If your pallet costs have doubled over the last year, you’re not alone. Lumber prices in the United States are 13 percent higher than they were just one year ago. As a result, lumber prices’ impact on pallet costs are significant for businesses like yours. Here’s why: pallets play a vital role in global trade, protecting goods as they’re transported, handled, and stored. Currently, it’s estimated that there are nearly 2 billion pallets in circulation in the United States alone.
It's important to note that most of the pallets used in the United States are made of wood, which is why recent rising lumber prices are having a significant effect on pallet costs. Higher pallet costs can have an outsized impact on your business and its profitability, ballooning operational budgets and negatively affecting operational planning.
In this blog, we explore lumber prices’ impact on pallet costs and how you can mitigate higher costs with proactive management. We also explore how a supply chain cost management approach can inform and improve your pallet procurement process and operational strategy.
U.S. pallet manufacturers produce more than 500 million pallets each year and more than 90 percent are these are made of solid wood. Hardwood and softwood are both used in pallet construction. Hardwood pallets typically are made from oak, maple, or ash trees. Hardwoods are heavier and more durable than other pallet types and their weight capacity is between 2,500 and 3,000 pounds. Softwood pallets are made from pine, spruce, or fir trees. They typically are lighter with a weight capacity ranging between 1,500 and 2,500 pounds. Most pallets made in the United States are stringer pallets, i.e. they’re made with vertical wooden boards running between the top and bottom boards.
As a result, the pallet industry is a primary player in the lumber market, consuming 40 percent of all hardwood lumber production. That’s the equivalent of roughly 3.5 billion board feet of lumber each year. Domestic pallet manufacturers produce standard pallet sizes, including 48x40” GMA standard pallets, the most common type of pallet used in the United States. Other standards sizes include 48”x48” (drums, chemicals, and industrial products), 42”x42” (telecommunications and paint products), 48”x45” (automotive products), and 40”x48” (military and other specialty cargo).
Pallet sizes, types, and requirements vary by geographic region. While the most common pallet type in use in the United States is the 48x40” GMA pallet designed to fit standard U.S. trailers and warehouse racks, other countries’ pallet sizes and standards may be different. Pallet standards in Asia, Europe, Australia, and South America typically vary from American pallet standards and sizes.
To better understand lumber prices’ impact on pallet costs, there are four key factors to consider. The first of these centers on lumber supply challenges. Timber availability and forest management can impact lumber supply, as can weather events such as wildfires, flooding, and hurricanes. Other supply-related factors impacting lumber prices and pallet prices include milling capacity, sawmill operational issues, and labor shortages in the forestry industry.
Demand also affects lumber markets, lumber prices, and pallet manufacturing costs. When housing construction and building activity are at high levels, lumber prices can increase and lumber markets may become more volatile. Lumber demand also is impacted by export markets, consumer demand for manufactured furniture, and demand for industrial and packaging materials made from lumber.
Trade policies impact lumber markets and pallet manufacturing costs as well. Changes in international trade agreements and higher tariffs may increase market volatility. For example, recently instituted tariffs on Canadian lumber added with previously existing tariffs have raised the effective tariff on lumber imports from Canada to nearly 40 percent. Trade disputes between American and Canadian softwood lumber companies can add to market volatility and increase lumber prices, too.
The final factor behind lumber prices’ impact on pallet costs is the transportation and logistics industry itself. Rising fuel and insurance costs, volatility and unpredictability in trucking capacity, and rail transportation issues can drive prices up. Of course, increased lumber prices typically translate into higher pallet prices.
For historical context, before the COVID-19 pandemic the average price of pallet grade lumber was between $200 and $400 per thousand board feet (MBF). During the pandemic, lumber prices surged to $1,600 per MBF in May of 2021. Most industry experts predict that lumber prices will never revert to pre-pandemic levels. However, lumber prices have stabilized in recent months and prices are expected to settle somewhere between $500 and $600 MBF.
For domestic pallet manufacturers, lumber constitutes between 60 and 70 percent of the total cost of making a wood pallet. The cost of labor needed to construct pallets accounts for between 15 and 20 percent of a pallet’s total cost, while equipment and overhead related manufacturing expenses constitute 10 to 15 percent. On average, the pallet manufacturer’s profit margin accounts for five to 10 percent of the total cost of a pallet.
