With the economy slowing, the pallet price trends for 2023 have turned a page from the 2022 pallet price trends report. Last year, supply constraints and robust demand resulted in unprecedented pallet price increases. A year later, with rising interest rates, ongoing inflation, and a weakening economy, the picture is somewhat different. COLA increases are historically high. Pallet supply conditions have improved, but due to factors outlined below, they will remain higher than pre-pandemic levels.
Last year, pallet prices ballooned by 50 to 120 percent, depending on the market segment. The market has softened. With pallet suppliers holding higher inventories and improved availability, the pendulum has switched to a buyer’s market. Purchasers are watchdogging pallet prices looking for relief or concessions. This is a tact that pallet purchasers should pursue with caution, as we discuss later in this article. Meanwhile, the continued expansion of private-equity-backed multi-site pallet companies in the pallet space has created greater national competitiveness.
Over the last two years, one factor that influenced the market was a rental pallet shortage that pushed desperate customers into the pallet-purchasing arena. That situation temporarily exacerbated the pallet shortage, but has now been corrected. The white wood pool currently enjoys more plentiful recycled pallets in circulation based on higher levels of new pallet production during the COVID-19 bump and increased empty pallet availability as supply chains have reduced their “just-in-case” safety stock levels.
Pallet Prices
Upward price pressures in the first quarter of 2022 were characterized by unprecedented lumber prices still. Beginning in May of 2022 we finally started to see some relief in pallet prices for the first time since October 2021. We have continued to see a steady decline in pallet prices since then, which is due in large part to the cost of lumber going down as well as the cost of transporting the lumber being significantly reduced. As of April 2023, FRED Producer Price Index for wood pallets declined to 198.82, the lowest it has been since June of 2021. The Index, while still considerably high, indicated signs of moderate relief.
In 2022, we saw softwood lumber get gradually lower in price as the year went on. However, since the end of Q3 in 2022, softwood has remained very constant in its pricing which can be a good sign as it means prices are holding steady, at least for the time being. Hardwood material, on the other hand, did not see as many reductions in price during 2022. This led to recyclers making more robust softwood pallets to provide a cheaper pallet than the same hardwood pallet, while still being able to hold the same weight. Starting in the Q1 of 2023, we finally started to see the hardwood prices softening, and have continued to see this trend into Q3 of 2023.
This has led to an increase in raw materials in both softwood and hardwood for manufacturers which leads to a reduction in pallet prices as there are more pallets being built and put into the market. Raw materials becoming much cheaper all around has led to a consumers' market where they have the freedom of choosing who to work with since all prices have evened out and everyone has availability.
Navigating the Pallet Price Trends
Big picture, Deloitte forecasts the economy as slowing substantially in the second half of 2023. As a result, demand for pallets can also be expected to reflect this trend.
Deloitte models GDP impact under three alternative scenarios, including Baseline (60% probability), Inflation (20%), and Recession (20%).
Other related product categories, such as warehouse automation investment, are expected to continue a growth trajectory after a flat 2023, which will positively influence pallet markets in the coming years. In a June 15, 2023 release, automation provider Interroll reported that “it has become apparent that there have been further postponements of end-customer projects, resulting in a delayed reduction of inventories. In addition, there is a general economic slowdown specifically in EMEA, while a recovery in Asia-Pacific is slow and delayed. The Americas region continues to develop positively.” This continued investment in U.S. supply chain infrastructure speaks to a belief that the economy will rebound and that labor will continue to be a constraint in the years ahead.
Pallet prices have softened but remain high. Lumber and transportation availability and pricing have improved, although labor availability remains a significant constraint for many pallet suppliers and will add pressure to increase wages as demand rebounds.
Like the economy, the pallet market has taken a breather, for the moment. Buyers have options, but typically not the bandwidth to thoroughly vet them. A strong partnership, based on trust, with an experienced, expert pallet provider can help you successfully navigate these waters.
From: reusable packaging news