord for transporting pulpwood from five Upper Peninsula counties to Wisconsin pulping centers by three different methods, 1968 rates Method of movement Average cost per cord (Dollars) Optimum distribution pattern Multiple loading points Single loading points $9,868 9.940 11.265 72 shipment of 10 cars or more and by increasing the size of trucking vehicles to accommodate more cords per load. Both these savings are made in some instances, but based on average conditions the least cost transportation matrix has been implemented. Transportation facilities are deemed ade­ quate to handle current as well as substantial increases in volume. This is the opinion of the major shippers inter­ viewed during the conduct of this study, and it is substan­ tiated by several independent studies of the adequacy of current rail and highway facilities. One complaint regarding the availability of rail cars was voiced by pulpwood shippers. During peak pulpwood- shipping periods, shippers complain that rail cars are not available in quantity. The railroads indicate, however, that to place more cars in service in order to accommodate the relatively short peak demand for a low revenue commodity would severely restrict their profit position. They are, however, making effort to gain more efficient equipment utilization through computerizing rolling stock inventory. Another complaint arises from the fact that shippers wanting to take advantage of a 10 car rail rate may not be able to get cars when needed. In most instances, however, these shipping points are not those most frequently used. A reduction in rail rates is possible if the railroads could close those rail points not frequently used for load­ ing pulpwood, thereby eliminating some maintenance costs. In addition, economies of scale could develop from routing pulpwood cars to 11 loading points instead of 50. LITERATURE CITED Blyth, James E. 1967. Pulpwood production and consumption in the North Central Region by county, 1967. North Central Forest Experiment Station, Resource Bulletin NC-3. 27pp. Campbell, Thomas C. 1965. Freight rates of West Virginia wood products. West Virginia University Bulletin, Series 65, No. 10-1. 28pp. Carpenter, Eugene M. 1965. Transportation facilities for de­ veloping wood-using industries in Northeastern Minnesota. Lake States Forest Experiment Station. 33pp. Ebasco Services Incorporated. 1953. Engineering study of the economic resources of the Michigan Upper Peninsula. New York. 188pp. __________ 1963. Economic growth potentials of the Michigan Upper Peninsula. New York. 124pp. EBS Management Consultants, Incorporated. 1967. Transpor­ tation and distribution in 48 counties in Northern Michigan. U. S. Department of Commerce, Economic Development Administration. 95pp. Gardner, R. B. 1966. Designing efficient logging systems for northern hardwoods, using equipment production capabilities and costs. North Central Forest Experiment Station, Research paper NC-7. 16pp. Hagenstein, Perry R. 1964. The location decision for woodusing industries in the Northern Appalachians. Northeastern Forest Experiment Station, Research Paper NE-16. 36pp. Hamilton, Thomas E. 1965. Dimensions of structure and performance in the Wisconsin pulpwood market. Un­ published Ph. D. Thesis, University of Wisconsin. 286pp. Harper, Donald V. 1961. Basic planning and the transportation function in small manufacturing firms. Prepared by the University of Minnesota under the Small Business Administration Management Research Grant Program. 61pp. Hughes, Jay M. 1962. Pulp and papermaking opportunities in West Central Colorado. Rocky Mountain Forest and Range Experiment Station, Station Paper 73. 48pp. James, Lee M. 1957. Marketing pulpwood in Michigan. Michigan Agricultural Experiment Station, Special Bulletin 411. 67pp. 73 74 ___________ 1961. Opportunities for economic development in Michigan's Upper Peninsula. Prepared for the U.S. Senate committee on Public Works, 87th Congress. 84pp. ___________ and Gordon D. Lewis. 