For over 30 years the leading pallet and sawmill magazine in America.
Industry Outlook for 1999
Where is the pallet industry headed in 1999? Publisher Ed Bindley examines some of the issues nd trends that will continue impact the pallet community.
By Staff Writer
Date Posted: 12/1/1998
(Editors Note: Dr. Brindley recently made presentations to a regional meeting of the Hardwood Manufacturers Association and the Western Pallet Association; the following article is based in part on his remarks.)
Before presenting some ideas about the future of several important issues to my pallet friends, a comment about perspective is in order.
The same can be said about how one views many things in life. How we perceive the challenges our industry faces shapes whether we view them as problems or opportunities. I will attempt to shed a little light on some of the biggest issues and opportunities facing the pallet industry.
Do not be too certain what the future will hold for lumber supplies or prices. History tells us that things can change when change seems unlikely.
Competition for low-grade hardwood has been strong the past couple of years. Rail ties, flooring, and framestock demand all have been active. While the flooring demand seems to be leveling out somewhat, in the short to intermediate run these competing markets seem like they will hold pretty strong.
Alder pallet lumber serves as an example that forecasting can be tricky. A year or two ago, alder pallet stock was always in tight supply. Most of the material was sold to a small number of pallet companies from a very limited group of Northwestern sawmills. This year the supply picture has changed considerably.
In the long term future, growth in the demand for composite wood products may dull the lines between lumber grades. This could open up additional markets for low-grade lumber, cutting directly into the pallet lumber supply. On one hand people may be concerned about having markets in the future for low-grade hardwoods, while on the other hand there is reason to believe that wood fiber in general may be in heavy demand.
The softwood market has been more unpredictable than the hardwood. Just two and a half years ago, the quota on Canadian lumber shipped into the U.S. began. Environmental pressures seemed sure to intensify. Just about everybody expected that future timber supplies available for harvest would shrink.
On top of this scenario we now find ourselves in a very strong housing market. In spite of this unusual combination of conditions, the supply of softwood lumber is plentiful, and market prices are very low.
Tomorrows lumber market is very uncertain, particularly in light of the unknown aspects of environmental influences, competing raw materials, and changing customer preferences.
Wooden pallets may go through some evolutionary changes that will interface with the changing raw material markets. Using such tools as the Pallet Design System computer program, wooden pallets now can be engineered products. The Engineered Wood Products Association is pushing wooden panels as an answer to some of the demands being made to improve pallet life. Composites of different types may well be used to make pallets. As the world shrinks further, the push to standardize around a single pallet size and type likely will gain steam. Will this worldwide spec be a block or a stringer pallet? In the end, companies that rent and exchange pallets around the world may have a great deal to say about this.
In an effort to reduce saw kerf, to a great extent the gang saw has been replaced by the horizontal narrow-band thin-kerf band saw. More efficient multi-head band saw systems and gang sawing at .100-inch kerf (and possibly less) now are available. Do not be surprised if some significant changes in lumber manufacturing appear in the future.
We know of a couple of lumber manufacturing concepts that are being experimented with on pallet lumber. One such system uses a shearing concept to make pallet lumber with no saw kerf. A second one manufactures a laminated lumber product from scrap ends that previously may have ended up at a landfill.
Will pallet fabricating change? Certainly nailing speeds and daily production rates per operator have gone up significantly during the years. Even block pallets can be manufactured to stringent specifications at high rates on some of todays more advanced block nailing systems.
Research on gluing pallet joints is on-going. While this concept has been investigated through the years, no significant results had been achieved until recently. Glued joints conceivably could eliminate some of the problems presented by split lumber and protruding fasteners. The concept of gluing pallet joints should be closely watched.
Possibly no other aspect of pallet machinery is changing as dramatically as recycling. This has been a labor intensive area, which makes it a prime target for efficiency gains in automation. Automated pallet disassembly systems and automated pallet handling and sorting systems are generating much more interest.
