For years the core supplies across the country have been tight. But it seems that many recyclers across the country are reporting even worse conditions over the last month as companies prepare for the Christmas rush. What has been a bad situation has become worse and shows no sign of relenting. There just aren’t enough new pallets going into the system, and those that are tend to be lower quality than in the past.
Core supplies have seen very little relief in years. Demand for recycled pallets has outstripped supply continuously for years with the exception of a few times, particularly when demand dropped significantly. Such was the case in in 2009 when pallet demand crashed with the economy.
Labor Day seemed to make matters worse in the continuous battle for cores. Many recyclers have seen core supplies dwindle at an alarming rate in September and October.
When core supplies – which were already tight – tighten considerably, the inevitable usually happens. The typical first market move is higher prices being paid for cores. This has been evident – on and off – all year.
The trend has kept upward pressure on core prices in almost every region for most of the year. The problem for recyclers is that paying more doesn’t generate more cores. Because the upward pressure on core costs is supply driven, the higher prices paid for cores almost never shifts supply lines. What typically occurs is the incumbent recycler keeps key supply lines by having to pay more for the cores to maintain what he already had.
There are multiple factors impacting the current supply/demand imbalance. There are two large factors that are specifically impacting both the supply and demand sides that are not likely to change. Costco’s move to an all block pallet inventory in January 2011 eliminated a sizeable portion of white-wood GMAs.
Although the move didn’t seem huge at the time, the impact on core supplies has been huge. On the demand side, the pallet recycling industry lost capacity when the economy buckled in 2009. The lost capacity came as a direct result of attrition as companies didn’t survive. That attrition was key to some recyclers surviving the economic downturn. Although pallet demand was greatly diminished, the surviving recyclers got by due to larger customer lists.
Now as pallet demand improves recyclers are trying – often unsuccessfully – to accommodate their expanded customer bases.
The continuing struggle to keep pace with improving demand now falls on an industry with a smaller infrastructure which makes keeping up with demand nearly impossible. The trend is not new but we have seen the shortfall climbing the industry ladder until it is now impacting the industry’s larger players.
In another market twist that seemed almost predictable, the recycled pallet industry’s inability to meet the improving demand has resulted in more new pallet demand as pallet buyers – who moved to recycled pallets – are forced back to the new pallet market.
Some of the new pallet demand is being met by recyclers who are taking advantage of very low southern yellow pine prices and are nailing up new pallets. Others are making combo pallets to fill demand.
Recycled pallet demand has been strong. Some of this may even be a bit overstated though, as recyclers try to handle the core crunch. Recycled pallet prices are bullish in most regions.
The price pressure can be seen across all grades of pallets. High quality, warehouse/ club grade #1 GMA pallets have regained their premium price position which had been lost when Costco jettisoned stringer pallets. Pallet demand in the #2 GMA market has been very solid and is outstripping supply in most areas.
