One of my favorite commercials of all times was the Wendy’s “Where’s the beef?” In our industry an appropriate parallel would be “Where’s the wood?” More precisely it might be “Where’s the hardwood?”
Since 1977, when Industrial Reporting started publishing the Pallet Profile Weekly, I have kept track of the pallet lumber markets. Most of the time, low-grade lumber markets have been fairly stable, but there have been periods when supplies were tight and prices moved higher. A few of these times of change have been serious, but we have always managed to get through them.
When hardwood supplies were restricted east of the
When customers experienced supply problems and higher pallet prices, they resisted with fervor. The media, the futures market, and most news sources say very little relative to wood supplies and prices. When they do say anything, it is invariably about the grade softwoods markets, not hardwoods, and never low-grade lumber. Buyers typically do not understand anything about our lumber markets and how they impact meager margins.
In the past, pallet prices often responded to higher lumber prices, allowing pallet suppliers to actually improve margins. Today, however, businesses are in no mood to entertain price increases. All they want to hear is more value and lower prices. Higher pallet prices have just not been on the radar screen in most cases.
So, what is really happening with today’s low-grade hardwood markets? Supplies of pallet hardwoods are the worst they have ever been. Ever! And we are just coming out of the summer, the season when pallet people historically often turned away potential hardwood supplies. But that was then, and now is now!
There is a huge shortage of low-grade hardwoods in the eastern half of the country, particularly in the
What is going to happen this winter and spring? There is going to be an unprecedented hardwood shortage. Suppliers will substitute softwoods from the
Can recycled pallets help fill the gap? Only to a limited extent, because at this point cores are very hard to find in most markets.
The bottom line is that this winter is probably going to be the most difficult lumber market ever in our history. Be advising your customers about the conditions and what is likely to happen. Be prepared to move pallet prices higher because margins simply will not permit holding them firm.
At the recent NWPCA Pallet Summit, an important pallet figure from Kroger stated how he and most pallet using companies feel about the looming storm. He stated bluntly that “it is not our problem. It is something the pallet industry will have to handle.”
Another pallet user on the panel put it this way, “I don’t want to hear anything about higher pallet prices.”
The bottom line is – Work to inform your customers of the pending storm. Prepare them but do everything you can to secure sufficient raw material supplies. Be prepared for stubborn resistance to prices increases. Buyers have dug in against price increases and have been resisting them vigorously this year, but sitting on lumber increases is simply not possible for most pallet manufacturers. Nobody likes higher prices, but some times conditions are simply outside of control. The only way to avoid price increases might be to switch from hardwoods to softwoods, South American lumber, or recycled pallets.
Heavy rains over the past year have been a major factor in hardwood country. But more permanent issues are at work. We may well be facing a paradigm shift in the pallet industry.
The Pallet Profile Weekly will be publishing a research paper that explains this whole issue in much more detail, something that you can share with your customers. To subscribe to the Profile and get your copy, call 800/805-0263 and talk with Jeff.
