• Impact on North American export/import trade. U.S. Department of Commerce statistics reveal that the United States carries on $4 trillion worth of trade internationally, and $160 billion is exported to the EU alone. The National Wooden Pallet and Container Association estimates that approximately one-half of this trade is conducted on wooden pallets and containers. At question then, is how much of this trade would be impacted, possibly through quarantine and/or rejection at the ports of the world.
• Impact on North American continental logistics costs. Industry experts suggest that any bark-free regulation enforced on international shipments will become de-facto standards for all wooden pallets, as customers recognize and seek to avoid additional management costs of additional sortation.
• Environmental impact of lower yield on a major part of the consumed lumber in North America. The practice of manufacturing wooden pallets and crates from lower-grade material containing bark, wane, woody knots, and other similar defects has been considered in the past an excellent use-appropriate outlet for lumber that might otherwise be scrapped or sold for lower value chip and fuel. However, prohibition of these types of defects in the wooden containers and pallets would require either:
  • Additional re-manufacturing of the low-grade lumber to eliminate the defects, and/or
  • Purchase of higher-grade lumber that normally goes to higher value solid-wood uses, such as furniture, cabinetry, and flooring.
• The market impact of this potentially increased demand for higher-grade lumber, and lower demand for the lower-grade component.
• Cultural and administrative costs, sometimes labeled "transaction costs." In most parts of the world, regulation enforcement carries additional burden in the form of administrative costs, enforcement costs, or costs related to overcoming cultural barriers, such as graft and kick-backs.

The data forming the context of this issue vary widely from region to region, but these are baseline data from which the problem can be primarily formulated.

1. 95% of all U.S. packaged products are shipped on pallets, 92% of which pallets are made from wood (1).
2. Nearly $400 billion worth of U.S. trade is exported annually on wood pallets and containers worldwide (1).
3. The U.S. wooden pallet and container industry is $5.1 billion industry, of which the approximately 2800 component companies paid $20 million in taxes and license fees, employed an average of over 17 workers per company, and added over $1.1 billion in wages to typically rural, economically depressed areas (2).
4. The industry consumed over $2.6 billion in raw material, and added over $2.4 billion in value to it, resulting in over $5 billion worth of shipments. In order to keep this economic engine running effiicently, the industry has spent nearly 800 million on capital equipment from 1997 to 2002 (2).
5. Over 85% of the 12,000+ lumber producing mills have log debarkers, and probably more than 95% of all U.S. lumber by volume is debarked prior to sawing (3).
6. At current debarker industry production rates, it would take 8-9 years for the remaining sawmills to acquire debarkers assuming all mills placed orders, and assuming mills currently with debarkers did not place additional orders (3).
7. However, the cost of debarker equipment, which ranges from $20,000 to $75,000 for a used debarker and $30,000 to $250,000 for a new debarker, would preclude many of the smaller sawmills, those currently without debarking equipment from upgrading.
8. Log debarking does not guarantee bark-free logs or lumber. The highly variable shape of logs, and texture of bark, dictates that most logs are debarked to varying degrees of success. Below are two examples of debarked logs in one of the largest, most high-tech sawmills in the Pacific Northwest.
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10. Due to the incomplete debarking of logs and resulting lumber, much of the lumber supplied to the pallet industry has some degree of bark occurrence, whether in the board, cant, or pallet "shook" form. This bark occurrence takes many forms and appearances, but it continues to appear as an issue on some percentage of the lumber as it gets re-manufactured for pallet component usage. The ten pictures below are examples of typical bark (or bark-like) occurrence in pallet lumber stock, in degrees from "a little" to "a lot".
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16. Past research indicates that the difference in lumber recovery between square-edged lumber sawing and sawing to allowable wane specifications is between 5.5-8% (4) and 18% (5). These studies were run on higher grade lumber; for pallet grade material, these percentages would certainly be much higher. For instance, assuming a conservative 20% yield loss due to square-edged sawing requirements, one could project an equivalent increase of resource consumption...that is, an additional one tree for each five trees harvested would additionally need to be cut to meet current requirements of the industry.
17. Recent research estimates the number of wooden pallets used in exportation of U.S. products to be over 63 million (6).
18. Our recent research efforts have focused on determination of the amount of pallet and wooden container product, certified as ISPM 15 compliant through treatment, which actually still contains at least one occurrence of bark. Based on data collection at pallet mills and customer inventories throughout Pennsylvania, Ontario, and Washington, we found roughly 20% of 3750 ISPM-compliant pallets retained at least one bark occurrence. One might extrapolate from the estimate in point (17) above then, that 12-13 million ISPM certified pallets of U.S. goods could be targeted for exclusion (and resulting in quarantine and/or rejection) by any "bark-free" addition to the current ISPM 15 agreement.
19. Some examples of bark or bark-like occurrences tallied in the pallet data cited in point (18).
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26. Typical pallet-product use example (shown below): Hi-value pallets manufactured for high-tech semiconductor company. Product value per pallet: about $250,000. Bark occurrence rate: 33%.
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28. Another typical pallet-product use example (shown below): Specialty pallet-box combo manufactured for seasonal fragile products. Product value per container: about $1000. Bark occurrence rate: 50%.
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Based on this early data collection, we have strong evidence that a proposal to require bark-free pallets for international trade will have far-ranging and deep economic impact around the world. The wide range of issues, and the depth through the world's logistical supply chain at which economic impact might be incurred, appear to hide significant potential for large economic, environmental, and socioeconomic loss. This TechNote is the first in a series that will explore these economic ramifications in more detail. As this information is developed, an economic model will be developed to determine how large the total economic impact of mandated "bark-free" wooden pallets could be.

We hope you'll stay tuned.