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Key to Start-Up Recycling Operation Is Developing Reliable Supply of Cores
One of the keys to starting a pallet recycling business in the current market is developing a reliable supply of cores; teaming with existing pallet recyclers can help get a new business going.

By Clarence Leising
Date Posted: 8/1/2005

One day I was reading the Pallet Board on www.palletenterprise.com. Someone posted a message, asking for advice
on how to get into the pallet business.
He asked about equipment leasing
versus purchasing, what type of building he would need, and other start-up related questions.

This got me to thinking: why would someone go into the wood pallet business today?

After considering that question for
a time, I realized that there were a
few reasons.

Let’s say you knew where you could get your hands on a large number of GMA-style, 48x40 cores. If you could pick up about 500 cores a week, on a consistent weekly basis, it would be possible to make a nice living.

If you have a reliable source of cores, the question is: what do you do then? You will need a place to take them,
and you will need to be able to repair them as necessary and store them until you sell them. Speaking of selling them, just because you can get a supply of cores does not necessarily mean that you can sell pallets.

Go out and visit the pallet shops within a 20 to 30 mile radius. You will be surprised how many there are. Meet the owners, take them out to lunch, spend some time with them, and get a feel for the business. You will need a customer to buy your 500 cores each week. Maybe you can take these cores and repair them and sell them to one of these pallet shops. You would not have to deal with customers, pallet brokers, or anyone else. And trust me: local pallet shop owners will be very interested in finding a steady supply of GMA-style pallets.

Team with Recyclers

Developing a relationship with an
existing, thriving pallet shop could
offer you some other advantages, besides being able to sell your cores. Maybe
you could make a deal — pallets for boards, nails and nail guns. With that kind of swap, you would not need saws to cut lumber or a dismantler to disassemble pallets.

Another possibility would be handling scrap wood. Maybe the pallet shop would grind up your scrap and take it away for you. Maybe they would grind it if you brought it to them. These are just examples of how having a relationship with local pallet shops could be a big advantage, especially when you are just starting up.

Another important reason for wanting to work with local pallet shops is cash flow. Starting a pallet shop from scratch can be very expensive. Equipment alone can cost between $30,000 and $40,000. Leasing the equipment could be an option. However, you would have to qualify for a lease, which could be an issue for some people, and you are still looking at hundreds — if not thousands — of dollars in costs and the expense of maintaining the equipment.

Keep this in mind, however, when it comes to cash flow. If a customer says they will pay you in 10 days, it will probably end up being 30 days. If they say they will pay you in 30 days, be prepared to wait 90 days.

I recommend teaming with a pallet shop in your area, and selling to them. You may need to sell them at a reduced price, but the benefit would be quick cash turns. This will allow you to move more pallets.

Other Advantages

Most people who try to start a pallet recycling business already have a job and are trying to replace that income
or do a little better. While this approach is very time consuming, it requires
less money to start up. Taking on a large debt to start up and run a new business
is risky.

With the core shortage that exists in the U.S. at this time, starting a pallet company on your own is not worth the risks involved, in my view. Your chances of surviving two years probably are not very good.

In all honesty, if I knew where to get cores I’d go this way — partnering with other pallet shops. Working with other pallet shops has other advantages related to sales and transportation. You will never have to worry about where you are going to sell your pallets. Again, a pallet shop will be thrilled to buy a steady supply of pallets from you. He might even be willing to leave a trailer at your location as well. You would simply fill the trailer and give the pallet shop a call. They will come and pick it up and leave you another empty trailer.

Dealing with local pallet shops also will help you avoid stepping on any toes or making enemies. It will give you time to accumulate cash and possibly find more pallet cores.

If you want to get into the business of making new pallets, the situation is a bit different. If you knew where you could sell new pallets, you may want to consider buying cut stock. This would eliminate the expense of buying saws and saw blades. Some people buy cut stock and get power nailing tools and nails, then they build the new pallets and sell them.

What if you could sell a new pallet for a $1 profit? What if you built and sold 100 pallets per day? For some people, this would be enough. The downside of this approach is that it puts you at the mercy of your cut stock supplier. If you are committed to selling your pallets at a set price and then your cut stock cost increases, it could be difficult to stay in business. Most businesses that buy pallets like to negotiate the purchase price once a year, not every time lumber
prices go up.

Building only new pallets has advantages and disadvantages to consider. Because you are buying the same size boards, there is little wasted material, and you can produce the same pallet every time. In fact, you could build birdhouses and do the exact same thing. It is all about ‘product in and product out.’ If I was starting up, I would broker the new pallets. Making more, doing less.

