What a Mess
The recycled pallet market is facing challenges that it has never seen before. In my last column, “Anatomy of a Core Crisis,” we looked at the road that led to the current core situation.
The core supply situation is an extremely significant concern for most pallet recyclers regardless of size or region. Cores are easily the largest challenge of today’s pallet recycling industry.
The overall core picture was already becoming a challenge when the impact of Costco’s block pallet mandate began to really impact the market. There has been virtually no white-wood coming out of Costco distribution centers (DCs). Considering the volume of material that would usually come out of Costco, there is little doubt that this is having a considerable impact on the market.
Magic Forklifts
Costco’s block pallet mandate has had a profound impact on the market already. One factor that should be examined and understood by the pallet industry is exactly why Costco chose this path.
The primary factor is what I have referred to lately as the “magic forklift.” No, there isn’t any real magic to it. It’s just a very efficient piece of equipment from Costco’s view. The “magic forklift” is able to unload trucks loaded with block pallets at an amazingly fast pace. The “magic forklift” is able to grab six stacks at a time (two wide and three deep). Trucks that are loaded to maximize the load pinwheel the pallets with each row exposing one 40” side and one 48” side. When stringer pallets are loaded this way, each stack is pulled out separately because the notches in stringer pallets simply aren’t going to line up.
Costco is able to reduce the time to unload a truck from the 60-90 minute range down to 15-30 minutes. That’s some solid labor savings. When you multiply that times 200 trucks per day at each of Costco’s eleven DCs, times six days per week, the savings becomes enormous.
This technology and subsequent savings could lead other mass merchandisers to employ similar strategies.
The Road Ahead
Where will this lead us if the trend continues unabated? Recyclers have a tremendously varied view of the market, where it is headed and what it will look like five to ten years down the road. One thing that almost all recyclers do agree on is that the landscape is changing fast and the current 48×40 market is not likely to be the same five years from now.
With that in mind, I have been picking the brains of the recycling industry to see what the industry may look like five years from now according to the industry.
Future Pallets
The 48×40 footprint isn’t going away. The 48×40 white-wood stringer pallet pool is shrinking at an alarming rate. This is due to a lack of new units being introduced into the system. The white-wood 48×40 as we know it, or at least the current version of the system needs to be reworked or could be in jeopardy. It is no secret that I have been very pro industry pool over the years. I want 9BLOC to succeed. Whether or not the 9BLOC system succeeds, the white-wood 48×40 market is undergoing dramatic change at this moment.
If 9BLOC succeeds, then the work will be contained within a new closed loop system and the white-wood 48×40 pallet’s place will be reduced, but the players involved in the system will be part of the overall white-wood market.
If 9BLOC doesn’t survive, it is very likely that the white-wood 48×40 pallet’s place in the market will be greatly diminished. More recyclers will be chasing fewer opportunities.
In both instances, it seems very likely that the white-wood 48×40 market will be contracting. In the “Anatomy of a Core Crisis” article, we looked at the impact Costco had on new pallet production. Costco’s block pallet mandate will not likely bring about the end of new white-wood 48×40, but the shift could be dramatic.
Where does that leave the pallet recycling industry? What are our future opportunities?
Odd and Sods
One of the paths of least resistance in the case of a diminishing white-wood 48×40 market is the other common sizes of pallets. Square pallets (36×36, 40×40, 42×42, etc.) will be a more important piece of the pie. Nearly all recyclers agree that these squares, along with odd sizes (odds), such as 42×44, 44×56 and 56×44, among others will have a more prominent role, but will still not be a big part of the business.
Combo pallets and remanufactured pallets will take on a greater role as well. One of the challenges down the road may be tear down material in a shrinking pool. Another challenge for recyclers will be the harvesting of lumber from tear down pallets at a faster pace while driving down costs. This is both a challenge and an opportunity for the machinery side of the industry.