1960. Transportation costs to pulpwood shippers in Lower Michigan. Michigan Agricultural Experiment Station Quarterly Bulletin 42 (3) pp 444-469. Little, Arthur D. Inc. 1965. Opportunities in Michigan's Upper Peninsula for the utilization of wood resources in pulp and paper manufacture. Report to the Institute of Wood Research, Michigan Technological University. 77pp. Long, Roger B. 1966. Efficiency of lumber transportation to out-of-state markets. Agricultural Experiment Station Bulletin 507, New Mexico State University. 22pp. Macdonald Associates, Inc. 1963. A forest industry and marketing complex for Eastern Kentucky. U.S. Department of Commerce, Area Redevelopment Administration. 144pp. Manthy, Robert S. and Lee M. James. 1964. Marketing pulp­ wood in selected areas of the North Central Region, Michigan Agricultural Experiment Station, Research Bulletin 6. 120pp. Nathan, Robert R. Associates, Inc. 1964. Transportation in the Upper Peninsula of Michigan. A report to the Transportation Committee of the Upper Peninsula Committee on Area Problems, Escananba. 78pp. New Hampshire Agricultural Experiment Station. 1966. An economic analysis of the potentials of the hardwood industry in Northern New Hampshire. U.S. Department of Commerce, Area Redevelopment Administration, Unnumbered. 280pp. Reid, W. H. et al. 1961. Primary wood industries of West Virginia. West Virginia University Agricultural Experiment Station, Bulletin 461. 35pp. Saunders, W. B. 6 Company. 1964. Transportation and dis­ tribution for selected industries in Northeast Minnesota and Northern Wisconsin. U.S. Department of Commerce, Area Redevelopment Administration. 35pp. 75 Schroeder, Daniel I. and Thomas J. Cocoran. 1965. Distribution patterns of trucked pulpwood in EasternCentral Maine. Maine Agricultural Experiment Station, Bulletin 630. 44pp. Soo Line Railroad. 1964. Upper Michigan forest resources. Soo Line Railroad, Minneapolis. 34pp. Spindletop Research Center. 1964. Technical and economic feasibility of establishing a hardwood pulp and paper mill in an eight-county area of Western Kentucky. U.S. Department of Commerce, Area Redevelopment Administration. 138pp. Thompson, David B. and Corcoran, Thomas J. 1966. tional and operational characteristics independent pulpwood trucking firms in Maine Agricultural Experiment Station, 643. 61pp. Organiza­ of Maine. Bulletin U.S. Bureau of the Census. 1966. 1963 Census of Transpor­ tation. Commodity Transportation Survey; Shipper Groups. Washington, D. C. Wackerman, A. E. et al. 1966. Harvesting Timber crops. McGraw^llTTl, New York. 540pp. Whitmore, Roy A. et al. 1963. Marketing lumber in the north­ east ;~phase II - lumber purchases by wood products manufacturers. Vermont Agricultural Experiment Station, Bulletin 635. 39pp. APPENDIX A. INTERVIEW SCHEDULE FOR SHIPPERS OF FOREST PRODUCTS CONFIDENTIAL CONFIDENTIAL TRANSPORTATION OF FOREST PRODUCTS IN THE UPPER PENINSULA OF MICHIGAN Personal interview scheduled Date ____________ Part I, GENERAL 1. Name of firm 2. Location 3. Person interviewed 4. Title or position 5. Types of raw materials purchased 6. From whom do you purchase these raw materials 7. Types of products sold 8. Types of buyers sold to (estimate, by products, the volume or percent of volume) PRODUCT volume percent volume percent volume percent Manufacturer Wholesaler ______________________________________________ Retailer______ ______________________________________________ Other (specify) ~ _______________________________ 9. Major market areas (by product and State) 10. What was the monthly pattern in the volume of raw wood receipts in 1965? (peak and low months--with volumes if possible) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec ~ The interview schedule p r e s e n t e d here has been v i a t e d by d e l e t i n g spaces for r e c o r d i n g da t a for m a n y questions. 77 abbre­ o f th e 78 11. Is this a typical pattern? 12. What is your current raw material procurement area? (indicate on map) 13. Do you anticipate any changes? Why? 14. What was the monthly pattern in the volume of product shipments in 1965? (peak and low months--with volumes if possible) Jan Feb Mar Apr May Jun Jul Aug S e p O c t Nov Dec 15. Is this a typical pattern? 