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Where’s the Pain?
Letter From Ed

By Ed Brindley Jr., Publisher
Date Posted: 5/3/2004

At the recent NWPCA meeting, Dr. Lucas provided some valuable management insights for change. He said, "Most people will not change until the pain of not changing exceeds the pain of change." His words ring true for the pallet industry as it faces challenging times and constant change.

            My experience is that people change primarily because of either an incentive or a pain. I ask our readers, "Where is the pain in our industry?"

            Probably no aspect of our daily challenge can be much more painful than trying to make a profit in a market that is as competitive as the pallet industry. Purchasing agents are rewarded today by keeping prices in check. Often they are expected to find lower prices in spite of market conditions. There has never been a time in my business experience when buyers are any more dug in to resist price increases. And there has never been a time in the pallet industry when higher lumber prices have necessitated a pallet price increase.

            In spite of this, many pallet manufacturers have told us that they simply could not take the chance of raising prices. They are afraid to lose a customer. I understand this fear. But what is greater, the fear of losing a customer or losing your business because you ship pallets at prices that are below cost? Does it make any sense to work yourself out of business? In today’s business world, pain comes in the form of losing money.

            Some of the most positive reports in our recent effort to gather material for our Pallet Profile Weekly came from people who shared success stories about raising pallet prices. It is true that the environment has been to resist higher prices. It is equally true, however, that conditions beyond control of the market have led to large increases in lumber prices, particularly hardwoods, and recent jumps in nail prices. Some of the most encouraging stories have come from pallet companies that have dared to ask for more money. In the last few months positive reports of successfully moving prices higher have become much more common. Sure, buyers still want to keep prices in check, but more and more of them realize that higher prices are real, not just unjustified attempts to inflate profits.

            It has always been true that pallet prices soften gradually due to competition in more stable markets. During past cost increase cycles, particularly during inflationary periods, pallet suppliers had been able to move prices enough to both cover cost increases and provide some margin improvements. This time, however, most were afraid to move prices. There was an intense fear of just being able to survive I have never seen before. But those who are bold enough to do what they know they should do — what they have to do — are finding that customers often accept the increases after searching market alternatives. Sometimes customers may leave for a while but return when alternative suppliers let them down. The pallet industry had to reach the point where the pain of not changing exceeded the pain of changing. So, pain is driving the movement in pallet prices.

            Don’t forget incentives as a major motivating factor. There are many opportunities today that bring potential rewards in the form of additional revenue if the industry is brave enough to charge for them and not give them away. Phytosanitary regulations for export pallets, the coming RFID push from major players such as Wal-Mart and the DOD, and pallet management options are a few of the incentives that still dangle as potential options of future change. The question still exists whether readers will pursue positive incentives to change products and services to meet customers’ needs and demands, or whether they will wait for the pain of doing business the old way to force them to make positive changes.

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