When asked about their biggest problem, pallet people often respond that labor is No. 1. The tight labor market and the lack of good workers will continue. Hispanic labor is no longer restricted to the Southwest, Florida, and Gulf Coast; they can be found in pallet manufacturing and recycling operations in far-reaching and remote places. Since the industry will hire people who are willing to work, the strong work ethic in the growing Hispanic population will make them a larger portion of the pallet labor pool each year.
The growing variety of pallet machinery available will mean that the gap will continue to widen between the people starting out with a nail gun and a swing saw and those who have the most sophisticated computerized systems. In the past many pallet buyers and users made no effort to discern the difference between pallets produced by the two extremes of our industry. A bigger focus on product quality may cause a growing number of pallet users to become knowledgeable of pallets. Whats more, they may well care more about their pallets as closed loops, and pallet management may become more common practice.
In its infancy, pallet recycling was the ugly ducking of the industry. As recycling becomes more automated, its function becomes more central to the future of the pallet industry, and more pallet manufacturers become involved in recycling. Its status has changed significantly.
People ask if pallets made from materials other than wood have made a significant impact. In fact, recycling wooden pallets has had a much greater impact on the number of wooden pallets being manufactured. Recycling has grown dramatically from the 1980s until today; annual growth rates of 20 percent or more have been common.
Expect more growth in recycling, but the problem of a deteriorating pool of pallet cores promises to take a bite out of growth. The time will come when recycling growth will plateau as this phase of our business matures. But recycling promises to be a popular pallet option from this time forward.
Recycled pallets may continue to dampen the demand for new, but the poor condition of 48x40 pallet cores will combine with the impact of pallet rental in this market to keep the pressure on supplies. Recycled cores in sizes other than 48x40 are not showing the same level of quality deterioration. Expect more recycling in non-48x40 sizes in the future.
Chep rental pallets unquestionably have been one of the most significant pallet market factors in the 1990s. Rental pallets will have an even bigger influence in the future. They will impact pallet sizes, the quality of pallet cores, and customer attitudes toward pallets and pallet asset control.
This year pallet ownership became a hot topic. Who owns a pallet that is identified with a company name but is part of the massive pallet float in society? If the original buyer has not made a good effort to track its pallets, keep them repaired, and retrieve them, has he forfeited ownership of the pallet? The ultimate answer to this question will probably have a significant impact on our industry.
One of the most recent trends in recycling is increased automation. The variety of pallet sizes stands in the way of using sortation systems and automating the recycling processes, but automation is growing regardless. In my opinion, more automated recycling systems are going to be an integral part of future pallet recycling.
Recycling corrugated has been central to the success of corrugated products. Believe it or not, plastic pallets tout recyclability as one of their strengths. Although it may be difficult if not impossible to economically repair plastic pallets, many plastic manufacturers will buy back broken pallets, giving them a value to the customer.
The pallet industry historically has involved family-owned and managed companies. The most significant development during the 1990s probably is the emergence of pallet management services as an important part of our industry. The future significance of pallet management promises to be an even bigger factor. Networks of pallet companies to provide pallet management functions over wide areas of the continent will involve both pallet rental and closed loop systems with a variety of programs. Closed loop systems can be customized to fit the particulars of a given customer or industry.
The materials handling industry uses less packaging today than it often did in the past. Thinner boxes and cans provide less product protection. This trend in packaging is more reason why the pallet may be called upon to provide additional product protection in the future; this will create greater impetus to use stronger pallets and manage them more carefully. Materials handling has been called one of the last cost-cutting frontiers. The pallet is central in this development.
Chep unquestionably has led the way in pallet rental, but Canadian Pallet Council (CPC) pallets can be rented as well. Other pallet rental concepts are being contemplated even though it will take significant resources to bring them to the market. The CPC pallet ownership pool is under severe pressure from Chep, but the program continues to be a model that others study carefully. PECO is the most recent rental program being field tested.
