The US pallet market is undergoing huge shifts, driven by tariffs, shifting policies and economic uncertainty. Q1 saw record import surges, followed by sharp declines in shipping volumes. The de minimis exemption expiration adds complexity for importers and retailers.
Pallet producers face rising lumber tariffs, higher costs, and oversupply challenges. Housing starts have dropped, while high interest rates weigh on consumer spending.
Businesses must navigate volatile raw material costs and logistics bottlenecks. The interplay of tariffs and economic pressures could shape the future of the sector.
This edition of the pallet newsletter includes:
- The latest price data for pallets across six key metro areas
- Insights into the impact of tariffs on global trade volatility
- An overview of the challenges faced by new pallet producers
- Analysis on the decline in US housing starts, high interest rates and consumer spending slowdowns
Pallet price updates
April US pallet sales volumes were less than expected on the heels of the tariff drama and underwhelming demand. This combined with modest low-grade lumber price deflation resulted in slight downwards pressure on pallet prices.
Fastmarkets assessed the Pallets, softwood, new GMA delivered Seattle market at $11.00-16.50 per pallet on April 29. This is a decline of $1.00 on the low and $0.50 on the high from the previous month.
All softwood new GMA pallet prices experienced similar declines. The declines were driven by both underwhelming takeaway volumes and a slight decline to low-grade lumber prices.
After last month’s pre-tariff price inflation, many felt that domestic business may see a short-term pickup as buyers turned their attention to domestic goods in lieu of imports. The expected increase has not materialized due to uncertainty around the “on-off” nature of tariff implementation. Many buyers are pausing decisions, offsetting those shifting focus to the domestic market.
As reported last month, the recent price increase was largely supply driven and this month saw a retraction of recent gains. The Random Lengths low-grade random dimension composite fell $8.00 in April to $339 as of April 24.
A widespread perception that the housing market remains sluggish was confirmed by a poor starts report on April 17 that fell below most forecasted expectations. With less demand for framing lumber and more talk of sawmill closures, pallet manufacturers remain concerned that low-grade lumber supply will become an increasing issue.
Pallet producers are increasingly concerned that they will not be able to source enough material to meet demand. Thus far, that concern is balanced by a stable enough supply status quo and less than expected demand.
There are no updates on the Section 232 investigation covered last month as Department of Commerce officials continue to keep a lid on leaks. Traders continue to eye those results as well as any potential negotiations with the new Carney Administration in Canada. The Department of Commerce previously stated its intention to increased the standard import duty on Canadian lumber to 34.45% by late 2025.
Fastmarkets launched used Grade A and used Grade B prices for the Seattle, San Francisco, Los Angeles, Chicago, Dallas-Fort Worth, and New York markets this month. Notably, several of the ranges overlap or intersect – indicative of the parity that high quality inferior grade pallets currently have with low quality superior grade pallets.
The glut in the used market continues to suppress pallet producers’ ability to raise prices and with many businesses in cost cutting cycles repaired pallets remain attractive.
As Fastmarkets ramps up its coverage of the pallet market, we invite feedback on specific pallet-related items for future reports. Contact ian.templeton@fastmarkets.com with comments or to contribute future pricing information.
Imports surge in Q1, de minimis shift, and trade turbulence cloud outlook
US GDP fell 0.3% in Q1, weighed down in part by a record surge in imports, a byproduct of importers rushing shipments to beat new tariffs. Far from reducing the trade deficit – Trump’s intended outcome – the tariff threats triggered an early-year inventory buildup that ultimately dragged down GDP, underscoring the volatility caused by the shifting trade landscape.
That early flurry has since reversed sharply. According to Port of Los Angeles Executive Director Gene Seroka, import volumes are expected to plunge 35% in the coming weeks, as “essentially all shipments out of China for major retailers and manufacturers has ceased.” Bookings out of China have collapsed by 60% in the past week, according to Flexport, driven by the April 9 tariffs on Chinese goods that now reached 145%. Retailers and manufacturers that had frontloaded shipments earlier in the year are now pausing orders, waiting to see whether tariffs are eased—or persist.
The result is a sharp contraction in ocean freight traffic: the number of vessels sailing from China to the Southern California ports is down 29% week-over-week and 44% year-over-year, with over 80 blank sailings reported, according to Port Optimizer. While the West Coast is feeling the brunt, traffic is beginning to reroute toward East Coast hubs like Savannah, GA, due to port consolidations and rising vessel taxes in China.
With this marked contraction in trade, the National Retail Federation projects a 10–20% year-over-year drop in container imports (TEUs), reflecting both softening demand and prior overstocking. This reduction becomes especially pronounced given how high import volumes have been over the last year.
