The lack of wood and the increase of the cost of pallets

The problem of the absence of wood and the increase in the cost of pallet

Change the pallet to save money on shipping costs

The price of the material (wood) on the final price has increased by 80-90% and those who produce and sell the pallets have certainly suffered the impact. In September 2020, the pallet cost 9 euros and today it costs around 18 euros. One of the main problems concerns above all the difficulty in finding the raw material, and it is not excluded that companies in the coming months will have difficulties in having pallets, managing packaging, transport, and correct handling of loads. This is a problem that affects all sectors, from those who have to move food products to those who have to transfer pharmaceutical products from a wooden pallet to a plastic pallet.

The record increases

In the last period, both revenue margins (deriving from the effect of the cost of raw materials) and volumes have pushed to new records, also in progress compared to the pre-Covid period. We are beyond the levels of 2019 and at the moment, small producers are struggling to serve historical customers. These companies avoid adding additional orders that they would certainly manage with difficulty given the scarce resources. It is a very hectic historical period, where a year ago we paid 1400 euros per cubic meter and today we have even reached over 400 euros. From food to mechanics, from machinery to tiles, demand is in this explosive phase, contributing to aggravating supply difficulties.

Continuous price updates

The current situation is forcing companies, small producers, and large multinationals to change their operating mode. In fact, in the last period, updates on prices with customers are made every 15 days, something that had never happened before. Currently, when a wood supplier presents an offer, it has a value of a few hours: it is as if it were a “take” or “leave”. There are companies that have evaluated this period as a very risky period, which is why they have decided to buy large quantities of raw materials in order to avoid running out.
There are companies that already have orders for a good part of 2022, but if it were not for the scarcity of materials they could do even more. As mentioned, volumes are growing but in terms of margins for the sector it will be a difficult year: on prices, although the update is now more frequent, we are always chasing a raw material value that seems out of control.

The lack of nails

The lack of wood is certainly not the only problem for the sector. The scarcity of materials also concerns nails, a component that is now being sought in countries never probed in the past for this supply, such as Turkey or Lithuania. Pallet prices have literally exploded with increases from 50% to 100% depending on the type of pallet (the European pallet has gone from 8-9 euros to 15-16 euros per piece) and the feeling of the last few weeks is that the increase has not yet finished. Small and medium-sized enterprises appeal to governments for greater guarantees as pallets are an essential asset for the economy.

In the US, a shortage of pallets can put fresh produce at risk

The US (and global) industry is experiencing a current shortage of pallets. This shortage can have serious consequences such as the unavailability of products for consumers. Among the main causes that are limiting the availability of pallets, the United Fresh Produce Association reports:

• Efforts by wholesalers, distributors and retailers to ensure a sufficient assortment of non-perishable products given the teething problems associated with the pandemic;
• Lack of timber to repair and build new pallets;
• the rising price of timber, when available;
• The increase in the residence time of the non-perishable inventory; the lack of trucks to transfer pallets.

Moving products is a complicated business

The fact that there are few pallets adds stress to cargo handling operations, which are already in dire straits given the demanding daily challenges, including a lack of trucks and containers, fluctuating fuel costs, a shortage of resin to make containers and reusable pallet, and not to mention the damage caused by the global pandemic. The prospects speak for themselves: there will be a clear increase in pallets, perhaps even for the second half of 2022. All this is happening at a delicate moment for the US market, where at the beginning of the year companies are preparing for the year ahead.

We analyze the data to understand the problem of the absence of the pallet

To assess the extent of the problem, the Californian association has published some data. In fact, the cost of raw wood has increased exponentially, and this has meant that the costs of wood products have also increased. In addition to this, pallet companies are unable to acquire new customers because they are unable to meet the demand of existing customers. In addition, companies are forced to bring pallets from other jurisdictions thus incurring additional border and freight costs. In addition, another reason why there is a lack of pallets on the market is because they are kept inside the factories due to delayed or canceled orders, causing an increase in storage costs and a greater difficulty in managing handling operations.

You have to comply with the requirements

Food companies, pharmaceutical companies, large growers, shippers, are working hard to be, even in this complicated period, compliant with the specific requirements of pallets. For these companies it is a rather complicated situation and one of the solutions could be the greater protection of government bodies that are involved in protecting companies and workers. It is estimated that even temporary changes or exceptions to stringent pallet regulations, as long as they do not compromise safety, would be beneficial until this pallet shortage is remedied.