To remain in business, every recycler must have pallet cores. But core supplies are dwindling for a number of reasons. And it is certainly making life difficult for pallet recyclers across the United States.
A pallet core is a used pallet that a shipper doesn’t need anymore and decides to sell to a recycler for inspection/repair, dismantling or, in some cases, grinding. Cores are the lifeblood of pallet recycling. Many shippers, warehouses, retailers and others have turned core accounts into a valuable revenue source. Core prices now average anywhere from $5-$9+ depending on the region. The West Coast, particularly California, has the highest prices in the country, fetching $9 or more per core. Prices in the East range from $5-$6+. Metropolitan areas and larger core accounts can attract higher prices due to their market dynamics.
As cores get harder to find and more expensive, more and more pallet users are holding onto them. The supply chain needs more pallets as retailers are holding onto more inventory, having to support omni-channel distribution, growth in e-commerce and much more. Companies that used to emit pallets are now hoarding them to secure supply chains. having pallets on hand is worth more than cash, even though pallet core prices have skyrocketed over the past two years.
Who gets the cores is changing as well. More core accounts are being awarded on a national or regional basis. This makes it harder for smaller, local players to access core accounts unless they go through national companies or brokers. At the same time, large pallet rental providers are struggling to supply customers. So, more blue, red and black pallet users are looking for white-wood supply.
Consolidation in the pallet industry is also putting control of large core supplies in the hands of just a few companies, primarily 48forty Solutions and Kamps Pallets. These large players are supported by private equity and have the pocketbooks to gobble up core accounts and/or pallet providers.
Another challenge is the poor quality of many cores, which leads to more disassembly or grinding. Poor quality cores can’t be repaired. At best, they can be used to recover lumber for repairing used pallets or producing combos.
Finally, the high cost of cores is driving scavengers to be more aggressive. Every pallet they find is more money in their pocket. And some scavengers are deciding to forgo selling those pallets to recyclers. Instead, they are selling mixed loads or odd-sized pallets to companies that realize all they need is a pallet and not necessarily a GMA (48×40) pallet.
So, what does all this mean for recyclers? First, you have to develop a core strategy for the next five years. You can’t just assume that the market will remain the same because it isn’t. The market is changing quickly. Core accounts you were able to depend on in the past may not always be there. There are a number of things you can do to secure your supply or pivot strategies.
Pallet recyclers that provide accurate information and fair pricing will usually have a loyal supplier. It’s sort of like going to the auto mechanic that you trust. When prices increase, be willing to offer more and provide fair compensation for your market. That’s why accurate counts and better data analysis on each load can help you identify which accounts are worth keeping and what prices to pay.
Secondly, it may become necessary to change your operation to process more odd-sized pallets or junk pallets differently. You may also need to develop greater disassembly and trim saw operations to produce more recycled boards. Several machinery suppliers have developed new high-speed sorting and trimming saw lines. This includes Alliance Automation, PRS Group and Smart Products. This recycled lumber can be turned into remanufactured pallets or lower your repair board acquisition costs.
Thirdly, you may need to sort more odd-sizes and work to turn customers into happy non-GMA pallet users. If customers don’t have to use GMAs, you can probably lower their costs and find new, happy homes for odd-sizes. Maybe you can even convert a customer to accepting mixed loads. This would obviously lower your cost to service that customer.
Another strategy is to develop a buying cooperative that connects you with other pallet recyclers to compete for national core accounts. You would need to fund and develop a national sales team that could help you sell and buy pallets on a national basis. This is a smart, long-term strategy for mid-sized pallet recyclers to consider. The biggest challenge in this regard may be competing with the private equity fund mega-recyclers.
Our team at the Recycle Record is hearing more concerns from independent recyclers that 48forty Solutions and Kamps Pallets are aggressively going after core accounts. This is driving up prices and causing consolidation control. That’s a key reason why independent recyclers need to develop a core strategy. Recyclers are losing accounts that they have had for years to the mega recyclers. But you can always innovate and find ways to provide better service and more consistent quality. It all starts with having a strategy to find your solution to the core conundrum.