Further complicating trade flows is the expiration of the de minimis exemption on May 2, which previously allowed small shipments (under $800) to enter the US duty-free. These shipments—estimated at 4 million per day by US Customs—will now face either a 30% tariff or a flat fee of $25–$50 per item, depending on the transportation provider’s chosen method. While this targets only China and Hong Kong for now, some fear a broader rollout. However, pallet demand is unlikely to be heavily impacted, as many importers are shifting sourcing away from China to bypass these rules.
Even retail giants are navigating this uncertainty with caution. Amazon reportedly considered displaying tariff costs at checkout, but backed off after pressure from the White House, which labeled the move “a hostile and political act.” Meanwhile, Temu and Shein, whose low-cost offerings leveraged the de minimis rule, may lose pricing power as this exemption fades.
While short-term import weakness may reduce pallet turnover, the risk of a future cargo surge—should tariffs be rolled back—looms large, particularly if China returns to exporting at scale. Until then, logistics bottlenecks, port shifts, and trade policy uncertainty remain key watchpoints for pallet market participants.
Inventory build-up and trade correction make new pallet resurgence less likely
The current inventory landscape—shaped by frontloaded imports and aggressive tariff avoidance—is ripe for a substantial correction, as we’ve started to see in the reduction of imports in April from China to West Coast ports. Producers and wholesalers ramped up purchasing earlier this year to beat incoming tariffs, particularly on durables like machinery and equipment, leading to inventory gluts in key manufacturing sectors.
Meanwhile, manufacturers are now operating with higher inventory-to-sales ratios than they did pre-pandemic, a structural shift away from the lean “just-in-time” systems of the past. The shift was set in motion by the 2018 trade war and 2020 pandemic, which exposed the risks of supply chain fragility and forced businesses to carry more buffer stock.
At the global level, the World Trade Organization sharply downgraded its 2025 forecast for global merchandise trade, expecting a -0.2% contraction instead of 2.7% growth. Nowhere is the downturn expected to be sharper than in North America: the WTO sees US exports falling 12.6% and imports shrinking 9.6% in 2025, with further declines expected in 2026.
Several factors at play combine to create a murky outlook for new pallet producers. The import surge we’ve seen since early 2024 has led to a supply glut of pallet cores, lowering the price of reused pallets, and subsequently new pallets.
Combine this with several large retailers, such as Walmart and Target, warning that we may face shortages soon if there’s no tariff abatement, and a fall in economic activity if the likelihood of a recession increases, there simply won’t be the movement of goods necessary to quickly reduce the pallet core supply. This means it will take far longer for the quality of reused pallets to fall which is what makes the increase in price – and quality – of new pallets relatively more attractive.
Moreover, a looming lumber supply shock this summer – driven by a significant increase in anti-dumping and countervailing duties on Canadian lumber which will be discussed below – is expected to reduce the volume of lumber entering the US. This will raise raw material costs and further erode margins for new pallet producers.
The pallet industrial production index dropped 3.8% from February to March, adding to its recent volatility. This metric has been tumultuous over the past year, following a relatively stable prior year.
The retail sector’s stop-start nature explains this turbulence, with port strike threats in October 2024 and January 2025. Tariff-driven frontloading further disrupted stability, compounding the uncertainty for pallet producers.
A previously optimistic outlook in November and December, driven by lower taxes and regulation, has since faded. Pallet producers remain unable to confidently set long-term production levels due to ongoing uncertainty.
Tariff pressures build ahead of summer as producer costs climb
Rising trade barriers continue to cloud the cost outlook for pallet producers. The Section 232 investigation into imported lumber may bring new tariffs soon.
Fastmarkets assumes a 25% tariff, similar to recent steel and aluminum tariffs, though rates are still undecided. If duties take effect in Q2 and lift in Q3, pallet prices may temporarily spike before correcting.
Tariffs targeting key suppliers like European lumber and Latin American panels could amplify cost pressures. Meanwhile, Canadian softwood lumber duties have increased, with countervailing duties rising from 6.7% to 14.4%.
Combined with anti-dumping duties of 20.1%, Canadian lumber could face total duties of 34%, the highest since 2015. These duties align with Fastmarkets’ assumptions and signal more margin pressure for pallet manufacturers.
Market participants widely expected a doubling of duties and have already begun responding. Canadian shipments to the US may surge short-term as producers try to beat finalized tariffs. However, this likely won’t prevent longer-term cost increases.
Uncertainty around Section 232 makes buyers hesitant to build inventories, increasing wood price volatility. These policies are shifting the supply curve leftward, driving the Pallet Producer Price Index higher through summer.
