A Duluth-based wood products company has gained traction in a challenged Minnesota timber industry.
Arbor Wood — which uses an environmentally benign process that enhances the look and durability of lesser-grade timber — is renovating a vacant building in Eveleth and expects to double employment and output within a couple of years.
This decade-old company is successfully competing in a global sweet spot.
"We expect to double to 24 or 25 employees," said CEO Jon Heyesen. "I'd like us to go from $2 million in sales [in 2020-21] to $10 million to $12 million within five years. We have a pipeline right now of projects of $9 million to $10 million of opportunities we are bidding."
Arbor Wood is positioning itself as an green-tech, long-lasting alternative to traditional wood decks and siding that must be chemically treated and varnished over the years.
The company, which now has several competitors, was a pioneer in North America of thermally modified wood siding, decking and other applications. The process became popular in Finland in the late 1990s for sauna materials and then expanded to other uses.
Arbor Wood processes pine and ash lumber that is heated in an oxygen-free kiln to remove moisture and "cooked" to induce chemical changes to harden the wood and make it water-resistant. This process treats the timber with heat and steam to expand its lifespan to 25-plus years.
"It ultimately improves the wood," said Matt Aro, wood products research program manager at the Natural Resources Research Institute (NRRI) of Duluth, a consultant to Arbor Wood. "As a result, it is more moisture resistant, dimensionally stable and rot resistant. In many ways, it behaves very similarly to treated lumber, but without the chemicals."
And it can exude a rich color typical of more expensive imported hardwoods.
Heyesen said an additional advantage to using certain species of ash and pine is that they are fast growers, also key to sustainable cropping. Arbor Wood, which uses local mills before it treats and finishes the boards, now has a following throughout the U.S. and Canada, he added.
The company plans to adapt a next-generation, ultra-efficient thermal technology at the new production facility in Eveleth that is set to open by fall.
The expansion is being financed with $2.5 million from equity investor Voyageur Capital Group of International Falls and $2.5 million in debt. The firm is owned primarily by veteran entrepreneur Heyesen and a business partner.
Arbor Wood is bucking a trend.
Minnesota forest industries employment has declined from about 6,100 in 2000 to 3,100, according to a 2019 report by the Minnesota Department of Employment and Economic Development. The biggest sector, paper manufacturing, was down 50% or 1,700 jobs. Wood product manufacturing was down 66%, a loss of nearly 600 jobs.
The employment decline is attributed to increases in productivity, growth in recycling and fewer paper manufacturers in the electronic communications age.
Rick Horton, executive vice president of Minnesota Forest Industries, estimates that employment dropped about 10% between 2010 and 2020, but production of products, from "paper to pallets," is about flat, thanks to technology and productivity.
He said Minnesota has trouble competing in logging with lower-cost countries and regions and also has seen several paper mills close over the last decade.
"Together these account for 1,431 direct jobs," Horton said in an e-mail. "On average, each direct job in these mills equates to 2.4 [indirect] jobs."
Arbor Wood still hasn't achieved positive cash flow, Heyesen said, because of its aggressive investments in the first decade. He sees profitable growth ahead.
"Thermally modified wood is not a low-budget, low-cost material," said Aro of the NRRI, affiliated with the University of Minnesota Duluth. "Like green-treated wood at Home Depot. A lot of the demand and growth is coming from architects and designers for higher-end projects where the customer is less price-sensitive. But they like the sustainability story."
The plant in Eveleth will be at the "forefront of its industry and developing new products," he said.
Signature projects using Arbor Wood's products include the Bell Museum at the University of Minnesota's St. Paul campus, Lululemon stores, the Brooklyn Bridge Park in New York City and the City U multi-unit housing project in Bentonville, Ark.