A hardwood sawmill owner once described the low-grade wood, or heartwood, used in the pallet industry as the “hamburger” of the tree. He went on to explain that the higher-grade material, or the outer rings of the tree, could be compared to “filet mignon”. The filet fetches the better price at market, but the sale of the hamburger is critical to the overall success of the sawmill. Lumber mills will thus harvest and cut lumber that is in demand from other industries and not what is in demand by the pallet industry.
Shopping for Lumber Supply
Pallet manufacturers do not have the convenience of a steady supply of specific types of wood. Instead, they must work with brokers or directly with mills in order to secure the raw material for pallets. In the case of softwood, most of the sawmills are large corporations and so individual pallet companies will work with brokers who distribute lumber either directly from a mill or from a warehouse. Hardwood mills, however, tend to be smaller operations, and so in many cases, pallet manufacturers source materials directly from the mill. Either way, lumber availability is tied to industries external to the pallet industry, and providers only have the option of purchasing from what is available at a given time.
Other Industries Drive Lumber Supply And Pallet Demand
The lumber that is available depends on the demand of the high-quality wood market. For softwood, the construction industry drives a lot of the production. For hardwood, the furniture and wood flooring markets drive much of the production. When these industries decline, as happened with the last housing crash, lumber production declines as well. Therefore, the availability of raw materials used to make pallets decreases and, as a result, the price increases.
On the pallet demand side, when an industry is booming, then they usually need plenty of pallets to ship and store goods. When a market declines, however, they require fewer pallets. Therefore pallet demand can provide insight into the health of industries, and even serve as an economic indicator for certain markets.