Have you ever wondered how pallet manufacturers set the price of their pallets? While the answer may seem simple on the surface, pallet prices depend on a number of factors. Raw materials (primarily wood and nails) and labor are the biggest contributors to price. Price fluctuations are typically initiated by volatile conditions in the hardwood and softwood markets.
Doing The Math
It should come as no surprise that the most significant cost for a new pallet is lumber. In order to truly understand pallet prices, we first need to understand how lumber is measured, priced, and purchased:
Lumber is measured and bought by the board foot. Board footage is a volume calculation, and is calculated by multiplying the thickness (in.), width (in.), and length (ft.), and then dividing the product by 12. To determine the selling price of the pallet, this amount is then multiplied by a number, which takes into account labor, overhead, and shipping costs, as well as the margin required by the pallet manufacturer.
While the average person might purchase wood by the board foot at their local hardware store, pallet manufacturers buy their lumber by the 1,000 board feet. Pallet manufacturers who buy in higher volumes can take advantage of lower overhead costs per unit, driving their pallet prices down. The board feet used in each pallet can also be manipulated to affect the cost of both raw materials and labor needed to produce each pallet. This gives pallet makers some maneuvering room to adjust prices. Similarly, customers who buy pallets in larger quantities (e.g. 50,000 vs 1,000 pallets per year) could receive a lower price per pallet from their pallet supplier.
Variability In The Price Of Lumber
The cost of lumber varies greatly depending on the type of wood, the grade, and the time of year that it is purchased. Pallet manufacturers have the ability to purchase either softwood or hardwood, and the prices for each type vary for different reasons.
The price of softwood lumber typically increases during late winter and early spring, due to the laws of supply and demand, as mills slow production during the winter months. In theory, pallet manufacturers could try to hedge against this by building up their inventories during the fall and early winter months when prices are lower. In reality, however, the supply is not always there to allow for this.
The price of hardwood lumber is more static, although when it increases, the increase is usually significant. Recently, the industry has seen hardwood lumber prices rise dramatically due to a severe lack of supply. This lack of supply can be attributed to a number of factors, including fewer sawmills to meet demand, the recent harsh winter in the eastern United States, and fewer logging crews to harvest trees.
The cost of lumber can also be very volatile depending on market conditions. New competition for lower-grade lumber and international competition for wood and wood products have upward implications in the cost of a pallet.