Different forces shape used pallet prices than for buying new ones. This article will outline the market mechanisms impacting recycled pallet prices and why they do not follow the lockstep with new pallet prices when the cost of lumber drops.
Astute pallet buyers know that the wood pallet prices are closely related to the cost of lumber. After all, as much as 60 to 70% of the price of a new pallet can be attributed to the lumber needed to make it. As lumber is a commodity, its price tends to rise and fall based on the forces of supply and demand. So when the cost of lumber drops, it makes sense that pallet prices will also drop correspondingly.
This rationale makes perfect sense if you buy new pallets, although there may be a lag as your supplier works through a lumber inventory that might have been purchased at a higher price. That’s why it generally makes sense to have an open dialogue with your supplier, which will allow you to be confident that those cost reductions will be reflected in the finished pallet price. For recycled pallets, however, the market forces are different. Let’s take a closer look.
Why Used Pallet Prices Don’t Follow Downward Lumber Prices
We mentioned above that a majority of a new pallet’s cost is due to lumber and that the price of lumber moves up and down. So why don’t recycled pallets respond in the same way as new pallets when lumber prices soften? To answer that question, we need to understand that only a limited amount of new lumber goes into a recycled pallet. Logically, the smaller the proportion of new lumber used to refurbish a used pallet, the less sensitive it will be to upward price movement. To better understand the cost inputs for recycled pallets, let’s take a closer look at how pallets get recycled.
Understanding How Pallets Are Processed at a Pallet Recycler Facility
Pallet recyclers buy surplus used pallets, known as pallet cores, from companies that no longer need them. Examples include stockpiles of pallets emptied at distribution centers as goods are shipped to retailers or stacks of shipping pallets that might accumulate at a product manufacturer after incoming ingredients have been offloaded. Pallet companies typically purchase those cores at prices dictated by the marketplace. Competing pallet recyclers will bid up the price when the demand for recycled pallets is high. When demand is soft, recyclers will attempt to renegotiate the core price downward to remain profitable.
When pallets arrive at the recycler, they are sorted. Badly damaged or oddball pallets will typically be dismantled for components with the balance converted to wood fiber. Other pallets will be refurbished as necessary. They might be usable as is. According to Virginia Tech surveys in 2016 and 2021, however, only 5 percent of cores are usable ‘as is’.
The rest of the cores require some degree of refurbishment. They might require minor repairs like reattaching loose boards or driving exposed nail heads. Some pallets will need a few replacement components. In the past, repairs were often done with new lumber, but increasingly, repairs are made with recovered boards and stringers. Using recovered components from incoming cores reduces the need to purchase new material. That, in a nutshell, is why used pallet prices are less sensitive to the price of new lumber than other variables such as the cost of cores, labor and transportation.
What Goes into the Cost of a Recycled Pallet?
To summarize the above discussion, here is the basic formula for recycled pallet pricing:
- Core Cost: The price recyclers pay for the used pallets that will be repaired and resold. This fluctuates based on supply and demand.
- Repair Material Cost: Material cost is determined by the cost of material and the amount required. Using recovered components reduces the need for new lumber.
- Labor Cost: The amount spent on wages for workers to repair each pallet is the labor cost. Recycled pallets are typically more labor-intensive than the automated assembly of new pallets.
- Overhead Costs: Business expenses include rent, equipment, utilities, insurance, and administrative costs.
- Profit Margin: Ultimately, the recycler must make a profit to stay in business.
In conclusion, while it might seem logical to expect recycled pallet prices to drop when lumber prices fall, the reality is more nuanced. Unlike new pallets, which are directly influenced by lumber costs, recycled pallets are driven by a broader set of factors, including core availability, labor, and transportation. Additionally, using recovered materials in repairs further reduces sensitivity to lumber price fluctuations.
Understanding these dynamics clarifies why recycled pallet prices don’t always align with the trends seen in new pallets. Keeping an open dialogue with your supplier is critical to being mindful of these factors and making well-informed purchasing decisions. But at the end of the day, you don’t need to be a pallet expert. At FALM, our sales team tracks both new and recycled pallet markets daily, ensuring you receive accurate and up-to-date pricing. We’re committed to building long-term partnerships with our customers. Contact us to learn how we can support your pallet needs today and in the future.
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