The North American pallet market, an essential component of global supply chains, is undergoing significant shifts driven by sustainability efforts, global trade pressures and record-low profit margins from depressed market prices but higher labor costs.
The unprecedented price volatility of recent years remains a pressing concern for many market participants, with supply chain managers often citing a lack of transparency as they navigated the rapid and unpredictable shifts in the pallet market.
With supply chains beginning to stabilize, a new wave of uncertainty looms, fueled by conflicting economic indicators that pull the economy in divergent directions. In this evolving landscape, understanding the forces shaping the market is more critical than ever.
To meet this need, Fastmarkets has launched a first-of-its-kind pallet analytics service, offering the tools and insights market participants need to navigate these challenges. This service includes:
As the pallet market adapts to shifting dynamics, several core issues are emerging as critical drivers for the year ahead.
The US housing market in 2024 has softened under the weight of high mortgage rates and economic uncertainty. Existing home sales fell to their lowest levels since 2010, with an overall year-to-date decline of 3% by August. Despite the Federal Reserve beginning to lower rates in September, the recovery is expected to be gradual, with meaningful demand improvements likely by mid-2025.
On the other hand, new home sales have been a bright spot, rising 3% through August. Large homebuilders have mitigated affordability issues by offering rate buydowns that reduce mortgage rates to the mid-5% range and as low as 4% in some cases, alongside other incentives such as covering closing costs and offering home upgrades.
These measures have successfully buttressed sales without resorting to steep price cuts.
The US housing market faces a backlog of roughly 2 million units, stemming from a decade of underbuilding since the 2008 financial crisis. To meet demand, approximately 1.5 million units need to be built annually; however, between 2008 and 2019, construction averaged only 1 million units per year.
In terms of construction activity, single-family housing starts have shown modest growth, running at an annualized rate of 1 million units for the August-October period, 4.5% above last year’s pace. Conversely, multifamily starts have trended lower, down 15% from a year ago.
Looking ahead, falling mortgage rates and improving builder confidence signal a potential upturn. However, the interplay of affordability and supply expansion, particularly for middle-income buyers, will be pivotal.
Federal policy changes, particularly under the new Trump administration, will influence bond markets and mortgage rates, indirectly shaping the housing landscape. Builders remain cautiously optimistic, with November’s NAHB Housing Market Index showing a six-month sales outlook improvement for single-family sales with an index score of 64, rising by four points. These developments will be closely watched for their impact on housing—and, by extension, pallet demand, as framing lumber prices are a key leading indicator for low-grade lumber.
President-elect Donald Trump’s renewed threat to impose sweeping tariffs on Mexico, Canada and China has raised serious concerns about the potential fallout on US trade relationships. While targeting China has been a hallmark of Trump’s trade policy, the inclusion of Mexico and Canada in these tariff threats significantly heightens the stakes, as these are the United States’ top three trading partners.
Trump has argued that Mexico’s role as a “backdoor” for Chinese goods—where Chinese manufacturers set up operations in Mexico to bypass US tariffs—is justification for this move. However, Mexico and Canada have expressed strong opposition, with Canada’s Prime Minister Justin Trudeau warning that retaliatory tariffs could hurt both nations, given their deeply integrated supply chains.
The US-Mexico-Canada Agreement (USMCA) was designed to maintain duty-free trade between the three nations. Imposing unilateral tariffs would violate this agreement, risking a breakdown of the framework that supports a significant portion of total US trade, with auto manufacturing and agriculture being some of the industries that would feel the squeeze the most.
Retaliatory tariffs from Canada and Mexico could disrupt key supply chains and increase costs for American consumers. With such high interdependence, a trade war among these countries would likely prove more detrimental to the US economy than beneficial. However, Trump and his allies, including his pick for Treasury Secretary, argue that the tariffs implemented during his first term achieved key economic objectives, such as increasing federal revenue, without significantly contributing to inflation.
As the diagram of trade flows illustrates, the stakes are simply too high for the US to alienate these critical partners, as the three countries that President-elect Trump has explicitly announced he’s considering placing tariffs on make up 41% of total US trade. Notably, the share of total trade with the rest of the top 15 falls dramatically.
Retaliatory tariffs and disrupted trade flows could also have significant implications for pallet demand. The North American pallet market relies heavily on the movement of goods across borders and any reduction in cross-border trade or increased costs for goods would likely dampen the demand for pallets used in shipping and logistics.
Despite economic challenges, several indicators suggest reasons for cautious optimism heading into 2025. Real wages are rising, the stock market remains strong, and falling interest rates could support broader job growth in the coming months.
The Federal Reserve appears poised to cut rates further, with traders assigning a 91% probability of a December reduction, according to the CME FedWatch tool. This came following a strong jobs report showing the addition of 227,000 jobs in November, exceeding expectations without overheating the labor market.
Another encouraging sign is the decline in seasonally adjusted credit card delinquency rates in Q3, falling to 3.23% from 3.24% in Q2. This marks the first drop since 2021, signaling that the financial strain on consumers from the inflationary pressures of 2021-2022 may be easing.
Retail performance also reflects resilience. Black Friday and Cyber Monday online sales hit record highs, with consumers spending $10.8 billion and $13.3 billion, respectively, according to Adobe Analytics. Toys led the surge, with sales 680% higher than average October levels, alongside strong demand for electronics, apparel, and gift cards. Notably, many of these goods are transported on pallets which is a promising harbinger for the industry.
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