Pallets used in transportation and warehousing often are treated as a commodity expense or as a static line item in your budget. However, ignoring pallet costs can end up costing you in the long-run. When you ignore pallets costs and lack a pallet management strategy, pallet expenses can quietly add up across your operations and eat into profit margins. Conversely, pallet budget planning and managing your pallet spend can have the opposite effect, improving predictability, efficiency, and margins across your operations.
In this blog, we take a deep dive into the major drivers of pallet costs, from market conditions to material types. We also highlight the hidden costs of poor pallet planning, how to effectively budget for pallet costs, and how PalletTrader can help your company reduce and effectively manage pallet costs.
Why Pallet Costs Often Are Overlooked or Ignored
If you’ve worked in the transportation or warehousing industries for any length of time, you likely haven’t thought much about pallets and how they impact your operations or margins. There are multiple reasons that pallets have, until relatively recently, been overlooked by many. The first is that historically speaking, pallets have long been considered a low-cost item. More recently, though, this has changed as trade policies and other factors have made pallet costs more volatile and unpredictable.
Pallet costs also may be spread out across multiple internal departments, such as procurement, operations, and logistics, which means their overall financial impact may not be able to be measured as easily as other expenses. Additionally, if you’re like many organizations, you may lack visibility into your total pallet spend and have a hard time getting a clear picture of your overall pallet costs. Companies that don’t have a pallet strategy in place may purchase pallets only when needed and without planned sourcing, which also can contribute to pallet costs be overlooked in strategic planning and budget planning.
Ultimately, overlooking or ignoring pallet costs can become more than just a line item or cost problem, however. Over time, ignoring pallets in your operations can become a visibility problem, where a lack of understanding of how your business purchases, uses, and manages pallets can hamper overall efficiency, profitability, and growth potential.
What Drives Pallet Costs?
Here, we examine the different factors that can impact pallet costs, from materials and sizes to pallet quality and market conditions.
Material Type
The first factor we’ll discuss is the material that the pallet is made of. Most pallets used in North America are made of wood, plastic, or metal. Wood is by far the most popular type of pallet used across the globe. Wood pallets also come with the lowest price tag. However, wood pallets aren’t safe or durable enough for all products and applications. Metal and plastic pallets are your best bet when it comes to heavy-duty loads, long-term storage, and for use with specific food and pharmaceutical products.
Pallet Size and Specifications
GMA 48 inch by 40 inch GMA wooden pallets are the most commonly used pallet size in North America. GMA pallets are accepted by most carriers and warehouses. Other popular pallet sizes include 48 inch by 48 inch pallets for use with drums, chemicals, and industrial products and 40 inch by 48 inch for military and other specialty cargo. For telecommunications and paint products, 42 inch by 42 inch pallets are typically used and 48 inch by 45 inch for automotive products. Things to keep in mind: custom pallet sizes also are available and over-engineering can increase pallet costs.
Market Conditions
Another factor impacting pallet costs is market conditions. Broad economic trends and shifts in supply and demand often affect pallet costs. The most recent example of market conditions impacting pallet costs is lumber. The cost of lumber and lumber tariffs have increased in recent years, which has driven up pallet and lumber costs.
Transportation and Location
There are costs associated with the transportation of pallets that contribute to their total cost, as well. If you don’t have a regional pallet supplier or regional pallet availability, you likely pay high freight costs to get new or recycled pallets shipped to your locations. These costs can add up over time and inflate your pallet expenses.
Pallet Quality and Reusability
Something important to keep in mind is that pallet quality and pallet reusability can have major impacts on your pallet budget in the long-term. Cheaper pallets may be appealing but remember that they will fail faster, which means buying more frequently and dealing with disposing of unusable pallets. It’s also critical to calculate the lifecycle cost of pallets versus the upfront cost of pallets.
The Hidden Costs of Poor Pallet Budget Planning
If you don’t have a strategy for reducing your pallet expenses, it’s likely already negatively impacting your profit margins and your business. Without a pallet management strategy or any planning, you frequently end up in emergency purchasing situations where you have to pay higher prices because you’re in danger of running out of pallets.
