Since the second quarter of 2021, industry professionals have been talking about the increasing shortage (and resulting price spike) in wood pallets. Since so many industries, both nationwide and internationally, rely on wooden pallets to transport goods and materials at all levels of their supply chains, there are few businesses that have gone untouched by the shortage. Understandably, business owners are eager to understand what is causing these shortages and how long they can be expected to last. This is, however, not a question with a simple answer, as there are a number of factors at work that interact with one another in sometimes unexpected ways.
First, there’s the lumber shortage.
This was an easy issue to identify earlier this year – a shortage of lumber very obviously results in a shortage of wooden pallets.
What about pricing for lumber futures for wood pallets?
Lumber can be divided in a couple of ways – by the type of wood (hardwood vs. softwood), and by the quality or grade of wood. When news articles talk about “lumber prices,” they’re generally referring to the high-quality lumber used for construction and furniture manufacture.
Wood pallets are manufactured using lower-grade lumber, the prices of which tend to lag behind market trends. The price of low-grade lumber will never spike as high as construction-quality wood, but it will take longer for price drops to become apparent as well. In addition, lower-grade lumber is in increasingly shorter supply as sawmill technology improves; better scanning technology and optimization means that lumber processors are able to get more high-grade lumber from each log, making lower-grade wood for pallet production harder to come by.
Examining the differences in price trends between hardwoods and softwoods makes the situation even more complex. Technically the two types of wood are different commodities, and while usually their prices trend in similar ways, that isn’t presently the case. In the second quarter of 2021, softwood prices dropped dramatically and then began to level off, coming to an equilibrium that surrendered only some of the price gains that softwood lumber had made over the past year. On the other hand, hardwood lumber prices continue to climb due to short supply. Of the two main pallet construction formats, each one is made from a different type of wood:
- Stringer pallets are constructed from softwood
- Block pallets are made from hardwood
The prices for the lower-grade lumber to construct each of these types of pallets are moving in different directions, and often not at the rate reflected in business news stories.
While the lumber is the primary material needed for pallet manufacture, other components such as nails and the chemical treatments for new and refurbished pallets are also increasing in price. Even more notably, the labor needed to manufacture pallets is in short supply. Businesses across the country are struggling to find workers to fill their ranks at the currently offered pay rates, and the pallet industry is no exception; pallet producer CEOs agree: “The market’s right for a second shift, but there are no people to add a second shift.”
Another way in which labor shortages have hit the pallet industry is the ability to reposition existing pallets. The shortage of truck drivers makes it harder to move pallets to where they are needed.
Growing demand for wood pallets
Compounding these varied struggles with wood pallet supply, the demand for pallets has only been increasing. With the ongoing pandemic, not only is there the heightened need for essentials such as food, medical supplies, and sanitizers, but consumers are generally choosing to spend their leisure money on goods rather than services and travel.
E-commerce businesses have unsurprisingly seen unusually high demand during the Coronavirus era, with a resulting increased need for shipping pallets. In addition, some businesses have responded to the heightened demand for certain essential products by building up a “buffer inventory” of those necessities, requiring even more pallets to hold those products in readiness to be shipped.
As we enter the fourth fiscal quarter and the holiday season, a time of year that experiences high demand on the pallet industry at the best of times, these pressures can only be expected to combine to drive the price of wood pallets even higher, if they can be gotten hold of at all. Some pallet supply companies are refusing to take on new customers entirely, out of concern for their ability to meet the needs of their existing customer base. While supply and pricing trends are difficult to predict, it is unlikely that the pressures driving up the cost of wood pallets will find significant relief until sometime in the first half of 2022. Be sure to contact Greenway Products & Services to protect your pallet supply.
About Greenway Products & Services
Greenway Products & Services, LLC is the largest pallet re-manufacturer and recyclers in NY, NJ, PA, MD, and DE. We also accept scrap wood from our customers that we turn into valuable resources. Greenway is a highly-rated, full-service pallet management company. Contact us for a quote today at firstname.lastname@example.org. Visit our website, greenwaypsllc.com or call us at 732-442-0200. We can deliver trailers to you on a moment’s notice throughout the NY-NJ-PA-MD-DE Mid-Atlantic area.