At the start of a new year, the steady increase in low-grade lumber prices has put upwards pressure on the US pallet market, but many prices in key metro areas have remained unchanged compared to December.
Planned strikes by International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) have been averted, bringing relief to the market. However, uncertainty over potential tariffs under the new Trump administration still remain.
Housing starts surged in December, increasing 15.8% from November, with multifamily construction leading the way—soaring 61.5% to its highest levels since December 2023. Favorable weather likely contributed to this strong rebound in activity.
The January edition of this pallet price newsletter includes:
- Updated pallet prices for six key metro areas
- Analysis of the market’s response to cancelled ILA strikes and the impact potential tariffs under the Trump administration
- How declining employment in the manufacturing sector is influencing the pallet market
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Pallet price changes
The US pallet market opened the new year with cautious optimism and firming prices as the slow, but steady rise of low-grade lumber costs put upwards pressure on the market.
Fastmarkets again assessed Pallets, western softwood, GMA A-grade delivered Seattle at $11.00-17.00 per pallet on January 29, unchanged from the previous month.
San Francisco, Los Angeles, and Chicago prices remained unchanged as well. Meanwhile, pallet prices rose in the New York and Dallas markets under pressure from rising low-grade costs. Fastmarkets assessed Pallets, western softwood, GMA A-grade delivered New York at $12.50-17.00 per pallet on January 29, widening up $0.50 from the low end and $1.00 from the high end of the previous month’s range.
Fastmarkets assessed Pallets, western softwood, GMA A-grade delivered Dallas-Fort Worth at $10.50-14.50 per pallet on January 29, rising $0.50 on the low and the high of the previous month’s range.
Market participants mingled at the annual Western Pallet Association meeting in Palm Springs on January 25-27. The new administration, tariffs, interest rates, rising costs, and diminishing low-grade supply were all hot topics of conversation.
While overall outlooks remain positive, many expressed their resignation that there is more pain to go through before a healthy run can begin. Most pallet producers’ chief concern was shrinking low-grade supply.
With a significant portion of green Fir production going offline over the last year, an already tight dry Western Fir market has been squeezed further. Several West Coast pallet producers that have been traditional green Fir buyers are now having to look elsewhere to source materials. In addition, increased optimization at sawmills is steadily resulting in more efficient cuts and fewer boards graded to low-grade standards.
Mills are adding new profiler heads that remove wane prior to the saw enabling a more accurate scan that results in increased higher-grade outputs. There is some hope that the new administration will open up more thinning operations on federal lands – thus providing more logs with low-grade potential. While dry Fir low-grade pricing has remained largely in-balance to begin 2025, elsewhere low-grade prices are rising.
The Random Lengths low-grade random dimension composite price has now risen for five consecutive weeks rising from $301 on December 26 to $308 on January 23.
The impact of these rising material costs is being felt by pallet producers and is reflective in this month’s firming prices.
Pallet producers shared concerns that the marketplace is becoming increasingly supply-driven. Several commented that they are having to inform their customers that just-in-time ordering and delivering is shifting as mill lead times and shipping arrangements are requiring producers to shift their purchasing strategies. Some opined that supply is now in the driver’s seat to the extent that a run-up in the market not driven by a proportionate increase in demand is more likely than not.
As Douglas Fir continues to struggle, more pallet manufacturers are looking to Pine and most expect more substitutes to make their way further west as the problem continues. On that note, several commented that they felt Whitewood suitable for pallet production is currently underpriced and will also be used as a substitute.
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.
ILA strike averted but questions remain on how tariffs will affect pallet market
The resolution of the International Longshoremen’s Association (ILA) and the United States Maritime Alliance (USMX) labor dispute has brought temporary relief to US ports. Ports have agreed to pair any new technology with union jobs and have been granted permission by the ILA to modernize their technology while also ensuring job security, as new semi-automated equipment will require additional union labor.
Because of the last-minute agreement, we will still see a surge of imports in December’s numbers as logistics managers have to secure shipping containers weeks in advance of arrival. This surge in imports won’t be slowing down though as we still have the continued uncertainty around Trump’s tariffs. Imports surged in late 2024 due to frontloading, driven by fears of aggressive tariffs targeting China, Canada and Mexico.
