Why a Circular Economy Approach to Pallets Makes Sense for Modern Logistics
Most small businesses treat pallets the same way they treat printer paper – buy it, use it, then toss it in a bin once it’s done. That mindset is costing operators thousands of dollars per year in wasted materials that could have been recirculated back into the supply chain in the form of new pallets instead of making their way into a skip bin. The circular economy turns this principle on its head, and once operators see the value in doing so it becomes difficult to justify continuing to buy new pallets at all.
The linear model is quietly bleeding cash
Within a pallet’s lifecycle, operators are paying for a one-time use of a packing aid, and incurring the full cost of a pallet they should have reused had they maintained a decent inflow from customers returning the ones they recieve. In a reverse logistics system, operators instead pay for a rental of space within a truck and equipment owned by another company, with the pallets being returned, inspected, and then placed back into the supply chain as a reverse logistics service provider fulfills their mandate of turning broken pallets into something fit for reuse, rather than discarding as waste. This is an alternative to the infamous $200 cheques operators have to cut along with an order to offset the cost of the broken pallets they should be returning to their supplier.
It’s not surprising that the rental model, and circular economy principles in general, has a clear cost advantage over a linear approach.
The value difference is much larger than one may first think
We have figures that indicate a new pallet of hardwood costs two-to-three times the price of an equivalent size Grade A used pallet. When correctly graded, a used pallet performs identically to a new pallet on a racking system, save for the price and the odd scuff that won’t compromise the integrity of the pallet. Over multiple pallets, that price discrepancy adds up – 300 pallets placed per month and operators are looking at a difference of tens of thousands of dollars per year in spend, with no additional investment or change to their packaging requirements. That’s why businesses such as CHEP and LPR have built business models around the creation of regional pallet pooling networks. Large scale operators have proven that pallet reuse is a viable method for reducing costs and waste at an enterprise level. The trick for smaller operators is to note that the same principles apply at a smaller scale, with local networks of pallet refurbishers doing the same work as their larger counterparts, just for a smaller swathe of the market.
Reuse is better than recycling, and the math proves it
The United States Department of the Interior’s Forest Service has figures that suggest that used pallets generate 22 kg of CO2e per million dollars of production. By comparison, new pallets generate 241 kg of CO2e per million dollars of production in the form of non-greenhouse gasses emitted during the fuel-burning process of their creation. Furthermore, since a sawmill only has so much love to give, the ability to reuse broken pallets spares trees that would otherwise have been turned into the lumber of a new pallet. Pallets are the backbone of both the distribution and international logistics networks that move goods around the world, and the economic and environmental impact of getting it wrong or right for pallets has a significant impact on the bottom line. New wooden pallets are a part of the forest products industry, which is one of the few packaging product industries to utilise sustainable managed forests as a source for raw materials with stable or increasing volumes of timber being harvested every year, but that doesn’t eliminate the environmental cost of new pallets. Cores and costs are two factors that go into a pallet that operators should consider when ordering a new wooden pallet as a sustainability measure: the thinner the core of the pallet, the higher the carbon footprint of the pallet, and few people stop to think about new pallets being cheap.
Compliance doesn’t go away when switching to used
One common concern we hear from operators is that used pallets can’t be exported. A misconception that prevents many businesses from engaging with the secondary pallet market. Domestic and international shipping are governed by ISPM-15 regulations, which require that wood packaging be heat-treated to remove any pests or diseases that may be present before entering a country. The marking on a pallet is what certifies that it has been processed according to ISPM-15 standards, and it is the process a pallet goes through that is important, not the age of the pallet. This means that a used pallet, with a legible ISPM-15 mark, is just as fit for export as a new one.
It’s why any reputable dealer will be able to confirm that their stock of used pallets are ISPM-15 compliant, for those exporters who need it. Used pallets aren’t inherently non-compliant with international standards, but operators should confirm this with a dealer before purchasing large quantities of used pallets, especially if they have export requirements.
Not all used pallets are made equal, and grade matters
One detail that gets overlooked in the push to buy used is that not all used pallets are fit for purpose. A pallet with damage to the stringers or deck boards, or that has been sitting outside for the last six months, is a hazard and should be broken down and discarded. That’s why grading standards exist. The A/B/C system is the standard used to separate pallets that are fit for racking from those that have been damaged to the point of needing repair or are completely unsuitable for reuse. Grade A pallets offer almost new performance and can handle the same floor stacking loads and racking heights as their new counterparts. Grade B pallets have seen some wear but are fit for floor stacking and light-duty racking. Grade C pallets are typically the ones that get sold off for repair or disassembly.
Before buying several hundred pallets, operators sourcing a Used Pallet in Melbourne may want to ask for photos of a sample grade and ask for a partial order to inspect the quality before committing to a larger order. A supplier unwilling to grade their stock or provide images is likely hiding flaws that the untrained eye may not notice, and it defeats the point of buying used pallets if an operator purchases a pallet only to find that the deck boards have rotted through. Used pallets are a way for operators to reduce their expenditure without exposing themselves to unnecessary risk, and skipping the grade inspection opens operators up to those risks unnecessarily.