16. Do you anticipate any changes? Why? Part II, TRANSPORTATION FACILITIES 17. What was the approximate percent of your inbound raw material shipments in 1965 arriving by: TYPE OF RAW MATERIAL CARRIER (Percent} Railroad Truck Contract Common Private Water 18. How do you buy your raw material? a. delivered at mill b. delivered to railroad cars at designated loading points c. stacked in the woods at designated points d. other 19. Are there any differences in prices paid for delivered wood on the basis of Haul? If yes, what are they? 20. Do you use transit privileges? How? 21. What were the inbound truck hauling distances to your mill in 1967?'" 79 TYPE OF RAW MATERIAL ------------------- [ M i T e s T Average distance* Min. distance Max. distance *Weighted by volume 22. What were the inbound rail hauling distances to your mill in"”T553T" TYPE OF RAW MATERIAL ------------------- C M i T e s T Average distance* Min. distance Max. distance *Weighted by volume (also indicate 1,2, or 3 line haul) 23. What changes occurred in the use of different methods of inbound raw material transportation during the last lo years? (55-65) 24. How is the decision made to use one particular carrier rather than another? (for inbound shipments) 25. What was the approximate percent of your outbound product shipments in 1965 shipped by: TYPE OF PRODUCT CARRIER Railroad Truck Common Contract Private Water [Percent)' 80 26. What were the outbound truck hauling distances to markets in 1965? TYPE OF PRODUCT ------------------- [ M i T e s T Average distance* _______________________ Min. distance _______________________ Max. distance ♦Weighted by volume 27. What were the outbound rail hauling distances to markets in 1965? TYPE OF PRODUCT ------------------- [HiT e s T Average distance* _______________________ Min. distance _______________________ Max. distance ♦Weighted by volume (also indicate 1,2, or 3 line haul) 28. Do you use the piggyback service of the railroads? Explain. 29. What changes in the use of different methods of outbound product transportation occurred during the last 10 years? (55-65) 30. How is the decision made to use one particular carrier rather than another for outbound shipments? Part III, THE TRANSPORTATION FUNCTION 31. Who is responsible for the following traffic functions? FUNCTION PERSON OR DEPARTMENT RESPONSIBLE Ascertainment of rates Tracing of shipments Selecting types of carriers Selecting specific carriers Routing of shipments Auditing of freight bills Determining classification Maintaining tariff files Diversion, reconsignment and stopping shipments in transit 81 Expediting shipments Preparing rate case evidence Rate and service negotiation with carriers Handling cases before regulatory bodies (ICC and state commissions) Arranging for adequate car and truck supply Consolidating and pooling orders Arranging for payment of carriers Documentation (preparation of bills of lading, etc) 32. Has your firm ever made a study to determine how the above functions should be handled? 33. Does your firm make use of outside traffic consultants? Part IV, USE OF PRIVATE TRANSPORTATION 34. Does your firm make use of any private transportation? If no, skip to question 39. 35. What kind of private transportation do you use? 36. Who owns the equipment? (company, leased, both) 37. Why does your firm make use of private transportation? 38. How was the decision made? 39. Why doesn't your firm make use of private transportation? Part V, OVERALL TRANSPORTATION PROBLEMS AND PLANNING 40. Has your firm set forth any specific principles or rules to follow for transportation planning for either new or existing products? Explain. 41. Have you experienced difficulties in getting rail cars or trucks when you need them? 42. Do you recommend any principles to be followed by firms of your firm's size in planning transportation expenditures? 43. Do you know of any attempt to organize a shippers association? If yes, explain. 44. What do you consider to be the future of wood chipping in the Upper Peninsula? J * O'** ’v' 82 45. What broad transportation problems do you anticipate in the next 10 years? 