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Market Update: If It Seems Too Bad To Be True, It Probably Is
The concern about the economy showed up rather quickly in reduced pallet sales. The very pronounced trend that impacts the large cross-section of the pallet industry arrived. The downturn was sudden and pronounced.
By S. Jeff McBee
Date Posted: 11/1/2008
It is rare to see a largely universal trend that impacts the entire pallet industry the same way. The main reason that trends usually do not cross through all sectors is the large range or variances in business approach, raw materials and geographic influences.
Some areas have heavy concentrations of softwood pallet production while others are heavy to hardwood. Every region has a different dynamic between pallet recycling operations versus new pallet production. Any trend that impacts such a large cross-section has to be very pronounced.
That is the current case with pallet demand. It seems everyone in the pallet industry is in the same boat at the moment: pallet demand has tapered off.
Pallet demand held up very well for most of the year. Activity had been off from levels established in recent years, but it was still surprisingly solid. And these activity levels were achieved despite the absence of any reasonable demand from either the housing or automobile markets.
The economy grew more lethargic as the year progressed, but, surprisingly, pallet demand still held up well in most areas.
Oil prices had spiked, and the belt-tightening seemed to be having an impact. Still, pallet demand continued to run modestly above expectations.
It turned out that
Then, the bank ‘crisis’ hit. The Dow went tumbling. Congress sprung into action. The Dow tumbled further. One hundred-year old financial institutions were failing. The Dow tumbled further. Suddenly, everyone was more concerned than ever about the economy.
The concern about the economy showed up rather quickly in reduced pallet sales. The very pronounced trend that impacts the large cross-section of the pallet industry arrived. The downturn was sudden and pronounced. Companies became hesitant to commit to even the smallest amounts of spending.
Some pallet manufacturers had very large dips in demand; for others, the effect was more restrained.
One thing was sure in almost every region: hot-and-cold pallet demand had returned. Last-minute orders became more pronounced than normal. Pallet companies have grown accustomed to handling last-minute orders and are able to handle quite a bit of short-order volume, but the current situation makes things more difficult to handle – and more importantly, more difficult to handle profitably.
It would be hard to imagine a situation where the timing could be any worse. Fuel prices moved raw material prices up, and pallet prices were moving upward, too. Customers originally resigned themselves to the increases, but like most price increases, this one was slow to work its way through the industry.
Then pallet price increases were met with greater reluctance. Pallet users are lowering their standards to save money. Customers are getting new quotes with an eye towards taking wood, nails, or both out of their pallet; it is a mindset of ‘anything goes’ where any pallet may be considered.
Not everything is doom and gloom throughout the pallet industry. In fact, the latest incarnation of hot-and-cold pallet demand might be a short-lived phenomenon. Another week brought more pallet suppliers who found themselves on the positive side of the hot-and-cold cycle. And then the Dow had an historical price run up.
The widespread trend could be a temporary anomaly where the pallet market paused along with Wall Street. Only time will tell.
The pallet industry is comprised of a resilient and entrepreneurial group of businessmen that always finds a way to cope with even the toughest situations. There is no doubt that even this latest hurdle is just that – another obstacle along the way that the industry will jump and clear.