The pallet industry is adjusting to the new normal of an always-changing business environment.
Originally printed in the July 2022 issue of Produce Business.
The pallet industry has been working to find new ways to deal with a business environment in turmoil — supply chain issues, inflation, labor, freight, retail, wholesale and shortages.
“This is a real adjustment period to the new normal with the volatility in supply, pricing, ongoing labor issues,” says Jason Ortega, vice president, public affairs, for the National Wooden Pallet & Container Association, Alexandria, VA. “Everyone within the manufacturing sector is dealing with real swings.”
He says manufacturers are coping by being more dynamic and keeping more materials on hand — when they can get them. Anything including wood and nails could be subject to shortage, so adjustment means maintaining more raw material inventory. Even then, manufacturers have had a hard time getting the right labor, Ortega adds.
“COVID has been a catalyst for change in the world of plastic pallets due to supply chain disruptions, wood pallets being expensive and not available, high desire for hygienics and cleanliness in food customers, and increased automation because of labor shortages,” says Alison Zitzke, senior product manager, ORBIS Corp., Oconomowoc, WI.
She says plastic pallets have become the go-to for many customers because of the availability and lifespan when compared to wood. “Customers have been able to justify investment in these assets with a focus on long-term ROI.”
Today, Zitzke says, a lot of companies are thinking about durability, hygienics and reliability when they are reviewing pallet needs.
“In recent years, there has been an increase in the use of automated systems along the food supply chain. Reusable plastic pallets are optimized for automation as they are dimensionally consistent, creating a smooth interface between automated systems and product loads.”
Jeff Pepperworth, president and chief executive of iGPS Logistics, Orlando, FL, says alternatives to wood pallets are getting more consideration.
“Both manufacturers and retailers, such as Costco, are recognizing the benefits of plastic. Because our pallets don’t have protruding nails and splinters, they are safer to handle and don’t create messes in warehouses and trucks, and they also flow through automated equipment more easily,” Pepperworth says. “They are also lighter, which makes them not only safer, but also better for the environment. Less fuel burned during shipping means less greenhouse gas emissions, which is a big deal when so many companies are focusing on sustainability and setting net-zero emission goals.”
Jason Adlam, vice president, new business development, CHEP USA, Alpharetta, GA, says the supply chain continues to be a difficult operating environment following the pandemic.
“With the initial peak, the way we employees worked shifted immensely, where resources and materials surged with demand in some industries and others, like foodservice, needed to redirect or rethink how to service their customers,” Adlam says. “These shifts challenged our business to be responsive to our customers’ demands and shift shipping lanes quickly. And we did it: More goods were shipped on CHEP pallets than ever before.”
LONGER LEAD TIMES, HIGHER PRICES
Gary Sharon, executive vice president, Litco International, Vienna, OH, agrees the pandemic supply chain issues set the stage for radical changes in the pallet sector.
“Before COVID, it was a competitive marketplace for pallets and packaging,” Sharon says. “Buyers could easily decide to change vendors for a small price difference. The supply of new and rebuilt pallets was able to meet demand with a short, five- to 10-day lead-time.”
Then, during the shutdowns, consumer purchasing shifted from services to durable and nondurable goods, he explains. “That shift increased demand for raw materials, packaging and pallets. In turn, it created a high demand for trucks and shipping containers.”
Earlier this year, a major pallet supplier significantly reduced its output, which led to “one of the worst shortages in history for new and rebuilt pallets,” says Sharon. “To deal with the increased demand, pallet manufacturers have tried to increase output, but material and labor shortages are making it difficult. Today, shortages in labor, raw material and finished goods continue to haunt manufacturers and consumers. Demand remains strong, but these shortages are contributing to long lead times.”
He says lead times will remain lengthy into 2023, but the severity will depend on region, labor and lumber supply.
“The increased demand in the pallet industry has stressed the availability of replacement parts, wood, fasteners and labor,” Sharon says, adding lumber prices peaked last year to historical levels for southern yellow pine (SYP). The SYP prices have dropped, but remain higher than pre-COVID levels, and hardwood lumber prices have climbed to a new peak — over 33% compared to last year.
