2010 has been an eventful year for the pallet industry. Regulatory issues, lawsuits, lumber shortages, fraud issues, and extremely tough economic conditions have forced companies to consider new concerns and come up with innovative ways to respond to challenges and stay in business. The Enterprise asked various industry members for their perspectives on a selection of issues that impacted the pallet and sawmill industries this year. They explained how their companies were affected and strategies they used to respond to various market changes. While the answers to some questions were more or less uniform, some questions resulted in widely differing responses. See what some of your peers had to say and how their comments correlate with your experiences.
Other than the economy what has been your biggest challenge over the past year and how have you responded to it?
“The crisis that occurred in the pharma industry from an alleged contamination of drug products from a wooden pallet caused a great deal of concern to many of our customers… It increased our workload in trying to quell the fallout and defending our non-chemical processes with repeated requests for documentation. It also seems highly unlikely that the problem arose from a wooden pallet in the first place and hardly possible, that if it did, it involved a pallet from the USA.”
– Don Baldwin
General Pallet, LLC
Readington, N.J.
“For us it was really the wood market. The slow demand caused mills to shut down and caused a shortage as well as drove the price of wood through the roof. When everybody was trying to tighten their belts financially, we were faced with the unpleasant task of informing them that if we could get the wood the price would have to go up. It forced us to get creative for our customers and try to find options and really streamline our processes.”
– Chris Lasseter
Summerford Pallet
Ashford, Ala.
“Keeping the customer supplied because hardwood lumber availability at the beginning of the year was weak which caused prices to jump. We told our customers we would have to replace hardwood with pine in order to keep them supplied with pallets.”
– Jimmy Wilson
Bay Wood Products
Robertsdale, Ala.
What changes have you made to your business over the last year to remain competitive?
“This is going to sound really crazy. We decided to put more effort into the customers we had and not focus so much on trying to expand. Granted, that was a savings to us. But by selling out to the customers we already had, it sparked several of our corporate customers to put us in contact with national accounts. So, as we worked hard to serve who we already had we ended up having some expansion. Secondly, crisis brings about innovation. In order to save money we bettered many of our practices in our manufacturing and recycling processes and started offering our customers more services trying to add to our bottom line.”
– Chris Lasseter
“We have suspended overtime, resourced certain supplies, increased employee contributions to health care benefits, reviewed building and liability insurance premiums, and cut back on non-essential purchases.”
– Don Baldwin
“Our equipment is critical to keeping us competitive and service oriented. We continually seek to reinvest capital into trucks, trailers, and pallet equipment. We also continually reevaluate our personnel requirements and adjust job functions accordingly to help improve productivity and reduce labor costs.”
– Les Brown
GCSP, Inc.
Appling, Ga.
“We have just tried to manage all of our costs. With pallet pricing being down, the only thing we could do was become more efficient on our end and work with our vendors to lower costs. In addition, we have added some services that other people just don’t want to do like pallet washing and tare weighting pallets.”
– Shane Thompson
West Wind Logistics, LLC
Des Moines, Iowa
Now that the elections are behind us, what impact do you believe they will have on our economy and on our industry?
“We are hoping for less government regulation and taxation. We don’t want government help, and we don’t want government intrusion in our business.”
– Les Brown
“I feel the elections were the first step in the right direction. Rampant spending will be at least checked. Basically, I think it will just prevent it from getting worse.”
– Shane Thompson
“I am not sure that the shift in Congress or the elections in general will have any profound effect specifically on the pallet industry. We will have our own issues. But much of the economic damage that has been inflicted on us by misguided federal economic and monetary policies has already been done. It will take a very long time to try to revise them and be even harder to reverse them. Entitlement programs take on a life of their own as difficult economic conditions and unemployment continues in many areas of the country.”
– Don Baldwin
What impact do you believe Costco’s block pallet initiative will have on the pallet market?
“I am sure the other big box retailers are watching to see if it catches traction. I do believe they want a better platform but I’m not sure how much they are willing to pay to get one. Currently, there are three choices, and those are all rental programs. I think they will see an increase in activity, but you hear about many shippers that don’t like the rental program and are looking for an alternative. If this approach has success, the others will follow and someone will bring an alternative to the market. Should that happen, we don’t have enough nailing capacity for blocks today, so there will be a retooling of sorts.”
– Jimmy Wilson
“We have known for years that with technology and change the same wooden pallet we’ve used since the ‘40’s would begin to change. I have two feelings on this. First, I feel that change is good, and it might cause us all as an industry to have to pull together and work for the good of all of us and change together. Second, I’m afraid that this might cause a ‘have and have not’ within our association. I’m afraid that there might be a select few that take this ball and run with it leaving the rest of us on the sideline drinking water.”
