Pallet Recycling-The World of Pallet Expansion (Survey in 1995)

by Dr. Ed Brindley, publisher, Pallet Enterprise

Introduction
Industrial Reporting, Inc. conducted its fourth annual pallet recycling survey in the fall of 1995. This article presents results from the survey, along with additional input from previous surveys, when appropriate.
Questionnaires were sent to many pallet recyclers around the country. A total of 92 useable completed surveys were received. No attempt is made to project sample results to the entire population of pallet recyclers.

Recycling Growth Pattern
Ask most pallet recyclers and they will tell you they are still enthusiastic, maybe even bullish, about their market growth. Most, however, would probably agree that the pace of growth was less enthusiastic for the overall pallet recycling industry in 1995.
Pallet recyclers had enjoyed a growth rate during the 1990s that might be described as phenomenal. The same could probably have been said for the 1980s, particularly the late 80s, but that data is not available. A case can be made that the pallet recycling growth rate is beginning to level off. Recycling was undergoing solid growth when the lumber shortage hit more than three years ago. Higher lumber prices served to accelerate recycling's growth. More pallet customers were willing to examine all alternatives and found that recycled pallets satisfied their needs. Recycling was in vogue. There was little surprise that pallet recyclers experienced strong growth. In time, a balance between used pallet supplies and the market was bound to occur; maybe it is approaching.
The median (mid-point) average recycling dollar growth rate was 20% in both 1992 and 1993. Then in 1994, the median jumped to 26%, only to fall back to a more modest 12% in 1995. The mean average rate of recycling dollar growth was a whopping 31.6% in '94, but only 13.4% in '95. Yes, the industry is still growing, but the growth appears to be more controlled. (Fig. 1)
Survey respondents projected continued strong recycling dollar growth in 1996 with a mean projected increase of 17.4%. It is noteworthy that 25 out of 88 respondents to this question expect either no growth or a decrease in dollar volume in 1996; this is similar to the fact that 30 of 92 respondents reported no growth or a decrease in 1995. The previous three surveys all yielded a very small percentage of companies that realized no growth or negative growth. Nineteen ninety-five was the first year during our survey span where no growth or negative growth was fairly common.
The growth of recycling was also reflected in the mean number of incoming pallets to respondents' yards during the year. In 1992, the mean average number of incoming pallets was 324,000; in 1994, 487,000; and in 1995, 513,000. The increase is obvious, but again the rate of increase seems more modest for last year. (Fig. 2)
The increase in incoming pallets is expected given the industry's reported growth. We use three different averages to represent the data because they have different meanings. The mean is influenced more by extreme numbers; so it is not surprising that it is the largest. The median is most descriptive, in a way, because it represents the middle number out of the arranged data. Thus, about half the respondents have 350,000 or more pallets coming in, and about half have 350,000 or fewer. This serves as a better estimate of a typical recycler because it is influenced less by the biggest companies. The mode of 500,000 pallets represents the most popular reported number.
Figure 2 illustrates how incoming volumes compared to '94 volumes for this year's respondents. Similar comparisons a year ago for '94 vs. '93 are in parentheses. Note the large percentage that registered no change in incoming volumes in '95 (28.1%) vs. the year before (2%).

Composition of Incoming Pallets
One of the common changes in the pallet recycling world is an increase in the number of companies involved in both recycled and new pallets. Respondents reported an average product which breaks down to 34.4% new pallets and 65.6% recycled pallets. More "recyclers" appear ready to take advantage of providing full service for their customers. This often includes building new pallets, especially small orders and custom specifications. More established pallet manufacturers have become involved in recycling to provide a wider range of services and products. According to everything one reads and hears in the materials handling world, a growing portion of the pallet market consists of customers who want their pallet suppliers to eliminate their "pallet problems." They want pallets to be user-friendly, providing an open arena for companies that offer a total pallet service.
The pallet recycling industry has historically been associated closely with the 48x40 GMA market. While GMAs still constitute a major part of a typical pallet recycler's business (approximately 50%), other multi-use stringer pallets or single-use stringer pallets makeup about 40%. While there was not a significant change in one year, future growth in the less traditional, non-GMA markets is generally accepted by many recyclers. (Fig. 3)
While it can be difficult to detect gradual changes in two years, the data suggests some possible changes in how recyclers are handling incoming pallets. Many recyclers talk about a trend toward more total pallet disassembly to retrieve repair lumber. And some indicate a reduction in ground pallet and lumber volumes due to increased efficiency and improved recycling practices. This year's data shows an increase in both disassembly and ground material. The combination of the decrease in repaired and reused and the increase in disassembly might support the hypothesis that more recyclers are disassembling marginal pallets into recycled lumber. (Fig. 4)
This year's survey included 33 respondents with one-half million or more incoming pallets. This larger plant portion of our sample yielded a mean (average) number of incoming pallets of over a million units per plant.