Sharon says just a few months ago, many companies were desperate to find pallets. “They would buy anything, at any price, to have a pallet to ship on. Since then, people have realized that the cost of being without pallets far exceeds the amount it costs to buy them.”
“I don’t expect pallet availability and price to return to the previous way of doing business for an exceedingly long time. If ever,” he says.
The higher cost of doing business in the pallet sector today, including on materials, logistics and labor expenses, is consistent with what’s happening in other industries, Adlam says. The current challenge is the need to return pallets and other shipping platforms. “In order to continue to fulfill household needs of fresh produce and FMCGs (fast-moving consumer goods), we need to work with every partner across the supply chain to return shipping platforms to where they need to be, like to a CHEP service center, where they can be repaired and shipped for reuse. That’s, unfortunately, part of the bottleneck we’re facing today.”
Businesses have choices as to how they handle pallets, but also have to look at the changing needs as they consider the future.
“There are manufacturers who purchase limited-use pallets while others have their own internal pools,” he says. “Then, of course, there are organizations who outsource pallet fulfillment to CHEP.
“I don’t think there’s a one-size-fits-all answer, because it really is the result of how each individual supply chain operates and flow is structured, what kind of products are being shipped, how much space and resources they have, what regulations their supply chain faces, what their downstream customers require, and what their company values are. In today’s shortage environment, product availability is key, and customers may be settling for less-than-ideal solutions just to keep their supply chains moving.”
COVID-19 and the way it has shaken up the economy triggered changes in the pallet industry, but sustainability is a long-term and evolving issue that has promoted innovation.
ORBIS Corp.’s Zitzke says plastic pallets have evolved as manufacturers consider new, technologies and more efficient manufacturing means. In tapping the recycled material stream, in one example, pallet manufacturers help to support customer sustainability goals and hedge against disruptions in the raw material supply chain.
“Companies are constantly looking to increase sustainability in their supply chains, including their packaging,” Zitzke says. “This has put reusable plastic packaging in the spotlight for its sustainable advantages and long, useful life. Today, companies can turn to their own supply chain for opportunities to recycle post-industrial waste into reusable plastic packaging. For example, companies that are making plastic products and have scrap left over can work with a reusable plastic packaging manufacturer to incorporate that waste into new solutions. Retailers also are pushing for their suppliers to utilize reusable plastic packaging, as it reduces waste across the supply chain.”
In an especially eco-friendly context, she says, some reusable plastic packaging manufacturers are using innovative material streams, including coastline plastic waste at risk of entering the oceans and incorporating it into supply chain packaging.
“Customers also are interested in reusable plastic pallets as they are not only made with recycled material, but they also are fully recyclable at the end of life,” Zitzke says.
Ortega points to the environmental virtues of wood pallets.
“Wooden pallets are 100% renewable, recyclable and have a 95% recycle rate,” he says. “That checks a lot of boxes as to the environment and sustainability. The wood pallet is a product that is good for the environment and potentially carbon net positive.”
At the same time, the association and wood pallet industry recognizes it can do more, especially in making customers and the public aware of product eco-friendliness.
“The sustainability issue is something we were working on before the pandemic with industry members — really trying to quantify that and have third-party certification,” Ortega says. “As the supply chain stabilizes, we’re going to continue working on improving sustainability throughout the industry.”
Litco’s Sharon says more companies want to explore pallets proven to be sustainable. “Wood-based pallets can be recycled, making them an excellent fit in the circular economy,” he says. “A circular economy is a comprehensive approach to recycling packaging products back into the supply chain. The goal is for the best allocation of resources, waste reduction and a decrease in the environmental impact of production and usage.”
Sharon asserts Litco was at the forefront of the sustainability movement before it became a popular cause.
“Our Engineered Molded Wood pallets were the first to be certified Cradle to Cradle sustainable by MBDC,” he says. “This designation acknowledges continuous innovation and improvement of products and processes to benefit people and the environment. They are also certified BioPreferred by the USDA for utilizing a substantial percentage of plant-based materials.”