– Chris Lasseter
“It will be interesting to see how the new requirement trickles down to the many companies that ship into Costco. It may well precipitate a glut in used stringer pallet cores in the areas around the largest distribution centers. I believe the push to block pallets from the top down in the case of big box players like Costco, is a spec consolidation aimed at increasing standardization within global markets. Also, the block pallet design is more flexible in high speed handling environments. The big question remains the cost of implementation and who on the food chain is going to absorb it.”
– Don Baldwin
How do you see business activity changing over the next six months? What appears to be the most promising markets right now?
“We forecast it to be at the least at its current level but hope to see growth. Customers who require excellent customer services, expedient delivery, good quality, and fair, competitive pricing offer the future business opportunities.”
– Les Brown
“I think we will see slow sustained growth over next six months. It appears the pipeline of material to manufacturing was emptied during the recession, and it is being replenished. Those shipping to Asia, China and India are the most promising markets. A lot of my customers aren’t shipping chemicals domestically with the weak dollar and the stronger Asian markers; they are shipping them overseas.”
– Jimmy Wilson
What new piece of machinery would you buy if you decide to expand right now and why?
“We are looking to buy a new pallet manufacturing nailing machine. It is on hold right now trying to see if we need to buy one that will make block pallets. Anybody got $500K they don’t need?”
– Chris Lasseter
“Other than more covered warehouse space (outdoor storage will not fly in the near future), I believe it would be some sort of information technology investment. As margins become thinner and competition becomes greater, it is becoming increasingly important to know exactly what and where you are spending. In addition, customers (especially large corporate customers) want to have a Web-based interface to help analyze their pallet expenditures or just to place an order.”
— Shane Thompson
How have regulatory issues affected your market over the past few yeas, and what impact do you foresee coming ahead?
“Pallet sanitation is expected and required by all customers. Their expectations are to receive pallets which are clean and free of debris or contaminants whether it’s a $3 or $8 pallet.”
– Les Brown
“ISPM-15 gave us a new market, but it won’t fix all the issues, such as emerald ash borer. However, heat treatment requirements will create a bigger market if it becomes required domestically.”
– Jimmy Wilson
“ISPM-15 regulations for international loads turned out to be a good thing for us. It allowed another profit center and a barrier to entry. Unfortunately, supply has caught up with demand driving margins down. However, if domestic heat treatment becomes a reality, capacity will become an issue.”
–Shane Thompson
“After the scare they had last year we have had to go to extraordinary lengths to ensure the cleanliness of our pallets. This is only going to get worse. Go ahead and get ready to have sanitation policies and be willing to lay open all of your processes and practices.”
– Chris Lasseter
Which of the following issues raised by pallet poolers over the past few years are more important to your customers – pallet sanitation, sustainability, fire retardant toxicity, billing practices or pallet strength? Why?
“I deal a lot in the food industry, and the “hot topic” lately is pallet sanitation. The media seems to love a crisis, even if they have to make it up. Unfortunately, when the media includes the food industry, people tend to hit the panic button. The U.S. has one of the safest food supply chains in the world. And what has been moving it for 50 years? The wood pallet.”
– Shane Thompson
“Sanitation is the hottest issue I’ve seen. Our customers’ customers have been complaining about mold issues for several years.”
– Jimmy Wilson
How might you change the Pallet Industry Management Program (PIMS) model to make it better/more effective for your customers?
“It’s got to: 1. Make sense for them to change 2. Be cost effective. We don’t have the ammunition to sell this. It scares me that we are holding out hope only on Costco being willing to go for this. Again, we’ve been working toward this for three years and I feel like I’m being told the same thing that I was three years ago…. I just feel that we have more questions than answers and in this economy the word is ‘risk.’ Is Costco, or is anybody, willing to take that risk?”
–Chris Lasseter
“At this point, we need to get the pallet to the customer. Concepts don’t do our customers any good. Pallets do.”
– Shane Thompson
How have changes in the lumber market impacted your business in 2010? What impacts do you foresee in 2011?
“While we had shortages in the beginning of the year, we have plenty of lumber now. I believe we’ll make up for earlier losses in the second half, especially in the fourth quarter. Many sawmills have closed, and I don’t think new ones are going to be opening up. This will result in less lumber being available. More people are going to be fighting over a smaller pie.”
– Jimmy Wilson
“We do a lot of pallets in SPF and everyone knows it was a roller coaster. We were forced to use alternate species (aspen) in order to keep price points the same. Availability of any species was in question most of the summer forcing us to hold higher inventory levels. Unfortunately, I see much of the same in 2011.”
– Shane Thompson
“Supplier management has been our key to reducing our annual spending on materials. We have sought to add more suppliers and to negotiate better service and pricing contracts.”
– Les Brown
