Forest Products Historical Overview Prior to the existence of the pulp industry in Southeast Alaska, timber was harvested primarily to meet the needs of the resident population and the ever-expanding fishing and mining industries. Timber was used as material for fish traps, piling, packing cases, mine timbers, dock piles and timbers, and lumber for construction. By 1909, nearly all of the commercial timber in Southeast Alaska was incorporated into the Tongass National Forest. Timber harvest in the region averaged about 15 million board feet annually. Most of the timber was used locally, although some products were shipped to Seattle. World War I increased the demand for fish and the use of timber for pilings, fish boxes and construction. The war also increased the use of Sitka spruce in airplane manufacture, some of which was supplied from Alaska. In 1920, the annual harvest volume reached 20 million board feet, including a large volume of free use for the Alaska Railroad and other entities. Even at this point in time, mills in the Puget Sound area posed a threat to local processors, as large volumes of Douglas-fir were shipped to Alaska at costs below those of local suppliers. Despite its relatively high production costs, the timber industry increased its stronghold in Alaska throughout the 1930s. As a result, the State’s import share of total wood consumption dropped to 16 percent, compared to an average of 68 percent in the previous decade. The 1940s brought renewed interest in Alaskan spruce as a source of material for airplane manufacture to support the war effort. Through a special program, logging on the Tongass was intensified to supply logs to mills in Puget Sound for further processing. The concentrated effort continued until early 1944 when lumber was replaced by metal in the manufacture of airplanes. When wooden fish boxes were displaced by cardboard cartons, and market demand declined following the war, the need to develop new markets for Alaskan timber intensified. Nationally, the Administration and Congress also wanted to bolster the Southeastern Alaska population in response to the threats of the Japanese Empire and later, during the Cold War, the Soviet Union. The 1950s marked a turning point for the timber industry in Southeast Alaska and established a foundation for development that remained in place for over forty years. An extensive search for new industrial development to offset the declines in fishing and mining activity concluded in 1951 with the signing of a fifty-year Forest Service timber contract. This contract for timber supply underpinned the construction and operation of the first large-scale pulp mill in Southeast Alaska. The Ketchikan Pulp Company (KPC) obtained cutting rights for approximately 8.25 billion board feet of timber on the north half of Prince of Wales Island and the northwest portion of Revillagigedo Island. In exchange, the company agreed to build a mill of not less than 300 tons daily operating capacity. A series of upgrades to the plant increased its capacity to 650 tons per day, or 200,000 short tons annually. At the time it was built, the mill cost nearly $52.5 million to complete and represented the largest single industrial investment made in the Territory of Alaska. During the same time period, Japan turned to Alaska in search for timber to rebuild its postwar economy. Much of Japan’s native timber resources had been lost during the war, serving to aggravate the shortage in Japan’s domestic wood supply. In 1953, after preliminary investigation of the feasibility of the venture, Alaska Lumber and Pulp Company, Inc. (ALP) was incorporated in Juneau with one hundred percent investment by its Japanese parent firm, Alaska Pulp Company, Ltd. Shortly afterward, in July 1954, Wrangell Lumber Company, Inc. was also incorporated by the Japanese parent firm for the purpose of initiating a wood processing business in Alaska. In October 1957, a second long-term contract was agreed upon, committing 5.25 billion board feet of timber to be supplied over a fifty-year period. The primary sale area included Baranof Island and portions of Chichagof Island. In exchange, ALP constructed a pulp mill in Sitka with an initial production capacity of 340 tons per day. Upgrades and expansion subsequently increased the mill’s capacity to 600 tons per day or 192,000 short tons annually. The mill was completed and operational in November 1959 at an approximate cost of $66 million. It was the first major foreign investment made by Japan after World War II. The region’s pulp mills represented a foundation for industry structure as well as a substantial source of revenue to their host communities. Pulp manufacturers utilized by-product chips from independent sawmills, laid the foundation for small operators to acquire timber supplies, provided an outlet for wood that could not be processed by others, and helped to buffer cyclical trends in wood products markets. The 1960s signaled a new market era for sawmilling in Southeast Alaska. An upward spiraling economy increased Japan’s reliance on Alaska for timber to be used in home construction and industrial development. The bulk of the products were shipped overseas in the form of rough sawn cants or dissolving pulp. Over the course of five