Sharon explains the pallet line is engineered for strength, stiffness and functionality, and are compression molded from pre- and post-consumer wood waste that has been diverted from the landfill.
At iGPS, Pepperworth says technology is giving pallet producers new ways to manage evolving consumer needs.
“Pallets are no longer seen as just a shipping platform,” he says. “They are now a smart asset that provides greater insights and intelligence into the operations of the supply chain. For example, all of our pallets contain RFID tracking chips so their progress through the supply chain can be monitored. We know where the pallet is, where it has been, and how many trips it has taken.”
At CHEP, sustainability is an ongoing process, says Adlam. “I wouldn’t say the pandemic and current consumer demand have changed our evaluation of materials used in our platforms because we’ve continued to evaluate product development for the supply chain of the future, not the supply chain of today.”
He adds CHEP is constantly looking to eradicate empty miles and reduce waste.
“Given the end-to-end supply chain visibility we have from our market position, we are able, and have, partnered with some unlikely customers to reduce cost and eradicate empty transport miles,” Adlam says. “One customer needed to get a load from Atlanta to Orlando, while the other needed to get one from Orlando to Atlanta. We identified this opportunity and paired the two, resulting in CO2 emissions reduction and cost savings for both parties.”
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Wood vs. Plastic
Which is a better, more sustainable pallet: wood or plastic? It depends on who you talk to.
Alison Zitzke, senior product manager, ORBIS Corp., Oconomowoc, WI, says upfront prices may make wood pallets attractive to some potential customers, but users need to weigh their long-term value versus those made of materials that can have advantages in reusability.
“The durability of reusable plastic packaging products allows them to last for many cycles through the supply chain, leading to a compelling ROI,” Zitzke says. “In fact, making the switch to reusable plastic pallets reduces solid waste by 72% and energy usage by 71%.”
She says sales for plastic pallets have risen in the last few years and are expected to continue on an upward trajectory. That’s because current higher prices and scarcity of wood pallets have opened up many opportunities for plastic that may have been harder to justify before. “Conversions that used to take years to justify are coming to life more quickly.”
Jason Ortega, vice president, public affairs, for the National Wooden Pallet & Container Association, Alexandria, VA, doesn’t want anyone to forget the virtues of wood pallets.
“From a pure utility basis, wooden pallets are economical in comparison and highly customizable,” he says. “We have a pallet design system that allows the industry to customize pallets to load a load rating. So the industry offers something that aligns with needs and, so, wood pallets continue to dominate the marketplace.”
Gary Sharon, executive vice president, Litco International, Vienna, OH, says wood is still the most common material for pallet construction “because it can be quickly cut into assorted sizes, with minimal equipment change-over time.”
But because of the increasing prices and longer lead times, pallet users are more likely than ever before to consider alternate materials and designs, he adds, pointing to Litco’s Engineered Molded Wood pallets, which it introduced into the U.S. marketplace over 40 years ago. Manufactured in two locations, these Litco pallets are made from pre- and post-consumer wood waste and a binding agent, and are compression molded under high heat and pressure.
Wood works in many, if not all, contexts, says Jason Adlam, vice president, new business development, CHEP USA, Alpharetta, GA.
“Wood has always been a safe, durable, sustainable and cost-effective material for pallet design, as it is repairable, recyclable, reliable and plentiful. That’s why it is the source material of choice for many products used today, from toilet paper to housing to pallets.”
Wood is a natural resource, yet it may not be perfect for every application or customer need, and every material comes with trade-offs, Adlam emphasizes. “As supply chain needs continue to increase in demand — and resources become more valuable — automation is being installed in more operations. But achieving those demands won’t be a small feat. The desires for lighter weighing, longer-lasting, digitally enabled, highly specified, environmentally friendly pallet solutions are growing. Plastic can sometimes provide those benefits, but it comes at a much higher price, three to four times the cost of wood.”
Even if known for its wood pallets, CHEP also is “an innovative company focused on delivering sustainable solutions that meet our customer needs, regardless of the material,” Adlam says. “Our portfolio of products is evolving to meet the changing market needs by also looking to develop the right products, at the right performance and the right price to meet supply chain demands.”