The rapidly changing geopolitical situation caused by Russia's war with Ukraine and EU sanctions has resulted in a dramatic case in the timber markets and pallet shortages. It goes beyond the disruptions associated with the Covid-19 pandemic or the massive supply chain problems occurring in many countries.
There is a saying that 'Pallets move the world.' Without these valuable carriers, our supply chains would grind to a halt, and the world would go back to the days before the First World War when pallets were beginning to be used. It is an essential building block in supply chains, enabling companies to store and transport efficiently with reduced loading times.
Although a single pallet appears to be a modest carrier, its importance is apparent when issues of availability or the rising price of these carriers arise. This article will highlight the impact of the current geopolitical and economic situation on the pallet and pallet product shortage situation in Europe. We will also try to look for solutions to help keep supplies flowing despite the disruption.
Reasons for pallet price rise in 2022
According to the European Federation of Wooden Pallet and Packaging Manufacturers (FEFPEB), the conflict in Ukraine will put significant pressure on wood supplies and thus pallets and packaging in the coming weeks1. It is an even more acute problem given that Europe imports its wooden pallets and pallet-making materials en masse from three countries: Ukraine, Russia, and Belarus. In 2021, Ukraine exported more than 2.7 million m3 of sawn timber, which was used to manufacture wooden pallets and packaging in France, Germany, Italy, the Netherlands, and Poland. Besides, it is also a pallet producer and exported 15 million pieces of these carriers in the same year
The war in Ukraine, or a temporary lack of production, combined with Western retaliatory sanctions against Russia and Belarus, has effectively eliminated this entire supply source. Some 7.6 million m3 of sawn timber (mainly to Estonia, Germany, and Finland)2 is being withheld from EU imports. The suspension of sawn timber production has serious consequences, especially for pallet producers in Hungary, Italy, and Germany. It has noticeable disruptive effects on supply chains across Europe. At a later stage, the result for companies is an increase in pallet prices and the risk of running out of pallets.
The graph above illustrates the continuous increase in wooden pallet prices from 2020 and the outbreak of the Covid-19 pandemic, and in 2022 the price disruptions caused by the uncertain geopolitical situation.
Steel shortage and pallet nails
When we want to build a pallet robustly, mundane products such as nails are required; 70 to 80 nails are needed to make one pallet. Currently, the industry faces a significant problem in sourcing the nails used to make pallets. As HPE (the Federal Association of Wood Packaging, Pallets and Export Packaging) has found out, most companies in the industry source their nails from suppliers in Eastern Europe, such as Poland.
However, 90% of the so-called wire steel from which pallet nails are made comes from Russia, so both suppliers and factories must search for different sources. It appears that EU sanctions against Russia could result in the closure of some pallet factories in Germany in just two weeks (HPE)3.
According to the association, there are no short-term alternatives to fix the shortage for two reasons. Firstly, the nails cannot be replaced by others because the machines in the factories only handle this type of nail for the production of pallets. Secondly, importing steel from Asia is an option, but the delivery time will take 6 to 8 months. We wrote about rising steel prices and the impact on current logistics processes in the article 'Metal packaging rental as a solution to rising steel prices'.
Impact of inflation on supply chains
The current tragic situation in Ukraine is having an evident impact on industries of all kinds, disrupting supply chains and reducing the availability of many goods. The economy is a system of interconnected vessels, and in addition to the current international challenges, there is a noticeable increase in price inflation for all commodities in the market.
It is clearly related to the increased cost of energy, fuel, and economic complications following the Covid-19 pandemic. The price of fuel in Europe has risen by almost a third, and the cost of a barrel of oil has reached $110. This says FEFPEB will have a "significant impact" on the cost of heat treatment and drying of wood in special dryers, according to ISPM 15 standards, on transport, and the overall cost of production - leading inevitably to higher product prices. We wrote more about the current logistics challenges in the articles Rising transport costs: Discover ways to optimie logistics packaging, and How do energy supply disruptions affect the continuity of supply chains?
Flexible pallet rental instead of purchase
How to cope in this turbulent time full of changes? Well, the key today is to be agile and flexible. Companies are noticing the dynamics of their operations, which is why it is essential to react quickly to mitigate the short-term effects of the crisis, which means, above all, limiting the number of service disruptions. An excellent way to overcome such challenges is to use flexible packaging rental. It's flexible, fast, and reliable. It works both when the problem is insufficient space for storing products and when there is not enough packaging to ship the goods with. So far, many companies have become convinced of the effectiveness of rental packaging in moments of crisis.
Pooling means pallets work in a loop
In contrast, pooling packaging is a long-term and wise option. At a time when, on the one hand, there is an emphasis on the sustainable use of natural resources and, on the other hand, there is an apparent deficit in packaging production; you need to use what is already in circulation. You don't have to buy new packaging, and you can rent it or start recycling from your customers. Whatever solution you choose, packaging cycle management keeps your media running smoothly.
What do you gain by having pallets, crates or pallet collars in the loop?
- You reduce the cost of purchasing new products
- You do not have to worry about the cost of management and repair of packaging
- You gain storage space
- Ensure the sustainable use of existing raw materials
Agile operation management in times of challenge
Packaging rental is a concrete way to cut costs in real terms, especially in times of rising prices, production downtime, or a marked economic downturn. For years, we have been providing practical assistance to entrepreneurs in selecting the suitable packaging for the type of industry, application, and financial possibilities.
We are aware that, ideally, it is the company's logistics managers who determine the need for specific products; they know exactly what they need. On the other hand, we take the data based on which we can advise on the best type of packaging adapted to the work and storage location and the kind of service that facilitates daily.
We do both consultancy, valuations, and projects free of charge. If you would like to discuss your current supply chain needs, don't hesitate to contact us by completing the contact form below.