"Sales of new and refurbished pallets will expand by 3.5% a year through 2017 to 1.3 billion units, valued at $16.9 billion."
That was the lead sentence in the recent report on the market for pallets in North America from the Freedonia Group.
There were a few other important bullet points for pallet users from the report's executive summary.
? Block pallets are expected to take a larger share of the market as a growing number of manufacturers replace stringer pallets with new block pallets.
? Plastic pallets have seen their strongest advances in percentage terms ever and will continue to record above average growth.
? Metal pallets will notch the biggest percentage gains of any of the three most common pallet types (wood, plastic, metal).
? The caveat: Both metal and plastic pallets represent a relatively small percentage of market share, so that the effect on overall pallet sales will be minimal. Wood pallets, for instance, account for more than 90% of the pallet market in terms of units, with plastic accounting for about 4% and metal accounting for less than 1% of the total number of pallets. Corrugated, molded wood pallets and pallets constructed of other alternative materials account for the remainder.
A variety of factors are driving overall pallet demand, regardless of the type of material, according to Zoe Biller, a Freedonia industry analyst and the author of the report. "You're seeing a recovering US economy and the larger trend of moving manufacturing capacity back to the US from off shore," Biller said. "Those are the two most important macro trends."
Biller identified important trends for each of the pallet types.
Wood: Although not highlighted in her report, Biller estimates that about 60% of wooden pallets are used and about 40% are new. Those percentages could shift in favor of new pallets going forward. That's because the industry has been reporting a shortage of used quality used pallets, known as cores, for the last year or so. "The core shortage appears to be real and it is going to be part of what's going on going forward," Biller said. "But it should correct itself in the long term as end users buy new pallets that replenish the pool."
Nearly two years ago, Costco announced that it was going entirely to a wooden block pallet. Biller believes Costco's decision is a symptom of the overall trend towards block pallets rather than a driver. "Costco is part of a broader trend towards pallets that are easier to use, especially in an automated system or with pallet jacks," Biller said. Block pallets fit both of those bills. She adds, "There's also a bigger trend to turn products and processes that aren't a core business to a third party and pallet management is definitely part of that trend."
Plastic: The move towards plastic appears to be driven by companies that can control their pallet pools and take advantage of plastics' longevity as well as "growing sanitation concerns related to wood pallets," Biller said. "Food safety regulations may have something to do with it going forward."
Metal: The metal pallet boom is a result of several factors. One is that users stopped buying metal pallets during the recession and got by with existing stocks. Now that the manufacturing economy is picking up, they need more metal pallets to meet demand. What's more, there are very few metal pallets relative to wood and even plastic pallets. Any pick up in demand will result in a large percentage increase in the number of pallets.
Asked if she was surprised by any of the results, Biller said she was surprised by how far the pallet market declined during the recession. "A big part of the market advance is the need to bring the number of pallets available for use to required levels," she said.