If Section 232 tariffs lift in Q3, some pricing relief may follow. Meanwhile, producers must manage higher raw material costs.
Pallet cost model
We continue 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 New York.
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.
The total cost for each hub includes lumber and labor costs, labeled for each metro hub. It also adds uniform nail costs nationwide and miscellaneous expenses like gas, electricity, paint and staples.
March’s pallet costs rose considerably from February across all 6 metro hubs in light of higher lumber prices. This was most pronounced in the Dallas metro area, which saw a 12% increase in the #4 grade lumber price and 9% increase in the #3 lumber price.
Average hourly earnings
Wage pressures remain elevated in the pallet sector, even as companies tread cautiously. Many businesses avoid major staffing or wage cuts, hoping trade tensions ease or the economy rebounds this year. Labor costs remain a significant burden, with pallet manufacturing wages outpacing broader manufacturing earnings growth for three years.
Pandemic-era staffing shortages make pallet manufacturers hesitant to reduce staff, anticipating a potential reversal of the tariff situation. In turn, this has led to higher wages to remain competitive with other manual labor industries.
Tariffs tighten lumber supply to drive price volatility in 2025
The US softwood lumber market expects elevated price volatility due to supply constraints and trade policy issues. The biggest short-term impact will be domestic, as US mills cannot replace 13–14 BBF typically sourced through imports. Lumber duties and potential tariffs will further reduce imports, intensifying supply challenges. This gap is expected to fuel upward pressure on prices, particularly as domestic production struggles to respond quickly.
Canadian mills currently hold some margin at prevailing prices, with strong supply levels still moving south. However, that dynamic is poised to change. The combined impact of rising countervailing and antidumping duties – set to peak around 39.4% in Q2 – will trigger curtailments, as Canadian producers lose the ability to operate profitably under the weight of stacked tariffs. European exporters, facing similarly tight margins, are also expected to pull back.
Prices are already climbing. In March, the Framing Lumber Composite Price (FLCP) averaged $485 per MBF, the highest level since October 2022. April’s average is projected to rise further to $506 per MBF. However, recent weekly trends outside the Southern Yellow Pine (SYP) market suggest a mild correction may be starting.
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The Low-Grade Lumber Composite Price (LGLCP) surged to $345 per MBF, up 8% from February’s prices. Low-grade lumber prices follow framing lumber, as it’s a byproduct of framing lumber production. The housing market often signals pallet price trends, making it a key industry to monitor.
Our baseline forecast assumes Section 232 tariffs are lifted in Q3 due to political and business pressure. Canada’s reliance on the US export market suggests a quick resolution is likely. The combined tariff and duty rate of 39.4% will persist through part of Q2 and Q3. By the end of Q3, this rate will drop to around 34%. Canadian duties will rise mechanically based on the DOC’s duty review process. This would still imply an elevated clearing price needed to keep Canadian supply flowing into the US.
A late-year price correction is possible if policy tensions ease. However, pallet manufacturers should expect high lumber costs through summer. Tight supply, constrained imports, and trade uncertainty will keep prices elevated.
Housing market on pause amid tariffs, high rates and wealth anxiety
US housing starts fell sharply in March, declining 11.4% to a seasonally adjusted annual rate of 1.324 million units, the lowest since mid-2023. Single-family starts dropped 14.2%, while multifamily construction slid 3.5%. Regionally, the Midwest stood out with a 76% increase in starts, while the South – particularly Florida – saw declines. The region was weighed down by rising inventory and slower net migration.
Builder sentiment remains low, with the NAHB Housing Market Index at 40 in April. High tariffs and elevated mortgage rates are dampening outlooks. The 10-year Treasury yield initially fell in February but spiked after April 2 tariff announcements. This marked the largest weekly yield surge since 2001, reflecting bond traders’ recession fears. Concerns over stagflation, with sluggish growth and stubborn inflation, could limit the Fed’s ability to cut rates.
The coming weeks are unpredictable, leaving housing and commodities traders cautious. Despite turbulence, housing fundamentals remain steady after a prolonged 2023–2024 downturn. A rebound may follow easing borrowing costs and policy clarity. This could ease concerns for pallet producers facing reduced margins. The housing stock remains depleted since 2008, with demand ready to surge when rates drop.
Households face a paradox with $35 trillion in home equity, up 80% since 2020, but feeling financially squeezed. Higher taxes and elevated interest rates make accessing this wealth harder. Falling stock portfolios and capital gains tax concerns add pressure. Market volatility is straining 401(k)s and investment income, slowing spending among high-income households. This could weigh on housing activity and pallet demand in coming quarters.
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