Caveat emptor! That's Latin for look twice at what this guy is selling.

I bring up the phrase because I had a lengthy conversation the other day about the pallet industry with Ron Ringness, a part-owner and executive vice president of sales, marketing and technology for Millwood, Inc.

I love talking about pallets in part because I grew up in the industry. I'm nostalgic.

I also like looking at the industry because pallets are fundamental to business—like toilet paper, everyone uses pallets but no one really likes to talk about them. But the state of the pallet industry is generally an early indicator of the rest of the economy: it's either the canary lying flat on its back in the coal mine or the first crocuses in March signaling good times ahead. As Ringness will tell you, "we start to feel the slow down before we read about it in the Wall Street Journal or our customers start to talk about it with us." If a plant isn't shipping product, they're not buying pallets.

So, here's the emptor part: Ron was not only my sales manager, he's also my brother-in-law; Millwood was founded by my cousin, Chip. At the same time, Ron has more than 30 years in the industrial packaging business. Here's what I learned from our conversation.

Don't call us a pallet company: When I first started covering the warehouse management software (WMS) market, the industry was made up of hundreds of players who thought of themselves as WMS providers. Today, the market has consolidated into fewer and larger players; the largest are full-fledged supply chain execution (SCE) providers. That's because what they do today, and what their customers demand of them, is much broader than just WMS.

Something similar is happening in the pallet industry. "Ten years ago, we sold pallets and industrial packaging products like stretch wrap and corrugated containers," Ringess said. "Today, Millwood and our competitors are offering multiple services—everything from vendor managed inventory to just-in-time delivery—because our customers are demanding it. We're pushing the unit load concept, where we serve as the outside packaging engineer to the sourcing people to design a turnkey system that includes the packaging system, the pallet and the consumables, like stretch wrap and strapping."

As with the WMS industry, Ringness anticipates the industry to continue to consolidate, with fewer and larger players who can do more than ship a load of pallets. 

Velocity and technology are facts of life: Talk to any warehouse manager and they'll tell you that they're doing more with less, including the pressure to reduce costs and shorten lead times. That's trickled down to the pallet industry.

"We used to get a month's lead time to produce an order," says Ringness. "Now, people call today for a load they need tomorrow. We simply don't have the time we used to have to plan production."

Likewise, even the pallet guy has to be able to do business electronically. "The technology of how we deal with our customers has changed, and we have to do it if we want to compete," Ringness says. Not only can corporate buyers find vendors online, "they want the ability to feed in their data and get back an instant quote. I think the industry leaders going forward are going to be the companies that are strong in technology and easy to deal with."

Out with the new, in with the old: One outcome of the push to reduce costs has been the development of a full-fledged used pallet industry. When I left the business 20 years ago, almost no one bought used pallets. "Today, 50% of what we sell is used or manufactured from used components," says Ringness.

One unintended consequence of the used market is that the quality of the pallet pool is going down. "The market isn't purchasing enough new pallets to replenish the pool of quality used pallets," Ringness says. "They've become a necessary evil to reduce packaging costs."

Which may lead to better pallets: Another outcome: "People are fed up with bad pallets," says Ringness. Thanks to computer design programs, he believes in the coming years we're going to see affordable, high quality alternatives to the traditional all-hardwood pallet.

"We're already seeing softwoods being used for some components to save money," says Ringness. "I think we're also going to see the development of pallets using alternative materials like recycled plastic, compressed wood, molded wood and paperboard. Anything that can be recycled into a block or a board form at a reasonable price is going to be fair game and will lead to better overall quality."

So, how's business: Since pallets are a leading indicator, are we seeing the canary in the coal mine or the crocuses in the field? "The industry has slowed, but not as dramatically as we had expected," Ringness said. "The export market has kept the demand up. We're expecting a good year."