Editor’s Note: The following story is taken from a presentation that Chaille Brindley gave at this year’s Western Pallet Association meeting. If you want to be ready for the future, you need to develop answers to these key challenges: mergers and acquisition activity, labor shortages and workplace culture, supply chain, cash flow, and innovation.
When I think of prepping, my brother, Scott, comes to mind. He is the kind of guy who didn’t buy diapers for a year after Y2K. He had two young kids at the time and wanted to be ready for whatever mayhem was caused by 1s and 0s. The Y2K disaster never really materialized. But he was ready.
If you want to be ready for the shifting pallet industry landscape, you need to prep for some challenges we haven’t really seen before. Think of prepping for a natural disaster without the gas mask. There are five key areas that could cripple your business in the future. You have to prepare for the worst and hope for the best. These areas are business transition/mergers and acquisition activity, labor shortages and workplace culture, supply chain, cash flow, and innovation. Companies that come up with answers for these challenges and are ready for the future will thrive. Those who don’t may not even survive.
Shifting Consumer Trend & Economic Landscape
A number of major trends are altering the consumer and business landscape in North America. McKinsey Consulting developed a report titled The Next Normal Arrives – Trends that will define 2021 and beyond. McKinsey predicts telework is here to stay and that 20% of the global workforce could work the majority of time away from the office and be just as effective. This could affect cities as well as commercial real estate demand and further prolong the rising housing market as well as home improvement boom.
Looking at consumer trends, McKinsey is projecting that “Revenge shopping” could unleash pent up demand, especially for travel, experiences and communal events or activities. This would further increase demand for workers and resources. There will be plenty of capital resources released to fuel growth. McKinsey reported that globally “private equity firms are sitting on almost $1.5 trillion of unallocated capital that is ready to be invested.” Some of that money is already making its way into the pallet sector with venture funds and platform companies are gobbling up pallet and lumber producers. As this dry powder is unleashed it creates a perfect opportunity for consolidation as well as companies to cash out.
COVID-19 devastated small businesses. U.S. small business revenue fell more than 30% between January and December 2020. The pandemic also ushered in less face-to-face customer interactions and more remote communications. McKinsey found that companies are three times more likely than before the pandemic to conduct at least 80% of their customer interactions digitally. This means you have to improve your electronic communications, text-based response, customer portals and more.
Many pallet companies are asking where all this demand for pallets is coming from. One word really explains the consumer demand, e-commerce. The e-tail revolution is here as you are seeing even brick-and-mortal retailers repurpose stores to facilitate omni-channel distribution.
E-commerce adoption accelerated significantly thanks to the pandemic. McKinsey reported that the first half of 2020 saw an increase in e-commerce equivalent to that of the previous ten years. More companies are rebalancing the supply chains to produce more localized production, especially for time-sensitive production or goods critical to national security and infrastructure.
Let’s look at these five critical areas in depth to see what factors you need to have on your radar screen.
Industry Consolidation Has Kicked Into Overdrive
Some of the biggest names in the industry have changed hands over the last two years. See Sidebar 1 to view a list of some of these recent Mergers & Acquisitions (M&A) activity. Be aware that more are in the works according to industry sources.
Probably the biggest factor is the low interest rates, which have made money cheap to come by for investors. At the same time, private equity has decided to invest in the pallet sector because it is seen as largely recession proof. Pallets are not sexy although they are a necessity. Some larger players are buying strategic companies that help them expand their geographic footprint, capacity, customer relationships, and expertise.
Some pallet company owners see an opportunity to cash out. And this may be particularly attractive given the multiples offered as well as the increasingly competitive landscape for cores, employees and lumber. Some pallet companies are reaching the desired retirement point for company founders or key executives. And if they have no relatives inline to take over the operation, selling to a major player makes sense to take care of employees and customers. When Pallet Profile and Pallet Enterprise conducted the last HR and Wage survey one interesting response was the number of companies that still had issues to address when it comes to family business transition. See Graph 1 for more details on the survey responses. Although 63% had a complete or partial succession plan in place, 11.22% admitted that they are prepping the business to sell. Interestingly, 8.17% have not thought about who will run the business beyond the current leadership. This is something that every private business needs to consider and work to develop a strategic plan to address.
The Pallet Enterprise website (www.palletenterprise.com) has a ton of resources on family business transition. These articles can help you identify key questions to ask. Most importantly, you need to have some tough discussions with key family members and company leaders to know where they stand.
