Wooden pallet prices have shown small and steady growth during the post-recession recovery period following the resumption of greater manufacturing activity; prices increases have been partly due to lumber price increases. To help procurement professionals make better buying decisions faster, business intelligence firm IBISWorld has added a report on the procurement of Wood Pallets to its growing collection of procurement category market research reports.
Prices are expected to grow at a stable and slightly higher pace as production levels increase due to falling unemployment and greater consumer confidence, according to the report.
Buyers of wooden pallets have a buyer power score of 3.6 out of 5, reflecting a slightly stronger level of negotiating power for buyers. Buyer negotiation power has declined over the three years to 2013.
“Although pallet prices fell slightly in during the recession due to declining demand from major buying industries, they have grown at a slow and steady rate over the three years to 2013 as greater post-recession production levels stimulated demand for logistical materials and resources,” says IBISWorld business research analyst Hayk Muradyan.
Additionally, the rebounding economy has contributed to greater demand for lumber, the main input for newly manufactured wooden pallets. This has generated input cost increases for suppliers and has led to higher prices. However, pallet suppliers maintain diversified operations that include distributing used pallets at comparatively lower prices. This has kept average price increases smaller compared to input cost spikes. As a result buyers have benefited from relatively low price growth rates.
A low volatility environment has also benefited buyers. “Although industrial production levels, manufacturing activity and input costs have experienced moderate to high volatility, the market’s pallet management systems have reduced major price fluctuations,” says Muradyan. This has increased buyer negotiating power.
Moderate switching costs and availability of substitutes, however, negatively affect buyer power. Although pallets are made from a wide range of materials, such as plastic, aluminum, corrugated paper, wooden pallets are specifically compatible with existing materials handling equipment and are cheaper than alternatives. In addition, buyers with nonstandard pallet requirements may face high switching costs because of the reduced likelihood of finding compatible suppliers within a reasonable distance.
Nonetheless, most frequent-use buyers can obtain favorable contractual arrangements by operating as part of a closed-loop supply chain, which is a system of pallet exchange whereby the pallets are returned directly to the source of the goods that were shipped on the pallets. This can help buyers obtain reused and relatively inexpensive pallets without significant inventory and maintenance costs. Major vendors include P&O Cold Logistics, PECO Pallet Inc., NEPA Pallet & Container Co. Inc. and Rehrig Pacific Company.
For more information, visit IBISWorld’s Wood Pallets procurement category market research report page.