The trade winds are shifting once again as the US braces for a new wave of tariffs that could redefine the economic and logistical landscape in 2025. As global economic volatility and unresolved labor tensions amplify the uncertainty, understanding how the industry will be impacted by these factors is crucial.
With tariff implementation potentially a few months away, industry stakeholders are scrambling to prepare for the potential challenges ahead, including navigating port efficiency concerns and facing rising costs across supply chains. However, the changes will also bring opportunities for supply chain managers, manufacturers and freight companies.
Western softwood US pallet manufacturers reported a seasonal uptick in demand as holiday retail sales picked up and buyers turned their attention to Q1 2025.
Fastmarkets assessed Pallets, western softwood, GMA A-grade delivered Seattle at $11.00-17.00 per pallet on November 27, unchanged from the previous month.
While producers benefited from an uptick in sales, recent pushback on prices due to the continued glut of used and lower-quality pallets stymied any significant upward momentum. The other major market in the western softwood producing region, San Francisco, also remained stable this month.
Fastmarkets assessed Pallets, western softwood, GMA A-grade delivered San Francisco at $10.50-16.50 per pallet on November 27.
Competition from used and lower-quality pallets remained steep. Good quality used B-grade pallets and excellent quality block pallets were offered from $8-10 in the downtown San Francisco area.
Trading ranges narrowed in New York City and Dallas-Fort Worth as lower-priced Southern Yellow Pine hit the market.
Fastmarkets assessed Pallets, western softwood, GMA A-grade delivered New York at $10.50-16.50 per pallet on November 27, a $0.75 decline to the low and a $1.75 decline to the high over the previous month.
Producers in these regions faced steeper competition from alternative grades in addition to lower-priced Southern Yellow Pine. Good quality B-Grade pallets were readily available at significant discounts, capping profits. Multiple producers reported switching to Southern Yellow Pine this month as it became more readily available.
In addition to the seasonal retail holiday spike, buyers reported that they are turning their attention to Q1 of next year. With a new administration and tariffs looming, numerous large pallet buyers decided to make extra purchases to prepare for an uptick as next year’s activity gets underway.
The US trade landscape is once again bracing for disruption, with echoes of the sweeping tariffs introduced in 2018. During that period, Donald Trump’s administration imposed tariffs aimed at reducing the trade deficit and protecting domestic industries, including a 25% levy on steel and 10% on aluminum imports. These policies, largely targeting China, eventually escalated to cover over $250 billion worth of goods, sending shockwaves through supply chains and reshaping freight markets. Now, with new Trump tariffs on the horizon, the industry faces familiar challenges—but in an even more volatile global environment.
When the tariffs hit in 2018, businesses rushed to import goods ahead of the increased costs, triggering freight frontloading on an unprecedented scale. Shipping rates soared—ocean container rates alone jumped by over 70%, according to Xeneta. Ports buckled under the strain, particularly in Long Beach and Los Angeles, where congestion brought delays and bottlenecks.
We may be heading for a similar scenario, with transportation company C.H. Robinson warning that new tariffs could take effect as early as late February or early March, leading to another wave of frontloading as companies seek to avoid higher costs. With port labor uncertainty already a concern, Southern California ports could once again see surges in activity and delays.
One of the unexpected outcomes of the 2018 tariffs was their short-term benefit to the freight industry. The rush to move goods before tariffs took effect created tight trucking capacity, higher rates, and stronger volumes, resulting in a banner year for many transportation companies. But that boost came at a cost. By 2019, freight markets slowed as demand softened and rates fell—not just in trucking, but also in rail and intermodal sectors. If history is any guide, a similar boom-and-bust cycle could play out in 2025.
For the pallet industry, tariffs are not just a macroeconomic concern—they directly affect costs. Components like nails, many of which are imported, are already subject to steep tariffs. Further increases could push costs higher in an industry that operates on razor-thin margins. Any added expenses are likely to be passed down the supply chain, affecting manufacturers, retailers, and end-users.
The recent strike by the International Longshoremen’s Association (ILA) remains a critical focal point in logistics managers’ short-term outlooks. The three-day strike in October sent shockwaves through the logistics network, with congestion that took weeks to unravel. Everstream Analytics reported that the number of container ships waiting outside ports jumped from 5 to 54 by the strike’s end on October 4.
The deadline for a settlement was delayed to January 15th and one of the core issues at the heart of the ILA’s dispute is automation. The union is staunchly opposed to the development of fully automated terminals—a stance that is enshrined in their existing contract, which bans equipment devoid of human interaction. While the US Maritime Alliance (USMX) has offered to maintain this language as a concession, automation remains a thorny subject.
President-elect Donald Trump’s pro-union position adds another layer of complexity. Despite his broader agenda to boost US competitiveness, which could benefit from port automation, Trump has expressed support for the ILA’s anti-automation stance. During a meeting at his Mar-a-Lago resort last fall, he promised to back the union on this issue. This alignment presents a paradox: improving efficiency at US ports is crucial for competing on the global stage, yet resistance to automation keeps US facilities lagging behind. The ports of Long Beach and Los Angeles, for instance, ranked 373rd and 375th out of 405 in the World Bank’s 2023 Container Port Performance Index. Considering these two ports handle about 29% of all containerized international waterborne trade in the US, their low efficiency is a significant concern.
