The cost components of making a pallet — particularly lumber and labor — continue to climb, and pallet prices have reached record highs, according to a U.S. Labor Department index. The soaring prices include new and recycled pallets.
There is even concern in some markets about shortages of pallets. “Supply is just barely keeping up with demand,” said Howe Wallace, chairman and CEO of PalletOne. “It’s a pretty dicey situation.”
Pallets are in such short supply in Western markets that some pallet suppliers have suggested that agricultural shippers may have to resort to floor-loading produce.
Skyrocketing Lumber Prices
Rising lumber prices obviously are a significant factor in pallet price increases. Lumber prices surged amid the COVID-19 pandemic as sawmills were forced to close or slow production. At the same time, the pandemic spurred an increase in home improvement projects as stuck-at-home consumers spent money on their homes. The confluence of a low supply of lumber and increased demand for lumber has seen prices escalate.
The Nasdaq composite shows a relatively consistent rise in the pricing of lumber over the last six months, with spikes in December of last year, and February and April of this year. Lumber futures ended recently at $1,575.60 per thousand board feet — a record and more than four times the typical price this time last year.
On-the-spot prices for 2×4 and other wood products also have jumped to fresh highs, according to Random Lengths. The framing-lumber-composite price made its highest ever weekly gain, ending April at a record of $1,290.
“There is just lower production of lumber being produced by the mills than is currently demanded by all the different markets,” a pallet industry contact told Pallet Profile Weekly recently. “When you add in the strong flooring market, crossties in high demand, grade lumber strengthening and sawmills being very cautious about buying large volumes of logs at high prices because of the risk, just to name a few, you end up with the perfect storm.”
More pallet manufacturers have been buying pre-cut material, but the growing demand is pushing up board prices.
“We raised our random-length and cut stock prices again this week,” Rick Henretty, market analyst for Pallet Profile Weekly, wrote recently. “Some of the raises are shocking. Every week prices are going higher, a condition we have not experienced to the extent that we are seeing today.”
Prices are rising for virtually every type of raw material for pallet production or are subject to upward pressure. To cite just two examples, in the mid-Atlantic region, the price of low-grade hardwood rose to $635 per 1,000 board feet in March from $530 a year earlier, and Southern California softwood more than doubled to $520.
Labor Crunch Drives Inflation
Just as lumber is in short supply, workers are in short supply. “The market’s right for a second shift,” said Wallace, “but there are no people to add a second shift.”
The shortage of workers is putting upward pressure on wages. “Labor is hard to figure,” reported Henretty, “but everyone is definitely paying more for good labor — a lot more!
There are a number of factors at play in the labor market. Some 2.5 million Americans will not rejoin the labor force until late 2021, according to Bank of America economists. The reasons: continued fear about COVID-19 and boosted unemployment benefits. Retirements and even COVID-19 deaths will leave a more permanent drag on participation in the labor market, they say.
The nation’s economic recovery from the pandemic is accelerating rapidly. Federal stimulus payments and aid to businesses, COVID-19 vaccinations, and reopenings have all helped hiring rebound in recent months.
“The upswing in demand has led to one of the strongest months of job creation yet recorded…as business prepares for better times ahead,” said Chris Williamson, chief business economist at IHS Markit.” Yet as businesses rehire, many employers are having difficulties finding workers.
The economy added 266,000 jobs in April — much fewer than expected — and unemployment rose to 6.1%. Dow Jones estimated that April would produce 1 million new jobs, and many economists had expected an even higher number given the indicators that the economy is picking up steam.
The poor job growth numbers aren’t due to the lack of jobs. As people are starting to travel and go out more, there certainly is an upswing in economic activity. Poor job growth numbers suggest that many potential workers remain on the sidelines thanks largely to generous government assistance programs and other factors, such as children still not going back to school in some areas or sick relatives requiring care. Overall, the labor shortage is a major factor affecting inflation and limiting production.
Rising Commodity Prices Lead to Nail Price Spikes
Nail prices have been going up since last year due to rising steel costs and also soaring international freight costs.
“Nail costs per pallet have almost doubled,” said Henretty. “I had a contact in the Midwest tell me a few months ago it was about 37 cents per pallet for nails, and now it’s almost 72 cents. But that’s not true everywhere. It all depends on your nail supplier.”
The pandemic affected the steel industry in a way similar to the lumber industry. Manufacturers shut down production a year ago. They have been slow to resume production as the recovery began, creating a huge shortage of steel.
However, Bank of America analyst Timna Tanners predicted that the steep price spike will be short-lived. “It’s very appropriate to call this a bubble,” she said. Others are not quite so sure how quickly production can come online and if the workers will be there to match production needs.
A major pallet nail supplier recently told the Enterprise that he doesn’t see pallet nail prices dropping any time soon.
Transportation and Fuel Concerns
If all that wasn’t enough, pallet companies – along with other businesses and consumers – also are facing rising gasoline and diesel prices.
Experts say an increasing demand for gas, and subsequent rise in prices, is due in large part to an improving economy as states loosen COVID-19 restrictions. As the country makes progress in fighting the coronavirus pandemic, more people are expected to be empowered to travel, take vacations and once again use their cars. In fact, demand for gas is already up to 97 percent of where it was this time in 2019.
Patrick De Haan, head of petroleum analysis at GasBuddy, said that this, combined with cyclical summer gasoline increases, is expected to drive prices up.
“Generally, when demand is as strong as it is, you’re not going to find any discounts,” De Haan said. “I think there’s going to be some pent-up demand numbers here and there throughout the summer and that’s going to influence price.”
Perhaps even more unsettling: there is a shortage of tanker truck drivers. According to the National Tank Truck Carriers, 20-25% of tank trucks in the fleet are parked heading into this summer due to a lack of qualified drivers. At this point in 2019, only 10% of trucks were sitting idle for that reason. There is some concern the driver shortage could lead to gas shortages this year.
