Industry group warns pallet prices rise 400% due to shortage

Dive brief:

  • A lack of pallet availability and rising pallet prices are adding to the stress of already tight supply chains, the United Fresh Produce Association said in an emailed notice.
  • Pallet costs have increased by 400%, according to the association, due to several factors, including high demand and rising costs for lumber.
  • Repositioning pallets is also a challenge as trucking capacity is reduced. There aren’t enough trucks and drivers available to move pallets from one location to another, the group said.

Dive overview:

Increased consumer spending and inventory replenishment requires access to the equipment that forms the backbone of supply chains – from containers to chassis to pallets.

Various factors weighed on supply amid growing demand, which pushed pallet prices to record highs. In April, the Bureau of Labor Statistics producer price index hit its highest level on record.

Costs of wooden pallets skyrocket

Producer price index for wooden pallets and pallet containers, combination of wood and metal

Demand for pallets is coming from retailers and grocers restocking their fulfillment and fulfillment centers, as consumers continue to spend on goods rather than services. Many companies have also built up a buffer inventory, to protect against the stockouts that hit CPG and retail supply chains last year.

Pallet suppliers and manufacturers – including Brambles, the parent company of CHEP – have noted high customer demand by increasing inventory levels.

“Since the onset of the pandemic, the wood pallet industry has played a vital role in enabling our supply chain partners to meet the growing demand for products,” said Brent J. McClendon, president and CEO of the National Wooden Pallet & Container Association. in an email.

Pallets can move through the supply chain, but not necessarily to the right place at the right time. Truck capacity must be available to move pallets, but the market has been tight. DAT data shows nearly eight requested loads for each dry box truck available at the start of May.

The United Fresh Produce Association has said the residence time has expired for non-perishable inventory, indicating that pallets may stay longer in warehouses or loading docks.

This can hamper the ability of suppliers to transport goods. The association said a supplier of pallets told a farmer that he would not take on new customers because he could not meet existing consumer demand. Timing is particularly problematic as many states are approaching the height of their growing seasons.

Pallets are also constrained by their level of supply.

“We understand that American sawmills are working hard to increase capacity,” said McClendon. Many sawmills closed or cut back on operations in the early days of the pandemic.

Now, pallet makers are competing for raw materials with the residential construction industry, which has exploded in recent months. Timber for construction is scarce and material costs are “unusually high”, Brambles Chief Financial Officer Nessa O’Sullivan said during a results call in February. “We expect this to continue into the second half,” she said of timber prices.

The Institute for Supply Management also noted the price of wood and wood pallets is increasing due to the scarcity of products.

An alternative to wooden pallets facing high material costs and supply constraints is the use of plastic pallets. Brambles tested plastic pallets with Costco, to test durability, dwell times and technologies such as RFID, Brambles CEO Graham Chipchase said on the call.

“But the other element is also the premium that our customers, the manufacturers will have to bear,” Chipchase said. “Because obviously a plastic pallet is three times more expensive than a wooden pallet.”

The United Fresh Produce Association has said it expects wood pallet shortages to continue for months, “maybe for the rest of 2021.”

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