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The pallet market has experienced significant shifts in recent years, and 2024 is proving to be no different. In this issue, we dive into the latest trends in rate cuts, pallet production, pricing, and raw materials, with insights on housing starts, wage pressures, and lumber prices shaping the pallet industry.
While the sector continues to recover from the retrenchment in 2023, new opportunities and challenges are emerging, from evolving market dynamics to the impacts of trade and labor disruptions.
As we continue to expand our coverage, we’re committed to bringing you timely, actionable intelligence to navigate this ever-changing landscape. Speak to our team and find out more about our in-depth analysis on these topics and more as we explore the future of the pallet market.
Recent trends held this month as the bulk of unmodified or unenhanced GMA pallets in the Seattle market traded in an $11.00-13.00 per pallet range with premium GMA pallets trading in the $15.00-17.00 range. Market participants continued to report that these ranges have remained in place for months.
Producers reported persistently underwhelming production of new softwood GMA A-grade 48×40 pallets with ample availability for prompt delivery. Some sources reported a slight uptick in agricultural sector purchasing and some specialty manufacturers noted a pickup following the rate cut decision. However, the new GMA pallet sector continues to lag. Most producers report that they do not expect a significant change this calendar year.
In most key delivered markets, mills continued to struggle against ample availability of $5.00-7.00 “good to average” condition used pallets. Market participants reported that used pallet inventories were diminishing, but estimates of these inventories were wide ranging.
As Fastmarkets expands its coverage of the pallet market, we invite feedback on specific pallet-related items for future reports. Contact ian.templeton@fastmarkets.com with comments or to contribute future pricing information.
Pallet production has been a highly volatile market over the last decade, but it is showing signs of life after retrenchment in 2023.
According to FRED data, the production index for pallets rose 18% from March 2020 to its highest point in December 2021 before steadily falling again once the pallet market became saturated. However, more recently, the production index has risen by 10% from July 2023 to July 2024.
However, it should be noted that the methodology for this index does not differentiate between new and recycled pallets. Market indicators including industrial hardwood and low-grade softwood lumber demand point to the conclusion that most of this increase in pallet production has been on the recycled side of the market rather than the new side.
We anticipate that as the recycled market sees fewer new pallets entering the pallets system, the condition of pallet cores will deteriorate, and recycled pallets will lose their price advantage which will in turn allow for the production of new pallets to pick up next year in the face of higher new pallet prices and a dwindling recycled pallet market.
The recent weakness in new pallet production means that the stock of existing pallets in use and on the market will degrade in quality on average. The condition of pallet cores will deteriorate and more pallets reach the end of their useful life. Pallet recycling activity will wane and the currently low prices will creep up. Eventually, prices will increase enough for new pallet production to climb again to meet market demand.
The US Bureau of Labor Statistics (BLS) reporting that the pallet producer price index (PPI) rose 60% from March 2020 to April 2022.
The fall from the highs of April 2022 has been far slower compared to the rapid price spike seen during the pandemic, with this downturn being more prolonged than many smaller pallet manufacturers have been able to weather as this has greatly diminished margins. Indeed, many closures have been reported due to low pallet prices and high wages becoming unsustainable. This reduced supply capacity will in turn create volatility in the medium term.
However, we envisage that the manufacturers able to weather the perfect storm of a supply glut, low prices and high wages stand to gain significant market share. While the industry has been torrid lately, the largest players with reliable networks and economies of scale have seen sizeable growth. For example, PalletOne, the USA’s largest pallet manufacturer, reported a 10% increase in unit sales in Q2 compared to the year before, whereas industrial production in the pallet industry rose 6% during the same period.
Pallet producers have also contended with higher labor costs than other manufacturing sectors. According to the BLS, wages in the pallet industry grew by 30% from March 2020 to September 2023 whilst overall manufacturing earnings grew by 18% over the same period.
