Bark-Free Pallets - A summary of the issue
In November 2005 ( see WoodPro TechNote 2005-2 ), we began reporting on our progress to help define a scientifically rigorous dialogue around the proposed EU requirement of "debarked" pallets for international import and export of products. Following is a recap of the issue, and a summary of our findings.
The International Plant Protection Convention (IPPC) is an international treaty relating to plant health and administered by the Food and Agriculture Organization (FAO). FAO established the Interim Commission on Phytosanitary Measures (ICPM) as an interim measure until the New Revised Text of the IPPC comes into force. ICPM published International Standards for Phytosanitary Measures Publication No. 15 (ISPM 15) Guidelines for Regulating Wood Packaging Material in International Trade in March 2002. ISPM 15 describes phytosanitary measures to reduce the risk of introduction and/or spread of quarantine pests associated with wood packaging materials, including pallets, containers, and dunnage.
After its publication, implementation of ISPM 15 began to go into force, as approved in its 2002 form. However, in October 2004, the European Commission (EC) issued Directive 2004/102/EC which put additional restrictions on wood packaging materials related to the raw material composition, specifically, that wood packaging materials be debarked, bark-free, or free of sign of pests in other forms that might be indicated by the physical appearance of the wood itself. Specifically, wood packaging material was required to be 1) "made from debarked round wood" in addition to the requirements of ISPM 15, and 2)"the letters ‘DB' shall be added" to the required IPPC mark. The terminology used to describe the concept of debarked wood is varied throughout Directive 2004/102/EC and its predecessor Directive 2000/29/EC, somewhat obscuring the true intent of the EC. After a postponement of the directive until January, 2009, the latest overview document provided by the EC states simply that "From January 2009, all wood packaging material imported into the EU will have to be debarked."
Of particular concern to the wood packaging industry is the lack of a clear definition of the bark requirement actually targeted by the EC directive. Also, various industries and governmental agencies around the world have interest in determining the impact this directive might have on the wood packaging industry, its customers, and consumers world-wide. In order to establish an empirical baseline of potential impact on North American pallet production, a Penn State study jointly funded by the National Wooden Pallet and Container Association , The Pallet Foundation, and the American Forest & Paper Association sought to establish:
How many wooden pallets as currently manufactured might fall under the evolving definitions of the EC directive,
Whether or not there are differential potential impacts according to geographic region, wood species, or size of pallet producer,
- How the objective of a bark-free supply of wooden pallets for export may best be met,
- What the environmental cost of "bark-free" requirements may be, and
- What the total cost of a bark-free requirement by the EU may be to users of palletized US products.
The findings of our joint research are summarized below.
- The term "debarked" has no meaningful application with regards to wooden pallets or containers. In every location where pallets were inspected for this study, pallets that were produced from debarked lumber or cants contained some percentage of "occurrences" of bark. This is because debarked logs, and the lumber produced from them, retain different percentages of remnant bark or barky defect, depending on type, operation, and maintenance status of debarking equipment, species and condition of the logs, and lumber production techniques utilized by the sawmill. It became quickly apparent that "debarked" lumber or cants is not the appropriate objective of any such directive, but that more properly, "bark-free" pallets are the topic of discussion. Furthermore, the as yet unspecified degree of allowable bark retention, or number and size of bark occurrences per pallet, makes it difficult to understand precisely what standard is intended by the directive, unless it is taken explicitly to mean that all wooden pallets and containers should be strictly "free of bark", that is, to have no occurrences of bark or barky defects at all.
- Dr. Ray's IUFRO-Poland Presentation on Inspection Issues Related to Bark on Pallets (7-4-06) - press F5 on your keyboard after the presentation is downloaded and PowerPoint opens the file to see and hear the presentation. Running time of complete presentation is 20 minutes.
- One in five wooden pallets produced in North America have at least once occurrence of bark on them. This percentage is based on a physical survey and inspection of over 5500 wooden pallets of various types of pallets, both hardwood and softwood, from three key geographic regions of North America: Eastern U.S., Quebec, and Northwestern U.S. The percentages are higher for containers and custom pallets; the likelihood of at least one bark occurrence goes up proportionately to the number of wooden pieces in the pallet or container. Furthermore, when bark occurrences are inspected on "stacked" pallets, that is, pallets as they would be viewed in any port situation, the number of pallets that actually have a bark occurrence is actually about 50% higher than what can be seen from cursory inspection. Finally, the number of pallets that have uncertain or "questionable" bark occurrences, those that look like bark but cannot be confirmed because of inaccessibility for closer inspection, is about 65% higher than the number of pallets with certain or confirmable bark occurrences. Read the complete Forest Products Journal paper by Drs. Ray and Deomano on bark occurrences.