Lack of pallet planning also can result in excess inventory that you have to deal with storing. Other hidden costs of inadequate planning include product damage due to poor pallet quality and inefficient warehouse operations due to broken or mis-sized pallets. If you don’t manage your pallet procurement and pallet inventory wisely, you also can see an increase in labor costs and handling time, as staff struggle to move and store products efficiently.
Above all, keep in mind that the real cost of poor pallet planning isn’t the pallet itself, it’s the inefficiency around it. Increase the efficiency and you’ll reduce your expense.
Effective Pallet Budget Planning: Six Ways To Reduce Pallet Costs
Check out this mini how-to on getting started on reducing your pallet costs.
1. Forecast Pallet Demand Based on Volume
The best way to get started is understanding when you are and where you’ve been, which is why we recommend forecasting your pallet demand for the future based on current volumes.
2. Standardize Pallet Sizes When Possible
To get an uptick in efficiency, consider standardizing pallet sizes as much as possible. Doing so will make moving, storing, loading, and unloading processes faster and use with automation systems in warehouse operations smoother.
3. Track Usage and Loss Rates
The next step is tracking how you use your pallets and how often you need to replace them. This step is crucial in understanding the lifetime cost of pallets used in your operations and your real-world pallet requirements.
4. Account for Reuse, Recycling, and Recovery
If you reuse pallets, recycle them, or have them collected and refurbished, you’ll need to factor that into your pallet management strategy, as well. Any associated costs and/or additional use gained should be considered in pallet budgeting and planning.
5. Build Relationships With Reliable Pallet Suppliers
Also consider building strategic relationships with reliable pallet suppliers. Doing so will ultimately benefit your business in the long run. When you’re in a pinch, you can leverage these relationships to meet unexpected challenges.
6. Use Data To Monitor Cost Trends
More on this in the next section, but it’s also important to monitor cost trends in real-time. Staying on top of pallet cost trends can help you avoid buying when prices are at their highest and insulate your operations from cost volatility.
The Role of Technology and Visibility in Cost Control
One of the best things you can do to control pallet costs is to use technology to your advantage to better understand your pallet needs and costs. Real-time pricing tools like PalletTrader’s provide you with current information on pallet pricing and trend data in specific markets to help you make informed choices. Another great way to use technology is to make your procurement process primarily digital. Online pallet marketplaces like PalletTrader’s connect you with broad networks of vetted suppliers in one, convenient online place.
You can further limit pallet costs by taking a data-driven approach to how you buy (and/or sell) pallets. Instead of purchasing pallets as you need them, consider using software that includes analytics and real-time market intelligence on pallet costs to help you buy strategically and avoid price peaks. Switching to a digitalized, centralized purchasing procurement strategy can help you better manage and control pallet costs as well.
How PalletTrader Can Help You Better Understand and Reduce Your Pallet Costs
Consider partnering with PalletTrader and our team of experts to help you achieve all of the above, including cost control and pallet budget planning.
As a PalletTrader customer, you’ll gain access to real-time pricing visibility software designed to help you understand market trends and make better purchasing decisions. Our data-driven procurement platform provides visibility into what’s happening in pallet markets and when to buy (or sell). Another advantage of working us is the ability to connect with a pre-vetted network of online suppliers through our online marketplace. We also offer support for standardization and sourcing to help you increase efficiency in your operations and reduce inefficiencies around pallet-related activities.
If you’re looking for ongoing pallet cost optimization, consider our end-to-end managed services. With our managed services, PalletTrader+, you can offload pallet procurement and management to us completely so that your team can focus on core business tasks.
Key Takeaways: Pallet Budget Planning and Understanding Pallet Costs
Check out these key takeaways on Pallet Budget Planning and Understanding Pallet Costs:
- Pallet cost=a controllable not a fixed cost.
- Pallet budget planning leads to better operational outcomes.
- Leveraging technology to your advantage can reduce pallet costs.
- Pallet costs are a strategic lever, not a line item.
Contact our team for an evaluation of your current pallet spend.