With the economy slowing, the pallet price trends for 2023 have turned a page from the 2022 pallet price trends report. Last year, supply constraints and robust demand resulted in unprecedented pallet price increases. A year later, with rising interest rates, ongoing inflation, and a weakening economy, the picture is somewhat different. COLA increases are historically high in 2022 into 2023—near double digits. Pallet supply conditions have improved, but due to factors outlined below, they will remain much higher than pre-pandemic levels.
Last year, pallet prices ballooned by 50 to 120 percent, depending on the market segment. The market is softening, and pallet prices are beginning to come down. With pallet suppliers holding higher inventories and improved availability, the pendulum has switched to a buyer’s market. Purchasers are watchdogging pallet prices looking for relief or concessions. This is a tact that pallet purchasers should pursue with caution, as we discuss later in this article. Meanwhile, the continued expansion of private-equity-backed multi-site pallet companies in the pallet space has created greater national competitiveness.
Over the last two years, one factor that has influenced the market has been rental pallet users ordering recycled Grade A and premium pallets to be as close to the rental platform as possible for orders shipping into retail. They have done this in the summer months to supplement their Chep or PECO allocation. This year, a similar summer crunch is not anticipated.
The pallet market is slightly trending downward, but the prognosis is that pallet pricing will never return to pre-COVID numbers. The market has been reset presumably to that inflation balloon or a long-term situation of 1.5 times the price of what it used to be. The white wood pool currently enjoys more plentiful recycled pallets in circulation based on higher levels of new pallet production and increased empty pallet availability as supply chains reduce their “just-in-case” safety stock levels. Lead times have improved or shortened. Now it’s 3 to 5 days for recycled pallets and 1 to 2 weeks for new pallets. Recent large RFPs indicate that inventory is returning to many markets.
With the US Fed increasing interest rates to control inflation, pumping the brakes on the economy should have a stabilizing effect on pallet prices, and reduced consumer demand will help. We are already seeing this in the marketplace as availability increases and some price concessions are being made. Keep in mind, however, that the economy is expected to improve in 2024. The Conference Board forecast that 2022 Real GDP growth will come in at 1.9 percent year-over-year, 2023 growth will slow to zero percent year-over-year, and 2024 growth will rebound to 1.7 percent year-over-year. Other product categories, such as warehouse automation investment, are expected to continue a growth trajectory after a flat 2023.
Input prices for pallets remain high. While lumber supply has stabilized, albeit at higher than pre-COVID levels, other inputs such as labor, nails, cores, and transportation, not to mention higher interest rates, continue to put upward pressure on pallet prices.
At the same time, pallet recyclers, particularly smaller ones or others who are not locked into higher core price agreements, might be in a position to offer better prices. Given the supply chain lessons of recent years, however, pallet buyers must keep in mind any potential risk to their operation resulting from risk of inconsitent supply or quality failure.
Also, buyers should avoid damaging supplier relationships by aggressive price shopping and changing suppliers in the current economy. As the economy improves through 2024 and beyond, the loss of trusted relationships might be far more costly in the long run than incremental savings in the current market. And, of course, there is the issue of disruption. How resilient is your supplier?
While the pallet market has taken a breather, for the moment, its dynamics remain very much in flux. A strong partnership, based on trust, with an experienced, expert pallet provider can help you successfully navigate these waters.
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