Wages in the pallet industry have plateaued since then but continue to be a pressure point, with the National Wooden Pallet and Container Association (NWPCA) producing a report where 74% of manufacturers identified attracting and retaining a quality workforce as their top challenge.
Framing lumber has long been a leading indicator for the low-grade lumber used to manufacture pallets, with a correlation of 0.97 between 2019 and 2024.
This partly explains the pricing volatility we saw during the pandemic, with the framing lumber used for residential construction soaring once the housing market picked up at the end of 2020 and people started looking for more space outside of big cities, buttressed by more disposable income and suppressed interest rates.
As a result of the way framing lumber is made in sawmills, low-grade lumber will always be produced as a by-product and thus explains their correlation. The low-grade lumber composite price peaked at $1018/MBF in March 2021 due to the high value of framing lumber during the same period, seeing the same subsequent fall and rise before the more gradual easing seen since the end of 2022.
As our forecast shows, we expect the price of both framing lumber and low-grade lumber to steadily increase into 2025.
As low-grade lumber is closely related to framing lumber, housing starts are a key statistic for the pallet market and are closely watched as a harbinger.
Since the Fed began raising rates, the housing market has remained subdued. Home prices have remained elevated and those who locked in low mortgage rates at the start of the pandemic have had little incentive to buy.
July 2024 had the lowest housing starts since June 2020, partly due to low demand but also as a result of poor weather conditions seen across the country such as record-breaking heat across much of the West and Hurricane Beryl in the South, the two regions that account for the vast majority of new home construction.
August 2024 saw a strong rebound in response to the low housing starts seen the previous month, and we expect this rebound to continue heading into 2025 as the low mortgage rates from the pandemic begin to expire and with the Federal Reserve beginning their rate-cutting in September 2024.
Despite being a smaller section of the overall pallet supply, the net inflow of pallets rose from 0.9 million in March 2020 to 8.7 million in July 2022, exacerbating the oversupply of pallets in the US and further driving down the price of pallets.
They’ve begun to surge again in 2024 as imports have risen while exports have remained relatively constant and this will likely continue to be the case for the remainder of 2024 due to the busy imports period in the lead up to Christmas, and as logistics managers tried to rush goods in before the potential dockworkers’ strike on October 1.
While the exact length and severity of the strike is tough to predict, if it does come to pass it could lead to a surge in pallet prices in some regions as they rush to fill the gap in the pallet pool that the strike would cause.
At the time of writing, the International Longshoremen’s Association (ILA), which represents 45,000 dock workers at three dozen U.S. ports from Maine to Texas and handles almost half of the nation’s ocean trade, was still in a deadlock with the US Maritime Alliance (USMX). The dispute stems from the USMX’s insistence that ports begin to automate which would lead to some job losses, as well as reports that the ILA are proposing a 77% pay increase over the next 6 years of their contracts. Repercussions have already begun to be felt at ports on the West Coast, with the West’s dockworkers having already settled their contracts the year before and thus will pick up some of the trade volume from the East Coast.
Concerns of a bottleneck on the West Coast have grown as supply chain managers begin to reroute their goods to ports on the West Coast. California’s two largest ports, Los Angeles and Long Beach, saw their combined inbound container volume surge 47% in July from the same month last year and rise another 3% from July to August, with Long Beach reporting its best month on record for imports. However, given that ILA ports make up 43% of US imports, according to Freightos, West Coast ports won’t be able to handle all the additional goods being redirected.
Another consideration is how the White House might respond to a strike. The White House has so far ignored pleas from scores of trade groups to intervene, but this may change once the strikes get closer due to the effect this would have on the economy.
Looking further ahead to how the election could affect the pallet supply, we envisage that if a Trump presidency occurs we can expect a surge in imports between November and January in anticipation of the tariffs he has said he’ll impose, potentially causing more price volatility for pallets as closures for sawmills begin to mount.
Interested in more insights into the pallet market and the factors influencing it? We provide a range of market intelligence, including short-term forecasts, price data and market coverage to keep you one step ahead of the market. Speak to our team and find out more today.