Consolidation is the name of the game when it comes to the pallet industry. The consolidation trend has been driven by many factors: significant interest from private equity funds, mergers and acquisitions, competition in the market and the low cost of pallets, to name a few. But what does this all mean and why is it important for your business? We sat down with Waste Harmonics’ director of pallet management Taylor Little to discuss just that and more, including what the pallet market looks like for Waste Harmonics in 2023.
What is the current state of the pallet market and how has it changed?
Right now, the industry is experiencing the flip side of the pallet market. For the past three years, we’ve seen record highs of finished-goods costs, core rebates and other things that have been contributing to an all-time high. In late 2022, there was a shift in the number of pallets being ordered by pallet customers. With sales numbers coming down, people are building their inventory back up. So if you need to purchase pallets, now is a GREAT time! You can find pallets for half the price compared to this time last year. It’s a massive shift in the pricing model, largely due to supply and demand.
Where do pallet opportunities lie? What are the trends?
Consolidation: What we’re facing now is a lot of pallet industry consolidation. Large, national pallet providers are identifying pockets in their networks; they’re looking at companies out there that are eager to sell for more nationwide coverage. There has been a rising interest in the pallet industry when it comes to private equity. It’s an industry those players want to get into, make their market and grow. Previously the industry was very local and regionalized, and now large, national players have become more common, so whenever there’s not a lot of local coverage, there’s a national provider that can get into the market. The larger companies have set the tone for what’s happening in the market, so it’s about staying competitive with national brands.
What does this mean for the future? It will be interesting to see if it slows down in 2023. There’s always going to be pockets where coverage is needed, so I don’t see it stopping anytime soon. I do think that consolidation in areas that already have coverage is going to slow down. Remember, we’ve been riding a three-year high, and now we’re coming back down to reality.
Cyclical approach: The more our customers take a cyclical approach to their pallets, the more they will be able to navigate the ups and downs of the market in confidence, because they’re interacting on both sides of the cycle. You might want to think about a repair-and-return program, i.e., ensuring the pallets coming out of your facilities are being returned back into your facility as a repaired, finished good. Your pricing will be far easier to stabilize, the cost associated with a program like that will be primarily focused on the labor of the repair aspect and you’ll start to see a lot of cost savings.
Why is the number of mergers and acquisitions so heavy in this market?
It’s a market that was previously untouched by private equity. Three to four years ago, the pallet industry was mainly regionalized, so mergers and acquisitions were small and regionalized as well. There were maybe one or two large, national providers, and they were using their brokerage department, working with small pallet vendors across the county to have national reach. Now it’s not a matter of just brokerage departments, it’s acquisitions to acquire those companies.
What is Waste Harmonics doing to get ahead of trends?
We look at pricing models with our customers and make sure pricing is always fair to market. That way, if there’s an unexpected increase in rebate, we can educate customers and explain what’s impacted in their pricing. We show our customers that Waste Harmonics understands what’s going on in the ever-fluctuating pallet market. When ups and downs happen, our customers understand that pricing changes will always be based in fact and fair to market. That creates trust with our customers and our pallet partners.
What advice do you have for current and future customers in this industry?
If you are purchasing pallets, now is the perfect time to survey the market and see what’s out there. A cyclical approach is the best way to make sure your pricing stays stable and you’re not going to be hit with sudden, drastic changes in price. A lot of people have inventory, and it’s a great time to see if there’s a better avenue to take with your pallet purchases. At Waste Harmonics, we have the means and ability to handle pallet purchasing, along with the network to support it.