years, Alaska’s sawnwood exports to Japan nearly quadrupled, expanding from 68 MMBF in 1965 to 315 MMBF in 1970. At the same time, despite the growing population and increasing demand for building materials, Alaskans became much less dependent on local suppliers for their wood products. Economic growth around Southcentral ports improved transport efficiency to the region and lowered the cost of importing lumber and lumber substitutes from the Pacific Northwest states. In addition, building specifications required an air or kiln-dried product, neither of which was offered locally. By 1968, lumber was no longer being shipped from Southeast Alaska to other locations in the state. Alaska’s lumber exports continued to increase throughout the 1960s, peaked in 1973, and then declined until 1985. The volume of lumber exported from Alaska dropped off in the early 70s following a sharp decline in the number of Japanese housing starts (along with a decline in the share of wood-based houses) and increased competition from lumber producers in the Pacific Northwest and British Columbia. Japanese softwood lumber consumption fell by 22 percent between 1973 and 1985; however, Alaska’s exports to Japan and total production fell even more steeply, declining by 78 percent over the same time period. Although some of the decrease in lumber exports from Alaska in the 1970s and 80s can be attributed to conditions in the Japanese market, increased competition impacted Alaskan lumber trade as well. In the mid-70s, lumber producers in the Pacific Northwest began to look beyond the United States for markets; in part attempting to find outlets for products during U.S. recessions, and in part responding to long-term trends in domestic purchasing patterns. At the same time, and for similar reasons, producers in British Columbia also increased shipments to overseas markets. As a result, Alaska’s role in Pacific Rim markets was sharply diminished. Alaska’s lumber manufacturers enjoyed yet another resurgence in demand in the early 1990s when housing starts in Japan hit an all-time high. Following a generally upward trend throughout the late 1980s, Alaska’s lumber exports reached a peak of 225.5 MMBF in 1990. Indeed all of Alaska’s wood-related sectors prospered in 1990 with an unprecedented total export value of $641 million in logs, lumber, chips and dissolving pulp. Since that time, output and employment have steadily declined. At the end of 1992, excess production left producers with record inventories of chemical grade market pulp. Mill closures and extended downtime throughout 1993 finally pulled inventories back in line with demand but not until inflation-adjusted prices for most grades had dropped to their lowest point since the 1930s. Citing adverse world market pulp conditions, increasing production costs, and a shortfall in the amount of timber available at an affordable price, the Alaska Pulp Corporation (APC) announced its intent to suspend operations at the Sitka pulp mill at the end of September 1993. The company’s long-term timber contract was subsequently terminated by the Forest Service in April 1994. The company shut down its sawmill in Wrangell, Alaska at the end of November 1994. World pulp markets recovered in 1995 and prices rebounded to unprecedented highs. The rapid recovery from the worst market conditions in years was nothing short of remarkable, and prices nearly doubled in a nine-month span. At the same time, significant environmental concerns were developing in the U.S. and Europe with regard to the dioxin released during chlorinated pulp bleaching processes. The Environmental Protection Agency (EPA) began a rigorous assessment and proposed regulatory changes to address these concerns. Ketchikan Pulp Company (KPC), owners of Southeast Alaska’s remaining pulp mill, began looking into the prospect of converting to a chlorine-free manufacturing process. In 1996, KPC estimated that investments totaling $200 million would be needed to keep the company’s Ketchikan mill competitive in world pulp markets and to meet EPA pollution requirements. At the same time, the company was facing the end of its long-term contract in just eight years. KPC officials determined there was an immediate need to secure an extension of the contract extension and to revise some of the contract terms before additional investments could be justified. Federal legislation intended to satisfy these requirements encountered strong resistance and shutdown of the mill was targeted for March 1997. In lieu of a legislative solution, the company sought a negotiated settlement with the Clinton Administration. An agreement was reached in February 1997. While the company’s long-term timber contract was canceled under the settlement, it was agreed that KPC would receive 300 MMBF of contract close-out volume over a three year period. This timber supply would allow for the continued operation of the company’s sawmills in Metlakatla and Ketchikan. Also under the agreement, the U.S. government agreed to pay KPC $140 million to resolve all past and future legal claims. Excerpted from: Southeast Timber Task Force Report, October 1997, Prepared for Governor Tony Knowles by the Southeast Regional Timber Industry Task Force, Kathleen Morse, Lead Staff and Author.