In late 2019, Costco announced they will require plastic branded/pooled pallets for any North American delivery location.
Costco was on a big push in 2020 to move its entire supply chain of pooled pallets to plastic. While we still see it as inevitability, 4 years later the effort is still on pause.
Talking with a Costco representative they informed us:
Costco's goal to transition from wood to plastic remains a top focus, however we understand the constraints around plastic pallet availability. For this reason, an official deadline to be 100% plastic has not yet been set.
Availability is scarce and cost is high. Its a simple as that. The shortage of plastic pallets can be attributed to several factors that have intensified in recent years:
1. Supply Chain Disruptions: Events like the COVID-19 pandemic disrupted global supply chains, slowing production and increasing transportation costs for materials like plastic resin, which is essential for pallet manufacturing.
2. Raw Material Shortage: Plastic pallets are primarily made from resin, and the production of resin is closely tied to the petrochemical industry. Various factors, including extreme weather (like the Texas freeze of 2021), supply chain bottlenecks, and increased global demand, have limited resin availability.
3. Rising Demand: The growth of e-commerce and the need for more efficient warehouse and logistics solutions have increased the demand for pallets, especially plastic ones, which are durable and reusable. This has added pressure on supply as companies look for sustainable alternatives to wood pallets.
4. Environmental Pressures and Recycling Challenges: Increasing demand for recycled plastic, combined with limited recycling facilities, has made it harder to find high-quality recycled plastic for pallets, pushing up prices for both recycled and virgin materials.
5. Shift Towards Sustainability: Many companies are moving toward sustainable shipping and warehousing solutions, favoring plastic pallets for their longevity and recyclability over traditional wooden pallets. This shift adds further strain to plastic pallet availability.
It have been reported that over 80 million pallets annually pass through Costco Warehouses.
It goes without saying that pallets are serious business at Costco (check out our previous articles on this subject).
Costco has a history of making industry first requirements for pallets. In 2011 Costco was the first major retailer to move away from a standard GMA stringer pallet and require block style pallets. Although block style pallets are more costly to produce, they allow easier 4 way entry, additional pallets per container, improved movement with electric pallet jacks and are considered to be stronger with a longer life.
Simply put, block style pallets which move efficiently and without damage is critical to Costco. The speed and efficiency which products flow from suppliers through Costco Depots to Costco Warehouses is like no other retailer and essential to what is the magic of Costco's supply chain.
The fact that Costco members are shopping in a working warehouse with pallets exposed both on the floor and on pallet racks additionally stresses how critical it is to have high quality, damage free pallets in any Costco Warehouse location.
Why move to plastic pallets?
Plastic pallets are more expensive initially than block style pallets although have a much longer life span. iGPS has made a nice summary of what they feel are plastic pallet benefits:
Link to iGPS Website: https://igps.net
Due to the higher cost of pallet pallets it's recommended to use a plastic pallet pooling model. In this model, pallets are rented rather than purchased and will be considered the most cost effective way to meet Costco's requirement.
iGPS has been been around since 2006 and has been a pioneer in plastic pallet pooling/rental. Walking around your local Costco Warehouse it's easy to see these black plastic pallets.
The PECO (red) and CHEP (blue) wooden pallets which have been ubiquitous at Costco for years, won't be left behind on Costco's upcoming plastic pallet requirement. Both companies will have plastic pallet options available for their customers when the requirement officially kicks off by Costco.
The reason that the requirement hasn't kicked off yet is simply, supply. Costco has a staggeringly high annual pallet requirement. Ensuring there is ample supply in available to all suppliers before starting is necessary.
Purpose built custom pallet users:
If you are one of the few suppliers which Costco has deemed your oversized product unique enough to have a custom size, wood is predicted to continue to be an acceptable material (at least for now).
Stay in touch for more information on Costco's plastic pallet rollout.
As always, if you have any questions, please reach out to us.
Until next time.
Cheers!
TCPG
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