Low Grade Lumber: Victim of Circumstance

53952299 - man chooses boards for the construction of the storeLow-grade lumber prices are the highest they’ve ever been. Considering the U.S. was just hit with Hurricane Florence, the industry expects a spike in materials like wood. Post-natural disaster fluctuations are normal, especially when there is so much rebuilding. Historically, the total impact of a hurricane on low-grade lumber doesn’t last more than a couple of months.

In the case of Florence, however, the lumber industry was volatile well before Mother Nature’s latest roar. The U.S.’s own storm of events over the last few years, which includes weather, fires, and tariffs, has created a huge imbalance in supply and demand, and the results are significant.

Industrial applications like pallets, crates, and other wood packaging are made from low-grade lumber, and a strong economy has exacerbated the impact on a supply that’s been hurt over the last few years. David Koenig quoted Annie Montey, a partner at American Pallet, Inc., in his Building products Digest article, “The high cost of low grade lumber:”

“For much of 2018, the demand for low grade has exceeded the available supply, causing prices to surge to record levels. Several pallet and crating companies in California that use low grade lumber have had record-setting years and with a strong economy throughout the United States, demand for low grade lumber has been strong. This has led to supply and demand imbalances that have helped propel prices to record levels.”

Koenig also states the over the last few years, lumber composite prices have risen 150%, and low grade is up 180%. He quotes Mark Berger, lumber buyer for American Pallet, to further explain the price issue:

“Couple strong demand with a 20-plus% tariff on your largest source of imported lumber and you’ve got the makings of a supply crunch, which would logically lead to an increase in prices for those products.”

To understand the whole picture, consider what Koenig identifies as factors contributing to our current lumber crisis:

  • An increase in home construction, which requires raw materials
  • Fewer furniture manufacturing in the US – industrial lumber is a byproduct of high-grade furniture lumber
  • China imports whole logs from the U.S. instead of premium boards
  • The labor force in the industry is shrinking – interest in logging is low
  • Pipeline construction is up, and it uses a significant chunk of the lumber supply
  • The shipping industry, suffering the repercussions of fuel prices and shortage of drivers, as well as an increase in other material costs like pallet nails, contribute to cost of lumber
  • We have less lumber to harvest because of fires and rainy seasons

Overall, this isn’t your average post-hurricane setting. Lumber prices will always go up and down, which means we won’t be feeling this forever. However, buyers are slave to mills’ willingness and ability to churn out more product. Even if they become able to correct the imbalance, meeting demand will drive prices into the ground.

Planning for lumber fluctuations will help you maintain more control over your own packaging costs. Packnet offers a free auditing service that examines the risk of your packaging system to offer detailed advice on how to mitigate your risks. Contact us at 952.944.9124 or fill out a form here to take better control of your future.