In addition to pallet ownership pools and pallet rental, the prospects for additional pallet management programs are often discussed. PRANA, a private network of pallet recycling companies, went out of business last year, but other pallet management companies that have come into being the last few years are still going. In spite of the beliefs of many that Pallet Pallet would not survive, the company seems to be overcoming its early management mistakes and growing stronger. National Pallet Leasing has been rejuvenated and will be working with Pallet Pallets network of cooperating recyclers. Pallet Management Systems recently has improved its financial picture as it has worked to overcome a shaky start. Bromley, a regional privately-held recycling company, continues to extend its geographic market coverage. Companies will be increasingly involved in providing pallet management services.
Certainly the most notable privately-held pallet company is PalEx. Although PalEx is less than two years old, its growth has been exceptional. In spite of dropping its biggest customer, Chep, PalEx seems on track to double its size to around $400 million in its second year. In addition to being the most visible and largest pallet company, PalEx has established itself as the biggest pallet management case to watch. While its stock has not done well, stock prices of small, lightly traded companies can be deceiving.
Family-owned pallet businesses will have a role to play for many years. Well run and efficient manufacturing and recycling companies can continue to provide profitable challenges for the entrepreneur. But networking in one form or another will grow in importance in our industry.
Remember: the customer is still the boss. It is what they want that counts. More customers are looking to their pallet suppliers to help manage their pallets, but it will take more time before the movement toward pallet management really catches fire. It is likely that managing pallets will offer new opportunities for pallet companies in the future.
Plastic, corrugated, and metal pallets have been around for decades. They have had a prominent place in material handling shows for years, but the push for alternative material pallets has intensified. Alternative materials are not a major part of the market yet, but they are gaining steam. Slip sheets tried to raise their heads again a couple of years ago when Home Depot launched its mandatory slip sheet program. That program didnt last long.
Molded plastic pallets, twin-sheet thermoform plastic pallets, and plastic lumber pallets offer the most attractive alternatives to wood. Corrugated pallets have their proponents, but they do not seem to offer as much of a challenge. The most common estimates indicate that wood pallets constitute some 95 percent of market share, so wood has no room for market share growth. Wood will lose some market share over time. The question is how much and how fast. Nobody knows these answers for sure. Wood probably will lose market share slowly, making it easier for the industry to absorb. The possible market losses are significant, but they are not guaranteed. A great deal may depend on whether or not pallet using companies and industries really understand the truth. Wood is not the culprit that alternative materials claim it is, but there are markets where alternative materials may be a good decision.
Keep in mind that the customer will decide. Helping customers understand the strengths of wood and the ways to manage wooden pallets for efficient systems will become increasingly important. Is the bottom line price or cost? Wood can look good either way if a customer buys a good wooden pallet and manages it properly.
Our industry is trying to supply this management function because customers can benefit from it, but closing a pallet loop can set the stage for a better pallet that is more economical. The irony is that a wooden pallet company might close a loop and create a system where a plastic pallet could work, whereas a poor system might not offer enough controls for plastics to even be an option.
One of the most important factors in the future may well be the Internet. Space does not permit a dissertation in the Internet and how it might be used by a pallet company, but I believe that the Internet will play an important part in the pallet industry and in individual pallet companies. So far it has had a minor impact for most pallet companies, but this will change in the future.
Industrial Reporting, Inc., the publisher of the Pallet Enterprise, is providing the kind of Internet services that the pallet industry needs. Visit our site at www.palletenterprise.com. Our site is undergoing major changes to provide the most professional pallet site anywhere in the world. For more information on how we can assist you with your Internet needs, call (804) 740-1567 and ask for Ed or Karl.
It is true that the wooden pallet industry has its share of challenges, but it is also true that it has its share of opportunities. The future still offers some exciting possibilities for pallet people who are perceptive and progressive enough to act upon them.