The crazy nature of wood pallet markets and how to navigate it
Many pallets industry executive’s honest reflections on this crazy market as pallet and lumber prices have reached unprecedented prices across the country.
This article may be of interest to pallet buyers. You probably have received some “mind boggling” pricing from your pallet supplier in recent months. It’s easy to think, “I must have heard that number wrong. I heard that lumber is going through the roof. But this is ridiculous.”
You are not alone. Most pallet users in North America have heard the same thing. And yes, we are in the middle of unprecedented times in the pallet market today. Our offices were recently contacted by a reporter from Bloomberg Businessweek. He wanted to interview someone from our staff because he had heard that pallet prices are skyrocketing.
Brendan Murray of Bloomberg covers supply chain issues and wanted to investigate spiking commodity prices, even for ubiquitous items, such as pallets.
He told the reporter, “New pallets, used pallets, rental pallets – they’re all raising their prices.” He pointed to the Pallet Profile market report, which has covered some historic lumber price spikes over the past year. If you want more information from an independent source on the crazy lumber market, visit www.cantareropallets.com/blog and consider subscribing to their site newsletter.
It has been pointed out that the price of hardwood cants had rose significantly over the past year while softwood lumber on the West Coast had more than doubled. As Bloomberg reported, “U.S. government data showed the wood-pallet component of the producer price index jumped in March by the most since 1993.”
You may be wondering, “Why has this happened?”
Well, there are a number of reasons. For starters, lumber production was cut as the global economy shutdown in early 2020 due to the pandemic. Lumber producers didn’t want to be stuck with a lot of inventory they couldn’t move. Nobody really saw the massive trend in 2020 where home improvement projects would take off.
Hardwood sawmills were already struggling due to a major drop in demand from China and other foreign markets. And the pandemic only made this problem worse.
Hardwood production of low-grade lumber is largely tied to the condition and demands for higher-grade lumber for furniture, flooring, cabinets and decorative furnishings. Think of it this way. Ranchers don’t slaughter cows to make hamburgers. There has to be a robust market for the steaks and finer cuts to make it all worthwhile. The same thing goes for harvesting and producing hardwood lumber.
Softwood production cut in 2020 as sawmills tried to avoid higher inventory costs. Some concerns were connected to the U.S./Canada softwood dispute. Others were attempts by sawmills to reduce production costs as softwood lumber prices were sluggish in late 2019 and early 2020. And then when it came time to turn back on, sawmills struggled to find labor to keep up with demand. Some workers had already moved onto other industries, had to stay at home to take care of sick relatives, were concerned about COVID or decided to stay on government assistance. In addition, timber harvesting lagged due to a variety of factors.
People staying home and the rush for home improvement projects led to massive shortages of all types of lumber in 2020. This trend has continued in 2021 as sawmills struggle to keep up with demand.
Pallet demand rose in 2020 as consumers rushed to buy more goods online. They took stimulus money and savings from not traveling and spent it on a lot of consumer goods. This kept pallet demand strong even as entertainment venues and restaurants struggled.
Why can’t they just increase production then? Well, the answers are complex. Pallet companies are struggling to get workers. Stimulus money and unemployment benefits mean that fewer workers are willing to show up to do the tough, manual jobs in pallet plants and sawmills. Pallet companies may want to add extra shifts, but they can’t because they can’t get the workers or the lumber or used pallets to fill those orders.
Used pallets are necessary for pallet recyclers to meet customer demand. More pallets are being used and kept by distribution centers to meet the surge in demand from e-commerce orders. Fewer cores on the market, means less recycled pallets to sell. Recyclers are working to repair and rebuild as many pallets as possible.
Materials used to produce pallets, especially lumber and nails, are facing inventory shortages. Several industry executives have told Bloomberg, “Supply is just barely keeping up with demand…It’s a pretty dicey situation.”
“The market’s right for a second shift, but there are no people to add a second shift.”
All the factors have come together to create a perfect storm to create an unprecedented market. So, what are pallet buyers to do? First, you need to work with suppliers to secure supply. You don’t want to have to forgo sales or shut down your manufacturing plant because you can’t get pallets. Do your best to forecast demand and communicate early and often with your pallet suppliers to help them better plan for your needs. You may need to change the spec of what you are using. Do you really need a 48x40 pallet? Consider alternative sizes of pallets or lumber species. This might open more opportunities depending on available lumber or used pallet inventory.
Pay on time. The buyers who pay better will get more calls answered. It’s just common sense. As lumber, pallet and cores prices rise significantly, it takes more money to cover longer payment terms. Smart pallet companies are “firing” problem accounts.
Within your own supply chain, work to better manage your pallet inventory. You may want to keep more pallets than you normally do. However, if you have excess supply, you can probably turn those extra pallets into good money.
Be careful ditching existing, long-standing suppliers just because they quote a high price. If you go out to the market looking for a better deal, you may not find it. And if you have to come back to your former supplier, you won’t be at the front of the line. Now, is not the time to play hardball. Now is the time to plan and double down on long-standing relationships.
Sanity will come back to the lumber market at some point, likely by Q1 2024 if the economy stabilizes. Prices won’t stay at high levels forever. But you do need to recalibrate expectations and realize that elevated pallet prices are here for the foreseeable future. You can either live in denial or work to find solutions. The choice is yours.