Drivers and trends: the evolution of the pallet supply chain

It’s been a time of great change for the pallet market recently, with the emergence of recycled pallets, labor shortages and volatile lumber prices providing challenges for manufacturers across the US. 

In our recent webinar, Fastmarkets’ experts Dustin Jalbert, Ian Templeton and Antonio Gallotta shared valuable insights into the challenges and transformations affecting the pallet market. From the rise of recycled pallets and the impact of labor shortages to the volatility of lumber prices, they provided a comprehensive overview of the current landscape. 

Western softwood GMA pallet prices  

One of the key topics was the launch in September of Fastmarkets’ new series of western softwood GMA Grade A pallet prices and analytics, which covers six key delivered markets: Seattle, San Francisco, Los Angeles, Dallas, Fort Worth, Chicago and New York.  

Our senior price reporter, Ian Templeton, provided a detailed explanation of the methodology behind the series, the specifications of GMA grade A pallets and the potential for expanding into other markets in the future.  

“All of our prices are verified using robust pricing procedures, clearly defined methodology and price specifications during the market reporting and pricing sessions. All calculations are verified through our integrated peer review system to guarantee quality control and compliance with our methodology,” Templeton said. 

“We are independent, so we continually develop and review our methodologies in consultation with industry participants,” he added. 

He went on to describe the dashboard terminal where all prices are available, including charting functionality, Excel plug-ins, and automated reports. Finally, Templeton discussed our acquisition of the Hardwood Market Report and the future inclusion of hardwood prices. 

Key drivers in the pallet market 

Fastmarkets analyst Antonio Gallotta highlighted the impact on the market of the rise of recycled pallets. He presented data showing the decline in pallet prices since the pandemic-era spike when prices increased by around 60% from May 2020 to April 2022, driven by home renovation boosts and supply chain disruptions. 

Since then, the recovery process has been slow and prolonged, due to income and inflation factors, though it now looks to have bottomed out with the rate of change approaching zero.  

“This trend coincided with the broader adoption of recycled pallets during the pandemic. As new pallet prices soared, many businesses saw cost effective alternatives and became more reliant on recycled pallets,” Gallotta observed. 

The data he presented highlighted that recycled pallets increased from 42 million in 2020 to 83 million in 2022, which was a major factor in the overall oversupply of pallets.  

Trends in the pallet market 

Gallotta was keen to highlight how hourly earnings within the pallet industry had increased, driven by labor shortages and the increasing shift towards automation. Pallet industry wages have in fact grown faster than those in the broader manufacturing sector since the onset of the pandemic.  

“From March 2020 to September 2023, pallet wages rose by 30% compared to an 18% increase in overall manufacturing earnings during the same period,” he said. 

“However, since then pallet wage growth has slowed significantly, while manufacturing wages continue to rise, which has allowed broader manufacturing wage growth to catch up.” 

Meanwhile, recycled pallets have increased in importance due to cost savings and sustainability initiatives, despite challenges in availability and quality. 

“Wooden pallets are already considered to be an environmentally friendly option, as they’re renewable and can be recycled multiple times throughout their life cycle,” he said. “Today, nearly 95% of pallets that would end up in landfills are finding second lives as recycled pallets, whereas raw materials for mulch, biofuel, food and furniture can no longer be used.” 

Finally, Gallotta highlighted the potential for increased production of new pallets next year, despite the relatively higher costs compared to recycled pallets. 

Our senior economist Dustin Jalbert moved on to broader trends in the market, such as the shift from hardwood to softwood pallets and the impact of upstream supply dynamics on the pallet market. 

Jalbert commented on how softwood lumber production has recovered more strongly than hardwood post-financial crisis. “Most of the consumption goes into residential construction, so production has recovered to the point now where we’re maybe about 15% below the pre-global financial crisis peak,” he explained.  

He added that there is nonetheless potential for expanding the analytics service to include hardwood markets and other areas in the future.  

Finally, Jalbert focused on how the framing lumber market has an impact on low-grade lumber prices, which feeds into pallet costs. 

Outlook for pallet prices 

The demand forecasts for pallets in Q4 look bright, driven by robust retail sales and the holiday season where sales are projected to be 3% higher than last year – “a very encouraging picture for the pallet market” according to Gallotta. 

Find out more on our dedicated pallet prices hub 

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