The pallet market and its paradox

The market for pallets and other packaging materials has also been put to the test over the past two years. Covid, growing demand, closures in China, tariffs on timber imports from Canada to the US and the resulting increased demand for European timber overseas, the war in Ukraine, the energy crisis and many other events have brought a number of challenges for companies to face when sourcing pallets. They are unavailable, expensive, and there is a shortage of material for their production. Why is a used pallet more expensive than a new one? How will the situation gradually change and will it finally stabilise?

In the second covid year, namely in the summer of 2021, the situation in the pallet market became quite dramatic. There was a real risk that raw materials for pallet production would not be available. This was helped by the large export of timber abroad. Packaging material experts admitted that they had never experienced such a shortage in their entire careers. However, the end of 2021 and the beginning of 2022 was more optimistic. With the straightening of the supply-customer chains came the stabilisation of the pallet market. The price of raw materials was not falling, but neither was it rising as fast as it had been. There was plenty of material.

Unfortunately, the end of February was marked by the beginning of the war in Ukraine, which changed the optimistic scenario on many markets again. In fact, Ukraine and neighbouring Belarus are the timber powers that supply the bulk of raw materials to the pallet market.  As a result, the price of a transport pallet has more than doubled year-on-year, even in a situation where its price was already relatively high a year ago.

Other wood products for transporting goods have also become significantly more expensive - sawn timber, OSB, plywood and others. Currently, wood and wood-based products are the most expensive in history and are becoming more expensive every week. Fortunately, however, there is at least enough of it.

Last year's shortage of wood on the Czech market also resulted in the widespread appearance of "counterfeit" pallets - those that did not meet the standard. Mostly from Ukraine and Belarus. This problem was eliminated at the beginning of the war, and new fake Euro pallets are not coming to us from the East, but those from last year are still here, of course. The fake euro-pallets bear various markings - EUR II quality, uncured EUR, light EUR. However, such markings are against the regulations. Any pallet that does not meet the clearly defined EUR pallet standard must not use this marking in its name.

Nails are also a big problem, as they are indispensable fasteners in pallets. Their price is rising enormously and, more importantly, they are not available. Although nails make up only a small percentage of the price of a pallet, pallets cannot be produced without them. They are usually imported from Ukraine, Belarus and Russia.

Tomáš Körner, Head of Product Packaging at Geis CZ + SK, says: "Geis has sufficient stocks of all the necessary raw materials and supplies for the smooth supply of pallets and wooden packaging material to its key and long-term customers. In addition, we are constantly being approached by more and more clients, whom we try to meet and continuously replenish and increase our resources. Unfortunately, this is not always possible."

Euro pallets have simply become a scarce commodity. Many customers were used to using used EUR pallets (A - lightly worn, so-called light, B - more worn, so-called dark) as a cost optimisation measure. They logically assumed that used pallets were cheaper and more available than new pallets. The market for second-hand ones therefore worked hard and their price increased. Paradoxically, therefore, seasonally, there are situations where the supply of new pallets on the market is at the same or even lower price than the market price of used pallets (in class A).

What's next?

Any prediction is very difficult, or rather impossible, these days. As Tomáš Körner says: "It is always more of a wish than a serious outlook. My opinion is that prices cannot rise indefinitely and that we are currently at a price peak, or will be soon. A fundamental reduction in prices is certainly not expected, but stabilisation is realistic. In today's turbulent times, however, we cannot be sure of anything at all and, as we have already seen several times, we may be surprised tomorrow by a circumstance of which we have no idea today. I am an optimist for life and therefore I believe in calming and stabilising the market."