Summary
• The pallet market remains weak.
• Rising freight costs are benefiting British timber suppliers.

In marked contrast to the fencing sector, the pallet market continues to be subdued. “It’s very muted, even allowing for seasonal adjustments things are exceptionally weak,” one manufacturer told TTJ.

He attributed this largely to the ongoing economic problems. “Because of the economic situation people are trying to recover and repair pallets; the market for new products is down even though output of new pallets has declined considerably in recent years.”

Added to this, timber prices have risen this month but so far manufacturers feel unable to pass on these increases to customers.

“I fear there will be casualties this year because the margin isn’t there. The situation is extremely serious,” the contact said. “This year will be harder than the last few years because it’s an accumulation of hard times.”

Biomass demand

He believed demand from biomass was one factor in timber prices rising, while another manufacturer believed that more second-hand and damaged pallets were going to biomass.

“That’s good news for people selling new pallets,” he said, adding that it may drive up the price of used and reconditioned pallets.

Although the pallet market was fairly stagnant, his company had grown over the past year as a result of getting “the recipe right” with customer service and competitive pricing. “It’s hard but there are opportunities for those that do a good job,” he said.

When timber prices fell earlier this year the company passed on the decrease to its customers. “The economic situation means we have to be responsible and if there are extra margins to pass back then we do so,” he said, adding that he is now hoping that, having done that, his customers will appreciate that prices have to rise now.

“Prices have to go up because margins are so low; there’s no option really,” he said.

As well as higher timber prices, other overheads were going up too. “We’re looking to renew our electricity contract now that we’re at the end of a two-year deal and we’re looking at paying 30% more,” he said.

Favouring British timber

Increased freight costs and oil surcharges meant some manufacturers were favouring British-grown timber over imported material, said an agent.

As well as home-grown material being cheaper, it meant manufacturers weren’t committed to buying forward.

“People don’t want the commitment that things are going to be shipped in two months’ time; they want to be able to pick up what they need as they need it,” he said.

Another major issue facing the pallet industry is the proposed extension of the ISPM15 phytosanitary regulation to include pallet movements within the EU. At present ISPM15 requirements are limited to pallet movements into the EU or out of Portugal, a known pinewood nematode area. Timcon and the European Federation of Wooden Pallet and Packaging Manufacturers have made submissions to the European Commission consultants assessing the proposal.

Timcon supports measures to protect European forests but wants to ensure that the extension is scientifically justified and that the industry is given sufficient time to expand its heat treatment capacity. It also wants the EC to clarify whether “intra community” movements mean within member states as well as between member states.

“It’s going to be a mountain to climb in Europe,” said a contact. “Scandinavia has the heat treatment and kilning capacity but the UK, France and Germany don’t. People are not going to invest in the current economic climate unless they know the regulations are definitely coming in.”

He estimated the UK industry would need two to three years to build up capacity.

The measures could add 15% to the cost of a pallet but “it’s nothing compared to the cost of wrecking forests and you have to balance the two things”, he said.