Tracking Alaska's timber: Seward sawmill may be key to new timber industry growth.

• Author: Richardson, Jeffrey
• Position: Chugach Alaska Corp.'s sawmill in Seward, Alaska - Industry Overview

A very expensive state-of-the-art sawmill sits idle in Seward, lacking an operator with the knowledge and capital to make it work. All dressed up and nowhere to go.

The Alaska timber industry, hemmed in by a variety of land restrictions and export rules, is running out of room to grow despite healthy prices for both logs and manufactured products. Places to go but no way to get there.

These two -- the mill and the industry -- need each other, but bringing them together is not nearly as simple as it sounds. While the pressures of supply and demand may make Alaska's forests a logical source of timber in a global marketplace, the market is splintered into many segments, and the road to profitability is rocky and winding.

The industry itself is a complex machine with many large and small moving parts. Timber owners, loggers, mill operators and brokers operate like so many cogs and gears, sometimes grinding uneasily against one another, against the marketplace and government agencies. The diminishing timber supply in the Pacific Northwest is putting enormous pressure on every part of the industry, yet each responds to such pressure in different ways.

A Case In Point

Chugach Alaska Corp., one of Alaska's 12 Native regional corporations, envisioned being a major timber player when it built the Seward mill at a cost of about $30 million. Hoping to draw on its own large tree supply as well as timber from other sources, the mill operated from May 1990 to September 1991. Then it became shrouded in the cloud of bankruptcy that enveloped the whole corporation.

Although the mill had secured overseas customers for its chips and started penetrating the Southcentral Alaska market with milled lumber, some observers say the corporation paid too much for the mill and lacked the expertise to run it profitably. Others note that despite high-tech equipment, the mill was not designed for maximum efficiency. Located across Resurrection Bay from Seward, away from the railhead, increased transportation costs pushed down the price Chugach was able to pay for its wood supply.

Mike Brown became president of Chugach Alaska in March of this year on the assumption that the mill was a loser that couldn't be revived. But, between creditor committee meetings and conferences with bankruptcy attorneys, Brown kept his pencil and computer in motion.

"I couldn't figure out why it didn't make sense," recalls Brown. "It always turned a profit when I did the numbers. If you take out the mistakes, it works. The mill didn't fail because it was a bad idea."

Larry Williams, president of Idaho Timber Corp. of Boise, agrees. Idaho Timber was one of several firms trying to pluck the mill from the quagmire of bankruptcy earlier this year.

"For $6 million to $8 million, you could have built a nice operation. If I'd built the mill myself, we'd have built it for substantially less and had essentially the same capability. The mill was a good idea. The implementation was disastrous," Williams says.

The reason Brown's pro formas kept pointing to a profit potential for the mill is its strategic location. The mill is designed and...