Pallet prices in the US market held steady this month amid uncertainty on how proposed tariffs under the Trump administration would play out. The tariffs, if sustained, could significantly worsen inflation, threatening the trust that many voters placed in Trump to lower prices.
While the immediate effects on the US pallet system are limited, a decrease in trade over time could lead to fewer pallets entering the system.
Additionally, the Trump administration’s intensified crackdown on undocumented immigrants is creating labor challenges for businesses that rely on foreign-born workers. Immigration raids and deportations have led to workforce shortages across key industries, as undocumented workers stay home due to fear of enforcement actions.
The February edition of the Fastmarkets pallet price newsletter includes:
- Up-to-date pallet prices for six key metro areas
- Analysis on the impact of potential tariffs under the Trump administration on the global trade landscape, and the knock-on effect this would have on the North American pallet industry
- Detailed insights into the gross variable cost of producing a new western softwood GMA A-grade stringer pallet
Pallet trading ranges stable, but most sales up on rising low-grade prices
The US pallet market saw stable trading ranges over the last month with consistent low-end and high-end price levels.
Fastmarkets again assessed Pallets, western softwood, GMA A-grade delivered Seattle at $11.00-17.00 per pallet on February 26, unchanged from the previous month.
All other delivered location price assessments remained unchanged as well.
Notably, despite overall trading ranges remaining consistent, the data also indicated that most GMA sales prices appreciated modestly over the last month. The modest appreciation in mid-level pricing is consistent with the modest appreciation shown on the Random Lengths low-grade random dimension composite price, which has risen just above 1.0% week on week for the last three consecutive weeks.
Most pallet producers reported relatively stable end-use demand, thus indicating that the upwards pressure is largely coming from low-grade lumber costs.
Low-grade mill representatives and traders credit this month’s softwood low-grade lumber price inflation to tight supply due to persistently slow framing lumber demand – drivers of which include seasonality and uncertainty surrounding the tariff situation and interest rates. Some Coast traders also reported a slew of sales into the California market, tightening up supply of western softwood species elsewhere.
In the eyes of some market participants, this month’s activity validates recent concerns that the marketplace is becoming increasingly supply-driven. Tariff indecision has certainly added fuel to this fire with concrete information from Washington surrounding implementation terms or dates remaining elusive. As a backstop, pallet producers continue to kick the tires on potential softwood substitutes for their preferred species in case any import-driven price increases make competition tough near-term.
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.
Trump’s tariff talk set to disrupt global trade with knock-on effect for pallets
After widespread concern that the US could not reach an agreement with their North American neighbors, at the 11th hour on February 3rd, President Trump made a deal with Prime Minister Trudeau of Canada and President Sheinbaum of Mexico to delay tariff proceedings until March 4th. This agreement included measures to make borders more stringent and stem the supply of fentanyl coming into the US.
The tariffs, if sustained, could significantly worsen inflation, threatening the trust that many voters placed in Trump to lower the prices of groceries, gasoline, housing, autos and other goods as promised. Trump’s order contained no mechanism for granting exceptions, a possible blow to homebuilders who rely on Canadian lumber, as well as farmers, automakers and other industries. Unlike 2018, when Apple secured exemptions for certain tariffs imposed under Section 301 of the Trade Act of 1974, the new IEEPA tariffs do not allow for similar exceptions.
Trump has proposed reciprocal tariffs starting April 1st, impacting industries like autos, semiconductors and pharmaceuticals. This approach aims to impose the same tariffs on other countries as they impose on the US, essentially outsourcing US tariff policy to foreign countries. Products imported from the EU, such as pharmaceuticals, autos and luxury goods, could see significant price changes.
However, pharmaceutical and semiconductor products are generally not transported on wooden pallets due to stringent hygiene, moisture control and electrostatic discharge requirements, although products derived from these inputs such as computers will likely see a reduction in trade due to the tariff impositions.
While the immediate effects on the US pallet system are limited, a decrease in trade over time could lead to fewer pallets entering the system. Although fewer pallets leaving the system would partially offset this, the overall impact would be negative, as imports generally outweigh exports.
Additionally, Trump’s pause on the repeal of duty-free treatment for low-cost packages from China, otherwise known as de minimis shipments, has given the Commerce Department time to make the order workable. However, the eventual cancellation of de minimis means that over a billion small-value e-commerce packages arriving annually in the US will require additional documentation and duties, adding time and cost. About 1.36 billion shipments using the de minimis provision entered the US in fiscal year 2024, up from 637 million four years earlier, with Chinese imports representing 75% of these products. A reduction in these shipments could have a significant effect on pallet demand in the US.
December’s trade data showed elevated imports and exports, as has been the trend for the last 2 quarters as shipping managers looked to frontload their shipments with the threat of January’s port strike and Trump potentially imposing tariffs. This saw a net increase of 7.02 million pallets entering the US in December, up from 6.17 million in November.
Potential lumber tariffs raise alarm bells in Canada
On February 19th, Trump announced that he was thinking about adding lumber and wood product imports to the cohort of goods that will face a 25% tariff. The tariffs would likely be implemented using Section 232 tariffs, which allow for the Executive Branch to implement tariffs for national security purposes, and would go into effect on April 2nd if they can’t reach an agreement before then.
It’s key to note though, that since February 19th there has been no other mention of lumber tariffs by Trump, so the inclusion of lumber may have been a negotiating tactic with Canada, whose lumber industry has faced some adversity in recent years.
Should this tariff – which would be placed on all countries, not just Canada and Mexico – go ahead then we’d likely see a major surge in sawmill curtailments and closures in Canada as a lot of operating margins would not be able to withstand what essentially amounts to a 25% tax. This would be on top of the duties that Canadian exports into the US already face.
