Why Haven’t Prices for Wooden Pallets Fallen, with the Slump in Wood Prices?

Pallets stacked at the Bay Wood Products plant in Robertsdale, the largest single-site producer of wooden pallets, dunnage and custom crates in Alabama and the Mississippi/Florida Gulf Coast. Photo by Matthew Coughlin

Since this spring, across the U.S., the hardwood lumber market has been in an unseasonable slump thanks to factors such as severe weather and decreased demand from foreign consumers. So why have prices for wooden pallets, a mainstay of the distribution industry, not gone down as well?

For answers, we turned first to the top executive at one of Alabama’s largest manufacturers of wooden pallets, Bay Wood Products, in Baldwin County. For 25 years, Bay Wood has manufactured wood pallets and crates for a variety of industries, using softwoods such as southern pine, abundant in Alabama.

“There’s not one simple explanation,” says Jimmy Wilson, founder and president of Bay Wood Products, “but, rather, a multitude of reasons the price of low-grade wood used to make pallets and packaging products remain stable or even cost more in today’s market.”

Since at least mid-2018, pine (softwood) and red oak (hardwood) markets have been depressed, Wilson says. The high grade continues to stay depressed because the demand from its biggest consumer, China, has decreased as the foreign nation experiences a housing crisis and downturn in its economy.

In the U.S., extreme weather conditions this year, from unprecedented flooding and winter storms, have impacted the availability of lumber, Wilson notes. Less wood can be harvested and delivered to sawmills in a timely manner. Mills that can’t get enough hardwood logs often slow production.

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“High-grade and low-grade markets sometimes run in the opposite direction,” agrees Chaille Brindle, publisher of the Pallet Profile Weekly Report. “Right now, most low-grade hardwood continues to suffer from poor supply, due to weather constraints. Also, there is significant uncertainty due to the pull back from China, which could further depress supply. This shortfall in hardwoods has pushed a lot more pallet producers to softwood, creating more competition for low-grade softwood. In most cases, there is less low-grade material on the market over the last few years as sawmill technology has improved optimizing yield.”

Jimmy Wilson, president of Bay Wood Products. Photo by Matthew Coughlin

David Caldwell, a partner at the Hardwood Market Report, says, “The sawmill industry is heavily dependent on weather conditions. I’ve been in business 35 years and I’ve never seen such a severe weather season. There has been a significant reduction in (hardwood lumber) products because of the weather.”

And when the mills are running at full speed and able to get hardwood logs, they rely on producing and selling high-grade lumber for the bulk of their business, says Caldwell.

“They don’t come to work to make low-grade lumber,” Wilson says. “When the high-grade products are created, the low-grade wood is a byproduct. Therefore, when the supply of logs is low and the market for high-grade is depressed, the result is that much less high-grade and low-grade are created because they come from the same logs.”

Another factor, say the insiders, is that many industries that would typically use low-grade hardwoods are willing to pay more when supplies are low. When those industries, including railroads and pipeline construction, pay more for the same product, it forces more wooden pallet manufacturers to turn to softwoods, such as southern pine.

“That increases demand for the low-grade soft lumber, which makes up the largest part of wooden pallets and other packaging materials made by our company,” Wilson says. “The increased demand, as you can imagine, can make prices remain steady and even rise for low-grade southern pine lumber.”

Bay Wood Products is a full-service manufacturer of wooden pallets, rough-cut lumber, dunnage and crates with a recent expansion into the biofuel and mulch markets. The company is one of the largest single-site manufacturers of wooden pallets in Alabama and Mississippi.

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