Pallet Survey: How pallet trends stack up

No single factor consistently influences supply chain decisions as much as cost reduction. This cost containment focus was confirmed by research released early this year by MHI and Deloitte in the 2014 MHI Annual Industry Report in which 70% of respondents named “controlling costs” as a top priority. Certainly pallets are no exception to this imperative.

In Modern’s annual survey of pallet users, purchase price remains the top driver of usage with 60% of respondents saying price was the most important factor in their decision to use a certain type of pallet. The needle may move on other influencing factors and pallet use trends, but pallet decisions are made with cost and value in mind.

At the same time, pallet decisions and pallet use don’t play out with cost as the only driving factor. Customer compliance trends, shifts in global commerce, and the need to ensure pallets are available are driving change in the types of pallets used and an increase in the use of pallet pooling. In short, pallet use is cost conscious, but it’s also about doing what works in the context of customer requirements, shifts in demand and destination, and the need to keep shipments on track without being distracted by acquiring and replacing pallets.

Demand in the pallet market also tends to reflect the economy, since it serves as a yardstick of sorts for the volume of goods being traded. The good news here for users and pallet providers alike is growth. Last year, research firm Freedonia Group pegged the pallet market for 3.5% growth through 2017, but in its latest projections, now sees 5% annual growth through 2017. Similarly, research from Technavio predicts 4.6% growth for the pallet market through 2018.

Projections for more pallets means more shipments and more business, which is good for the industry, but how do companies involved with manufacturing, distribution and fulfillment view pallet choices, and how are they using pallets?

To answer this question and others, we surveyed subscribers of Modern as well as a sample of recipients of our e-newsletters. We received 239 qualified responses from those employed at a location that uses pallets. Here’s what we learned.

Purchasing decisions
Respondents say a variety of factors are driving their choice of a certain type of pallet, and once again, purchase price was the most important one, cited by less than 60% of respondents, up from 56% in 2013, though shy of the 63% of readers naming it in 2012. Cost per use was cited by 37% of respondents, confirming once again that a good chunk of the market is getting multiple trips out of their pallets.

Other leading factors include:
• strength (60%),
• durability (54%),
• customer requirements (45%), 
• reusability (44%), and
• availability (32%).

Among the purchase influence factors, some remained near the same response level as last year, though “strength” rose to nearly 60% from 53% in 2013’s survey, and durability rose by 4%, reusability by 4%, and there was a 2% rise in customer requirements as a deciding factor.

Wood pallets are used by 93% of readers, up slightly from a 91% response in 2013. However, pallets manufactured from alternative materials also are frequently used: 
• plastic pallets (41%),
• wood composite (14%),
• metal (10%), and
• cardboard/corrugated (9%).

Some alternative materials saw a slight rise in use since last year’s survey. For instance, the use of plastic pallets rose from 37% in 2013 to nearly 41%, while the use of metal pallets was up 3%. These findings are consistent with estimates in Freedonia’s most recent pallet report, which foresees fewer pallets being discarded each year and growth in plastic pallets, even while wood pallets continue to dominate product sales in most areas.

Among Modern’s readers, significant numbers of respondents say they will use more pallets made from alternative materials in the coming 12 months, though in some cases, these numbers dipped slightly from 2013 response levels. For instance, 30% say they used more plastic pallets in the last 12 months, down from 34% in last year’s survey; and 30% expect to increase their use of plastic pallets in the coming year, down slightly from 33% in last year’s survey. Read last year’s Pallet Survey.

Customer compliance as a reason for planning to use plastic pallets saw a 10% increase. This year, 58% of respondents cited “compliance and cleanliness/safety” as the top category for their plastic pallet plans, up from 48% last year. The number of respondents citing “customers ask for plastic” as a reason also increased, from 25% last year to 39% this year.
Other reasons cited for plans to use more plastic pallets included:
• plastic pallets are more sustainable than wood and last longer (45%);
• plastic pallets are more durable than wood (42%); and
• customers have greater control over pallets (10%).

Readers indicate their plans to use metal pallets are on a modest upswing, with 4% of readers saying they expect to start using metal pallets in the next 12 months. Of those respondents already using some metal pallets, 8% say they expect to increase metal pallet use. Those percentages are nearly identical to the results from last year’s survey.

In terms of pallet size, the 48 x 40-inch size is still the most common, cited by 83% of readers. This was a significant change from the 58% of readers that reported using 48 x 40-inch pallets last year, but in line with the 81% who report using the standard-sized pallet two years ago. Less than 17% of readers said they were using the 42 x 42-inch and 36 x 36-inch sizes, respectively, while no readers reported using the 24 x 20-inch half pallet size. And, less than 17% of readers said they were using “other” sized pallets.

The number of respondents using pallets to ship globally was 54%, slightly less than the 55% for shipping globally the previous year. Domestic shipping by pallet stood at 44% this year, up from 42% last year. And, 2% say they ship on pallets solely to international customers.

The leading countries/regions to which goods are shipped continue to be those closest to us, but even more so this year, with 87% of readers shipping to Canada, up from 80% the previous year, followed by 82% shipping to Mexico/South America/Caribbean, up from 67% in 2013. The percentage of readers shipping to Europe also rose slightly, with 52% of respondents shipping to Western Europe, up from 50% last year; and 41% shipping to Eastern Europe, up from 39% last year.

