Low-grade hardwood prices reached record high levels this year about the time that low-grade softwood prices skyrocketed to levels never before approached, particularly in the West. Prices for low-grade material are spiking at a time when pallet buyers are indoctrinated to dig in hard against anything that even resembles a price increase. Most buyers had never seen a market where pallet suppliers had to pay such exorbitant lumber prices. In addition, growth in the pallet recycling market opened up supply options that were less developed than during previous lumber shortages.

            In order to keep their customers supplied, pallet companies are examining all kinds of options to obtain reliable sources of lumber at an affordable price. Thus, it is not surprising that imported low-grade pallet lumber has surfaced as an option. This article presents both a historical perspective and futuristic glance into imported pallet lumber.

            Before looking at the specifics of the lumber supply market, a basic point needs to be emphasized. Lumber is by far the biggest cost of a pallet manufacturer. As such, lumber costs will command a high level of interest, particularly when the market is moving or reaches higher levels. A tighter local lumber supply, and hence a higher price, has prompted the interest in looking farther away for material. A combination of mill lumber prices and delivery costs has to be considered along with species, delivery dependability and a variety of other factors, such as phytosanitary requirements. The idea of sourcing pallet lumber outside of North America was not on the radar screen a few years ago, but today the pallet industry is finding itself functioning more in a global marketplace.

Canadian Lumber

            Canada and the U.S. are such close partners, both in trading and proximity, that sometimes it can be easy to overlook that Canadian lumber is imported lumber. Canada is the most important and oldest lumber exporter to the U.S. pallet industry. In particular, Canada has been a major supplier of SPF softwood to the Western pallet industry for decades. The impact of Canadian lumber extends along the entire border, into the Lake States and New England.

            In the late 1970s, Canadian SPF and Doug Fir were shipped to the U.S. as random length material. In the 1980s, the SPF cut stock market grew dramatically, particularly in the West. Government issues aside, random length softwood prices at the mill in Canada have kept the material competitive for many U.S. buyers.

            In the Western U.S., softwood prices generally start at their lowest levels in Canada and work their way down the coast roughly in proportion to shipping costs. Thus, buyers in southern California buy lumber from mills that are located in northern California and north to interior British Columbia.

            When quotas and tariffs on Canadian RL lumber were put in affect during the 1990s, cut stock became a more prominent part of the market because pre-cut pallet lumber ‘kits’ were not counted toward quotas nor did they carry tariffs. As long as deck boards and stringers were packaged together in complete pallet ‘kits,’ they were considered value-added products that were exempt from the quota and tariffs. Thus, SPF cut stock became a significant portion of imported Canadian softwood pallet lumber.

            More recently, concern for complying with global phytosanitary rules for solid wood packaging makes kiln-dried lumber particularly attractive. We are just beginning to feel the impact of the growing demand for heat-treated lumber; so kiln-dried Canadian SPF pre-cut and RL lumber may become more important for wooden pallets and containers as companies adjust to international shipping requirements.

            Imported Canadian hardwoods are less of a factor in the U.S., although some Canadian hardwood pallet lumber enters U.S. markets, including alder in the West and aspen and some dense hardwoods in the East and Great Lakes states. Quotas and tariffs have not been applied to Canadian hardwoods. The quantity of hardwood pallet lumber entering the U.S. from Canada has not been too significant, but that could change if U.S. supplies get pinched tight enough.

            Canada has abundant forests, and the forest products industry is a very important part of the country's economy, particularly in British Columbia and the West. There is every reason to believe that Canadian imported lumber will continue to be a significant factor in the U.S. pallet lumber market, particularly in the West and North. The dispute continues over quotas and tariffs for Canadian softwood lumber entering the U.S. It will be resolved eventually, though, and the industry will adjust. Expect Canada to remain an important source of softwood lumber for the U.S. pallet industry -- possibly even more so if it helps meet demand for lumber for pallets used in export applications.

Sources Outside of N.A.

            About 20 years ago, a few people from Portugal attended a meeting of the National Wooden Pallet and Container Association. They talked about exporting pre-cut pallet material to the Southeastern U.S. The concept made no sense to me at the time. With the exception of the Gulf Coast region, most pallets in the Southeast are manufactured from hardwoods, and hardwood pallet manufacturers in the region usually buy most of their lumber within 50 to 150 miles. In fact, hardwood pallet manufacturers are often close enough to mills supplying them that they can sit down and enjoy an occasional breakfast or lunch with suppliers.

            In more recent years, the term ‘global markets’ has become a buzz word. It once seemed that the pallet industry might be immune to the globalization of the economy. Businesses that use pallets typically are served by pallet suppliers that are within 100 to 150 miles.