46. What broad improvements in transportation do you anticipate in the next 10 years? 47. Do you think the St. Lawrence Seaway will have any effect on your firm's operations? Explain. APPENDIX B. PULP MILL QUESTIONNAIRE CONCERNING INBOUND TRANSPORTATION MODE COVER LETTER September 18, 1968 Dear: I am working on a PhD thesis at Michigan State University involving alternative pulpwood transportation costs from or­ igins in the Upper Peninsula of Michigan to destinations in Wisconsin. At this point in the study I need your help in gathering data. In order to calculate the total current pulpwood trans­ port cost by transport mode, I need to know the volume of pulpwood received at selected Wisconsin pulp mills by truck and rail from each of five counties in the Upper Peninsula. Will you please complete the enclosed table by indicating the percent of each species of pulpwood received at your mill by truck and rail from the counties shown. The appropriate cells are outlined in green. A return envelope is provided for your convenience. Identifying individual mills in this study will be im­ possible. Mill figures will be aggregated into "pulping centers" which will be identified only by the letters A, B, C, D, and E. Your cooperation will be greatly appreciated. Sincerely, William R. Wynd 84 85 MILL LOCATION PERCENT OF PULPWOOD RECEIVED B7 TRUCK AND RAIL FROM SELECTED UPPER PENINSULA ORIGINS, 1966 Species Upper Peninsula county origin Menominee Percent by Truck Percent by Rail Iron Percent by Truck Percent by Rail Marquette Percent by Truck Percent by Rail Dickinson Percent by Truck Percent by Rail Delta Percent by Truck Percent by Rail ■ Aspen Hemlock Balsam Pine Mise. Hvds. APPENDIX C. PULPWOOD SHIPPER QUESTIONNAIRE CONCERNING RAIL LOADING POINTS COVER LETTER September 24, 1968 Dear: I am working on a PhD thesis at Michigan State University involving pulpwood transportation costs from five counties in the Upper Peninsula of Michigan to five "pulping centers" in Wisconsin. At this time I need your help in securing data. The enclosed questionnaire contains questions concerning the most frequently used pulpwood rail loading points within each of five Upper Peninsula counties, and your estimate of the most likely pulpwood concentration point within each county. I am asking representatives of the railroads, paper companies and large producers and dealers to help me varify my estimates. Your assistance will help me establish "real world" conditions. Thank you for your cooperation. Sincerely, William R. Wynd 87 88 PULPWOOD TRANSPORTATION QUESTIONNAIRE ^ In answering these questions, please consider the railroads involved as a group* 1* The following rail loading points in each of five Upper Peninsula counties have been designated as those most frequently used to load pulpwood* On the basis of your knowledge, please indicate any appropriate additions or corrections* Note: These "most frequently used" loading points are assumed to account for 80 percent of the pulpwood shipped to Wisconsin from each county* County Loading points Menominee Carney Daggett Eustis Helps Whitney Spur 27 Hermansville La Branch Feronville Powers Section 19 Iron Alpha Amasa Basswood Beachwood Caspian Elmwood Gibbs City Iron River Mitchal Spur Kiernan Scott Lake Marquette Champion McFarland New Swanzy Northland Watson Little Lake Mashek Negaunee Republic June* Witch Lake Dickinson Alfred Floodwood Hylas Ralph Sagola Felch Foster City Merriman Randville Waucedan Delta Bark River Beaver Brampton Cornell Ensign Nahma June* Pine Ridge Rapid River Rock Woodlawn Tour additions or corrections ** The questionnaire presented here has been abbreviated by deleting spaces for recording data for many of the questions* 89 2* If you had to choose one location within each of the five counties to concentrate and trans-ship pulpwood by rail, where would they be? Upper Peninsula county Concentration Point My estimate Menominee Daggett Iron Iron River Marquette Little Lake and/or Ishpeming Dickinson Felch Delta South of Gladstone — possibly Larch Your estimate