The pallet industry went through an exciting year in 2021. Challenges ranged from shortages of labor, raw materials, and pallet cores to an unprecedented level of company mergers and acquisitions. Through it all, Pallet Enterprise has been there to give readers the information and insight that helps them understand how these events and issues will affect them now and in the future.
At Pallet Enterprise, we also believe in hearing from you: the company owners, leaders and entrepreneurs that shape the industry. In this exclusive Pallet Enterprise article, we spoke to a number of pallet recyclers asking for their perspectives on key industry questions and trends.
Our participants represent a wide variety of individuals within the pallet recycling community. A special thanks to those that shared their insights. This roundtable includes: Beatrice Vasquez – corporate secretary and CFO of Oxnard Pallet in Ventura County, California; Mitchell Kamps – president at Kamps Pallets based in Grand Rapids, Michigan; Emily Gutierrez – business development manager at Pallet Consultants Nationwide in Atlanta, Georgia; Jeff Otto – president of Pallet Recycling in St. Paul, Minnesota; and Steve Berger – president of Integrated Recycling in Scottsdale, Arizona.
Pallet Enterprise: How does all the recent M&A activity in the industry change the landscape for independent pallet recyclers?
Emily Gutierrez: The recent M&A activity involving large pallet brokers and pallet service providers with national contracts has, in some markets, affected independent recyclers by reducing their core supply and raising the cost of cores. When an asset-based broker obtains a national contract organically or through an acquisition, they could choose to bring the cores in-house vs. processing them through independent recyclers. They can also choose to move pallets into markets that yield them more profit.
However, some of the largest pallet companies often use affiliates to process cores, benefiting the broker, independent recycler, and the customer. One challenge, the national contract holder may take away that core business anytime. Independent recyclers should work to build long-lasting relationships with brokers that they trust.
Beatrice Vasquez: While it is clearly a progressive movement to adapt to potential changes in the future, this will be a very challenging time for independent pallet recyclers as they try to remain competitive. New and different strategies will need to be realized and taken into consideration. However, I believe there are quite a few companies that really appreciate the personal attention they receive from independent pallet recyclers. This is especially true in emergency situations where we come through for them.
Jeff Otto: Smaller recyclers can still be competitive when it comes to responsiveness and service. When Walmart took the world by storm in the United States, I remember reading about a guy that owned a hardware store in a certain town. Everybody else was closing up shop and complaining. He went into Walmart and looked at all the things that they didn’t have and put them in his store. So, when people went to Walmart and couldn’t find what they needed, they went to the local hardware store for specialty items. The same thing can be true with the pallet recycling sector. Smaller recyclers can be nimble to meet needs that bigger companies overlook.
Pallet Enterprise: Beyond quality and price, what are pallet customers looking for from service providers now? How will that change over the next few years?
Beatrice Vasquez: Due to the volatility of the pallet market, most customers now realize the critical importance of loyalty and reliability with their pallet vendors. Customers are asking more questions to understand why this was happening. As they become more educated, they understand the importance of the pallet in their supply chain process. Customers are trying to get better at forecasting and willing to maintain larger pallet reserves within their own inventories (as their building code allows). I do believe some companies that have broken cores (pallets) may want to consider pallet repair programs to work smarter in the future.
Mitchell Kamps: We strive to meet or exceed customer expectations by providing fantastic service. Customers are looking for quality equipment (trucks and trailers), robust IT systems, reliability, and creative product and service offerings.
Pallet Enterprise: How have you adjusted your business operations since the start of the pandemic?
Emily Gutierrez: During the initial stages of the pandemic, we allowed individuals to work from home when possible. We encouraged social distancing and mask-wearing. More recently, to comply with the federal vaccine and testing mandate, we prepared to launch an on-site weekly testing program for all unvaccinated team members. Our priority is our team members’ health and ensuring that production remains uninterrupted.
Dealing with the effects of the pandemic today, we have increased our activity level to support the high pallet demand. We invested in lumber processing equipment to combat raw material shortages and price surges during the pandemic. We continue to invest in trailers, tractors and new machinery to support our customers.
Steve Berger: In challenging times, we have a tendency to focus on our struggles, not those of our customers. Our strategy through the pandemic has been to ensure that we are not just a vendor to our customers but instead a valued partner. While the pandemic presented historic challenges to all of us in the pallet industry, many of our customers felt its impact far worse. Pallets and pallet handling were the last things that they wanted to be concerned with. The pandemic gave us the opportunity to prove our value to our customers by providing solutions that mitigated their pallet related issues and allowed them to reallocate resources and focus on their core business.
Pallet Enterprise: What does the pallet industry look like in 3 years? How about 5 to 7 years from now?
Mitchell Kamps: A significant amount of automation will be entering the pallet recycling market to combat the labor shortages. Additional services and product offering will be required by more and more customers to remain relevant.
Steve Berger: The question is, “What will the new normal be after inflationary adjustments on factors such as nails, lumber, labor, and transportation?” I can’t help but believe that hot topics like ESG (Environmental, Social and Governance) will influence government and corporate decision making. These decisions will certainly affect pallet production and lumber availability, effectively reducing margin over time. Furthermore, industries with large profit margins typically see the addition of new companies looking to get in on the action. This will create new competition in the marketplace and further challenge our margins.
We can assume that pricing will normalize over time, but will it ever return to pre-pandemic levels? Most likely not. What we can expect are smaller margins. Best guess – three years from now we will have returned back to historic margins, several new local/regional pallet companies will have entered the market, and we will have one or two “mega” pallet recyclers.
Jeff Otto: A big factor affecting our industry is the truck driver shortage. To get a qualified driver for a small company at what it costs, that’s a real challenge. One of my competitors recently told me that he had to pay $35 an hour to hire a driver. Small businesses like ours cannot all of a sudden start paying their drivers that much money. Not that they don’t deserve it or anything. It’s just not in the cards to stay competitive with the cost structure of our business.
I think the consolidation trend is going to continue for the next three years. Kamps and 48forty Solutions are going to continue to build out their national presence and gobble up market share. I assume that their goal would be to go public.
Once you go out to 5-7 years, I think things will change; the consolidation craze will be over. The big companies are not going to be able to serve everyone. So, I think there’s still going to be plenty of room for us smaller guys that value service and relationships. Some of the mid-sized recyclers may be squeezed due to core supply.
I saw this consolidation trend and the focus on national purchasing becoming a trend back in 1994 when I was involved in the leadership of the International Association of Pallet Recyclers. It took longer to fully materialize, but it has eventually become a reality.
