Two years ago the word “phytosanitary” was not part of Lannes Williamson’s vocabulary. But today it is part of his life, according to the president of Lannes Williamson Pallets, a major pallet manufacturer in West Virginia.
Phytosanitary, a key term for plant health and infestation issues, have become a recent concern for solid wood packaging including pallets, crates and dunnage. It all started a few years ago when insects, including the pinewood nematode and the Asian long-horned beetle, started appearing on the wrong continents. Authorities traced at least some of the problems to wood packaging. Europe has led the march toward the development of a global standard to stop the spread of pests. The International Plant Protection Convention (IPPC), a branch of the United Nations, will hold a meeting in late March to decide if a proposed global standard will be adopted. If the IPPC adopts a standard, it could impact both low-grade lumber and pallet markets in North America and the world.
The impact will vary depending on what happens as the market starts to change and countries begin to enforce the standard. The initial impact of European Union (EU) emergency restrictions on shipments from the United States, Canada, China and Japan, which took effect last fall, has been minimal, according to lumber suppliers and pallet companies.
EU Emergency Requirements Make Minimal Impact
Late last year the EU established emergency requirements for all softwood (coniferous) solid wood packaging coming from the four countries considered the likely source of pinewood nematode infestations. The EU required that all pallets, dunnage and crates made from non-engineered, softwood lumber be treated and marked before entering Europe. Enforcement has been gradual based upon the specific urgency of each EU country. The EU emergency requirements affect both new and recycled pallets made from softwood lumber.
According to John Mead, pallet consultant and European pallet industry expert, the European Commission estimates that the United States and Canada are about 50% in compliance. There have been no significant cases of non-compliance for exports coming from the U.S., and no pallets have been sent back, although some shipments have been fumigated in Europe.
Pallet and lumber suppliers have answered the demand for treated/certified products without seeing substantial cost increases or production logjams. Pallet companies have responded by typically buying hardwood (non-coniferous) lumber and marking pallets coniferous-free with the “NC-US” stamp. Or they purchase softwood lumber that already has been treated and marked. The emergency measures have not required hardwood wood to be treated or marked. Regardless, pallet companies have been marking hardwood pallets as coniferous-free to ensure smooth passage of 100% hardwood pallets through customs. “The implementation of the EU emergency measures has been fairly smooth. I have not heard of any real problems,” said Jordan Piland, vice president of Atlas Pallets. Jordan chairs the National Wooden Pallet and Container Association task force covering the phytosanitary issue and keeps up with the latest developments.
Pest Issue May Cause Problem for Hardwoods
The real challenge will come when hardwood lumber used for wood packaging must be treated and marked. The IPPC proposed international standard covers wood packaging made from both softwood and hardwood lumber. Today, most pallets in the United States are made out of hardwood lumber, and very few of these pallets are treated. Treating hardwood lumber takes more time than softwood and can cause serious fastener problems. It is much harder to drive nails into treated hardwood lumber than non-treated wood.
The heat treatment issue will be detrimental to the hardwood lumber industry because it is easier to use pine if the prices fit, according to Steve Green of Conner Industries. Steve said, “You would have to treat the pallet after it is built. Otherwise, it would double, maybe triple the price of a hardwood pallet.” Thus, the treatment and marking process will likely fall on the pallet manufacturer or recycler for hardwood export pallets while lumber companies typically handle treatment for softwood.
According to Andy Dunn of Groves Pallet, if many companies try to switch to softwood lumber, there would not be enough pine to take care of demand without using grade material. Then it becomes a matter of economics. Is it cheaper to buy grade pine or heat treat hardwood pallets?
The hardwood lumber industry has been busy fighting other problems including bankruptcy, overseas competition, and a 25% drop in production. “When I first heard about the treatment requirement, I thought it would destroy the pallet market for low-grade hardwood…Today, I see this as less of a problem than many others,” said Mark Barford, executive vice president of the Appalachian Hardwood Association.
It can be difficult if not impossible to accurately predict the market. Pallet companies will try to keep down costs and pass along any increase. “I believe the heat treatment requirement of hardwood will cause a lot of switching to number three and four southern yellow pine (SYP). That will drive the pine market,” said Rob Trexler of Pasadena Skid & Pallet. “Number three and four grade is approximately 15-20% of the SYP market. When demand starts out-stripping supply, then hardwood becomes an option…Pallet prices will have to go up. We are not operating with margins that will allow us to absorb this kind of cost.”
How will pallet companies respond? John Fowler, president of D.T. Fowler Manufacturing in Michigan, said that his company will buy more softwood lumber initially and then will get a dry kiln to serve customers requiring hardwood pallets for export. John pointed out that softwood lumber does not work for all pallet situations. “There will be a lot of little pallet manufacturers that go out of business because they can’t afford to buy a kiln,” said John. Smaller pallet companies may have to focus more on grocery and other domestic markets if softwood lumber is not available at a competitive price in their area.
