The July report from economic forecasting group EY Item Club states the UK economy is growing at its fastest rate for 80 years. Rebounding vigorously from its 2020 pandemic year contraction of 9.8%, it predicts GDP growth for 2021 of 7.6%, the strongest performance since 1941. According to the Timber Pallet and Packaging Confederation (Timcon), UK pallet makers are reaping the rewards.
“Demand from all sectors is extremely strong,” said president John Dye. “For instance, where the construction and house building sectors were at zero in March-May last year, they’ve been flat out since August 2020. Packaging and corrugate manufacturers are also busy, particularly due to continuing demand from online outlets.”
A pallet maker that services an extensive range of sectors, from aggregates to pharmaceuticals, has seen demand rise across the board.
“Everyone’s busy, but there’s also been an element of panic in the market,” they said. “We’ve had more calls from prospective new customers in the last three to four months asking about availability and price. They’re saying ‘we just cannot run out of pallets’. Existing customers too have been asking if we can double up on usual supply.”
While there is still some capacity in the sector, demands on new pallet manufacture, said Mr Dye, have been “magnified by the critical supply situation in reconditioned pallets”.
Adding to the pressures – albeit welcome – of keeping up with pallet consumption is the UK haulage crisis, with the country reportedly up to 100,000 short of truck driver needs.
“It’s another challenge the industry is having to work around,” said Mr Dye. “Manufacturers report deliveries being delayed, causing an increase in lead times.”
One pallet maker is responding to the crisis by working with other companies and its local authority to increase HGV training through local colleges.
“People blame Brexit for the shortage, but it’s only exacerbated a long-term problem, and it’s Europe-wide, with suppliers in Poland, Portugal and the Baltics reporting the same issue,” they said. “We need to tackle the root cause, which is getting young people into the profession.”
But the key concern in the pallet sector over the last year or so, as in most timber-using industries, has been raw material supply and price inflation.
“Sawmills are also flat out, but demand has been outstripping supply and the volume of imported pallet timber is increasing,” said Mr Dye.
A pallet maker, however, felt the timber market was finally starting to calm down. “Our suppliers in the UK and abroad are catching up and the timber panic buying we’ve been seeing is working out of the system,” they said. “What’s helped us too is having long, loyal relationships with mills. It’s really paid off recently in securing supply.”
As for wood prices, while manufacturers have been widely redesigning products to reduce timber volumes per pallet to shield customers from mounting costs, the extent and frequency of rises recently has meant there’s been no choice but to pass them on.
“The increases are at a magnitude that manufacturers are unable to absorb,” said Mr Dye. “When timber equates to over 70% of selling price, this should come as no surprise. Buyers are reluctantly accepting the increases.”
A major problem for manufacturers, who have traditionally worked with quarterly index reviews, is the change in the ‘lag’ between timber price rises from mills and being able to pass them on to customers.
“There’s always been a lag, but quarterly movements have been manageable,” said Mr Dye. “The difference today is that pricing is so volatile and rising in unprecedented jumps. Like counterparts across Europe, UK pallet makers have introduced monthly index reviews to monitor the situation and keep customers informed about timber price increases.”
According to a sawmiller, the level of demand from pallet makers has been among the factors making the last 14 months “quite manic”.
“From May 2020, overall market demand just sky rocketed. Only in recent weeks have we seen that unsustainable level of activity drop off a little bit,” they said.
As for sawmilling profitability, they added, this period has been “fantastic”.
“The level of increases pallet makers have accepted is astonishing – recently there was a further unprecedented rise of £80/ m3 for pallet timber, but without exception producers said fine,” they said. “This latest rise puts pallet boards at £380/m3, compared to £180 last May. However, the pallet makers themselves have benefited too – they’re also making better margins. Manufacturers I’ve spoken to said they’ve had little resistance to price rises from their customers, such is demand. They’re telling even blue chip customers ‘this is your pallet price a month from now, you have a week to accept, but if you don’t we can’t do the business’. They say you only get a price increase if you can afford to say no to an order. Currently pallet makers can afford to say no.”
Another sawmiller said they did not envisage significant softening of pallet timber prices in the near future.
“Baltic pallet wood suppliers started raising prices a bit later, and, while they’re more expensive than UK or Irish, they’re still pushing for more,” they said. “So, while we may not see the size of increase we’ve had recently, we don’t anticipate weakening to any major degree. Today’s price levels look like the new norm.”
The pallet maker quoted above also attributed customers’ acceptance of higher prices to relationships.
“It’s been down to the trust we have with companies, that we wouldn’t increase prices unless we had to,” they said. “And we’re working with them to ensure their pallets aren’t over-engineered; where possible removing timber to strip out cost.”
Timber pallet price inflation also does not seem to have led to any marked switch to products in other materials.
“We’re not aware of any change in market share,” said John Dye. “All raw materials prices have been rising, so plastic pallet makers costs have probably been increasing too. Although the wooden pallet sector is under severe pressure, operators are working closely with customers and keeping things going. It may be very tight at times, but deliveries are being made.”
A manufacturer felt too that the sector’s growing stress on the superior sustainability of their products was helping wood pallets hold their ground
Pallet producers have also had to deal with the additional requirement for ISPM 15 compliant pallets following Brexit. But, says Timcon, extensive preparatory work was done on this by the industry “keeping issues to a minimum”.
“We’ve increased our treatment capacity to meet ISPM 15 demand,” said a manufacturer. “We’re finding that customers operating in the UK and abroad for convenience are increasingly having all pallets heat-treated so they can use and reuse them for domestic and export trade.”
In addition to a demanding marketplace, the pallet sector is also having to contend with the current review (Extended Producer Responsibility for Packaging) of packaging waste regulations and recycling targets.
“Another major development is a push to get the reuse of pallets more to the fore,” said Mr Dye. “Recycling is extremely important, but wooden pallets should not be chipped or burnt until they reach the end of their lifecycle.”
“We’re increasing efforts to persuade customers to get their pallets back, even from abroad, so we can refurbish and get them back into circulation,” said a manufacturer. “More than ever, to take the stress out of the market, and for reasons of sustainability, we need to make wood pallets multi-trip products.”
The outlook of the sector seems positive, with Timcon reporting manufacturers continuing to invest in production technology to raise output and cope with labour shortages.
“We’ve managed to increase our workforce, although we’ve struggled finding skilled people for manual manufacture, but we’ve also invested in new quick change-over jigs to increase efficiency,” said a producer.
Pricing looks set to be an ongoing concern in the sector, but demand is expected to remain robust, notably, from the building industry, which takes around 40% of new pallets.
“We have some concerns about rising inflation and possible interest rate increases,” said a producer. “But we’re looking busy to Christmas and into quarter one 2022.”