Machinery Trends
One of the areas that has shown the most change in responses since our first survey involves recycling machinery. Recyclers are required to be increasingly more efficient; therefore they must constantly be prepared to alter their materials handling practices. Several recognized recycling leaders have shared that their plant layouts are constantly being changed as machinery and people are shifted for greater production efficiency. More and more recyclers are indicating an interest in pallet sorting and handling machinery for 1996. Over three-fourths (76.9%) of survey respondents indicated they were planning to purchase machinery this year.
When survey participants were asked what kinds of machinery they were expecting to purchase in 1996 (Figure 5), the greatest response was 62.9% for trucks/trailers/forklifts (vs. 15% in '94 and 13% in '92). Similarly, interest in stackers increased from 2% to 29%, and now 41.4% during the same time period. Conveyor interest jumped from 20% in '94 to 40% in '95. Materials handling and upender or tipper interest grew from 5% to 15% and now 28.6% during these years.
Disassembly machinery is another hot item. For 1996, 37.1% expect to purchase a band dismantler and 17.1% a circular blade dismantler (vs. a dismantler total for '92 and '94 of 49% and 41% respectively).
Platers made a gradual but unexciting increase from 10% to 15% and now 17.1% over the last four years. Saws, including end trim saws, show interest levels of 15%, 29%, and 23.9% over the four year span.
Most other machinery showed little change. Grinder interest bounced around between 18% and 22% over the time period, and machines like nailers, notchers, shears, and de-dusters showed limited interest with little change.

GMA Pallets
Many changes are taking place in the recycled GMA marketplace. Now that Chep USA has been active in the grocery pallet market for several years, its impact is being felt. Chep reportedly has around 15 million pallets in its rental system, with most taking the place of a GMA pallet. While the total unit impact on the new and recycled GMA market is not known precisely, it is bound to reduce the overall 48x40 GMA demand from what it would have been. There was a period of time, about a year ago, when incoming GMAs were difficult to locate in most areas of the country. More recently the supply has been better; some metropolitan areas even reported excess used pallet supplies.
In today's changing pallet world, materials handling literature abounds with stories about pallet using companies and industries that want a "better pallet." The National Wooden Pallet and Container Association has experienced this same trend with the companies and industries it is assisting with "pallet problems." In this environment, one might think that recycled pallets and remanufactured pallets made from used lumber would be less popular. The growth in recycling contradicts this assumption. In addition, many recyclers reported a shift in 1995 toward an increased demand for more #2 (B grade) GMAs and some reduction in the demand for #1 (A grade) GMAs. We asked respondents how they compared the demand for #1 vs. #2 GMA pallets. While 42.7% saw no change in their demand percentages, 36% experienced a growth in #2 vs. #1 demand, and a smaller 21.3% have seen the demand for #1s grow vs. that of #2s. One cannot be sure about any conclusions, but the data does seem to support what we have heard from recyclers.
The recycling market has become increasing competitive. A larger population of recyclers has created a more competitive market for incoming used pallets. In spite of a growing demand for recycled pallets, the competitive nature of the marketplace has kept a lid on pallet prices. When asked how '95 prices compared to those in '94, 54 out of 89 responses indicated no change, 19 reported an increase with a median increase of 5% and a mean of 10.95%, and 16 reported lower GMA prices, with a median decrease of 10% and a mean of 8.65%. The net effect is very little overall change reported.
Survey respondents report a typical difference between #1 and #2 pallets as being $1 to $1.50. The mean, median, and mode average prices are displayed in Figure 6. A median #1 price of $5.50 and two modal (frequently reported) prices of $5 and $6 illustrate the concentration of #1 prices in the range from $5 to $6.
The three different average price measures for the #2 GMA are all around the $4 mark. Most report prices somewhere between $3.50 and $4.50.

