According to a report from the United Fresh Produce Association, there is a crack in the supply of wooden pallets. Given the diverse uses of pallets, this shortage will directly and indirectly affect many industries. For example, the lack of pallets has a tremendous effect on the supply chain of many companies. This adds to the stress that supply chains are already facing following the COVID-19 pandemic and lockdown measures in place to encourage social distancing. This article analyzes the implications and possibilities of responding to the crisis.
Dealing with ridiculously expensive lower backs
Some of the current problems that are compounded by pallet shortages include a lack of shipping containers, trucks, and personnel. In fact, there is a growing shortage of resin, which is a key ingredient in making recycled containers and pallets. The pallet shortage is expected to last for a few months and possibly until the end of 2021. An already difficult and unpredictable year could be made worse by this shortage.
As a result, the cost of raw wood has doubled and at times almost quadrupled. Increases in the price of wood have exponential impacts on the cost of manufacturing wood pallets. Manufacturers are passing on these costs by increasing sales prices. This, in turn, destabilizes companies that are only trying to regain balance after long closures.
If pallets are available, the buyer can expect to pay 400% more. This is not sustainable in the long term. Consumer demand is increasing and pallets are a key ingredient in meeting those demands. Without addressing the pallet shortage crisis, it will be impossible to meet consumer demand.
Why is lumber so expensive today?
How we got into this situation is worth considering. One of the critical determinants of pallet consumption is home construction, a dynamic that was on the rise in the years before the COVID-19 pandemic. Housing construction raises the price of wood.
The fact that sawn wood is a fully expendable good means that it affects practically every economy in the world. During the pandemic, many people decided to complete pending home repairs and that creates additional demand for wood. Social distancing regulations in the COVID-19 era have increased the demand for social spaces that are specifically outdoors in their construction. This requires modifications to furniture and wood-consuming properties.
As economies start to open up, companies are trying to jumpstart their supply chains to meet sizable demand. Wood and pallets will inevitably be part of that equation. This is especially true given the disruptions the COVID-19 pandemic has had in traditional supply chain systems. These are the same supply chains that must meet unexpectedly high demand for consumables and protective equipment.
There may be some level of inefficiency that increases the demand for lumber. In addition, there is another regular shortage of battery materials and steel. These are cyclical patterns that are not causally related to the pandemic. However, the impact on the supply chain emphasizes the limited infrastructure capacity to meet the high demand in the post-COVID19 era.
What can be done with the expensive wood?
There are several options to respond to the wood shortage that we are seeing. We have identified nine strategies that could be helpful regardless of whether you are a DIY builder or someone concerned about your supply chain.
The first strategy involves the use of reclaimed wood.
One option is to use reclaimed wood. It is relatively cheap and good for the environment. The reclaimed wood source includes old buildings and underused furniture.
The second strategy is to use wooden pallets.
Using wooden pallets makes sense during this shortage. Some recyclers have stayed away from pallets because they are made from a combination of soft and hard wood that makes them difficult to recycle. Companies sometimes want to get rid of these pallets and will voluntarily hand them over to someone who needs them for DIY or any other purpose.
The third strategy involves considering alternative materials
You may consider using alternative materials. Although it does not necessarily save a lot of money, the use of alternative materials is an ideological choice that reflects environmentally friendly values. This may involve
Reframe the project entirely to use new materials such as concrete blocks.
The fourth strategy is to avoid wasting wood
Generally, you should avoid wasting wood during lean times. Cut out what you need and leave no room for chunks to be thrown away. Get as close to the entire cut as possible when stocking. This involves careful calculation and informed estimates where a local dealer can help you.
The United Fresh Produce Association calls for driving efficiencies, such as repositioning pallets to make better use of space and the pallets themselves. Such action may require the cooperation of the drivers in their trucks. It is not always clear that such cooperation will take place. The answer must lie in building and strengthening relationships in the supply chain.
The Bureau of Labor Statistics producer price index anticipates a shortage and an ongoing price increase. That means the interventions described above are here to stay for the long term. A more efficient supply chain and fulfillment process can mean that you can reuse pallets in a way that doesn’t put pressure on your business. Brambles, owner of CHEP, suggests that high demand could be a problem and the solution is to find a way to develop better supply chain relationships.
These are relationships that wear out at the seams after a long pause during confinement. Brent McClendon of the National Wood Pallets and Containers Association sees the solution in partnerships throughout the supply chain. This is particularly true given the fact that the pandemic has altered demand and logistics patterns. The DAT data indicates that the pallets may be present, but not in the right place, so better coordination is needed. All industries that are affected by the pallet shortage must engage in a coordinated response, rather than acting alone and in an overtly selfish manner.
The shortage of pallets has affected the price and availability of sawn timber. This is a critical material that has the potential to affect the entire supply chain. At a time when consumer demand is increasing after the COVID-19 pandemic, it is imperative that companies and other users of pallets or lumber think of alternative strategies. These can include more efficiency, recycling, and even the use of other materials instead of wood. At the same time, supply chains need to be better organized to cope with the reality of key material shortages. Otherwise, the market will not be able to deliver products to the right people at the right time.