Repair for Hire
If the 48×40 market becomes
pool-dominated with the survival of 9BLOC, in addition to CHEP and PECO, those pools will need growth in their infrastructure. Aligning your company with one of the pools as a repair facility/depot may be the right opportunity for some.
The drawback in working with the larger corporate pools is something that some in the new pallet industry learned the hard way. You could be working toward your own demise.
Waste Stream Management
I remember the call as if it were yesterday. It ended up being the Pallet Profile Weekly’s Quote of the Week. Here is the quote, “I got a call from a chain hardware store wanting someone to pick up their pallets. I told them the area I cover and they asked if I picked up appliances. Sure, I can go a couple hundred miles to pick up an Amana microwave. What do I look like? Fred Sanford?” (Withheld to Protect the Guilty : 6/21/2002)
The pallet recycling arena was quite a bit different in 2002. Pallet cores were not so difficult to come by and the quoted contact answered the way most – if not all – pallet recyclers would have answered ten years ago.
I was curious if his view of the market would alter the way he thought of that offer today. I decided to call the quoted guilty party and ask if that would still be the case. His company has greatly deemphasized pallet recycling, but he was very forthcoming with his answer. He said it would depend upon how important the core supplier was, but the answer would still most likely be no.
There are multiple new factors to consider now. One very important one addressed by the contact – keeping core sources – has to be a high priority. Another trend that has gained momentum over the past few years is waste stream management. Many recyclers are already involved in this area in varying degrees.
Recyclers are working with DCs in programs to recycle stretch film, corrugated boxes and in some cases metals. The model creates a third-party handling of the waste stream, while endeavoring to keep as much out of landfills as possible. There is obviously money to be made in such pursuits. The clearest evidence is that the Waste Management company has shown interest in this style of recycling program.
The demand for such services is sure to grow over time. The demand to keep material out of landfills is not only corporate mandate driven but is also being legislatively driven as local and state governments are gradually monitoring, restricting and taxing landfill deposits.
Equipment diversification can open doors into the waste stream management side of the business. Shredders and balers could both prove to be wise investments. Vertical balers are not expensive and may be worth considering. New units can be bought for ten to twelve thousand dollars, with used units often selling for half of that. Diversifying equipment in front of the demand could provide big dividends.
Reverse Logistics
The landscape is going to change, but not all will be gloom and doom. For each door that closes, there will be opportunities that will avail themselves. Transportation and trucking will be an important part of this. Recyclers faced with a reduced core supply and reduced truck demands may find other opportunities with their trucks and trailers.
Closing loops for customers may provide good long term business opportunities through collaboration with others in the industry. The prime targets for such services are regional retailers. This provides the white-wood pallet industry an opening to forge mini-closed-loop systems that benefit both the customer and the pallet/pallet service provider an ongoing relationship that benefits everyone involved. This style of mini-closed-loop can be implemented with any size pallet.
High Tech/Low Tech
Virtually everyone I talked with had mulch on the list. That’s not a surprise. Mulch is already a key piece of business for many recyclers. That market is still on the rise. Fiber in general continues to be good business.
The larger recyclers all envision a market where technology becomes an increasingly important part of the business. Software packages that enable your customers to streamline their systems are becoming more common by the day. Systems applications and products in data processing (SAP), enterprise resource planning (ERP) and other such software packages handle companies’ payables, receivables, accounting, financial reporting, procurement, logistics, operations analytics and other aspects of their business. The deeper entrenched in technology they become, the more inclined they will be to deal with vendors who seamlessly plug into their system.
It’s going to be a brave new world, with new opportunities for those who are preparing to meet the challenges. Will you be ready?
(Editor’s Note: Jeff McBee is an analyst who researches and writes about the pallet industry and its raw material markets for Pallet Profile Weekly and the Recycle Record, the only newsletters dedicated to serving the pallet industry. For information on subscribing to Pallet Profile Weekly or the Recycle Record, call 800-805-0263 and ask for Jeff.)
