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In the dynamic landscape of the western US pallet industry, manufacturers of softwood pallets are navigating a complex array of challenges. This month’s newsletter examines these challenges, including competition from alternative wood species and an increasingly saturated market for used pallets.
Amid localized challenges, broader market dynamics further complicate the outlook for western softwood pallet producers. The sector faces significant supply chain constraints, driven by high import volumes and logistical bottlenecks.
As the industry braces for seasonal strains and anticipates shifting market conditions, the response to these pressures will be crucial in shaping the future of softwood pallet production in the region.
Western softwood US pallet manufacturers continued to face steep competition from alternative species and an oversupplied used pallet market.
Fastmarkets newly assessed Pallets, western softwood, GMA A-grade delivered Seattle at $11.00-17.00 per pallet on October 30. This was unchanged from recent weeks. However, the other major market in the western softwood producing region, San Francisco, was another story.
Fastmarkets assessed Pallets, western softwood, GMA A-grade delivered San Francisco at $10.50-16.50 per pallet on October 30. This assessment reflects a -$0.75 decline to the low and high of the previous range.
While local low-grade lumber prices have remained fairly stable for the last month, competition from alternative species and a competitive used market resulted in some manufacturers lowering prices. Good quality used B-grade pallets and excellent quality block pallets were offered from $8-10 in the downtown San Francisco area.
Although most producers did not report changes in their assessments of the market, comparable erosion in asking prices were observed in Chicago, Los Angeles, and Dallas-Fort Worth, with comparable B-grade and off-spec pallets available at competitive prices below recent western softwood basic unmodified GMA Grade-A 48×40 pallet rates.
At present there is ample availability of new western softwood pallets on the market for prompt delivery. Low-grade western softwood producers reported that while agricultural and manufacturing purchases have picked up slightly in the last month – they have encountered resistance from pallet producers who are hemmed in by current market conditions.
Further complicating matters, tightness in the green Fir market has pushed more western softwood pallet producers to the dry market. This corresponds with reports from dry low-grade manufacturers who recently noted a slight uptick in sales volumes to the pallet sector.
As Fastmarkets ramps up 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.
We’re delighted to announce our new cost model detailing the gross variable cost for new western softwood GMA A-grade stringer pallet across six key metro hubs, with a side-by-side comparison of what it would cost depending on whether you use #3 or #4 grade lumber to produce the pallet.
The model is based upon the availability of softwood lumber and will factor into consideration the delivery cost from the mill to the pallet facility, which is partly why we see a lower cost in Seattle and a slightly higher cost in Chicago.
We must caveat that while certain manufacturers will have lower costs due to a higher utilization of automation, these are our estimated averages for each of the metro hubs.
Moreover, the total cost for each one is reached by adding the lumber cost and labor cost, which are labeled for each metro hub, alongside a nail cost which is uniform across the country, and miscellaneous costs which include smaller items such as gas, electricity, paint, and staples.
The holiday season is shaping up to be the busiest since 2021, driven by record spending forecasts and a projected 3% increase in holiday sales from the year prior, according to the National Retail Federation. Despite a temporarily settled labor dispute on the East and Gulf Coasts, supply chain challenges persist, with high import volumes redirected to the West Coast ports like Los Angeles and Long Beach.
These diversions, coupled with delays in freight rail, have led to increased dwell times—up to nine days in some cases. As containers wait for rail capacity, companies may incur higher logistics costs, often turning to trucking to bypass bottlenecks, driving up overall transportation expenses. For the pallet market, this could translate to increased prices as businesses prioritize pallets for stockpiled goods and anticipate future disruptions.
The situation is further complicated by a reduction in trucking capacity, as company exits have outpaced new additions since October 2022, according to data from the Federal Motor Carrier Safety Administration. With this loss of trucking firms, bottlenecks are expected to worsen as freight struggles to move efficiently.
Industry players, including DHL, are advising clients to reroute rail-bound freight back to the East Coast. Moreover, as the International Longshoremen’s Association continues to hold firm on automation issues, and with a critical January 15 deadline looming, there’s potential for renewed strike actions that could exacerbate these logistical challenges into the new year.
The resulting constraints may create a shortfall of pallets on the West Coast, as increased demand and limited capacity put pressure on suppliers and lead to higher pallet prices. Pallets from US international trade arriving through container have increased steadily since March 2024 as seen below, in part due to provisions made by logistics managers to get goods in before the October strike deadline.
FRED data shows that the pallet industrial production index has fallen 5.9% from July 2024 to September 2024, in line with the volatility we’ve seen in this index since the start of 2024, although still relatively high for the figures seen in the last 18 months.
This is reflective of conflicting forces in the pallet market of large manufacturers with a strong network of facilities having steady production, but smaller manufacturers that have struggled in the face of smaller margins due to low prices and higher costs exiting the market.
With respect to wages in the pallet industry, their growth outpaced the growth of wages in the manufacturing sector at large from the pandemic up until 2023, though since then there has been relatively little increase in pallet wages which has allowed manufacturing wage growth to catch up. Pallet wages grew by 30% from March 2020 to September 2023 whilst overall manufacturing earnings grew by 18% over the same period, but since then wage growth has been 0.3% and 5.1% respectively.
This is significant, as it offers some relief to pallet producers who endured sharply reduced margins following the decline from record-high pallet prices seen during the pandemic, which we in part mentioned above. Though wages have largely levelled since 2023, there has been a steadily upward trend in wages since March 2024 so wages figures in subsequent months will be keenly watched.
As Fastmarkets expands its coverage of the pallet market, we invite feedback on our analysis and insights. Contact antonio.gallotta@fastmarkets.com with comments.
Hurricane disruptions across the US South have heightened market tension, with both temporary curtailments and some permanent or indefinite mill closures affecting lumber supplies.
With inflation easing, interest rates have finally stabilized and are expected to trend downward through year-end as the Federal Reserve adopts a more balanced approach to its dual mandate of price stability and full employment.
This shift could serve as a catalyst for growth in single-family housing construction, reversing recent momentum losses, and easing financing constraints in multifamily development. Assuming inflation and interest rates remain favorable, the foundation for a demand recovery in lumber appears strong.
This is a notable tailwind that will feed downstream into the pallet industry because, as noted in the first edition of the newsletter, framing lumber has long been a leading indicator for low-grade lumber which is primarily used in pallet manufacturing.
The Pallet Producer Price Index data indicates that while prices continue to decline from their 2022 highs, the rate of deceleration has eased in recent months—an encouraging sign for the industry. The percentage change is steadily approaching positive territory, signaling potential stabilization.
This trend aligns with the rebounding housing market, which is expected to have positive ripple effects across the lumber industry. As reflected in the forecast above, we anticipate a steady increase in prices heading into 2025, supported by renewed demand from housing and construction sectors.
Housing starts remained relatively steady in September, with minimal change from the previous month. According to the Census Bureau, housing starts reached 1.354 million units (seasonally adjusted annual rate), a slight 0.5% decrease from August. Notable revisions were made to prior months, with July and August figures collectively revised up by 30,000 units from the August report. Regionally, the Northeast saw the largest growth, with starts increasing by 58% over the previous month.
Overall in the US permits dropped by 2.9% from August, indicating a likely slowdown in October, especially with the disruptions caused by Hurricanes Helene and Milton.