Pallet Repairing Practices
Responding to the question about whether or not they practice removing broken stringers to replace them with new, 38.5% said they do, while 61.5% said they don't. In 1994, 54.7% indicated they replaced broken stringers, and 45.3% didn't. For those who practice stringer replacement, it represents an average of 8.8% of their recycled pallet units. Thus, companies that practice full stringer replacement find it to be a significant repair function.
A major reason for the possible reduction in stringer replacement is the increasing practice of total disassembly. The strong interest in disassembly machinery supports the growing trend in disassembly, often total disassembly.
When it comes to stringer plating, 51.1% of respondents practice plating versus 47% the previous year; the two surveys did not report much change. For those who practice stringer plating, it averaged 12.9% of their business, versus 19.1% of their business in 1994.
Although most (87.8%) report that they do not use short repair decking that does not span across all the stringers, this practice continues with selective pallets and selected customers.
Fewer respondents indicated that they own a grinder (38.9% in '95 vs. 44% in '94). The average annual tonnage ground by those who have a grinder increased from 3,807 tons in '94 to 4,942 tons in '95. The difference in percentages of those owning a grinder is probably due to the larger sample responding in '95. It is worth noting, however, that the dramatic increase in disassembly with bandsaws is preserving more lumber, particularly decking, for use in repairing and re-manufacturing pallets from used lumber. This translates into more material being recycled and less going into the grinder for some efficient operations. Several major recyclers have commented to us that they have not seen the growth in grinding volume they had projected, or that they are actually grinding less material than they ground in recent years.
The pie chart (Figure 7) shows the percentage of wood fiber used in the most common markets. 1995 percentages are compared to '94 and '93 figures, which appear in parentheses. Only a few markets were specifically identified in the '93 survey, but comparisons are across the board for '94. The biggest changes in our '94 and '95 surveys were a decrease in poultry litter, an increase in colored mulch, and a more significant increase in fiber for composite wood products. The recycling industry would like to develop more higher value-added applications, but any significant change is likely to occur gradually.

Pallet Networking
Certainly, the hottest topic in the pallet recycling industry over the past couple of years is pallet networking companies, which exist to provide a wider variety of pallet products to customers, particularly to companies with multiple plant locations around the country. Several networking companies have emerged in the last three years, including Pallet Recycling Associates of North America (PRANA), Pallet Pallet, Pallet Management Systems, and Bromley. We polled respondents about their current involvement in pallet networking. Of those responding, approximately half had either already affiliated with a network, were currently talking with one, or had studied the possibility and decided not to become involved at this time. Close to a third (30.8%) have not yet examined networking options, and 13.2% were studying it from afar.
Why all this interest in pallet networking companies? Respondents were given seven networking reasons to rank according to their significance. The most common reason involves the marketing and sales benefits that can be achieved by working together with others outside your market area. Although a network may have limited direct effect in a local market area, the ability to service national accounts is one of the major reasons supporting the networking concept. The third ranked benefit involved raw materials. Networking may make it easier to get the maximum benefit from material you have and also benefit from material others in the network have. Management, financial, and production benefits appeared on the bottom half of the benefit list.
We asked respondents to provide their own responses for avoiding networks and then composited their reasons into groups. The three most often cited reasons to avoid networks loss of independence, distrust/high risk/credibility/dependability, and loss of control are very similar in nature. Conversations within the industry support the concern among pallet entrepreneurs that they do not like losing control. They went into business, or at least pumped so much energy into their businesses, because they liked the feeling of independence. The concern that networking will take away this independence is a major stumbling block. It is interesting that lack of knowledge about networks was a major concern reported. With all the things being written and said about pallet networks, they are still somewhat of a mystery to many. Note that a local business base makes many pallet company owners believe there are few if any benefits from networking across the continent. It is interesting, however, that this marketing/sales category was also the #1 benefit. What some see as a major benefit, others apparently see as a reason to avoid networks. A second major contradiction is the subject of profits. More profits was the #2 ranked networking benefit, but a few supplied it as a reason to avoid networks.

Points to Remember
Many of the same closing remarks could be made after both the '94 and '95 surveys. Consider five major points.
First, market growth has been fueled by the environmental push, higher lumber prices in the early '90s, and the desire to save money. Higher lumber prices are history at this point and show no signs of surfacing the first half of 1996 (at least in hardwoods). The environmental push is still in, although pallet users are reluctant to pay much, if anything, for it. With the constant pressure to maintain cost control, many pallet users are still anxious to use recycled pallets because they are less expensive.
Second, production gains are being made on a daily basis, especially in pallet disassembly and improved lumber recovery. The biggest future gains are likely to be made in materials handling. Stackers, conveyors, better material flow, and more material control are a few of the dreams of yesterday that will become the realities of tomorrow.
Third, the marriage between new manufacturing and recycling will continue. More pallet users will want to work with full service companies. The trend toward pallet networking companies reinforces this fact.
Fourth, recycling and third party pallet management go hand-in-hand. Recycling is a major part of the foundation of the emerging networks. Pallet users are concerned with their pallet and material handling problems. This concern underlies the environment which is causing our industry to restructure itself for success in tomorrow's markets. Recycling is an integral part of this. Without a concerted effort to improve recycling and make it more sophisticated, our industry is in trouble.
Fifth, the future of the wooden pallet to a great extent lies in the hands of the recyclers. It is true that better pallet quality and systems to help close the loop are very important. But recyclers hold the keys to really help close pallet loops and maintain the quality of pallets after they are manufactured. Recyclers should not take this responsibility lightly. The wooden pallet will be around for a long time, but recyclers will play a major role in shaping its health and perception.