Earlier in the year economists and financial experts were hoping for a series of interest rate cuts to lead to brighter days in the latter half of the year. But those cuts have yet to materialize. However, the Federal Reserve is anticipated to move rates lower this fall. Job growth has slowed as unemployment is starting to inch up. The economy is definitely slowing. And everyone is looking for hopefully brighter days in 2025.
At the same time, some economists have warned of a slight recession over the next six months. And the pallet industry has already been in a recession for quite some time.
Recently, J.P. Morgan Research projected that the probability of a U.S. and global recession in 2024 has hit 35%, up from their 25% midyear estimate.
Various contacts to the Pallet Profile have reported being down anywhere from 25-45%. Some contacts, particularly those currently servicing the agriculture industry or making specialty pallets, have reported strong demand. Some companies producing specialty pallets and containers have experienced solid demand even as the market for 48x40s continues to be sluggish.
Based on industry conversations, overall optimism for a strong finish to the year seems to be running low. “We expect sales to be off about 25% from this time last year, and we’re not very optimistic about the balance of the year,” recently commented a pallet manufacturer in the Central South.
Earlier this year, Steve Clark, founder of Propak and CEO of PLA, told me in an interview, “I don’t anticipate a material change candidly for the balance of this year, for sure. Which then as you well know in our industry, makes us look at the early second quarter of next year. So, this is a time where everybody gets better or gets gone.” Clark is very plugged in to the major retail scene and is a keen observer of retail activity for pallets.
Overall, the recycled pallet market has reached an equilibrium. Recycled prices have stopped plummeting for the most part. But they have given back all or most of the gains achieved over the pandemic. While core and raw material prices are down, labor remains an input that is still very elevated. And this trend isn’t likely to change anytime soon.
Numerous pallet manufacturers are still getting pressure to lower prices. An Upper Midwest pallet manufacturer mentioned this summer, “We have lowered prices six times since the market peak. Margins are pre-pandemic. Forced to be defensive in retaining business now. It’s nearly impossible to get new customers without almost giving pallets away. Cannot wait for this cycle to change!”
One of the biggest problems for pallet companies is that typical usage patterns are not holding. Many producers indicated that orders are inconsistent, frequently coming at the last-minute. This trend makes it tough to plan for the short-term. Most pallet companies are not keeping much safety stock to handle any sudden changes either. Many can’t afford to do that given the current market dynamics. There is extra capacity out there in terms of manufacturing capacity. But pallet users shouldn’t expect suppliers to ramp up overnight if demand suddenly rises.
And if pallet companies are struggling, the situation is even worse for sawmills.
Reports of sawmills shutting down or curtailing continue to trickle in month after month. The Enterprise put a spotlight on this issue in the April issue. But the situation only continues to get worse.
U.S. hardwood production has continued to significantly decline over the past year and a half with some contacts saying it is the lowest recorded level of production they have seen in decades.
One contact in the Midwest region shared, “I keep seeing more and more announcements for sawmill auctions. In the past, we would see some auctions throughout the year, but now it seems like there are two or three every week. That cannot be a good sign! I’m also hearing from more mills in our region that they are considering closing up or only keep a small scragg mill running.” One eastern pallet producer said this winter is when we could really see what mills will or won’t survive. This contact said, “You can’t build inventory in the winter, so if you don’t have it by then, you won’t survive.”
Not all signs are negative though. U.S. container imports surged in June and July as retailers sought to get ahead of some potential labor disruptions in the ports.
Lower interest rates could spur more consumer activity in areas, such as housing or cars or other big-ticket items. And no matter who wins the election, having an outcome will produce more certainty for consumers and markets.
In this crazy market, having reliable information is as important now as ever. Consider subscribing to our industry-leading market reports, the Pallet Profile and/or the Recycle Record. These independent sources of information track pricing, market developments as well as key information you need to know from M&A activity to regulations to economic drivers and more.
To find out more, contact Rick Henretty at 804-550-0323, extension 105 or visit www.palletprofile.com or www.recyclerecord.com.
