Let’s face it, pallet quality has been a race to the bottom over the last few decades. It isn’t even just the white-wood sector. Our staff has heard complaints that even pooled pallets are not living up to some customers’ expectations. Something has to change.
The reality is that pallet companies will produce whatever customers want. If they want extremely low prices, they will get increasingly lower quality pallets. Computer-assisted design tools are great, but they have also contributed to taking more wood out of the pallet to produce lower costs. We may have reached the point though where in many cases poor quality pallets are costing more than customers realize. You might save a dollar on a pallet but end up losing many times that amount in terms of damaged products, jammed automated lines, and dangers to employees and customers interacting with unit loads.
According to the National Retail Federation, the average shrink rate in FY 2022 increased to 1.6%, up from 1.4% in FY 2021. When taken as a percentage of total retail sales in 2022, that shrink rate represents $112.1 billion in losses. Shrink is a catch-all term that covers many sources of lost product sales including theft, lost products, etc. But product damage in shipping is a driver. This is especially true for large or oversized or heavy products.
As warehouses and distribution centers are automating, pallet quality is an increasingly important issue for some product producers. This may only be a small percentage of the overall U.S. pallet pool. But the time has come for the U.S. pallet industry to investigate developing a verified quality control program for both new and used pallets.
At industry meetings over the past few years, my son, Chaille Brindley, has called for the development of graded pallets for premium pallets used in automated supply chains. The idea is to have a set standard that can be applied to new and used pallets. Since major retailers and product manufacturers must approve and support any new standard, they need to be involved in the development process. In addition to a set standard, graded pallets are inspected by a third-party on a spot-check basis similar to what is done for ISPM-15 compliance. The same companies that do heat treatment inspections can inspect the graded pallets. Of course, customers can also do spot checks for incoming loads.
These premium, graded pallets would sell for a premium since they are ideal for more sophisticated supply chains. The reality is that most pallets wouldn’t fit the grade, nor do they need to meet this new standard. But maybe 5-10% of the U.S. pool would qualify giving pallet companies more options to serve the most demanding applications.
So, why is this needed? The new economics of the pallet industry incentivize pallet quality degrade. As labor rates have skyrocketed along with insurance, automation expenses and other input costs, pallet companies are increasingly getting squeezed. Even with lower lumber and core costs, pallet companies are facing tough economic pressure. This encourages manufacturers to remove wood from pallet designs. Recyclers are encouraged to be a little less strict when it comes to pallet grades. What constitutes an A or #1 grade pallet is very subjective. And in markets where recyclers are getting squeezed, don’t be surprised if standards change to be a little more favorable to the recycler.
In addition, the major destocking process from retailers has flooded the market with used pallets, and many of these pallets are very low quality. Pallet companies have tons of used pallets that need to be processed and moved. But #2 pallets are not selling well in many markets. Recyclers are turning these pallets into #1 or remanufactured pallets. There are millions of below #2 grade pallets out there right now. These “crap cores” are degrading the quality of the overall used pallet pool. And most of these just need to get ground up if lumber cannot be efficiently recovered.
A number of pallets users/distribution centers are in the process of installing vision-based pallet inspection systems. One popular version is the subject of this month’s cover story on page 14. Why would major retailers or product manufacturers go to the effort to inspect pallets? The reason is simple. Pallet quality can affect everything in supply chains. These inspection systems provide data and oversight to ensure compliance with whatever standards a company needs for its facilities and operations. While these systems are just beginning to make inroads into U.S. supply chains, the fact that they are there at all shows how important the pallet quality discussion is for some applications. Our team believes these conversations will only intensify.
And while inspection systems can act like the cop to ensure compliance, the starting point is established standards that can apply to premium pallets. The big question is, ‘Who will lead the effort?’ What do you think? I invite your feedback. We will not publish your comments without your permission. Please e-mail your thoughts on this developing issue to chaille@ireporting.com.