- The options to produce bark-free pallets and containers for export are to sort out bark, and to saw to clear surfaces or purchase defect-free lumber. The first option we call the sorting option; the second options we refer to as yield-reduction options. The sorting option was examined under four different scenarios of capital investment: Level 1 - $100,000 investment; Level 2 - $50,000 investment; Level 3 - $10,000 investment; and Level 4 - $0 investment (sorting obtained through additional labor only). The sorting option results in no net loss of lumber yield if the bark-free requirement is applied to export pallets only (because the barky components can be utilized in non-export production); however, if the bark-free requirement is extended to all North American production (termed the "de facto" scenario by the NWPCA) then the barky lumber or components that are sorted out are in fact recorded as yield loss since they cannot be used in any pallet product. The yield-reduction alternatives were evaluated at levels of yield loss as simulated around averages produced by studies performed by researchers at Oregon State University (softwood) and Mississippi State University (hardwood); and lumber price increases associated with simulated yield-loss were in turn simulated based on historical trends, the relative size of pallet production to total hardwood and softwood lumber consumption, and interviews with persons familiar with lumber market price movements. Based on these simulations, the raw material cost component of the different scenarios showed increases of 0, 34, and 57% (average per scenario) for hardwood, and 0, 9, and 14% for softwood.
- The environmental cost of bark-free pallet production could be as much as 16.4 billion board feet of lumber. That is, if the "de facto" scenario comes to pass, over 16 billion more board feet of lumber will be consumed to meet current pallet production requirements, as barky lumber is sorted out of the production matrix.
- Labor and administration cost increases dwarf the total capital cost that might be spent for raw material sorting alternatives. These costs impact companies inversely of the amount invested in capital expenditure. Therefore, one perhaps unexpected outcome of the bark-free requirement is that smaller, less capitalized pallet companies will incur proportionately much more of the total cost of the bark-free regulation as they struggle to remove barky defects through much more manual labor and its associated costs and decreases to productivity.
- Economic transaction costs will add at least 10% to the total cost of the bark-free regulatory program. Program administration, port enforcement, unintended consequences, and the cultural costs of incomplete information and economic "opportunism" are now routinely being recognized by economists as "hidden" costs that are extremely hard to quantify, yet quite real.
- The expected economic impact of bark-free regulation, based on relative probabilities of three alternative scenarios, is nearly $3 billion over the first ten years of the enforcement period. Scenario 1, which assumes that only export wooden pallets and containers will be required to be made bark-free, and that no significant market loss to alternative shipping platforms occurs, results in a ten-year economic cost of nearly $1.2 billion dollars, and carries an associated probability of occurrence of 82%. Scenario 2, which assumes that all wooden pallet production is forced to moved to bark-free construction due to customer requirements, results in a ten-year economic cost of over $15.5 billion dollars, and carries an associated probability of occurrence of 6%. Scenario 3, which assumes that significant market share in high-value product sectors is lost to plastic pallets for fear of port detentions and quarantines, results in a ten-year economic cost of nearly $8.3 billion dollars, and carries an associated probability of occurrence of 12%. The product of these scenarios and their probabilities of occurrence results in a predicted $3 billion cost of the proposed addition of bark-free requirement on wooden pallets and containers.
The implications of a seemingly small addition to ISPM 15, that of assuring bark-free construction of wooden pallets, are quite significant, as shown above. The goal of a pest-free wooden pallet platform is one that must be achieved in the near future, or alternative pest-free platforms will prevail and take the international trade markets completely away from the wooden platform. The National Wooden Pallet and Container Association is taking the lead in assuring that the various resources of the industry are organized in this effort, and we at Penn State will continue to work with them to help accomplish the goal. In July, I'll be attending an international meeting, the IUFRO Working Party S7.03.12 , "Alien Invasive Species and International Trade", as a representative of the NWPCA, and will report back on progress made at that meeting.