Objective
National Bank of Canada ("NBC" or "the Bank") is tasked with the decision to review Dawson Lumber Company Limited's ("Dawson") request for an increase in its line of credit up to the amount of $10.8mm. Dawson intends to finance inventory and receivables with the line of credit. NBC must remain cognizant of the competitive landscape of the lumber industry and assess whether a focus on the retail segment is beneficial to Dawson's strategic plan. Given that Dawson is one of the region's largest borrowers, NBC must be careful in how it manages this relationship. The Bank cannot afford to turn away NBC's business. However, extending Dawson additional credit may increase Dawson's default risk and jeopardize the potential for NBC to retrieve the $4.2mm term loan it is already owed.
Industry Analysis
Canadian Lumber Industry Analysis
The Canadian lumber industry can be seen as very unattractive at best. Expected oversupply of Canadian lumber, increased competition in the industry, and greater buyer power, have put downward pressure on prices, adversely affecting the profitability of producers.
With an increase in the number of many small and medium lumber producers, competing to sell a commoditized product, the industry has become very fragmented. The combination of these factors and the slow industry growth in recent years has led to a high degree of rivalry among producers, resulting in a fall in lumber prices. As lumber producers were forced to compete on price, buyers reaped the benefits. The high level of buyers' information and their low switching cost has added to their high negotiation power relative to the producers. Restrictive governmental actions along with the high power of buyers, and high degree o...
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...ustments will improve Dawson's cash position and will give it the flexibility to both take advantage of market opportunities and provide for unforeseen circumstances thereby reducing its risk. Also, considering that the terms are more lenient than the industry averages, it will allow Dawson to maintain its existing customer relationships by offering more favourable credit terms and higher inventory stock than its competitors.
At the same time, Dawson should be pursuing opportunities to sell the retail component of its business. NBC's investment bank could collaborate on this objective. The proceeds resulting from this transaction as well as improvements to its cash position could be destined to repay the term loan that Dawson has with NBC, issue dividends, and or contribute to the improvements, suggested earlier, to Dawson's operations and organizational structure.
Logging is a huge industry in the Pacific Northwest for obvious reasons. The abundant, lush, forests are an ideal location for major logging companies to stake their claim. For many Pacific North westerners, and Americans in general, the logging industry is a major part of the economy. Many loggers have been raised and trained for their entire life to become loggers. Many loggers know no other skills to support themselves other than logging and the logging industry. There are many communities located in the Pacific Northwest that are supported fully by the logging industry. Without the logging of the old growth forests, their families and their livelihoods would be ruined.
When the "new" management took over Pacific Lumber the process of "selective cutting" was abandoned and "clear cutting" was adopted. Although "clear cutting" is a way to obtain so-called fast cash, it wa...
Stocking, A. (2011). Unintended Consequences of Price Controls: An Application to Allowance Markets. Journal of Environmental Economics and Management, 63, 120-136. doi: 10.1016/j.jeem.
Also, the competition between existing players in this industry is high. There are about 619,000 metal enterprises in the USA in 2005 (IBISWorld, 2007).There are many companies that produce different kinds of metal products in the market. Besides, the bargaining power of buyers is high because product difference for the buyers of the metal products is small. It is not easy to differentiate the quality of one metal product from another. In addition, the cost of switching for the buyers is low. The number of substitutes of metal products is also high thus the buyers have great bargaining power.
this notion of stable supply and demand affected prices of farm commodities. “Low prices on
The laborers who sat idle during the fur trading off-season were of great concern to George Simpson, resident governor of the Hudson’s Bay Company in 1821. As he sat in his newly transferred building situated on the north bank of the Columbia River, he noticed the commanding view, in which he saw endless stands of thick timber. By order of Simpson, command of the new post, Fort Vancouver, was secured by one John McLoughlin and together, the two established the first Washington timber mill (Ficken 1987). The mill, which began operation in 1828, was charged with the responsibility of supplying timber up and down the southern coast of the United States and where ever markets were deemed profitable. This venture enabled the company to cover expenses throughout the remainder of the year and according to Simpson, “…yielded quite a handsome profit” (Ficken 1987).