Essential Equipment

To get started in pallet recycling, you will need some essential equipment. One of the most basic things you need is a good working table. It should be big enough so that you can spin the pallet around, and every thing you need to make pallet repairs — tools, supplies and lumber — should be readily accessible. I recommend the ‘one step’ principle: if you have to take more than one step to get something, it is too far away. A more detailed description of work tables can be found in my book (see Editor’s Note at end of article); you may be able to make them yourself.

You’re also going to need a hand tool to remove damaged deck boards. There are two types, but I recommend the fork type pry bar because it is easier to use. You simply lay it on the stringer, push down, and leverage will separate the board from the stringer. A fork-type pry bar costs about $25.

Pneumatic nailing tools are essential along with an air compressor. You can go two routes with nailing tools. A distributor may supply them for free and service them if you buy your collated nails from the distributor. Or you can buy your own tools and shop around for the best price on nails. If you are just getting started and don’t know much about power nailing tools, it makes
more sense to partner with a distributor because the distributor will take care
of them. Your distributor also may be
a good source of information on the
industry and how to do things better.
I recommend an air compressor with
at least a 25 hp motor. When you can afford it, buy a smaller one – with a 6 hp motor, for example – as a back-up and a dryer to keep moisture out of the compressed air.

I am a pretty firm believer in plating — using a hydraulic press and metal plates to repair cracked or damaged stringers. Here’s why. An ‘A’ grade or #1 pallet has no stringer repairs — a ‘companion’ stringer nailed alongside a cracked or damaged stringer. However, an A or #1 pallet may have plated stringers. A ‘B’ grade or #2 pallet may have companion stringers. You can take a
pallet with a cracked stringer and
upgrade it to an A by plating it — instead of adding a companion stringer — for
a cost of about 25 cents, including
plates and labor. Now you can sell this A pallet for $1.50 to $2 more than a B pallet. It should be obvious why plating makes sense.

I recommend you get a hand-held plater mounted on a zero gravity balancer. They are easy to use, durable, and relatively inexpensive — they cost between $2,495 and $2,995.

Repair Stock

For repair stock, you have a couple of choices. You can buy used pallet parts from other recyclers or new cut stock, or you can buy new, low-grade lumber in the dimensions you need and cut it to the right length. If you buy your lumber and cut it, you are going to need a saw. I recommend a simple chop saw although you could start out with something as simple and cheap as a power circular saw or a radial arm saw.

If you get to the point when you can expand into dismantling pallets and recycling lumber, you will need a dismantling machine to disassemble the pallets and a trim saw to cut the deck boards down to the correct length.

If you can get 3,000 cores per week, you would be in a position to hire two employees to work with you. One employee would repair pallets full-time. The other employee’s main responsibility would be running the dismantler and trim saw to produce recycled pallet components; his secondary responsibility would be repairing pallets. Now, besides a dismantler and trim saw, pneumatic nailing tools and air compressor, you need a few work tables or benches plus a forklift and some way to load and unload trucks — a loading dock or hand jack, for example.

Out of 3,000 cores, about 2,000 likely will be GMA pallets that can be repaired. Of the other 1,000 cores, about 600 will be dismantled, and the deck boards cut down to 40 inches; about 400 will be small pallets with deck boards under 40 inches, making them useless to start.

You will have your hands full training and supervising your workers, helping them out when needed, making your
deliveries and sales calls and doing
the paper work involved in running
a business.

The key is making sure your full-time worker repairing pallets always has enough used deck boards. He will repair an average of 200 pallets daily; each pallet that is repaired will require an average of two and one-half deck boards,
so this worker will need 500 boards
each day.

One man operating a bandsaw type dismantler and trim saw can produce an average of 1,750 boards per day. So in three days this worker can produce enough boards to supply the other employee to keep him repairing pallets all week — plus enough boards to keep
himself busy repairing pallets the other two days.

In this scenario, the business can produce about 1,400 pallets per week. That is about 100 pallets per day per employee, including you, the owner. Note: it is not 100 pallets per repair worker, but 100 pallets per employee.

(Editor’s Note: Clarence Leising is a representative of Eagle Metal Products and previously held management positions in pallet recycling companies in the Northeast for 25 years. He also is the author of Pallet Head, a book about how to run a pallet recycling business, and some of the information contained in this article was based on his book. He may be contacted at (800) 521-3245.)

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