On all fronts today we are bombarded with negative reports about what is happening in our society. Negative news reports. Discouraging business comments. The trend seems to never end.
The biggest issue many businesses seem to face is a lack of confidence in the future. The government indicates that businesses, particularly small businesses, should hire more people. Our economy needs it. Of course there doesn’t seem to be a positive incentive to encourage businesses to do so. Business people don’t just hire people to give them a job. They hire people because they need them. Occasionally you will run into a business owner who is experiencing better sales and more positive business conditions, but today that is the exception instead of the rule. Business is anxious for an improved economy. I am certain that everybody who reads this letter would love to have enough need for help to hire more employees.
By the time this issue of the Pallet Enterprise reaches readers, the great federal debate about raising the national debt ceiling and what to do about the federal budget may have reached some conclusions. Certainly few things in my lifetime seem any more critical to our economic prosperity and future than how to resolve these issues. The debate about spending cuts versus revenue increases is critical to our very survival. It is at the very center of today’s economic woes.
I recently spent some time with a good friend of mine in the pallet business. He said that he had received calls from a number of friends in the business who shared how difficult times have been. They are having a very difficult time today making any money and even keeping their businesses viable. Some pallet companies that are well known within our industry were sharing with him how difficult conditions are when it comes to pricing, securing raw material and pallet cores, rising costs, and increased competition. Just a few decades ago, pallet recycling was in its boom period, and it was relatively easy to make recycling profits. Now pallet recycling seems to be just as competitive as manufacturing, if not more so.
Over the years, I have often seen businessmen expand their business operations during tough economic times. When business levels are slow, many have seized the opportunity to buy new machinery, redesign production facilities, and take a wide variety of steps to modernize their businesses. That way when business picks back up, they are in a better position to efficiently handle improved demand. Or maybe they have made significant expansions into related businesses, such as sawmills, recycling operations, wood pellet plants, etc. Equipment suppliers are anxious to sell their machinery and services when business is not good. The time is often right for making a deal.
Only this time around there is a lack of confidence in the market. Many business owners are not so certain that business levels will rebound in the future in the same way they once did. It used to be a matter of when, not if. Now there are concerns about when, if, and how.
Certainly production capacities in the pallet and sawmill industries are great enough to handle not only current but typically expected demand levels. At the same time, that industry reality doesn’t necessarily mean that every company is positioned to serve the market as it changes. I continue to hear about bold, forward-looking companies that are plowing ahead and putting in new equipment lines because they know it is the right thing to do to be ready for the future. You have to decide what is the right move for your operation. For some companies, you are just struggling to hang on. For others, you have settled into new normals that are okay but not stellar. Regardless of your situation, you need to decide what is the best strategy.
This issue’s cover story focuses on Mid Continent Nail Corp., which during this recession is moving forward by expanding its already impressive production capabilities. Seeing an opportunity with major changes taking place with one of the other nail suppliers in the market, Mid Continent has decided to invest heavily in expansion.
Let’s look at a few trends that I believe will have an impact on the future of the industry. Your opinion on these areas will likely determine the path you take over the next few years when it comes to planning for the future. The one thing you can’t afford to do is to fail to plan. Even if you are cutting back, you need to have a plan.
I believe these trends must be considered when shaping your plan.
1.) U.S. Population Increase – Having passed the 300 million people mark, it looks like the U.S. population will continue its growth spurt. Although the actual percentage growth may decrease in the future, the U.S. Census Bureau predicts that the U.S. population will reach more than 350 million people by 2025 and 422 million by 1050. More people translates into more goods shipped on pallets and increased pallet production. The three major factors: mortality rate, birth rate and immigration all point to significant population increases. This prediction could be mitigated somewhat though if the overall U.S. economic outlook remains sour.
2.) Increased Global Palletization – Pallets are everywhere now, even in third world countries. The more globalization and large multinational companies affect supply chains around the world, the greater level of palletization you will see. Even if pallets are not used at the point of manufacture, shipping and handling efficiencies make it necessary later in the supply chain.
3.) Raw Material Crunch – Whether you are talking about logs, lumber or pallet cores, the material this industry needs to supply its customers remains in somewhat short supply. This is only likely to get worse as more sawmills shut down, decreasing the capacity of low-grade material on the market. Although we are far from running out of trees, we are having a hard time finding loggers and sawmills that can dependably supply the market in some areas. This capacity may never come back. Secondly, greater control over pallet cores by a limited number of major players is making it difficult to obtain used pallets, especially in the GMA market. This trend is likely to increase as the middle-level players get squeezed out. Don’t be surprised if you see some big names go out of business just because they can’t get enough pallets at the right price to supply customers.
4.) Increasingly Demanding Customers – Pallet and lumber producers are no strangers to picky and demanding customers. But it seems like the task of keeping customers happy has become exponentially difficult over the last few years. From regulations to mold and sanitation concerns to rising input costs and even faster delivery times, it takes a lot just to keep current customers happy. A recent survey of pallet users by Modern Materials Handling magazine found the following top concern for future changes regarding pallet usage:
Business activity leveling-off…31%
Cost…21%
Customer requirements…15%
Regulations…9%
Composition of pallet…9%
Green…5%
Durability…5%
Availability…3%
Recycling…3%
Sanitary issues…3%
Design of pallets…3%
Heat-treated pallets…1%
Miscellaneous…8%
This survey was conducted last year. What is interesting is how relatively insignificant environmental, sanitation and other issues are compared to business concerns, such as customer requirements, business activity and costs. When it comes right down to it, cost, customer requirements and avoiding legal wranglings are top concerns. It makes one wonder if Johnson and Johnson would have cared as much about pallets as it does now if it had never had to deal with regulatory oversight involving its recent recalls.
5.) Everyone in the Pool – Look for pooling to become a bigger part of the market, even for non-GMA pallets in the future. This will likely occur as companies realize the true savings potential of standardization and pooled packaging. The more pallet recyclers become accustomed to participating in pooled systems, the greater and cheaper the infrastructure will be in place to support a wide variety of pallet and packaging pools. There will always be a limited number of sorts that are cost effective to do at retail locations. Sorting out special sizes and brands makes more sense at the recycler level. Even recyclers will see a point where it is not worth the cost to segregate some sizes or standards. But look for at least a few more major players to attempt to make some inroads into the rental/pooled pallet market.
I have raised a lot of questions but have not nailed down too many specific answers. One thing is certain however. There was a time when you could look toward the future with a certain degree of certainty. Now we do not know what changes technology will bring.
Even though wooden pallets have more competitors than ever before, it appears that wooden pallets will be the shipping platform of choice for most of the materials handling world for the foreseeable future. While the industry should never take that for granted, it does appear to be one “certainty” in a world where very little is certain.
