As the world continues to recover from the Coronavirus disease (COVID-19) pandemic, there are opportunities to change the course of how we work, think, plan, prioritize and deliver value. One of the greatest disruptions in modern history has taken a tremendous human toll, while impacting businesses and supply chains all over the world. It is human nature to take for granted some of life’s most precious things. Of those is one of the supply chain’s unsung hero – wooden pallets.
The wooden pallet has drawn more attention now than at any other time since its birth in 1924. In fact, pallets are finally receiving their overdue recognition, even in corporate boardrooms. So, why all the fuss?
Severe pallet shortages and a whopping 232% rise in lumber prices have added stress to a supply chain already facing significant challenges, including a lack of available trucks and shipping containers, ongoing labor issues, fluctuating fuel costs, pandemic-related matters and a pending shortage of resin used to make composites such as epoxy, polyester and vinyl.
While the supply chain involves a complex series of steps to get a product or service to the customer, here’s how organizations can proactively manage chaos in the pallet world.
Is anyone suffering from pallet fatigue? There have been many articles published about the dramatic spike in both lumber and pallet prices during the past year. Since the onset of the COVID-19 pandemic, pallet prices have soared to record levels, including greater than 400% in some regions during the past year. Pallet availability is perhaps even a greater issue with some manufacturers unable to obtain enough supply to keep goods flowing. The major catalysts of such a dramatic rise can be attributed largely toward the pandemic as well as historically low interest rates. State-mandated lockdowns caused lumber mills to cease production while quarantining Americans were rushing to buy materials for do-it-yourself projects, resulting in lumber inventory plummeting. Historically low interest rates also contributed to creating a housing boom, which compounded the shortage of lumber. While it is anybody’s guess when the crisis will end, the curve will begin to flatten with respect to pallet prices in early 2022. This is a pallet market in crisis that is experiencing historical demand as it wades through unchartered waters.
What can you do today to protect your organization both near term and long term to secure pallets and optimize spend? Here are six tips or techniques to position your company for success in the pallet world, both financially and operationally.
- Educate your organization on understanding the difference between lumber futures and industrial lumber used for pallets. The supply chain operates in the here and now, thus purchases are largely made at today’s price points. The futures market is for structural lumber and not the No. 3 and No. 4 grade softwood or industrial hardwoods used for pallets.
- Recognize that approximately 70% of the cost of a pallet is attributable to wood. However, it’s not the only component that continues to accelerate price increases. Labor shortages have driven up overtime costs, which has taken the labor input percentage from a recent high of 13% for most mills to an effective labor input increase that equates to roughly 20%. Nails are up in price due to steel. Freight costs have increased substantially, and gas prices have also risen during the same time.
- Loyalty and commitment with a trusted supplier matters, so pay a fair price in a timely fashion and stay on good terms.
- Act with urgency when issuing purchase orders to renew pallet supply.
- Seek space at your facility so that you can purchase 30 days of safety stock.
- Provide ample lead times to your pallet supplier.
Coming to terms with the core crisis requires adaptation and simultaneously manifests pallet transformation opportunities. Recycled pallet alternatives and plastic pallets offer two types of alternatives. In addition, there is increasing attention surrounding pallet plants of the future and the real-time automation that digital tracking technologies can promote to drive competitive advantage, increase productivity, improve safety, contain shrinkage and satisfy customer demands.