A variety of forces are at work to shape local pallet markets around the world. Here are insights from a number of industry insiders in Argentina, Asia Pacific, Europe and the Middle East.
United Kingdom
John Dye, president Timber Packaging & Pallet Confederation (TIMCON)
In the United Kingdom, the timber packaging and pallet industry has had a challenging few years, with the worldwide economic downturn affecting almost every sector, and a period of fluctuating timber prices, declining demand for new pallets and growth in pallet recovery and repairs, according to John Dye, president of TIMCON. However, the UK industry has made the necessary – and often painful – adjustments to give clients a continuous supply of the products and services that they require; and the industry has now experienced a good all-round recovery, although higher volumes would be welcomed.
The UK vote in June to leave the European Union also caused some uncertainty, although the long-term impact of this change is not yet clear, and it’s very much business as usual.
With growing European and government encouragement for the development of a circular economy, the increase in recovery, reuse and recycling of pallets is a very positive trend. There has also been growth in the use of home-grown timber and UK sawmills have invested heavily in facilities and in providing first class timber and service. As part of its close collaboration with organizations including the Forestry Commission and Confor and the wider forest-based industries, TIMCON is lobbying the government to ensure that adequate forest replenishment is in place to ensure long-term supply of domestic timber.
In the face of challenges and changes in the global market, the UK timber packaging and pallet industry has once again demonstrated its resilience and versatility. This is why wood continues to be the material of choice for more than 90% of the pallet market.
Germany
Olaf Oczkos, managing director, Paletten Report
German pallet prices have been experiencing a gradual decline over the last year, according to Olaf Oczkos, managing director of Paletten Report, a monthly German language subscription market report. The downward trending pallet prices can be attributed to lower timber and fuel costs, against a backdrop of fairly consistent demand. A major wood pellet plant recently closed, making even more material available to pallet makers. There is an abundant supply of timber in both Germany and Austria.
Margins on EPAL pallets are razor thin. Oczkos remarked that if pallet plants ran only EPAL pallets, they would have gone broke long ago. Any profitability is achieved through sales of other pallets, including CP (chemical) pallets. Many food products manufacturers prefer new pallets rather than used, so there is a regular influx of used pallets into the system. Closed pallet pools have had limited success in Germany, as they are often seen to be too expensive. He noted that CHEP has found a degree of success with its quarter pallets, which are used for display by some retailers.
Oczkos stressed that although his market report’s primary emphasis is on EPAL pallets, it is completely neutral in terms of the various pallet schemes. He recently featured an interview with a CHEP executive. Likewise, plastic pallets comprise just a very small portion of the market, although growing at a faster rate than wood pallets.
Launched over a year ago, Paletten Report has developed a pallet price index, and also provides current pricing for new, used and broken EPAL pallets in two German regions. The top 10 subscribing companies of the market report have a sales turnover in excess of €200 Bn. Subscribers are pallet dealers, forwarders and manufacturers of merchandise.
For more information on the Paletten Report, visit www.palettenreport.de.
Argentina
Alejandro Fridman, president, Pallet Collar Argentina SA
Wood pallets comprise around 95% of the Argentine pallet market. While wood pallet composition previously was roughly 60% recycled pallet sales and 40% for new units, the increasing core shortage has reconfigured the market to roughly half new pallet and half recycled. Pallet lumber prices are very variable because Argentina has had serious inflation problems during the last three years (25-35 % annually). The peso has depreciated against the U.S. dollar during 2016. This variability has resulted in increases to new and recycled pallet prices of more than 20 % since the beginning of the year.
The pallet recycling industry in Argentina is important because there is a great concern for environmental and social responsibility. This emphasis is fueled by multinational companies and the Argentine government. The availability and consistent quality of pallet cores are current challenges. Pallet recycling businesses are feeling the strain of reduced profit margins.
CHEP is the biggest player in the Argentine pallet rental market. Because large international companies such as P&G, Mondelez and Unilever use CHEP, rental has a strong influence. As rental grows, white pallet availability shrinks.
Fridman is currently looking to expand his business through two initiatives. One of those projects is participating in the Word Pallet program (http://worldpalletamerica.com/), an organization with a mission of establishing a worldwide pallet standard to the benefit of the logistics chain. His other area of activity is in introducing pallet collars to industries in Argentina. “Collars were invented in Sweden, and they have been widely used in Scandinavian countries for more than 30 years.” Fridman stated. “I think pallet collars will have a great success in South America because they are a very flexible, useful, modular and returnable packaging.”
The Middle East
Michael Modugno, vice president Groupe PGS
A subsidiary of PGS, PGS Middle East, is based in the United Arab Emirates. Lumber availability is satisfactory, mostly coming from Chile, Brazil and Eastern Europe. There was a slight price decline earlier in the year, but it since has stabilized.
Many new pallets are made by hand, and so the market is characterized by poor quality pallets, low prices and thin profit margins. Demand has been stable for PGS. Likewise recycled pallets are characterized by manual operations. Recycled pallets generally are of poor quality, and employ recovered lumber for repair.
Modugno sees the lack of industry infrastructure as a challenge to profitability. Another concern has been the rising cost of real estate. In the Jebel Ali / Dubai area of the UAE, rents have increased drastically.
Asia Pacific
Loscam
According to available research on world pallet demand, the annual growth during 2012-2017 should increase 5% from under four billion units in 2012 to over five billion units in 2017. Asia Pacific countries will likely grow at 8.1% during 2012 – 2017. Of course, China is key due to its increasing pallet utilization.
Within Australia, there is a steady, strong demand for local timber supply to serve both the domestic and international markets. Although this places strain on overall supply capacity, the main timber mills have a strong sustainable model which is able to accommodate demand without significantly impacting price.
In the rapidly growing Southeast Asia market, Loscam continues to invest in its strategically located network of service depots to fulfill customer needs. As Loscam strives to improve quality and supply, while reducing cost, here are some of the challenges it faces.
Supplier development: A lot of local timber suppliers in SE Asia are still running their businesses traditionally. The milling process has room for improvement in terms of safety, production traceability and productivity. Modernization is important because some world-class customers have developed codes of conduct to ensure supplier compliance with standards related to worker safety and sustainability.
Sustainable source of supply: The small size of forest farms or lumber suppliers in Southeast Asia means that they cannot supply in large volumes. Thus, lumber comes from multiple suppliers in each country rather than just a few strategic partners.
Source of supply: Log and lumber sources are located far away from manufacturers in countries, such as Indonesia. The high cost of logistics to move raw material to manufacturers is blended into selling price and is difficult to avoid.
Local versus global sourcing: Local material such as mixed wood, rubber wood and acacia wood are not commodity products, and are subject to price fluctuation. The key point is to find a balance between using local wood versus imported material, such as pine.
Technology improvements: Even though Loscam has automated repair lines, there is still considerable manpower required in operations. It continues to research opportunities for new technologies and better automation that will allow it to increase productivity, improve quality and raise the level of occupational safety.