Labor Shortages and Workplace Culture Impact Success Potential
While politicians may not want to admit it, many industries are having severe labor challenges. These existed before the pandemic. But the situation has been made worse after the pandemic for a variety of reasons. There doesn’t appear to be any easy answers.
Beyond the overall labor shortage, the forest products industry has an image problem too. Many potential workers don’t view the forest products sector as an industry with much to offer. The work is too hard. The pay is not enough. The technology is old-fashioned, and the industry doesn’t have the green credentials for Millennials who want a job tied to a strong corporate mission.
The reality is that all of those perceptions are wrong except for the hard work part. It is true that working with heavy lumber and pallets is physically demanding. But technology is making those processes easier and safer every day.
When it comes to pay, anyone willing to work can make decent money without a college degree at a pallet or lumber plant. Some forest products companies offer training and development tracks designed to help employees advance through the companies and learn new skills. Sure, wood isn’t as enticing as Silicon Valley. But it does offer stable jobs, especially in some rural areas. Forest products companies are increasingly recruiting women, minorities and other who haven’t traditionally been their target workforce. Some companies are developing programs aimed at recruiting young adults, immigrants or even second chance people who are overcoming addictions or have been incarcerated.
Pallet and lumber companies are adding automation all the time. From robotic pallet dismantlers to automated nailing lines to sawmills with scanners and optimizers, an ability to understand technology is a plus for new workers. So, working at Tesla may be more high-tech, but pallet and lumber facilities are changing quickly to include conveyors, stackers, robotics, vision systems, computerized controls, etc.
And when it comes to working at a company that makes a difference with its products and services, the pandemic has put a spotlight on just how important pallets and wood products are. Just ask anyone who panicked over toilet paper last year or growers looking for pallet this season, and they can tell you that the pallet and lumber industries are critical for the nation’s economy. People in the wood pallet sector increasingly are talking about the positive impact that they are making on the planet as well. Pallet and lumber companies have a better recruitment story to tell. They just have to start doing it. If you haven’t evaluated your brand online when it comes to attracting workers, you need to make this a priority. What do people see when they visit your website? Does this look like the kind of place you would want to work? Your online messaging as well as the culture that you are creating will go a long way to shaping your ability to attract and retain talent in the future.
Millennials, workers roughly 24-to-40 years old, now make up the largest component of the workforce in America. They tend to job hop more and highly value meaningful work. Millennials like to work in teams and want a voice at the table. Millennials tend to research companies online first before applying. One of the biggest things for Millennials is an opportunity to advance and grow. They want a clear career path and opportunity to grow. They desire training and more frequent feedback than previous generations. That’s why your onboarding and training programs are critical if you want to attract and keep good workers.
The good news is that not all Millennials are against blue-collar jobs. Some are attracted to them if it means they can work with their hands and avoid the office life. When it comes to workplace culture and recruitment, there are several things you can do to prepare for the labor crunch, see the tips covered in Sidebar 2.
Prepping is a big topic, and you already have a lot to think about. The second article in this series will cover securing your supply chain, improving data management, rethinking cash flow and rewarding and creating space for innovation. Look for more in a future issue of the Enterprise. In the meantime, think about what you can do to navigate the M&A activity in the industry today and develop a culture and workforce that will be strong to thrive in the future.
Activity in the Pallet and Lumber Industries
Biggest names that have changed hands in the last two years…
• UFP Industries Buys PalletOne (December 2020)
• Freeman Spogli & Co. Acquires a Majority Interest in Kamps, Inc. (January 2020)
• Alinda Capital Partners and The Universities Superannuation Pension Fund (USS) Buys PECO Pallet (October 2020)
• FCA Packaging Buys Timber Creek Resource (January 2021)
• Royal Oak Buys Garnett Forest Products (2021)
• Kamps Inc. Acquires Pallet Industries of Florida (March 2021)
• Ralph and Karl Rupert buy Johnson Industries (2020)
• 48forty Acquires ReLogistics Services (May 2021)
What you can do now to improve your workforce situation…
• Employee engagement surveys… identify trouble spots.
• Target onboarding and training to be job-specific.
• Educate new hires on expectations from day one.
• Create pathways for advancement for new hires as well as long-term workers.
• Evaluate compensation levels and raise prices to cover escalating costs.
• Automate where it makes sense.
• Improve your public image for recruiting team members.
• Offer recruitment bonuses and other incentives.
• Take advantage of new tools and HR platforms.