As we continue rolling out our cost model, now in its second month, we’re providing detailed insights into the gross variable cost of producing a new western softwood GMA A-grade stringer pallet across six key metro hubs. This model highlights a side-by-side comparison of costs depending on whether #3 or #4 grade lumber is used in production.
The model is based on the availability of softwood lumber and takes into consideration the delivery cost from the mill to the pallet facility, which is partly why we see a lower cost in Seattle and a slightly higher cost in Chicago.
We must caveat that while certain manufacturers will have lower costs due to a higher utilization of automation, these are our estimated averages for each of the metro hubs.
Moreover, the total cost for each hub is calculated by adding the lumber cost and labor cost, which are labeled for each metro hub, alongside a nail cost that is uniform across the country, and miscellaneous costs, including smaller items such as gas, electricity, paint, and staples.
We’ve observed steady price increases across all six metro hubs, reflecting the rise in lumber prices seen in October and November. This trend, potentially a harbinger of what’s to come in 2025, offers some welcome relief for pallet manufacturers.
FRED data indicates that the pallet industrial production index declined by 1.1% from September to October 2024. Though we’d likely expected a lower index level given the current market conditions, it’s important to remember that this index aggregates both new and recycled pallets—recycled pallets continue to support higher overall numbers.
The subdued production of new pallets reflects producers’ reluctance to increase output. Elevated supply levels across the country have kept prices suppressed, prompting manufacturers to wait for inventories to decline before ramping up production.
Despite pallet wages having stayed relatively stable since 2023, another small surge in labor costs can be seen more recently, with wages rising 3.6% from June 2024 to September 2024 (October’s figures haven’t been released yet). However, this pales in comparison to the wage growth seen during the pandemic.
The slower growth in pallet wages provides some relief to pallet producers, who previously faced reduced margins due to skyrocketing labor costs following the record-high pallet prices during the pandemic. Labor shortages and wage pressures have also accelerated the adoption of automation among manufacturers, with automated pallet nailing machines and dismantlers becoming more widespread.
This graph of the Pallet Producer Price Index shows the gradual decline in pallet prices since the highs of early 2022. The peak pricing followed a period of extreme volatility driven by a combination of pandemic-era home renovation spikes, increased demand, and sawmill disruptions. Prices rose approximately 60% from May 2020 to April 2022.
The recovery process has been slow, reflecting a return to stable supply and adjustments by producers who initially ramped up capacity during the highs of Covid which created a supply glut. The fall in prices has been prolonged and as can be seen by the rate of change on the right, it has slowly plateaued and October 2024’s figures showed its first rise in pallet prices since April 2022, partly attributed to the mill closures seen earlier this year starting to effect.
As we’ve mentioned in previous editions and exemplified by the two indices having a high correlation, we also incorporate framing lumber as it’s long been a leading indicator of low-grade lumber.
Framing lumber prices rallied in October as supply tightened due to Hurricane Helene disruptions, declining Canadian production, and disaster repair activity boosting demand. The Random Lengths FLCP averaged $397 per MBF, the highest since April, and is expected to rise further in November before softening in Q1 2025. Southern Yellow Pine prices are already correcting as supply rebounds, while Canadian mills face rising duties, projected to reach 30% by 2025, adding financial strain. Despite short-term volatility, 2025 looks brighter, with the FLCP forecasted to climb to $441 per MBF, its highest nominal level since 2018 (excluding 2020-22).
The rise in framing lumber prices is expected to drive an uptick in low-grade lumber prices, with market conditions in 2025 projected to be significantly more favorable than the past two years. This outlook is underpinned by anticipated market tightness in early 2025, particularly if a prolonged ILA strike disrupts pallet sourcing, as well as a gradual easing of interest rates. However, the pace of rate reductions may be slower than previously expected due to recent spikes in 10-year Treasury yields and mortgage rates driven by tariff uncertainty. As a result, low-grade lumber prices are forecasted to reach $312 per MBF in 2025.
Housing starts dipped slightly in October, but multifamily housing starts rebounded by 10% to 340,000 after a sharp 22% drop in September compared to July. Despite this rebound, multifamily starts averaged 340,000 over the August-October period, down 4.2% from the previous three months and 15% below the year-ago pace, while single-family starts showed a modest upward trend, averaging 1.0 million units annually—6.4% higher than the prior three months and 4.5% above last year. Permits remained steady, signalling solid activity in the final months of 2024.
This uptick in single-family construction lifted the NAHB HMI in November to 46, driven by a six-month sales outlook rising to 64. Confidence among homebuilders likely grew after the clarity of a Trump re-election, with regulatory reform expectations offsetting the limited federal role in boosting home construction. However, as mentioned above, the Trump victory has unsettled the bond market, driving sharp increases in the 10-year Treasury yield and mortgage rates due to tariff uncertainty, as well as stricter immigration enforcement, and shifts in fiscal policy. This market turmoil, alongside the Federal Reserve’s cautious stance on rate cuts, has prompted a re-evaluation of housing market projections.
The post Pallet newsletter: Uptick in holiday and Q1 2025 demand balanced in East by lower-priced Southern Pine appeared first on Fastmarkets.
