When I first became a part of the pallet industry in the 1970s, low-grade hardwood dominated the sector in the East.
Many people wouldn’t think about using softwood. The idea was that hardwood is strong, and softwood works for some applications but isn’t anywhere near as durable. While it is true that hardwood tends to be stiffer than softwood, real-world experience has shown that softwood can work well in many pallet applications. For example, CHEP USA uses softwood in its North American pool. Over the past 10-15 years, softwood has grown significantly in its use for pallet production, even in the heart of the hardwood region.
So how did this transformation occur? Well, it didn’t take place overnight. But market forces have led pallet companies to opt for softwood in many cases. Let’s start by looking at why hardwood has dominated pallet production in the East for so long.
Hardwood is plentiful in the region, and producers need low-grade markets to help offset costs and fully utilize the material. And honestly, other low-grade markets (board roads, crossties, crating, industrial timbers) are not large enough to soak up all the supply. Compared to softwood, which can change price much faster depending on what is taking place in the housing sector, low-grade hardwood markets are fairly stable without wild price swings. Many pallet users and pallet standards call for hardwood lumber due to its relative strength and durability. The spec called for hardwoods, so that’s what the purchasing agents bought.
Going back decades, there have also been long-standing relationships between hardwood producers and pallet markets. Also, many pallet companies in hardwood territory are set up to process hardwood cants.
For decades, many pallet buyers had a mental block against using softwoods. They thought, “Hardwood = Strong = Good for Pallets and Softwood = Weak = Bad for Pallets.”
But that all started to change in 2013, when an unprecedented demand for low-grade hardwood left industrial users scrambling to find material. Pallet companies are the low man on the totem pole when it comes to buying power. The only option for many pallet accounts was softwood, and pallet providers convinced many customers to try softwood as a substitute. This led to what we have called “The Big Switch.”
Pallet buyers who wouldn’t have ever thought of using softwood made the switch. Some customers went kicking and screaming because they were concerned about the strength of softwood. But as they experimented with softwood, many pallet users discovered the material’s benefits.
Pallet customers found that in most cases, softwood, especially SYP, was strong enough to work well for most supply chain shipping scenarios. Many pallet customers are not concerned about the long-term durability of a pallet. They just want it to survive the first trip.
What are the benefits of softwood? The supply of softwood is plentiful, especially in the South, where SYP plantations dominate the forests in many states. Much of the softwood material comes dry, which helps mitigate mold problems associated with green lumber.
Also, appearances can be everything. This can also be true when it comes to pallets. Softwood has a cleaner, lighter appearance that customers like. KD material can facilitate more efficient production of ISPM-15 certification for export pallets. Also, softwood tends to be more competitive from a cost standpoint. At the very least, setting up your system to be able to utilize either softwood or hardwood gives you the flexibility to use whatever material is more cost-effective at the time. Also, softwood is more readily available as cut stock in more markets, and some pallet companies have moved away from producing their own material. These companies have moved almost exclusively to softwood. A good example is the story on page 22, Hinton Lumber and Cottondale Wood Products.
The Big Switch has fully taken place for many pallet producers, where softwood now dominates many areas in the East. Overall, pallet users have gotten over the mental block to softwood, and many prefer it now. The reality is that the hardwood sawmills of today are in trouble. And their biggest concern is not pallets.
The Pallet Profile Weekly has reported on hardwood market concerns over the past year. Earlier this year, Rick Henretty wrote in the Profile, “Hardwood cants and board prices have been experiencing steady downward pressure for some time now…The condition and health of hardwood mills remain a growing concern for many lumber suppliers and pallet producers.”
The Profile quoted a pallet manufacturer in the South who lamented, “I expect there will be a lot of sawmills, especially hardwood, that may drop out if the grade market stays like it is for another six months to a year.”
Sadly, this sentiment has been echoed by many others in the industry in all regions. Hardwood grade markets drive production requirements. And grade markets are under attack from composites and other building and flooring materials. In the United States, many younger buyers are looking for pine, a cleaner wood appearance compared to dark hardwoods.
Customers have switched to alternatives to save money and simplify do-it-yourself installation. That’s why the U.S. hardwood sector has jumpstarted promotion campaigns to change consumer tastes. Real, solid hardwoods do have some major advantages when it comes to air quality in a house, as well as environmental and sustainability benefits. Check out the latest promotions at https://www.realamericanhardwood.com/.
Internationally, the U.S. hardwood market has struggled over the last several years. China has been a huge market for hardwood lumber and logs, and this business has taken a major hit due to tariffs combined with changing Chinese housing demand and trends. Also, China’s economy is slowing, which means that those consumers are looking for cheaper alternatives.
In this downturn, low-grade has been a savior for many hardwood mills, especially in the crosstie market. But sawmills can’t afford to run too long with their higher-value markets in the tank. That is why many pallet companies are concerned about their hardwood suppliers. How long can they last?
Some pallet companies have kept buying some material just to maintain good relationships with hardwood sawmills. But as demand has dropped, most pallet companies have plenty of lumber on hand, and they are not worried about being able to find it on the market if they need it. So, no matter how much they want to help their lumber suppliers, they can’t tie up capital with extra lumber inventory.
The next six months will be very interesting when you see how hardwood mills respond. Some have already cut back on production and reduced shifts. Some have gone out of business completely. Honestly, the wood pallet sector needs the hardwood suppliers and vice versa. Having more options (both softwood and hardwood materials) is a good thing. Now is the time for the hardwood sector to work with pallet producers to ensure that they are giving them what they need. The old way of doing things may lead to even more pallet companies opting for softwood.
There aren’t any easy answers here. But if the hardwood sector wants to take back some of the market share it has lost to softwood, it needs to start a new conversation with the pallet industry. One good thing is that hardwood prices have come down a lot this year. There are some places where softwood and hardwood are equal.
The Profile recently reported that hardwood pallet prices continue to reflect steady to mild downward pressure in some areas. In some cases, hardwood pallets are close to, if not lower than, the price of softwood pallets now. Some pine pallet manufacturers in the Midwest and Central South, who use #3 or better softwood, are reporting prices slightly higher than a hardwood GMA.
For more information on the new pallet market and low-grade lumber, check out our weekly market report, the Pallet Profile Weekly. You can subscribe today online at https://palletprofile.com/subscribe.asp or call 804-550-0323, extension 105.
