The GDP May Be Soaring, But So Is the Cost of Doing Business [SERIES]

Pallet prices are at levels that haven’t been seen in years. Here's why.

(This is the first post in our series on making the switch to recycled pallets. Check out the second installment here.)

It was hard not to cheer when the second quarter U.S. GDP growth clocked in at 4.1 percent, the best pace in nearly four years. Business spending is up. Consumer spending is up. What’s not to love about that?

I hate to burst your bubble, but the cost of doing business is also up. In the case of lumber, prices are not just increasing; they’re through the roof. According to the Bloomberg Commodity Index, lumber prices have surged 66 percent over the last 12 months. That’s painful!

Why are lumber prices soaring while the cost of other commodities are relatively stable? Analysts attribute it to the perfect storm of a strong U.S. economy creating demand for new homes, transportation woes in Canada that have left lumber sitting at mills ready to ship, and U.S. tariffs on Canadian timber products. Caught up in this maelstrom are wooden pallet producers and their customers.

You guessed it. Higher pallet prices.

Hard and softwood lumber is the foundation of the wood pallet industry. Over half the cost of a pallet is in the wood and another 5 to 10 percent is in the fasteners. The rest of the cost is in labor, roughly 35 to 40 percent. With so many Americans back in the workforce, competition for employees is up. Pallet producers are now paying higher wages to retain workers who suddenly have more employment options.

The result? If you’re reading this, you’re experiencing it: pallet prices at levels that haven’t been this high in years.

Even with the higher prices, demand for pallets remains strong. But that doesn’t mean pallet users aren’t grumbling. If prices on goods aren’t keeping pace with the price of pallets, margins are definitely taking a hit.

If you’re unwilling to swallow margin erosion related to necessities like pallets, I’ve got a suggestion for you: replace your new pallets for recycled pallets. (May I suggest 48forty?) The reason? You’ll cut your cost per pallet in half without sacrificing performance.

You heard me right. Make the switch to recycled pallets and you’ll get an instant two-for-one deal. That’ll save your margins!

While I’d like to say this is our little secret, 48forty is seeing significant demand for our recycled pallets from companies that previously used only new pallets. (We are the largest source of recycled pallets with 90 million in force.) And while our prices have increased along with the rest of the market, our increases have been a fraction of that of new pallets.

Bloomberg Intelligence analysts expect lumber prices – and therefore new pallet prices - to continue to rise. If you want to avoid increases, or better yet, reduce your current pallet spend, make sure to read next week’s blog on what to consider when switching from new to recycled pallets.

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