The pallet industrial production index has risen in the last 3, though it still remains lower than the all-time high in February 2024. This comes in the face of a very volatile 2024 for the index which can be attributed to a very uncertain economic environment, as well as housing construction and freight demand seeing the same volatility which fed through to the pallet market.
Tariffs a harbinger of rising pallet costs
The Producer Price Index (PPI) for pallet-related industries faces potential upward pressure as tariff uncertainty looms over the lumber market. If Canadian lumber is subjected to a 25% tariff, this would significantly reduce supply in the US, driving domestic lumber prices higher and, in turn, pushing up pallet prices.
The US lumber market relies heavily on Canadian and offshore supplies, meaning a sudden restriction would cause price volatility. Assuming tariffs are enacted, a price correction could occur by year-end, as US lumber producers ramp up production and alternative supply chains stabilize.
President Trump has framed the tariffs as a revenue generator for the US, but they come with economic risks. Higher tariffs could force the Federal Reserve to raise interest rates to combat inflation, strengthening the US dollar and making exports more expensive.
If US lumber costs surge due to supply constraints and Canadian mill curtailments, new pallet prices are likely to increase, adding further volatility to a market that had largely stabilized after the pandemic-driven disruptions of recent years.
Pallet costs move sideways into January
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 across all 6 metro hubs remained pretty stable heading into January. This comes in the face of costs having faces pretty stiff increases across the previous 3 months. November and December would have seen large increases compared to January due to ILA strikes and Trump tariffs, as well as the usual Christmas period retail sales boost driving demand up.
Immigration crackdown and labor pressures in the pallet market
The Trump administration’s intensified crackdown on undocumented immigrants is creating labor challenges for businesses that rely on foreign-born workers. Immigration raids and deportations have led to workforce shortages across key industries, as undocumented workers stay home due to fear of enforcement actions. While the pallet industry has made some strides in automation after struggling with labor shortages during the COVID-19 pandemic, it remains exposed to these disruptions—though not as severely as construction, agriculture, and hospitality.
Furthermore, members of the Associated General Contractors of America cited an insufficient labor supply as a top concern for 2025, with some workers in Florida, Georgia, Texas and Oklahoma reportedly avoiding job sites due to fears of ICE raids.
A recent report from Standard Chartered Bank underscores the potential economic impact, estimating that two-thirds of nonfarm payroll growth in 2024 was driven by undocumented immigrants. The report warns that Trump’s immigration policies “could be much more disruptive than anticipated”, as native-born citizens and legal immigrants would need to fill the labor gap—potentially requiring higher wages and adding to inflationary pressures. Given the latest Labor Department report showing consumer prices rising faster than expected, a tightening labor market could further contribute to inflationary concerns.
Average hourly earnings in the pallet sector have seen a notable rebound after dipping mid-year. While the rate of growth slowed slightly, it has now aligned with the growth rate of total manufacturing earnings—one of the fastest-growing wage sectors in the US.
Lumber prices forecast to quickly rise and fall in 2025 with lumber tariffs
Framing lumber composite prices saw only a marginal increase in January, rising to $434 per MBF from $433 per MBF in December. Meanwhile, low-grade lumber prices, the primary input for pallets, similarly saw an almost negligible price increase to $306 per MBF for January.
This is because, as we note regularly in this commentary, low-grade lumber prices will always track framing lumber prices. While prices have remained relatively stable, the forecast for 2025 suggests significant volatility if the proposed 25% tariffs on lumber imports take effect.
Should these tariffs move forward, we expect a sharp price surge in Q2 2025, with framing lumber reaching $630 per MBF in June before gradually declining to $490 per MBF by December. The pallet industry would face cost pressures, as the supply of Canadian lumber tightens and US producers ramp up production to fill the gap.
This outlook coincides with a challenging US housing market, which has seen weak demand and rising unsold inventory. Nearly 73,000 homes were pulled from sale in December 2024, a 64% increase from the previous year, indicating a lack of buyers.
Despite a 16% increase in available properties, home sales in 2024 were the lowest in nearly 30 years. While homeowners remain hesitant to lower prices, new home prices have slipped, with builders constructing smaller, more affordable units and offering incentives such as mortgage rate buy-downs to attract buyers.
With higher lumber costs and a slow housing market, this reinforces the point that the pallet industry will experience renewed price volatility after a period of stability.
Builder confidence drops amid tariff uncertainty and housing challenges
Builder sentiment fell sharply in February, weighed down by concerns over tariffs, elevated mortgage rates, and high housing costs. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) recorded a five-point decline to 42, marking its lowest level in five months.
NAHB Chairman Carl Harris emphasized that while builders remain hopeful for pro-development policies, particularly in the area of regulatory reform, uncertainty surrounding tariffs and rising costs have forced a reassessment of 2025 expectations.
He noted that builders’ expectations for future sales have dropped to their lowest level since December 2023, adding that mortgage rate buydowns—once a key tool to attract buyers—appear to be losing effectiveness as persistently high interest rates shrink the pool of eligible homebuyers. Reflecting these challenges, all three major HMI indices posted declines in February, with the most notable drop coming from expectations for sales over the next six months, plunging 13 points to 46.
The latest US Census housing data provided a mixed picture. Housing starts declined 9.8% in January, with multifamily construction seeing an even sharper 13.5% drop, in part due to unfavorable weather that slowed construction across much of the country.
However, after reaching their highest levels since the 1970s in early 2024, multifamily completions are finally easing, which should help lower vacancy rates and improve the financial outlook for apartment development. Single-family housing starts fell to 0.993 million units (SAAR), an 8.4% decrease from the previous month, underscoring affordability concerns and weakening builder confidence.
