This article is the second in a series of discussions with key industry leaders on important topics. The participants, who represent a variety of companies across the country, include pallet manufacturers, sawmills and recyclers. They agreed to participate in a roundtable discussion via conference call in a session moderated by Pallet Enterprise staff. They discussed key questions facing the industry, changes taking place in raw material markets and evolving customer expectations.
The participants were: Jeff Edwards, president and CEO of Edwards Wood Products; Asher Tourison, president of ACME Pallet; Carolyn Beach Skinner, vice president of operations for Westside Pallet in California and former president of the Western Pallet Association; Joe McKinney, president of McVantage; and Sam Donadio, president of Power Pallet.
Thanks to the participants for being part of this roundtable discussion and series of articles.
PALLET ENTERPRISE: How has your raw material purchasing changed over the past few years? How has that market become different or more complex? What do you see happening in the next few years?
Sam Donadio: In the recycling world of pallets, getting involved in the core pallet market is like swimming in a sea of sharks. The GMA, a widely used industry standard, is deteriorating. Our yield of A grade pallets is as low as it’s ever been and yet our cost per core pallet is as high as it’s ever been.
As our customers automate, using more conveyors and robotics, we’re finding that the GMA recycled pallet is not the best fit for automation. It’s getting very difficult to take an A grade pallet off our line and send it to our customer. It’s not meeting their requirements because of the different configurations of the pallets in the pool. We have to give the customer other options. There are three choices: 1) Recycled A’s, 2) Combo’s (new stringers and used boards or vice versa), 3) New.
My personal opinion of the recycled GMA stringer pallet is that, it’s a dinosaur, a relic of the past. Although it has worked for years, it is a terrible design.
The B pallet also frustrates me. We pay, in most cases, just as much for the core as the A pallet, we put more labor and material into the repair, and get $1.50- $2.00 less per pallet. The B pallet seems to be a loss leader for the pallet industry. I believe there will always be a demand for the GMA. There are millions of them in circulation. I don’t believe our customers will be using the same volume of GMA pallets as in the past. Without a doubt, the block pallet is the pallet of the future.
Carolyn Beach Skinner: My customer base still prefers the GMA pallet. We’re out there scrambling, trying to get all the cores we can. It is hard. But we’re doing a lot more hybrids now. And our customers actually like those better. So once they kind of get used to that better quality, they’re not going to just use #2s or #1s any more. We’re building a lot more new #1s, too.
A lot of my customers realize that the quality of the used pallets is going downhill. And they’re preferring to just bite the bullet and order new pallets now. We are purchasing a lot more raw material now just because we’re building a lot more new and hybrid pallets. My customers still prefer the GMAs over the block pallet. And maybe that is because my customers are mostly agriculture-based companies.
Jeff Edwards: Over the last 12 to 18 months, we’ve had a lot of inquiries from potential customers that were buying recycled pallets that want to buy a new pallet. We try to find them something that will work and be cost-effective for their needs. In some cases, they’re paying more. In some cases we’re able to find a pallet solution for about the same price. But most of the time a new pallet costs a little more.
Sam Donadio: The problem for recyclers is that when we get pallets, a load has a mixture of different quality. It makes it difficult for us, requiring a lot of sorting. If we’re not sorting them well, the customer gets a pallet that they can’t use. It makes it very difficult for us. Maybe the quality of the pool will change and improve in time. For us, at this point, we’re not seeing it.
PALLET ENTERPRISE: Have you seen orders or inquiries for new pallets going up? Are users unhappy with the quality of the recycled pallets that are out there? Are there a lot more new pallets going into the system or not? Are a lot of those new pallets being exported?
Jeff Edwards: We’re seeing a lot more new pallets go into the system. We’ve had one company that recently changed over their #1s to new pallets. They can’t get the #1s so they say we need the new pallets to replace the #1s. We’ve had a lot of those requests over the last year.
Asher Tourison: Strangely enough, we don’t make very many GMAs. We make tens of thousands of pallets a week, but not a lot of GMAs. We do have a couple food-related customers that buy a GMA-like-style pallet, but what they’re having us do is leave them in the heat-treating kiln quite a long time. This basically makes them a kiln-dried hardwood pallet because the customer is concerned about mold.
This customer was trying to buy #1s that were only used one time. We have one customer that takes a truckload of pallets a week. They’re pretty heavy duty. We put their pallet in the kiln for 24 hours or so. They’re paying a pretty high opportunity cost for that service.
One thing that has changed over the last couple of years. Some customers are turning to new pallets because they can’t get quality recycled pallets.
PALLET ENTERPRISE: What have you seen as far as lumber market changes?
Joe McKinney: First off, we are not primarily a GMA manufacturer although we do make a small amount of them. What we’ve seen pretty well mirrors what everybody else has said. We look for the pallet that doesn’t look like what we call a commodity pallet. We look for the odd sizes, the weird thicknesses, the different length boards on the top. I figured I probably ought to chase margin and not volume.
We track how many new and recycled pallets we do. A combo is considered a new pallet because we did the final assembly on it. Over the last few years, we have exactly reversed from being heavily recycled with some new to more new or combo pallets compared to strictly recycled or repaired.
We’re doing a lot more reclaimed wood, a lot more disassembly. And I think it has to do with automation in customer facilities and the variation across pallet manufacturers. Customers are becoming more demanding in terms of quality due to automation. This trend is driving us to more standardized pallet construction. And that means more of the combo and a little less of the recycled pallets.