Getting the most out of what goes out
One area where operators fail to get value out of their pallet spend is on the outbound side. Most businesses with surplus pallets sell them to a pallet dealer or buy-back program, paying for a skip hire or similar service to get rid of their unusable pallets. There are two costs in that transaction: the cost of the pallet itself and the cost of the disposal.
Most buy-back programs will pay for the operator’s surplus pallets, and occasionally damaged ones, as the repair costs and timber value can be found within the buy-back or repair price. Operators that have been paying to have their pallets disposed of can instead turn the expenditure into a credit against their future invoicing. It may not be a complete offset to the cost of a pallet, but it does reduce an operator’s spend on logistics while rewarding their commitment to the principles of a circular economy.
It’s a perfect example of reverse logistics in action, with buy-back and repair programs helping to recirculate pallets back into the supply chain instead of sending them to a skip bin or incinerator.
Why used pallets are the easiest way to get started
Circular procurement is a term that operators will hear more and more in the coming years, and for good reason. For larger entities, it will become a requirement to meet ESG (Environmental, Social, and Governance) goals. Many will have policies that require them to source materials with a certain percentage of reused or recycled content in their products or packaging in the next five to ten years. For smaller operators, it’s a policy that allows them to engage with the same principles as their larger counterparts, letting the bigger supply chains do the work of implementing a circular economy for them.
Local sourcing has advantages that many overlook
Buying a used pallet from a local dealer means that freight costs are reduced over longer distances and operators avoid the emissions associated with transporting pallets across state or country. It’s a more sustainable option from a carbon footprint perspective, not to mention the value of having a nearby supplier to rely on for any urgent pallet requirements. It’s also a way to hedge against the rising costs associated with long distance freight transport. Inter-state freight rates are notoriously volatile, and operators in Melbourne should look to local sources for all their pallet needs if they want to reduce risk. Local supply chains are a way for businesses to hedge against rising costs of goods and services, and that includes freight costs. With the rise in fuel prices, loggers and transport fleets are feeling the squeeze in their expenses and the cost is likely to be passed on to operators at some point.
It’s easier to manage a local supply of pallets as well, especially when considering the challenges of hiring skilled workers who can inspect and maintain a fleet of pallets. Pallets sourced from within the region are better able to meet fluctuating demand. Shorter transport distances mean quicker supply chains, with operators able to respond to pallet deficits faster and recieve goods quicker than from out-of-region suppliers. The regional nature of pallet availability is why many operators will look to a local secondary market for their pallet requirements. It’s a business decision that reduces exposure to a handful of risk factors: fuel costs, transport costs in general, and seasonal demand. Operators looking to engage with a local market should consider a regional pallet buy-back or repair program, as they can source pallets closer to where they need them with less distance and freight costs.
A simple pallet audit
There’s no need to invest in new software or consultancies to help understand the numbers. A simple audit can be performed to help see the opportunities for change, and most of it involves simply looking at numbers that operators already track:
Keeping a record of the number of pallets, of each grade, received and dispatched each month helps to identify where changes can be made. Furthermore, identifying the costs associated with pallet disposal, whether it be skip hire or another service, can help to see the value in a buy-back program. Lastly, identifying the percentage of inbound pallets that are available for reuse and outbound pallets that can be sold helps to see the value in a circular supply chain model. Most operators will have a 60% target by volume of alternative supply in their inbound pallets in the next 12 months and similar targets for their outbound pallets. It’s more of an organizational shift than it is a cost centre, as many operators may have to change their purchasing patterns to meet a 60% target. It’s also a good time to remind operators to set a target for the quality of pallets they want to source: a target of 80% Grade A pallets in their inbound supply, for example.
Not an end but a means
The biggest mistake operators make when looking to reduce their costs and exposure to waste is to treat a switch to used pallets as a one-time cleanup rather than an ongoing source of cheaper supply. Like many expenses, the price of a pallet, its availability, and the quality of stock received can all change over time. Instead of an end, operators should treat a switch to used pallets as a means to an end: a cheaper, more sustainable input for their operations. It’s why a switch to using a pallet audit should be a standing item on the agenda for quarterly logistics reviews.
It’s important to compare current expenses with projected expenses for new pallets, and to revisit disposal and buy-back figures, as well as ensuring that suppliers are providing the correct grades and complying with the requirements operators have for their pallets. In this way, used pallets are no longer viewed as an anomaly but rather as a cheaper source of supply that complements an operator’s existing procurement methods.
The companies that get the most value out of their existing materials aren’t doing anything magical, they’ve simply stopped treating pallets as an expendable consumable and instead started to treat them as a stock that is valuable to manage.
