Talking Supply Chain Podcast: What’s Up With the Crazy Pallet Market?
Guest blog by MHI Member Company, Millwood
Millwood, Inc’s own Doug Gaier, director – procurement/sales support, was the most recentguest on Supply Chain 24/7, a podcast hosted by Bob Trebilcock, to discuss the state of the lumber market.
Lumber has been a hot topic in 2021, with prices rising astronomically compared to the previous year. Gaier and Trebilcock demystify the situation and make sense of why the market is where it is and how it relates to pallets and the supply chain.
“Right now, the market for pallets is really explained through the simplest of economic principles of supply and demand,” Gaier said. “Supply is not what it needs to be and has been slowly receding for a number of years now, and the demand for pallets has skyrocketed as the country has emerged from the pandemic.”
The pallet industry, in particular, has been slow to recover post-pandemic due to a shortage in materials and labor. Many of Millwood’s partner sawmills and small pallet businesses are struggling to find people willing to work, and those that do are slowly losing them to better-paying industries.
These small pallet businesses have often been family-owned for generations; in more and more cases, the youngest members of these families are choosing to pursue other career paths rather than buy the family business. As some of those small businesses close their doors, pallet supply decreases that much more.
“All of this stems back about five years,” Gaier said. “We just don’t see people coming into our industry like they used to.”
The lumber shortage has created difficulties for a number of industries, including construction and flooring, and the pallet industry has been affected by this as well. While prices rose dramatically until around May, they began to drop again on the softwood side. Some pallets are made out of softwood materials, which is the same type of wood that consumers purchase for home projects.
On the hardwood side, which is the wood that most pallets are made of, those same price drops haven’t happened. The recycled market is also seeing upward price pressure due to very high demand for consumer products. Prices for recycled pallets are now higher than the price for a new pallet prior to the pandemic.
Gaier predicts that the pallet market that will bounce back first in the pooled pallets arena, where a company owns a pallet for its entire lifecycle. As lumber prices even out, companies will be more willing to put new pallets back into their pools when old pallets reach the end of its lifecycle. The market for new pallets will hopefully also recover when pallet vendors are able to surmount the challenges they’re currently facing.
“It’s labor and it’s lumber,” Gaier said. “Most shops have one or the other.”
Government assistance programs instituted during the pandemic have forced employers to raise wages and offer more incentives to get workers in the door. Some industries are starting to level out, but the pallet industry may take longer to recover its labor force. The days are long, and the work is hard. Those kinds of jobs are not as appealing to many people looking for work. This lack of labor will lead to a lag in recovery for the recycled pallet market compared to new pallets and pooled pallets. Many businesses have the raw materials in their yards with no one to process them.
“We will get those workers back at some point, but the industry as a whole is struggling to attract labor,” Gaier said. “This means that shops that were traditionally producing five or 10 or 12 loads a week, which makes up a large, large percentage of pallets produced in the United States, their production levels are cut by 50 percent, 40 percent.”
Gaier’s advice to pallet buyers is to develop a close relationship with their current pallet providers and understanding the challenges they are experiencing, which will help both businesses in creating a win-win situation.
“The organizations who traditionally have shopped their pallet business every year or every other year and changed vendors regularly based on cost only are probably finding themselves very challenged in the marketplace right now,” Gaier said. “I think organizations that have developed a good relationship with their vendor base probably find themselves in a better spot right now. The customers that value the service aspect and the quality aspect as well as the pricing aspect, those are the organizations that are probably navigating through this a little easier at this point.”
Gaier’s advice for businesses is to maintain their relationships with their pallet supplier to the best of their ability. Pallets are an essential part of the supply chain, and there is no way to avoid purchasing them when you need to ship products. It’s tempting to keep costs as low as possible, but keeping that relationship strong will be an advantage at times when price is no longer the only factor.