Atlas Pallet has considered using methyl bromide to fumigate packaging if necessary. However, the Virginia-based pallet manufacturer has not had any customers asking for it yet. Jordan estimated it would cost 50 cents per pallet for the chemicals and treatment tents to use methyl bromide. “Some big companies may go with heat treatment instead of fumigation due to the negative public relations impact of using chemicals,” said Jordan.
Lannes said that he would do whatever is necessary to keep customers happy. Currently, Lannes Williamson Pallets fills customer requests by shipping marked hardwood or treated/certified softwood pallets. Packaging users continue to stress price and will resist any increases. According to Lannes, some of his customers are talking about carrying two inventories – one pallet for domestic use and one pallet for export shipping. But not all customers want to bother with two inventories or can accurately predict export demand. “In general, most customers don’t know if they will be using a pallet for export or domestic shipping,” said Rich Huftalen, president of McIntosh Box & Pallet in New York.
It all depends on your customers. When do they know where a particular load is headed? How long will a load sit on a pallet before being shipped? What percentage of the products are shipped overseas versus domestic? These key questions will need to be answered before you can create a program for each customer.
One problem has been widespread confusion on the treatment issue among packaging users. For example, Daimler-Chrysler has issued statements asking suppliers to ship on only heat-treated pallets. Chrysler backed off when automotive part suppliers began to grumble. However, the Mopar Service & Parts division recently notified packaging suppliers of the need to comply with all EU requirements, both current and pending, by March 1, 2002. Why Chrysler has wanted to jump the gun on the treatment of hardwood wood packaging remains a mystery. Neither Ford nor General Motors has made a big deal about the treatment issue yet.
The proposed IPPC standard requires that all solid wood packaging be treated and marked for international shipment. Engineered wood products such as plywood, oriented strand board, etc. are exempt. Both new and recycled pallets used for export must be treated and marked. Authorized treatment methods include heat treatment, kiln drying, chemical pressure impregnation and fumigation. The international standard sets basic requirements while specific implementation procedures, including certification practices, are largely left up to the discretion of each member country. The IPPC standard does specify the mark and minimum treatment requirements. The international community will likely favor heat treatment in the long run because some of the chemicals used in fumigation are classified as ozone depleting.
On the Verge of a Global Standard
The IPPC will meet in March to vote on the proposed standard. If the IPPC approves the guidelines, countries could begin implementing the restrictions this year.
“It is highly likely that there will be a standard approved out of the March IPPC meeting,” said Bill Snell, a director with the U.S. Department of Agriculture (USDA) Animal Plant Health Inspection Service. Bill expects the EU to implement it within six months, and some other countries, such as Canada, might act even faster.
The IPPC standard does not set implementation schedules, which are left up to the discretion of each member country. Once one major importing country starts to implement the phytosanitary measure, companies will likely rush to buy treated and marked packaging because they will not want their shipments delayed or possibly confiscated. “Nobody wants a trade war over packaging because countries are so interdependent today,” said Bill. At some point, the push for treated packaging may force prices to jump significantly if treatment capacity does not come online fast enough to meet demand.
The revised IPPC standard includes some tricky provisions. “There are some things that have concerned us, especially the issue of requiring debarking of treated wood,” said Bill. Since all export pallets will have to be treated, some industry leaders in the United States and Canada have questioned why the EU desired to include a no-bark requirement. According to the USDA, the United States and Canada are calling for the removal of the no-bark requirement. However, it is unclear if the U.S. government would oppose the proposed standard just because of the no bark requirement. The people driving the issue in the US government are the plant health experts at the USDA. The Department of Commerce and other agencies have, for the most part, taken a back seat.
One USDA expert defended Europe’s request for a no-bark requirement. Narcy G. Klag of the USDA commented, “While we can understand the concerns of industry, we also can appreciate why some other countries want the requirement. There are basically two reasons to have the requirement. One is that the 56/30 treatment does not kill every pest, so freedom of bark provides redundancy since most of the pests of concern are insects that are associated with bark…In addition, the requirements for treatment and marking are conducted by industry with little government oversight. For this reason, there is concern that the treatment may not be conducted properly or not at all. Again, the bark free requirement gives redundant protection.”
The IPPC draft requires all repaired wood packaging to be re-treated and re-marked. All components of such material should have been treated. According to the standard, old marks should be removed or covered. This could significantly increase the marking and certification burden placed on packaging suppliers serving the export market with recycled pallets.
Most government officials and even some industry leaders admit the maze of pest regulations will only hamper international trade without the development of a global standard. But don’t expect for sanity to be restored overnight. It has become clear that an international standard will be in place within the next couple of years. The U.S. forest products industry probably cannot really stop it. Thus, packaging suppliers dealing with export customers should start to educate themselves on the requirements, prepare for using treated material and obtain the proper certification.
The Pallet Enterprise will continue to provide the most up-to-date coverage possible on its Web site. Currently, the site offers Q&A fact sheets, news, the IPPC proposed standard, a list of certification agencies, and other documents relating to the phytosanitary issue. Visit www.palletenterprise.com/pests for more information.