            However, the pallet industry has to have a somewhat global outlook because American-made pallets are used to ship goods over wide geographic regions -- and frequently to export markets. The global phytosanitary rules that arose in recent years underscore the fact that the U.S. pallet and container industry does not exist on an island unto itself; our industry supplies shipping platforms that are used in international commerce.

            Until the last couple of years, however, our lumber was supplied only by North American mills and remanufacturers. That was yesterday; today and tomorrow may be different. Change has become commonplace in our society.

            Previously it was unrealistic to consider importing pallet lumber when material was readily available at affordable prices from established local and regional sources. However, the crazy markets of the last couple of years have spurred some pallet companies to look abroad for potentially cheaper lumber sources. With low-grade lumber prices being at record highs in the U.S. and the supply situation looking very tight for this time of the year, concerns about having enough wood for the coming winter are common.

Cut-to-length pre-cut pallet lumber has been coming into the U.S. from South America in limited quantities as alternative sources to domestic lumber. Since the world steel shortage surfaced at the end of 2003, shipping containers and ocean-going freight vessels have become more difficult to find, and shipping costs have skyrocketed. This in turn has caused both logistics problems and increased costs for South American imports. Since international delivery costs have gone sharply higher and domestic lumber prices have leveled off for the moment, short term increases in imported lumber from outside North America may be limited. However, readers should be aware of what has happened until now and what might be a future consideration for more pallet people. Outsourcing lumber supply lines off-shore is not something that is done casually and cannot be done hastily. Most international lumber shipments known to me have been focused primarily in a few progressive wholesalers and CHEP.

            In the late 1990s, CHEP had some of its U.S. pallets made from South African softwoods in place of Southern Yellow Pine. The last year or two, CHEP has been using South American softwood material as well, both for manufacturing new pallets and repairing pallets in its pool.  South American pre-cut Radiata Pine, mostly from Chili, has captured a major part of the CHEP pre-cut market recently.

            The last couple of years, a few lumber wholesalers have entered the arena to supply South American pre-cut pallet lumber, both softwoods and Eucalyptus hardwood. South American Eucalyptus has made inroads into North America primarily due to supply problems and higher costs of North American lumber. Last year Ian Carter began importing Eucalyptus grandis pallet stock from South America. Deliveries have worked where the shipping lines have set schedules, such as Houston, Gulfport, Savannah, Port Manatee and Baltimore.

            "At this point in time the grandis has not penetrated inland U.S. markets," said Ian, whose company is called Labs Lumber LLC. Grandis lumber will not likely make any heavy penetration into inland markets until cheaper rail rates can be established.

            Ian described Grandis as comparing well to other hardwoods. "Green grandis lumber is equal in performance to yellow poplar and quite a bit stronger than Douglas Fir," he said. "Most people think about some of the heavier Eucalyptus where you are lucky if you can keep a nail from bending over in it. If I placed this material in front of you and you picked it up and looked at it, you'd have a hard time telling the difference between it and alder. It has the same sort of feel as an alder, poplar or soft maple." Grandis has performed well in tests at the Virginia Tech pallet and container laboratory and is included in the Pallet Design System software program, Ian noted. "Use a no-point nail and it drives very nicely," he said.

            Due to insufficient kiln capacity in South America, most of the finished lumber must be treated with chemicals in order to prevent mold; dip tanks are the preferred method.

            Grandis, like other fast growing species in the U.S. and South America, is also susceptible to brittleheart. "We've been able to recognize brittleheart now within logs, and we've got the mills watching for it," Ian said.

            Ian estimated that 10 to 15 million board feet of pallet grade hardwood is available monthly from Argentina, Uruguay and Brazil, with Eucalyptus plantations also being considered in other countries.

            In addition to Eucalyptus, softwood cut stock is coming into the U.S. Southern Yellow Pine species are coming from Brazil, and Radiata Pine from Chile. However, South America already is starting to move away from pine towards Eucalyptus because the hardwood grows much faster, said Ian.

            South American countries have been growing tree plantations for several decades. South American plywood and lumber are beginning to become more common in the U.S. The long term impact on the pallet industry is not known, but it is interesting to note that pallet lumber is now part of the global economy. In the future our industry may be looking even further away for affordable lumber sources. Keep in mind, however, that delivery and logistics problems can be very risky when dealing with suppliers abroad. Sourcing from other parts of the world usually means changing species as well, which is a whole new set of problems. I am not projecting any massive shift to international lumber sources, but I believe that readers should be aware of what has been happening lately.