Industry outlook
During the first few months of 2023 the pallet and packaging sector has continued to feel the impact of the ongoing war in Ukraine and an overall slowdown in economic activity.
Having reached all-time highs in 2022, raw material costs have eased in recent months although the ongoing high cost of energy, transport and labour are continuing to have an impact.
This includes a recent 10.9% increase in the National Minimum Wage as well as the continuing high price of diesel at the pump, which means fuel can now account for up to half of total operating transport costs.
While inflation generally remains stubbornly high, there is undoubtedly signs of upward pressures abating and we are optimistic that we can look forward to a more favourable business environment later in the year.
Timber pallet and packaging prices have reduced in line with falling material costs and while some of this has been offset by rising costs in other areas, we are passing these decreases on to our customers where we can.
We are also seeing a continuing trend for consolidation within the sector, and while this has created some challenges in the market around customer choice and its potential impact on longer term pricing, we have been able to remove any risk to our customers through our strong strategic partnerships with sawmills in the UK and Europe.
The fall in demand for timber across all sectors saw a general decline in timber imports in 2022 compared to the previous year although the long-term trend remains one of growth.
Overall, imports were down by 20% year on year although despite the significant fall in volume and total value, the average costs of softwood imports rose by 7% as global demand remained strong.
However, despite the recent volatility in the timber market, average timber imports have been on a continued growth trajectory since 2009 with imports predicted to grow again as the economic picture improves in the second half of 2023.
The manufacture of timber pallets has also continued to grow according to the most recent survey by the Timber Packaging & Pallet Confederation (TIMCON) and the research arm of the Forestry Commission, Forest Research.
The survey showed that UK manufacturers produced an estimated 48.6m pallets in 2021, up 8.3% from the previous year while there had also been a 23% increase in the employment within the pallet and packaging sector.
The general health of the timber market has been reflected in the forestry investment market where values are at a record high with average selling prices 118% above asking price with timber prices forecast to rise in 2023 alongside a growing demand for wood for energy.
Regulation – are you ready for EPR?
The Extended Producer Responsibility (EPR) scheme is in the process of being implemented by the UK Government, with changes due to affect waste packaging reporting for eligible businesses in 2024.
Shifting the cost responsibility of processing waste from households to producers is set to encourage a more circular economy, where producers will reuse and recycle more packaging throughout its lifecycle.
The EPR is a reform of the existing UK Packaging Waste Regulations that were established in 1997 and while its set to be reported in 2024, businesses are being asked to capture their packaging usage in 2023 to be ready.
- The new EPR regulations will apply to all UK organisations that handle and supply packaging to consumers and to businesses that turnover more than £1m, are responsible for more than 25 tonnes of packaging a year and carry out the packaging activities.
- How much EPR will cost eligible companies will depend on a range of variables, but it is estimated to generate £2.7bn in its first full year of implementation.
This year has also seen new regulation introduced for labelling packaging destined for Italy.
As of January this year, packaging shipped to Italy must have a label of packaging with the recycling code attached. However, there is an exemption for wooden pallets and wooden packaging intended for commercial/industrial channels rather than consumer channels and all that is required is to indicate the material identification code (FOR 50 for wood).
Sustainability – working towards a net zero future
The world is losing forests the size of Iceland every year due to deforestation and while timber remains the most sustainable option for pallets and packaging, it is important that we remain diligent in terms of ensuring that our raw materials come from well managed forests that are Chain of Custody certified.
As well as ensuring that we are supporting a well-managed timber eco-system, the wider sector also has a responsibility to reduce its own carbon footprint to support the UK’s ambitious long-term emissions targets.
Timber related industries in the UK are responsible for 1.58 million tonnes of C02 annually – 0.35% of the UK total – and at the recent TIMCOM conference, Charlie Law, sustainability director at Timber Development UK, presented the timber industry’s Net Zero roadmap in which TDUK has pledged to support its members halve greenhouse gas emissions by 2030, achieving net zero emissions by 2050.
Looking forward to the year ahead
The current uncertainty around the wider economic environment has reinforced the need for all businesses to remain vigilant and agile and as one of the leading independent businesses in the pallets and packaging sector, we are continually evolving and innovating to ensure that we are delivering the service that our customers need.
We are also continuing to invest in our business to ensure that we are meeting our own sustainability targets, while also supporting our customers along their own net zero journey, and if you would like to find out more about how our bespoke pallets and packaging solutions can help reduce your own carbon footprint then we would love to hear from you.