Trump’s tariff threats under the International Emergency Economic Powers Act (IEEPA) loom large. These are different from traditional tariff implementations which usually involve lengthy processes and consultations, as the IEEPA grants the President broad authority to regulate international commerce after declaring a national emergency. This means Trump can swiftly impose tariffs which can even be applied to goods already en route to the US, potentially increasing costs for importers unexpectedly.
On January 27th, reports surfaced indicating growing momentum among President Trump’s advisers to impose 25% tariffs on Mexico and Canada as early as February 1st, defying expectations in Washington and on Wall Street that he might retreat from these threats in exchange for concessions, as he has in the past. For Canada, which is heavily dependent on US trade, these tariffs could lead to a significant reduction in exports to the US, potentially causing a decline in pallets circulating within the US pallet pool, particularly if the tariffs remain in effect for an extended period.
Amid all these factors, another critical trade consideration is the strength of the US dollar relative to its major trading partners over the past year, which complicates Trump’s efforts to reduce imports and boost domestic manufacturing. If his initial tariffs trigger inflation, the Federal Reserve may respond by raising interest rates, further strengthening the dollar. This would make imports more appealing and US exports less competitive globally due to higher relative prices, potentially undermining the administration’s trade objectives.
November’s trade data shows that while imports fell slightly from October and a strong summer imports burst, the biggest change was a large rise in exports resulting in 8.4 million pallets leaving the US, the largest seen since March 2024. These two factors combined to deliver a large fall in pallets from international trade of 2 million less in November than in October.
2024 Pallet Production Index has been highly unsettled
The Pallet Production Index has been volatile in 2024, with significant swings but no sustained growth or decline. This reflects broader economic uncertainties, particularly in construction and freight demand.
While data center and manufacturing plant construction have seen substantial growth—driven by investments in semiconductors and electric vehicles—these sectors generate relatively low freight volumes for traditional trucking and, by extension, limited demand for pallets.
Meanwhile, warehouse construction, a key driver of pallet demand, has fallen significantly in 2024. Cushman Wakefield data showed that 3rd quarter warehouse space construction fell 43% from the same period in 2023, as part of a broader decline since 2022.
Inventory dynamics also play a critical role in pallet demand. Retailers’ inventory buildups, partly a hedge against potential tariffs and frontloading during the ILA port strike, have created imbalances. Excess stock could depress demand for pallets if consumer spending slows in 2025 due to inflationary pressures.
Pallet Producer Price Index: Stability amid persistent headwinds
Over the past two quarters, pallet prices have stabilized, bringing some relief to producers after a prolonged and steep decline since 2022. This period of sideways movement signals that the continuous price drop has finally halted, a positive development for the industry. However, several significant headwinds are preventing a sustained rise in pallet prices. The surge in imports driven by the ILA strikes and proposed tariffs has increased supply, while strong retail sales during the holiday season kept demand high—factors that together have helped maintain price stability.
Despite initial optimism in Q4 about a potential “soft landing” and the possibility of interest rate cuts by the Federal Reserve, inflationary pressures have resurfaced. The looming threat of tariffs and their impact on consumer prices has reignited concerns.
Additionally, higher interest rates continue to suppress housing starts, reducing demand for lumber and keeping its prices low, which in turn keeps pallet prices under pressure. While price stabilization is a welcome change, the current economic landscape suggests that a significant rebound in pallet prices remains unlikely in the near term.
However, since a large portion of pallet prices are derived from framing lumber, we do anticipate reduced supply coming in from Canada. This is because if the 25% tariffs are imposed, this would be on top of the 14.4% countervailing and anti-dumping duties, giving Canadians an exorbitant 39.4% fee to cross the border. Thus, we expect to see a decline in the Canadian lumber supply in the second half of the year.