Mr. George Dodge, Clarkson Lumber Company is doing well but there is the issue of whether or not there is too high a risk in granting the request for the $750,000 line of credit. There are many supporting strong points but it also has some problems to work out. This is a company that has many good characteristics and looks promising but needs the extra money to pay off loans, inventory, and supplies. I recommend this company to receive the line of credit.
The company had to be the second largest retailer shop in the US; it has many advantages that come along. The customers well acknowledge the company and its brand have been well established.
Northrup National Bank should extend the loan to Butler. The company will roll much of its existing debt into the new loan, without extending itself significantly further than it currently is, and at a more favorable rate. Butler has been successful in keeping current on its debts, and based on projections should have the means to start paying these debts down. From the bank’s perspective, there’s little risk involved. With the industry expected to grow so much in the next year, Butler will be in a strong position, and potentially interested in borrowing more at the end of 1991.
As Oregon’s timber economy continues to decline and less federal land in Oregon is being logged, more and more wood processing plants will continue to shut down, forcing numerous jobs to be lost. An impact to the economy could devastate the state. Andy Kerr Czar of the Larch Company states that a “fifty-three percent decrease has already accrued in all Oregon primary wood product jobs” (p1). This has already devastated Oregonians, forcing them to seek out other employment opportunities in the timber based economy or turn to the already overwhelmed state for financial assistance, forcing those who can’t find work or receive assistance to put up residence on the streets.
Marshall’s explanation of how producers decide is divided in two decision making functions: 1) the price bidding function and 2) the production level start up function. Producers do not impose prices; they propose list prices and buyers decide how much to buy at prices proposed, of course after some possible bargaining. All the same producers do not impose production levels, they invest with a production level target that sometime later may succeed or not. Both price and production follow demand in the same direction; if demand grows then producers observe that their individual inventories decrease and hence they, acting in cooperation or huge competition among them, raise their own prices and production levels. Next, each producer decide whether to accept the amount sold and keep the selling prices or to change bid prices and production levels again until a satisfactory, or inevitable, solution comes about. This satisfactory solution looks ...
Rivalry among established firms is fierce. There are several factors that illustrate this: established market players (6.1). The product is highly standardized and the switching costs of the customers are low. Players are aggressive (6.2)
“In addition to being places of magnificent beauty, the old growth forests of the world represent hundreds of years of life on this planet, and many of the trees are the tallest living things on the planet (Old Growth Forests, 2004).” Because of their size, these trees, and the forests they reside in, are targeted by logging companies such as Weyerhaeuser as highly profitable areas that provide supposed economical benefits to surrounding communities in the way of new jobs.
MEMO RE CLARKSON LUMBER TO: John Doe President, Northrup National Bank FROM: George Dodge Loans Officer, Northrup National Bank Clarkson Lumber Company is owned and operated by the hardworking, 49-year-old Mr. Clarkson. It has low operating expenses, a small staff, and strong management. The overall impression is one of a conservative, efficient operation. Clarkson himself leads a frugal lifestyle with little personal debt. Clarkson Lumber is a company experiencing rapid growth but with a constant cash flow crisis.
Some actors are crucial to make logging and end-consumers meet, among which the World Bank, the Inter American, African and Asian Development Banks and the International Monetary Fund. The banks provide the necessary funding for the road infrastructure needed to access the forest, while the IMF --as well as the banks-- force tropical countries into increasing natural resources' exports in order to ensure external debt payments. Being forests one of the main resources available, they are at the front line of exports and are later substituted by other export oriented crops grown in place of the forest. Another very powerful player has now been added to ensure that transnational corporations make wood flow to the consumer markets: the World Trade Organization.