Modern Materials Handling’s Annual Pallet Report Webcast: Some Takeaways

Export and import pallet implications of international trade plus e-commerce are top trends to watch

Modern Materials Handling (MMH) Magazine recently hosted its Annual Pallet Report Webcast, (available on demand here) once again featuring Dr. Marshall (Mark) White, President of White and Company, and moderated by Josh Bond of MMH. The webcast was sponsored by ORBIS Corporation. Here are some takeaways from that event.

Does a lower prioritization on pallet price reflect that customers are more interested in pallet quality?

Price as a most important factor in pallet selection has dropped from 60% of respondents in 2016 to 59% in 2017, and down to 57% in 2018.

“The importance of purchase price in the pallet selection process has slowly waned in recent years and is now tied with strength (57%),” Bond wrote last month in MMH. “In an age of increased focus on supply chain performance, sustainability and resiliency, it is not surprising to see this theme repeated throughout the survey. Cost per use—and even pallet weight—are of less concern than reusability and durability.”

While most of us would like to see more pallet buyers take a broad approach to understand their total pallet cost impacts versus pallet price, as Bond intimates above, Dr. White suggests an alternative possibility.

“I think this is clearly showing a very tight pallet market,” he told Bond. “Demand is very high and supply is struggling to keep up, so when you are in a market like that, availability becomes very, very important. And actually, price becomes less important. You know me, I’m a performance-based fellow…But in the end, this is a reflection of a very tight pallet market. And quite frankly, users are struggling to find quality pallets to meet their needs.”

Pallet market is growing, and even faster for plastic–especially for export

Dr. White commented that wood pallet production has grown from 750 million pallets annually in 2011 to 849 million in 2016, a 13% increase. Over a similar period of time, plastic pallet production has grown by 25%. He sees a huge demand in using plastic pallets for exporting. “These are one-way pallets going into that export pallets,” he said. “I think that’s where most of the increase is coming from in the plastic pallet market.”

Is the block pallet trend ebbing?

In 2006, 6% of pallet production was block style, Dr. White noted. In 2016, 21% of production was a block style pallet. With retailers such as Costco demanding block pallets, and their availability through poolers such as CHEP and PECO, more and more pallet users have become familiar with block pallets. “People began to recognize that the block pallet is very functional. In many ways, it is much more functional and can reduce operating costs. He noted that the slide is consistent with manufacturing trends–75% stringer and 21 to 25% block.

“I think we are starting to see that growth in block manufacturing starting to ebb a bit, and it makes sense. Certainly, the rental companies are all on block pallets, and the pools are maturing. But the growth in the  recent past from stringer to block pallet  was significant.

More new wood pallets, fewer recycled being purchased

This year’s survey showed an increase in wood pallet purchasers buying new, with a significant drop in those purchasing used pallets, which speaks to the continuing degradation of pallet core quality.

“The availability of the core that becomes the basis for used repaired or remanufactured pallets in the marketplace has declined,” Dr. White said. “And as that declines, the quality of used pallets has also declined.” He cautioned, however, that the used pallet market very much pertains to the 48×40 pallet, which is only 35% of the pallet market. “This doesn’t really tell us what is going on with repairing the odd sizes…” He suggested that increased purchases of new pallets might help improve quality in the used pallet market.

Sustainability as a rationale for purchasing plastic pallets declines

Dr. White remarked on the steadily decreasing importance of sustainability as a motivation for increased plastic pallet usage since the 2015 survey. “I find that interesting,” he said. “Because if you can reuse a pallet, capture it and not lose it, and it lasts a long time, and the cost of repair is not very great, which is the market that plastic should be in, you can basically form an argument that in certain markets and certain situations, a plastic pallet could be more sustainable and have a lower environmental impact than a wood pallet. But apparently, that is declining. That is an interesting trend, and that is something we should follow.”

More companies interested in alternative pooling options

The survey indicated that at least 37% of pallet users would be interested in an alternative pallet pooling service to major providers such as CHEP, PECO,iGPS, and 9Bloc. According to Dr. White, the trend makes sense. Pallet rental can be a poor fit for many smaller manufacturers.

“What we are seeing here is that these companies, which are not a fit for rental, recognize the benefits of managing pallets, and they look to other companies to help them manage their pallets,” he said. “Some of them may do it internally, but many look to third parties that can manage pallets for smaller industry segments.”

He emphasized that a lot of third party companies are making pallet management services available for manufacturers of a smaller scale or in non-48×40 pallet applications. “I’m happy to see this. It is good for our environment, and it continues to control the cost of consumer goods,” he continued.

Trends to watch #1: International freight

According to Dr. White, the leading trend to watch in terms of pallet implications is international trade. He notes that the U.S. usually exports roughly 12 million TEUs (twenty-foot equivalent units) annually. Roughly half of that volume is still floor loaded, while the rest is palletized. If the floor loaded portion was converted to palletized, it would require an extra 60 million pallets annually.

“Now, that’s not going to happen overnight,” he cautioned. “That is going to be an evolutionary process. But it will increase the demand.”

Dr. White noted that freight container rental has decreased by 45% between 2014 and 2017. While the use of pallets can reduce freight capacity by as much as 10%, there are significant labor-saving benefits to palletization. He noted that loading a 40-foot container can take six to eight labor hours, while palletized freight can be loaded in less than one labor hour.

“When you look at those costs, what does it mean?” he asked. “We are going to increase palletization going out of this country, (and) we may see palletization increase coming into this country.” With a trade deficit of 3:1, there is the potential for a huge influx of pallets. The main problem with that, he said, has to do with their overall poor quality. “I think what we see as we palletize more and more products for international shipments, we are going to see an impact on the pallet market that we should monitor very closely in the future.”

Trends to watch #2: E-commerce

Dr. White noted the rapid increase in e-commerce volumes. He said it will be difficult to tell what the impact will be, at this point in time. For now, the major difference is in the last mile of distribution, which is the last leg to the retail store, or in the case of e-commerce, the last from the fulfillment center to the online customer’s home. He noted that currently, the front end of the e-commerce supply chain is still highly palletized. It is possible, however, if improvements are made in parcel-direct shipments direct from the manufacturer, it could impact pallet usage related to shipping goods from the manufacturer to the fulfillment center, as well as for order picking.

To view the webcast, follow this link.