Wood pallet prices have grown at an estimated annualized rate of 1.5% during the three years to 2017 in response to strengthening demand. In particular, heightened industrial production and growth in the number of businesses have generated strong demand because the inflow of goods into the economy has necessitated the use of material handling goods like wood pallets. As demand has swelled, suppliers have raised their list prices without fear of losing business to competitors.
Input costs, however, have kept prices from rising more rapidly. Lumber prices have fallen from 2014 to 2017, easing costs of production for wood pallet manufacturers. Pallet price growth has also been tempered by the rise of alternative cost-effective supply methods. In particular, pallet pooling companies have increasingly established closed-loop networks where the same pallets are reused, repaired and redistributed multiple times. By repairing and remanufacturing used pallets, suppliers have maintained adequate product quality at much lower costs compared to the cost of manufacturing new pallets. Although new pallets need to be constantly fed into the system, many buyers do not use new pallets at all and instead benefit from the lower costs associated with recycled or pooled pallets. As a result, the wide availability of used and pooled pallets has somewhat suppressed price growth in the three years to 2017.
Additionally, there has been a high level of price volatility during the period, largely brought about by the shifting price of sawmill lumber. Significant price volatility has hurt buyers by making it more difficult for them to forecast costs and budget accordingly, while also reducing buyers’ ability to delay purchasing decisions. As such, buyers should seek contracts when possible to lock in favorable prices before they rise further in the coming years.
Strengthening demand for wood pallets and increasing input costs are forecast to drive up prices at an annualized rate of 3.0% in the three years to 2020. A general rise in industrial production activity, which will increase in line with sustained economic growth, will be the primary source of demand growth. Corporate profit and the number of business are also forecast to increase and boost demand for market products, driven by rising consumer confidence and improved access to credit. Swelling demand will ultimately reduce buyer negotiation power as suppliers become better able to leverage higher demand to raise their list prices.
Rising input costs will also contribute to growth in wood pallet prices. In the three years to 2020, lumber prices are anticipated to shift direction and begin to grow, in particular, due to tariffs applied to imported Canadian softwood lumber. As such, the cost of production will no longer limit price growth as it has during the past three years, allowing for steeper price increases during the forecast period.
Because prices are forecast to increase at a faster rate during the coming period than during the recent one, buyers should aim to contract with suppliers that can control input cost fluctuations. Buyers are encouraged to take advantage of supply chain networks that offer used pallets at lower prices, although they should be aware of product compatibility for their structural and load specifications. A cost-benefit analysis should be used to determine the best procurement choice (e.g. renting, used, recycled or new) for the buying organization.
Finally, price volatility is expected to fall to a moderate level in the three years to 2020, which will make it somewhat easier for buyers to make contractual agreements without risking sudden price shifts. In addition, it will be easier for buyers to budget for future purchases.