Over the past couple of years, the U.S. Economy has been dealing with some significant issues. It seems to have started with the COVID-19 pandemic, which led to months of slowed economic activity due to lockdowns and business closings.
In recent months, the country has seen inflation catch fire with the cost of almost everything rising in unison to all-time highs.
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Currently there is a supply shortage of food and household goods that is getting compounded by the supply chain problems which are plaguing the country. In this economic environment inflation is certain to go much higher.
In this kind of economic environment, no industry will be financially untouched. This is a good opportunity to look at the impact all of these crises have had on the pallet manufacturing industry in 2021 and moving forward into next year.
Below, we are going to report on some key data and look at current trends that are driving pallet manufacturing in the U.S.
Defining the Current Pallet Manufacturing Industry
Before trying to forecast what is likely to happen for the remainder of 2021 into 2022, it's important to define the pallet manufacturing industry as it is today (October 2021).
There are currently five basic types of pallets being manufactured in the U.S. and globally. This list includes:
- Corrugated Paper
- Other Materials
Wood has been the dominant pallet manufacturing material in the U.S. because it is easy to work with, abundant, and affordable. With that said, a lot of manufacturers and suppliers are starting to move towards plastic containers because they are easier to wash and maintain. We are seeing the start of this transition in both Europe and North America while East Asia is increasing its overall demand for all kinds of containers.
The industries that are showing a strong preference for shipping goods via pallets include:
- Food and beverages
- Electronics (cell phones, computers, TVs
- Chemicals and Pharmaceuticals
- Machinery and Metal
- Construction (building materials and supplies for the residential and commercial building industries)
- Other categories
What logistical experts in all of these industries have come to realize is wood pallets are easier to deal with in terms of storage and movability. The shape preference for most industries is block and stringer pallets.
In 2020, the global pallet manufacturing industry reach a monetary value of approximately $82.6 USD billion. Analysts are projecting that number will experience a "compound annual growth rate (CAGR)" of approximately 5.4% over the next 5 years, including 2021. That would lead to a retail market valuation of approximately $115.00 USD billion by 2026.
Those estimates might be light given what has transpired in 2021. This past April, pallet prices spiked by approximately 400% in a short time. That's a significant problem for industries that place a high demand on having manufacturing supplies and finished shipped on pallets.
What drove this price increase? Supply chain issues are certainly the main culprit as pallet prices increased from $9 per pallet earlier this year to as high as $15 per pallet in September.
Industry analysts attribute the biggest portion of this increase to supply shortages, high demand, and rising lumber costs. Some of this price increase was offset this Summer/Fall as lumber prices fell below $400 USD per 1 board foot in September. Currently, the price is sitting in the mid $700 range per 1 board foot with the prospects of going higher by the end of the year as the glut loosens its grip on the market.
It's worth noting that demand is being driven by consumers who seem to be focusing their limited resources more on buying consumer goods and less on services. That's indicative of a population that is reigning in their spending habits and focusing more on needs. Of course, this behavior has been largely driven by continuing concerns over the pandemic. It remains to be seen what will happen when the pandemic normalizes.
Whether on not pallet prices will ever revert back to prior levels is hard to predict. The quick answer is prices are likely to continue increasing until the market settles through some of the aforementioned issues in the U.S. Perhaps, they will never revert back to prior levels.
With the Biden Administration eyeing an infrastructure spending plan that could add up to $5.0 trillion USD to the U.S. deficit, it looks like inflation is going to remain high over the next two to three years. It also looks like the powers to be are struggling to figure out how to resolve the supply chain logjam. Until these two issues see a significant improvement, pallet pricing could continue increasing, especially as pallet demand increases globally.
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Why the Explosion in Demand?
To better understand why pallet prices are rising, it's important to identify why demand is increasing. As mentioned above, wood pallets offer logistical advantages that are driving more manufacturers and suppliers to move towards shipping on pallets made from wood and plastic. The fact plastic containers can be made from recycled materials plays right into addressing global concerns over the environment.
Worldwide demand for wood and plastic containers is being driven by three main sources:
- The continuing explosion in the manufacturing and selling of cell phones and other electronics
- More emphasis on e-commerce, which is causing increased shipping demand from one country to the another
- Internet penetration to more customers in areas not formerly accessible
Also, there has been an underlying focus on urbanization and industrialization in 3rd world countries that are starting to move forward. This is creating more shipping demand for these countries as they bring in supplies and goods for new factories and infrastructure improvements. This is a trend that figures to continue into the foreseeable future as personal income is expected to rise globally in response to there being more jobs in countries where poverty has been the rule.
Something else we cannot overlook is the impact of people in 3rd world nations getting better access to the internet through 4G and 5G technology. With more access and money to spend, the demand for retail goods will certainly see increases in the coming years. We are already seeing this in poorer parts of East Asia and parts of Southeast Asia.
If anything is going to help offset rising pallet costs, it's likely to be competition within the pallet manufacturing industry. If this market is really headed to being a $115.0 billion a year industry by 2026, there are sure to be new entries into the industry, trying to get a piece of the action. They will be taking on established high-profile manufacturers like Brambles Ltd, Schoeller Allibert, Loscam, and ORBIS Corporation. Competition should check pallet prices if not drive them down a little.
Bottom line: With so many serious and important issues currently affecting the pricing of pallets, it's difficult to make accurate predictions. This is one industry that is dominated by the U.S. with China picking up market share fast. Hopefully, the picture for the pallet industry will start becoming clearer by mid-2022 to the beginning of 2023. The number one thing everyone should be focusing on is inflation in the U.S. because as increases happen in the U.S. they are followed by the rest of the world.
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