These trends are affecting everything including pallet use. Find out how your customers are thinking and operating differently.
While the COVID-19 pandemic seriously disrupted brick and mortar sales, they have bounced back with a vengeance. And while e-commerce took off during the pandemic, its growth has flattened, at least for the moment, as regular retail has regained traction. Total retail sales are expected to reach $6.624 trillion in 2022. With retail making up such a large portion of the total U.S. economy, retail trends have a significant effect on pallet use and overall demand. Let’s look at some major retail trends and consider the impact on projected pallet use.
With the pandemic and supply chain disruptions, one thing that retail has done is increase its safety stock levels for pallets. This buffer stock has helped retailers weather disruptions. It is a move that has translated into more pallets under load, and it has contributed to a tight pallet supply. On the other hand, many retail trends don’t have much of an effect on pallets because they have to do more with marketing, styles or popularity of products. But it is important to keep in mind that pallets are derived from the demand market. The rise of a particular retail trend, whether it be in-aisle replenishment of half pallets, automation, or the need for visibility, for example, just might result in implications for pallets.
The following are some leading trends facing the retail supply chain today.
1. E-commerce
It may sound like old news, but e-commerce continues to be a sector to watch. While already growing rapidly, the COVID-19 pandemic was like a surprise booster rocket that further escalated that trend. According to the U.S. Department of Commerce, U.S. e-commerce sales rose 14.2% to $870 billion in 2021, a 50.5% increase since 2019. It accounted for 13.2% of total retail sales in 2021.
Over the course of 2020 and 2021, the fastest-growing categories for e-commerce were furniture, building materials, and electronics (a cumulative 200% growth rate since 2019), while food and beverage e-commerce grew by 170% for the same period, representing 9.6% of total grocery sales in 2021.
Regarding pallets, there are several considerations. For a major e-commerce player that also has a strong brick-and-mortar presence, there might not be an appreciable change. When a grocer is assembling e-commerce orders at the retail store or in a dedicated e-commerce “dark store,” not much changes when it comes to pallets.
One noticeable shift has been the rise of more localized warehouse facilities across the country to move inventory closer to customers to enable faster delivery. This has led to some pallet companies to expand their operations to accommodate this change. One such pallet manufacturer, Cantarero Pallets, Inc. of Wauconda, IL., has recently added a new pallet facility in Bolingbrook, IL. It’s more centrally located to the concentration of manufacturing and distribution companies with high potential pallet demand. One industry insider suggested off-the-record that this model has led to some innovation in hub-to-spoke shipping to the local facilities – things such as fractional pallet usage to ship the right amount of product with the fewest touches.
Others have reported that the core quality coming out of many e-commerce facilities is generally poor, as they are often reused internally until they are broken.
The growth of e-commerce has also led to a rush to automate to increase the speed and profitability of e-commerce, which may also impact pallet requirements. Let’s take a closer look at labor and automation, our next trend.
2. Labor supply and automation
Retail is powered by people, and when there is a shortfall, such as the one currently facing the industry at large, so grows the urgency to automate. Take, for instance, the grocery industry, which employs almost three million people in the U.S.
A recent McKinsey report noted that “every aspect of the industry’s people model—corporate, in-store and across every part of its operation—is experiencing an upheaval caused by a rise in absenteeism and attrition as well as by employee demands for flexible labor scheduling.” While bonuses, pay hikes, and tuition reimbursement programs are helping recruit people in the short term, automation has become increasingly recognized as being critical for sustainable growth.
Automation offers a range of benefits for warehouses, from making jobs easier to eliminating them, not to mention fulfilling orders more quickly and more accurately, improving storage density (more inventory in less space), and enabling the commingling of e-commerce and regular brick-and-mortar shipments through omni-channel automation.
The need for improved or more consistent pallet quality can vary depending upon the type of automation being deployed. Autonomous Mobile Robots, or AMRs, such as the ones widely used by Amazon or gantry crane-style robotics used to set crates on top of pallets, are less sensitive than other sophisticated palletized automation systems such as Automated Storage and Retrieval Systems (ASRS). Some pallet suppliers have reported customers increasingly enforcing their pallet policies in response to the sensitivity of their systems.
3. Visibility
The momentum for supply chain visibility continues to build in the retail sector. Visibility offers a range of benefits, from operational to strategic, and from social responsibility to regulatory compliance. According to Juniper Research, spending on IoT-based asset tracking solutions will grow at an astonishing rate - $45 billion globally by 2027, up from an estimated $16 billion in 2022. IoT has already made substantial inroads in retail categories such as fashion, pharmaceuticals and automotive. Growth in other categories can also be anticipated.
One grocery industry insider with a pallet background believes that Food Safety Modernization Act Rule 204 will help drive IoT in the grocery industry. The rule will increase tracking requirements for certain perishable commodities such as fresh produce, eggs, and some seafood categories. It is expected to go into effect in January 2023.
While pallet level tracking is not a requirement, regulators increasingly require an extended chain of custody history and quicker reporting in the case of a product recall. More granular tracking at the pallet or even the container level will enable retailers to respond to an emergency more quickly. In the produce sector, we are seeing some major reusable plastic container (RPC) providers increasingly add radio frequency identification tags in the United States and abroad. A major retailer in Israel recently tagged a million RPCs to provide it with field-to-fork visibility of its fresh produce supply chain.
4. Sustainability and Social Responsibility
Pressure for retail to operate more responsibly is not only coming from consumers, but also from the boardroom and investors alike.
For example, Deloitte found that 55% of consumers have made sustainable purchases and that 32% also said that they paid significantly more for their sustainable purchase than the price of an alternative product or that they were willing to wait longer to obtain it.
After an exhaustive international poll of corporate executives, Deloitte also determined that the climate weighs heavily on their minds. The poll reported, however, that organizations are struggling to implement “actions that demonstrate they have embedded climate considerations into their culture and have the senior leader buy-in and influence to effect meaningful transformation.”
The sustainability focus includes products as well as operations - including the supply chain. Wood pallets are well-positioned, thanks to the efforts of pallet industry associations and companies to promote their potentially carbon-positive benefits to pallet users.
Of course, there will continue to be challenges from other options for the pallet sustainability high ground, such as pallets made from a high percentage of recycled content. Additionally, nestable plastic pallets are being promoted by some vendors as an environmentally friendly alternative that weighs less and is more efficient to ship, resulting in significantly more pallets on each load. Because they are not rackable without support, however, there has not yet been significant acceptance of this approach.
Social responsibility requirements are also a growing consideration and a daunting challenge for complex supply chains. Traceability will be important for ensuring ethical sourcing. For example, a new law, the Uyghur Forced Labor Prevention Act, has gone into effect in the United States, requiring all companies importing goods from China’s Xinjiang region to prove that no component was produced with slave labor. Such legislation will increasingly require a complete chain of custody history and will spur investment in visibility solutions.
The Bottom Line
Make no mistake, the retail supply chain is in transformation. And we didn’t even mention trends such as the driver shortage, near-shoring, or inflation. The labor shortage isn’t going anywhere soon, and the rapid uptake of automation will require increased attention to pallet quality. As for the sustainability requirements of retailers, industry efforts have positioned wood pallets for success. As for other surging trends, such as visibility, it remains to be seen how much of a role that pallets will play in fulfilling that need.
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