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Pallet price spikes mirror larger logistics concerns

Geoff Whiting

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It’s time to take a break from worrying about dock delays, unavailable containers, and driver shortages, and instead, worry about how those same problems are impacting the pallets you need to move goods. It seems 2021 isn’t done with us yet.

So, let’s take a quick look at the current shortage and price spikes, how they’re impacting businesses, and what you can do about it. You just might find a response that’s worth repeating in other supply chain areas.

pallets and palletized stock

What’s happening with pallets?

Pallet shortages and losses are symptoms of broader supply chain concerns. Ongoing struggles here can signify some of the other challenges you’ll face through the end of 2021. The issues are at the points of supply, inventory holding, and recirculation back to suppliers.

When we look at pallet concerns, the first troubling element is an estimate that wood pallet costs are up 400%. Some of the spike is due to lumber rates seeing a massive rise and fall this year. While commodity prices in July wiped out much of the previous 2021 gains, we can expect pallet costs to stay higher than usual for some time. Pallet makers and sellers will need to recoup their costs and address a shortage that is lagging overall lumber availability.

pallet pricing according to BLS data
BLS’ Producer Price Index shows pallet costs at an all-time high

That high cost of pallet manufacturing plus a consistent low in availability should keep pallets as an expensive line item for many companies. Despite record eCommerce sales in 2020 and through 2021, availability isn’t likely to turn around anytime soon. That’s true even for manufacturers and suppliers that have programs where buyers must send pallets back.

Companies are holding onto pallets longer partially because they’re holding onto stock longer. Many brands have bought additional safety stock to address supply chain shortages and container delays. In some cases, companies tell us that containers are waiting longer at docks than it took for them to transit the ocean. To address this, companies are increasing stock levels to focus on last-mile solutions for the year-end shopping seasons. Unfortunately, that is compounding the shortages and having more profound impacts in oversized eCommerce.

That holding and longer processing times mean pallets are moving through the supply chain more slowly. Pair these delays with shortages in truck drivers and capacities, and there are even cases where companies cannot correctly circulate pallets back through their supply chain partners.

Learn more about floor-loaded vs palletized shipping containers

pallet receiving

How should companies respond?

The first step in managing pallet shortages and concerns is to try and source new options. Ask yourself big-picture questions related to the entire supply chain:

  • Do you have regional providers that can fill the void?
  • Would switching to metal or plastic options be more affordable immediately or in the long term? Could you safely move from hardwood to softwood?
  • Can a partner like a 3PL help?
  • Could you adjust how loads are sent to your distribution hubs to minimize pallet usage or centralize where a pallet is broken down?
  • Would a mix of owned and CHEP pallets provide safety and backups?

These questions all involve an increase in spending or a reallocation of funds. It’s time to bring leadership in on the pallet concern and shortage. Why? They’re a more significant part of your supply chain capabilities than most think.

Pallets aren’t just a line item. They’re the supply chain’s red blood cells that move oxygen (products) along every path and need to circulate back to the lungs for the next round of air. Upgrading pallets might keep a smaller number in circulation longer, making them more efficient. Full ownership may help you combat shortages. Maintenance or local repair and reuse systems could keep costs lower in the long term, especially if the pallet crunch deepens.

Invest in these tools to keep your supply chain healthy, inbound moving swiftly, and last-mile delivery fast enough to keep customers happy.

Apply pallet lessons to the entire supply chain

Your company should review these concerns even if the pallet constraint hasn’t created a significant impact. Look at how you would need to respond, even if just for a few LTL inbound loads. And, review how it is impacting partner guarantees. The reason behind that planning is more than just prep for a potential pallet disruption.

Pallet issues highlight potential shortages throughout the rest of your supply chain. Finding new materials and partners, looking at regional instead of national distribution, or adapting your inventory to minimize usage are good practices. Those efforts might help you if we see another Q4 carrier capacity crunch, if a regional partner goes offline, or if manufactured goods are stuck at ports just before your big holiday sales.

Figure out how to tackle pallets, and you’ll be able to protect yourself better against whatever else 2021 throws our way. Not sure where to begin?

Reach out and Red Stag Fulfillment’s experts will you get started.

Red Stag Fulfillment is a 3PL founded by ecommerce operators, and built for scaling businesses.

A team of fulfillment fanatics who care about our clients’ businesses like their own. We see things from our customers’ perspective, and have the guarantees to prove it.

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