While less than half of respondents (43%) say the number of pallets they ship internationally has increased during the past two years, readers are more optimistic for the next two years, with 54% saying they expect to ship more pallet loads internationally.
Most readers report that they do some things differently when shipping pallets globally, with 21% reporting that they don’t do anything differently for international and domestic deliveries. Some of the strategies include:
• 51% treat their pallets;
• 15% use alternative materials other than wood that don’t require treatment;
• 19% use wood pallets from their own pool (up from 12% the previous year); and
• 3% use a pallet pool for international shipments. This is down slightly from last year, but consistent with the findings from 2012.

Wooden pallet trends
For all the interest in alternative pallet materials, this year’s survey saw wooden pallet use increase slightly to 93%. This year’s survey also indicates increased use of used wooden pallets and fewer constraints in obtaining them, as well as more use of pooling strategies for wooden pallets.

The number of respondents using a pallet pool for wood pallets increased slightly, from 17% last year to 18% this year. This year’s respondents also report increased use of used wooden pallets or cores (66%), up from 60% last year, while 56% say they purchase new pallets, down from 58% in 2013.

When asked to describe their usage level for used wood pallets, 53% said it had increased this year, up significantly from 42% in 2013.

Greater availability of used pallets may explain some of this increased usage. This year, 41% of readers say they have not experienced any issues in procuring used pallets, a slightly better figure than last year’s 39%. Similarly, 23% say that fewer used pallets are available, a lower figure than last year’s 27%. However, 29% of respondents report that the quality of used pallets has deteriorated, up from 27% last year; and 25% say they have become more expensive, up from 15% in 2013.

Of those readers who have experienced price increases, 56% have seen a spike of 5% to 9%, and 22% of readers have seen a spike of from 10% to 14%.

In response to these issues, 53% of readers say they will buy more new pallets (down from 64% last year) and 17% say they plan to create and manage their own pools (up from 13% in 2013). Additionally, 9% say they plan to rent from a pallet pool such as those from CHEP, PECO and iGPS, up from 4% last year.

Block & stringer coexistence
Since Modern’s pallet survey began tracking trends regarding pallets with a stringer design versus those with a block design, the issue seems to be whether block pallets, a design required by Costco the last few years, would take bigger market share versus the more traditional stringer pallet design. While there are some mixed indicators in this year’s survey, with some findings showing slightly more stringer pallet use, and others pointing to circumstances where more block pallets are being used, it’s clear that both designs are here to stay, often within the same organization.

In fact, 23% of readers say that both designs are being used in equal measure, which is steady with last year’s 23% response for the same question. This year, 57% of readers say they are shipping primarily on stringer pallets, up from 51% last year, while 20% are shipping primarily on block pallets, a decrease from last year’s 27%. In a slight survey change, last year in this question we asked if readers were shipping “solely” and we have revised the question to read “primarily” this year.

While these results might appear to indicate a resurgence of stringer pallets at the expense of block pallets, this year’s survey also found that of the 15% of respondents who said customers have required a change in pallet usage (this figure was 14% a year ago), 37% are using more block pallets, up from 33% last year, while 17% are using more stringer pallets, down from 25% last year. And, 46% of respondents were required to make a change or using “other” pallet types or designs this year.

Changes are being requested from a variety of points in the supply chain including manufacturers (42%), retailers (29%) and wholesalers (34%). The biggest change in the type of trading partner requesting a change in pallet use is on the wholesaler side, with an 8% increase in requested change from wholesalers. Change requests from retailers decreased slightly, from 36% last year to 29% this year.

Deeper into pooling
While responses to particular questions asked annually in the pallet survey often fluctuate slightly, when the needle moves by more than 10% that’s cause for thinking a trend is underway. Such is the case with pallet pooling. In fact, in this year’s survey, 57% of respondents say they either use a pallet rental company, such as CHEP, PECO or iGPS, or they have a pallet retrieval or recovery system in place. Last year, this combined percentage was 44%, so the response climbed by about 13% in the 2014 survey.

Put another way, the majority of respondents are now indicating they are involved in some form of pooled pallet use. Will that trend continue? Looking forward, the changes seem likely to be minimal. While 8% of respondents say they are very likely to participate in a pallet or pallet management program, up from 6% last year, 8% say they are likely to participate in either type of program, which is down from last year’s 13%. The majority of readers say they are either not very likely (36%) or not at all likely (35%) to participate in a pallet or pallet management program.

When asked whose pallet rental or pallet management system they participate in or would consider, the leading answer at 62% was “self-managed.” Meanwhile, 26% of respondents say they have already evaluated or considered creating or managing their own pool.

When readers were asked how interested they would be in using a pallet pooling service managed by the pallet industry as an alternative to established pools managed by CHEP, PECO and iGPS, 8% say they are interested (nearly 7%) or highly interested (nearly 2%), a decrease from last year’s 14%. A clear majority (70%) say they are not very or not at all interested.

When it comes to pallet use trends, organizations are under many of the same pressures that influence other supply chain decisions. Factors such as customer compliance, reliability or the case of pallets—strength and durability—rank highly, but price and cost control tend to rule the day. Trends like pooling appear to be growing in importance, but all these factors play out under the backdrop of keeping cost manageable.