It should be no surprise then that when lumber prices are volatile or increase, pallet manufacturing costs and prices become more volatile or increase since their primary construction component is lumber. We witnessed firsthand how increases in lumber prices impact pallet prices during the pandemic. Before the pandemic, a standard GMA pallet was priced between $10 and $12. At the height of the pandemic, the average cost of a single pallet increased to $40 to $50. Since then, lumber and prices have declined but have not reached pre-pandemic levels. Most wooden pallets currently are priced between $10 and $50, depending on size, design, and regulatory compliance requirements.
Pricing also varies by region due to local supply and demand, transportation expenses, and the location of manufacturing facilities. For example, at the end of 2024, recycled softwood GMA A-Grade pallets were priced as follows: $10-16/pallet in Chicago, $11.75-17.75/pallet in New York City, and $10-16/pallet in Dallas-Fort Worth. It’s worth noting that Grade A recycled pallets on average are priced 40 to 50 percent lower than new pallets. Grade B recycled pallets cost 50 to 60 percent less than new wood pallets and Grade C pallets cost 60 to 70 percent less than new wood pallets.
In addition to direct costs, indirect costs often impact lumber prices. Lumber availability and extended lead times can drive up lumber costs and, as a result, pallet prices. When lumber supply is an issue, pallet manufacturers may use strategic allocation strategies to drive their manufacturing schedules. That means manufacturers may prioritize certain customers or geographic markets. Use of allocation strategies and systems may translate into longer lead/wait times, higher costs for on-demand manufacturing, and spot shortages that impact shipping schedules.
Another indirect supply chain factor that often impacts lumber prices is wood quality. Wood species substitutions, grade variations during high-price periods, and reduced durability and performance can indirectly increase your pallet spend. As pallet durability and performance declines, you may be forced to purchase additional pallets as they break down or deteriorate. Rapid shifts in markets may drive up pallet costs, as well. These may include increased demand for refurbished/recycled pallets and alternative materials, or changes to pallet pooling programs.
All of the above can have a downstream effect that ultimately increases costs for customers, as you shift the burden of increased shipping costs to your customer base. That may lead you to re-negotiate contracts with existing customers. Supply chain impacts also may cause you to exceed your pallet budget and can present challenges when it comes to future forecasting and strategic planning.
With the bulk of U.S.-made pallets constructed of wood, lumber prices’ impact on pallet costs will continue to be challenging for transportation and warehousing businesses. Luckily there are practical strategies that you can employ to deal with fluctuating lumber prices. A great place to start is with a supply chain strategy that centers on diversification and long-term supplier relationships. Consider signing long-term contracts with price caps with your most trusted suppliers to insulate your business from price fluctuations. We also recommend working with multiple suppliers instead of just one, prioritizing index-based pricing agreements, and stocking up on pallets during low-price periods.
Another way to protect your business from lumber market volatility is to optimize how you manage pallets within your organization. Enhanced tracking systems can help you keep track of your pallet inventory and reduce loss. You can further optimize pallet management and reduce pallet-associated costs by using recovery and return programs. These programs collect used pallets and repair them for reuse. Training your team on pallet handling best practices can extend pallet life and reduce costs, as well. Also consider instituting a repair vs. replace decision frameworks to ensure you get the highest return on investment on the pallets you’ve already purchased.
To further reduce the impact of lumber prices, consider alternate approaches such as pallet pooling programs. Pallet pooling programs such as CHEP Pallet and PECO Pallet maintain a large inventory of pallets that you can rent out and return when needed. Other alternative approaches include using plastic or metal pallets, corrugated pallets, and composite alternatives.
You also may want to develop a supply chain cost management strategy around pallet design and engineering to further reduce the impact of lumber prices on pallet procurement. This could include pallet optimization for specific loads, using custom sizes to reduce waste, and/or collaborating with pallet engineers to ensure you’re getting exactly the type of pallets your business requires. Be sure to consider reduced material pallet designs as part of your strategy, as well. These types of pallets are constructed with high-pressure injection molding, hollow designs, and/or bamboo or agricultural waste instead of traditional hardwood or softwood.
Check out these key takeaways our exploration of lumber prices’ impact on pallet costs:
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