“Gone are the days when you could just add employees to grow.” These words were shared by a member of the National Wooden Pallet and Container Association (NWPCA) at a recent event I attended in Alabama. The issues facing the global supply chain have impacted the pallet industry immensely. I receive calls every day from people desperate for pallets. They all share a similar story that their usual pallet supplier told them that they no longer have any pallets available at this time. There is a good chance you are reading this blog because you are in that situation or you don’t want to arrive in that situation. So I’m going to summarize the biggest challenges facing the pallet industry in America currently to help you avoid a production shut down in the new year.
- Factor #1: Labor Shortages*
The workforce in America is severely short-handed. Anthony Klotz, an associate professor at Texas A&M University has termed the current labor crisis as “The Great Resignation”. (1) David Leonhardt argued in the New York Times that the labor shortage is strongly influenced by the fact that “Americans are flush with cash.” (2) Due to federal stimulus programs from the previous two administrations triggered by the pandemic, Americans have more cash than normal. This has created less necessity to hold a job - especially one that was not enjoyable. Therefore people’s expectations for fair work have risen. When a job doesn’t meet their expectations, they have the financial cushion to walk and survive.
The reasons for “The Great Resignation” can be debated. The results cannot. Companies are in dire need of more people to help but help has not come. So the pallet industry experiences this on every tier. The loggers struggle to get help which lowers the log supply to the sawmills. The sawmills struggle to find more employees so they can’t output the necessary board foot for their customers. And, the pallet manufactures can’t build a larger workforce to keep producing. All three of these issues combine to cause smaller workforces that are vital and overworked due to high overtime rates. The next factor becomes obvious at this point.
- Factor #2: Lumber Shortages*
As described above, the loggers and sawmills are short on employees. This reality greatly hinders their ability to produce on pace with demand. However, there are other factors at play too. Andrew Moore interviewed Robert Bardon, a professor of forestry and environmental resources at NC State’s College of Natural Resources. Bardon pointed to a “recent convergence of Canadian lumber tariffs, increase in demand for home remodeling and building of homes brought on by the pandemic, and hiccups in supply related to transportation.” (3) These factors contributed to record spikes in SPF pricing at a record pace. Joanna Schwartz explained in a Forbes article that the lumber shortage is also influenced by “major lumber mills [cutting] back on production during the pandemic due to concerns that the economy would worsen.” (4)
There are undoubtedly numerous factors driving lumber shortages. However, the pallet industry was put in a precarious situation. The national SPF lumber skyrocketed due to a lack of supply. This forced many pallet companies to transfer to local green lumber as an affordable alternative. The transition overwhelmed the smaller local sawmills and therefore drove their price leaps higher. The changes that took place on this timeline came so fast and sudden that there was not sufficient time to step back and put together a country-wide game-plan. Without pallets, our country’s manufacturing industry can’t produce. The ripple causes massive waves in every aspect of our economy. Soon, shelves in every store in America would be laid bare. The luxury of time and planning was not afforded to our industry. Instead, we merely adapted as fast and smoothly as we could in the moment of crisis. But there was one other major factor that deserves mentioning.
- Factor #3: Recycled Pallet Shortages*
If the labor and lumber shortages were not enough to cause sleepless nights in the collective pallet industry heart, the sudden drop in recycled pallet supply sealed our misery. Similar to the local green lumber story, the recycled market felt the rushing waters of the SPF lumber crisis hit it too. When SPF peaked at price, many companies opted to downgrade from a new pallet to a recycled pallet. This saved big dollars for these companies. However, it led to an almost instantaneous shortage of these pallet cores to be repaired. On top of this, Chaille Brindley, publisher for Pallet Enterprise, observed that “increasingly, distribution centers and retailers are culling out the best pallets to keep.” (5) So there are fewer pallets coming available for repair because many people are choosing to reuse rather than send them to be recycled.
When companies do not have recycled pallets, there is no way to generate a recycled pallet from scratch. We call those new pallets. So, to intensify the labor and lumber shortages, the recycled pallet shortage drove more local lumber demand and required more labor since building a brand new pallet takes more time than repairing a core pallet. Most people I have consulted on this issue have declared this as the worst recycled pallet supply they have ever seen.
- Let’s put it all together*
The pallet industry in America is facing this perfect storm of this trifecta of shortages. The consequences mean that many companies are paying 2-5 times higher for their pallets. These increases have and will absolutely continue to get pushed downstream and eventually give sticker shock to the American consumers. No matter where you stand on the social and economic ladder, be ready for even more extreme increases on long-standing pricing categories. On top of this, the lead times of most items being produced have been lengthened considerably to account for the delays caused by these shortages.
Pallets have almost always been unsung heroes in the world’s economy. Today, considering the massive shortages, pallets have become manufacturing gold. The item literally at the bottom has figuratively become king of the manufacturing hill. After too many failed guesses into the future of these issues over the past two years, I refuse to end this article with any type of prediction. We are all intimately aware of the supply chain issues in America and with our pallets currently. I hope this understanding engenders patience and partnership with companies as they try to make lemonade out of thin air. May we all hope for better sleep in 2022 and a resurgence of labor, lumber, and recycled pallets.
Resources Cited:
https://www.barrons.com/articles/covid-worker-shortage-great-resignation-professor-what-comes-next-51640853004
https://www.nytimes.com/2021/10/20/briefing/labor-shortage-us-low-wage-economy.html
https://cnr.ncsu.edu/news/2021/05/lumber-shortage/
https://www.forbes.com/sites/forbesrealestatecouncil/2021/06/15/a-lesson-in-lumber-shortages-buyer-preferences-and-supply-and-demand/?sh=4be866ec5bda
https://palletenterprise.com/view_article/5656/Thinking-Ahead–Letter-from-Chaille----Pallets-Are-Supply-Chain-Gold
https://www.barrons.com/articles/covid-worker-shortage-great-resignation-professor-what-comes-next-51640853004
1. https://www.nytimes.com/2021/10/20/briefing/labor-shortage-us-low-wage-economy.html
2. https://cnr.ncsu.edu/news/2021/05/lumber-shortage/
3. https://www.forbes.com/sites/forbesrealestatecouncil/2021/06/15/a-lesson-in-lumber-shortages-buyer-preferences-and-supply-and-demand/?sh=4be866ec5bda
4. https://palletenterprise.com/view_article/5656/Thinking-Ahead–Letter-from-Chaille----Pallets-Are-Supply-Chain-Gold
5.