Pallet costs rise across December for all metro hubs
As we continue rolling out our cost model, we’re providing detailed insights into the gross variable cost of producing a new western softwood GMA A-grade stringer pallet across six key metro hubs. This model highlights a side-by-side comparison of costs depending on whether #3 or #4 grade lumber is used in production.
The model is based on the availability of softwood lumber and takes 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 hub is calculated by adding the lumber cost and labor cost, which are labeled for each metro hub, alongside a nail cost that is uniform across the country, and miscellaneous costs, including smaller items such as gas, electricity, paint and staples.
Costs rose in all 6 metro hubs, driven by a large bump in lumber costs of $1 or more for both #3 and #4 grades. The catalyst for this would have been the rush for imports during this month due to potential ILA strikes and Trump tariffs, as well as the usual Christmas period retail sales boost.
Pallet wages: Pressure from labor market and immigration policies
The US manufacturing sector faced a net loss of 87,000 jobs in 2024, with most of the decline occurring in the latter half of the year. This drop raises concerns for the pallet industry, as lower manufacturing employment could reduce demand for pallets in production and distribution.
Adding to the labor market challenges, new immigration policies under President Trump could further restrict the availability of workers. Executive actions, such as declaring a national emergency at the southern border and shutting down the CBP One app—a legal pathway for migrants entering the US—are likely to tighten the labor pool for industries reliant on immigrant workers.
This development indicates that we’ll see pallet wages increase, as it further restricts the already limited labor supply. Over the past few years, many pallet manufacturers have reported significant challenges in recruiting and retaining their workforce. With labor availability tightening, wages in the pallet industry are likely to rise in the second half of the year as companies compete to attract new talent. However, if pallet prices fail to keep pace with these rising labor costs, the industry could face additional pressures, potentially leading to more mill closures.
Lumber prices fall slightly from November but remain elevated
The tragic wildfires in the Los Angeles metro area, which have destroyed tens of thousands of homes, have been a noteworthy recent event. However, from a market perspective, the property losses are unlikely to materially tighten lumber markets due to California’s building constraints, including labor shortages and permitting delays.
Meanwhile, framing lumber prices, as measured by the Random Lengths FLCP, averaged $433 per MBF in December, with January prices expected to average slightly higher at $442 per MBF. Despite this resilience, a lull in framing lumber prices is anticipated leading into summer, as softer demand and increased Canadian shipments ahead of potential tariff hikes temporarily weigh on the market.
Low-grade lumber, which is the largest component of a pallet’s price, remains under pressure from an oversupplied pallet market due to excess recycled cores. However, framing lumber fundamentals are beginning to flow through, offering slight upward momentum for low-grade prices. Over the coming quarters, we anticipate a reduction in pallet oversupply, creating opportunities for increased production of new pallets.
Uncertainty around the new administration’s tariff policy, particularly the proposed 25% tariffs on Canadian and Mexican goods, adds another layer of complexity to the market outlook. The low-grade lumber composite price fell slightly in December to $304 per MBF from $306 per MBF in November, though December’s price is still the highest since July 2023 (outside of November).
We anticipate early 2025 to see a slight drop in both composite prices but rising in the second half of the year due to housing starts rising and lumber supply falling, resulting in a low-grade composite price of $377 per MBF in December 2025.
December housing surge faces January chill: Multifamily leads the way
Housing starts surged in December, increasing 15.8% from November, with multifamily construction leading the way—soaring 61.5% to its highest levels since December 2023. Favorable weather likely contributed to this strong rebound in activity.
On the multifamily side, completions are finally easing after hitting levels not seen since the 1970s earlier in the year, which could help reduce vacancy rates and improve the financial outlook for apartment development. We anticipate a decline in January housing starts due to the widespread cold weather, particularly in the South, where a significant portion of construction activity occurs. Additionally, some mills have chosen to remain closed in response to these conditions, which is expected to slightly reduce lumber production.
Total US housing starts reached 1.499 million units (seasonally adjusted annual rate, SAAR) in December, reflecting a month-over-month increase but a decline compared to the same period last year. Single-family starts rose to 1.05 million units (SAAR), marking a 3.3% increase over November and the strongest month for single-family starts since February 2024.
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