The two largest end-users of pallets are the grocery industry and the building materials industry. If the grocery industry is number 1 in pallet consumption, the building materials industry is really 1-A. The building market relies on the transport of a variety of goods, from concrete to shingles and that transport often depends on pallets. In addition, the building market is a large consumer of lumber, and so it can affect the availability and price of the low-grade lumber that is used to manufacture pallets.
What Happened to the Pallet Industry After the Crash of the Building Market?
When the housing market crashed in 2008, many in the pallet industry did as well. Practically over night, a large part of many pallet providers customer base disappeared, causing many manufacturers to struggle. In addition to the decrease in demand, availability of materials also presented a significant challenge as the softwood mills that sell their lumber to the construction companies cut back on production. Around this same time, the U.S. production of furniture declined leading to the disappearance of many of the smaller mom-and-pop hardwood mills. The supply of low-grade hardwood has therefore declined as well.
How The Recovery Will Impact Pallet Prices
Despite the decrease in both supply and demand over the past five years, the price of pallets has stayed pretty consistent. As the building market has recently started to recover, demand for lumber has increased resulting in an increase in the price of pallets. The hardwood supply that is needed to build pallets for the heavy building materials is still low. Obtaining enough hardwood supply to satisfy current customer orders is a challenge for many pallet providers right now. The manufacturers that have built strategic relationships with lumber companies are getting the best prices, and keeping them by ensuring suppliers are paid quickly. Through anticipation of the supply shortage, the most industry-aware competitors are best able to serve customer needs.
The pallet industry can be impacted when pallet-using markets thrive and/or struggle. These industries sometimes also affect supply for pallet manufacturers. The building market contributes to both sides of that equation and can therefore have a sizable impact on the price of pallets.