Introduction
This post is based on an excerpt from Circular Transformation of the American Wood Packaging Industry, a master thesis I wrote for the International Institute for Industrial Economics in Lund, Sweden. The work discussed in this article relates to the conclusions of the research: Developing a producer responsibility model for the American wood packaging industry with the objective of improving and expanding wood packaging reuse in the United States.
If you are interested to know more about our project to transform the American wood packaging industry, here are some helpful links:
A proposed producer responsibility model for the American wood packaging industry
The findings of this research indicate that the establishment of a decentralised wood packaging reuse programme similar to the EPAL programme in Europe, structured as a producer responsibility organisation for wood packaging and supported by economic policy incentives, is the most effective approach to a circular transformation of the American wood packaging industry. Recommendations for each of three key actors (Producer responsibility organisation, producers, and regulators) in the subsections below. Table 6-1 summarises these responsibilities according to the life cycle phases of wood packaging.
Table 6‑1. Organisation of responsibilities within a circular wood packaging system organised by actor and life cycle phase.
| Life Cycle Phase | Actor | |||
| Decentralised Reuse Organisation (PRO) | Poolers (Producers) | Independent Recyclers (Producers) | Regulators | |
| Design | Issue design specifications with a high degree of standardisation and value durability, tailored to properties of regionally available timber. | Alter designs to comply with PRO standards, possibly including a wider range of dimensions. | Use PRO designs. Work with customers to make their operations compatible with PRO designs wherever possible. | |
| Raw Material Procurement | Require participants to procure certified wood. | Procure certified wood under market conditions. | Procure certified wood under market conditions. | Impose a tariff on imports of wood packaging raw materials. |
| New Manufacturing | Require new cores to be serialised in a centralised life cycle tracking database. | Manufacture initial stock of PRO packaging. Maintain stock of cores under market conditions. Continue to operate under rental model and/or adopt buy-sell model. | Manufacture initial stock of PRO packaging. Maintain stock of cores under market conditions. Operate under buy-sell model. | Impose a tax on the sale of new wood packaging manufactured outside the PRO system unless the packaging will be used to export product. |
| Delivery & Retrieval | Manage interregional balance of inventories. Provide inventory routing optimisation tools to participants to help them minimise transports. Operate transfer stations in regions with a low geographic density of activity. | Incentivise very large customers to practise cross-docking wherever economically viable. Scan outbound deliveries and inbound retrievals into database. | Utilise smaller capacity vehicles to serve LTL markets. Scan outbound deliveries and inbound retrievals into database. | Finance PRO to reimburse participants for unprofitable retrievals. (Very remote, contaminated, poor condition). Incentivise the adoption of alternative fuels and drivetrains for road freight. |
| Repair | Require participants to maintain service histories of individual cores and practice pre-emptive remanufacturing according to schedules optimised against resource value loss. Set standards for how repairs are performed. Establish a standardised grading system for resale based on service history. | Perform repairs according to PRO schedules. Maintain service histories in database. | Perform repairs according to PRO schedules. Maintain service histories in database. | Target-setting should not be necessary to maintain a high level of reuse and repair, as these practices are already commonplace for secondhand cores collected in the U.S. without such targets. |
| EOL Management | Require participants to practise component reuse, install equipment for material recycling, and deregister cores from database at EOL. | Deregister cores at EOL, route to destination per market conditions, and report destinations of material in aggregate. | Deregister cores at EOL, route to destination per market conditions, and report destinations of material in aggregate. | Mandate reporting of EOL destinations of PRO cores on de-registration. Ban landfilling, incineration without energy recovery, and donation of PRO cores. If non-PRO activity remains significant, consider sponsoring studies on collection rates. |
| Other | Inspect participants regularly for compliance. Distribute information to packaging users about supply chain best practices. Use database to identify and target sources of core leakage. Issue penalties for violations. | Possibly, use database as an actuarial tool to characterise users’ “risk” (prevalence of losses and damages), assigning higher rates to those with a high risk. This incentivises better supply chain practices among users. | Possibly, use database as an actuarial tool to characterise users’ “risk” (prevalence of losses and damages), assigning higher rates to those with a high risk. This incentivises better supply chain practices among users. | Finance the establishment of a PRO, production of an initial stock of returnable packaging, and installation of tracking equipment (RFID or barcode reader and database management tools) at participant locations. Allow for the use of low-grade timber in mass timber applications. |
The role of the producer responsibility organization (PRO)
The proposed role of a producer responsibility organisation for wood packaging combines the functions of existing decentralised pools – setting standards for products and producer activities and maintenance of producers’ compliance with these standards – with some of the functions of existing PROs for other types of packaging – ensuring product stewardship and penalising producers for harmful activities. This PRO operates differently from existing PROs in that targets for best practices such as reuse and recycling are not set, and producers are not universally penalised for their activities; instead, participation in the PRO is seen as the “gold standard” of operation, and only activities that deviate from those required by the PRO standards are penalised. For example, a paper packaging producer may be required to pay a tax based on every unit of packaging they produce to cover the marginal costs of municipal waste management activities induced by that unit of packaging’s production, but in the proposed PRO for wood packaging, participation in the PRO-managed reuse scheme is free, and only activities which devate from the standards and requirements set by the PRO are penalised. The potential to participate in a PRO without mandatory administrative costs and penalties may make the concept of a PRO more palatable to wood packaging producers.
The responsibilities proposed for the PRO for wood packaging are as follows: In the design phase, the PRO issues an array of standard product designs which have been created with maximum value durability as a primary design characteristic, intended to serve the largest number of wood packaging users while maintaining a feasible degree of reusability. These designs may vary between geographic regions subject to the mechanical properties of locally available timber to ensure designs can be manufactured without prohibitive costs and impacts of raw material transportation. In the procurement phase, producers should be required to purchase only wood which has been certified by a forest certification scheme. All newly manufactured cores should be required to be serialised within a nationwide product life cycle tracking database. The PRO should provide inventory routing optimisation tools to producers to help them minimise transportation distances. As there is an imbalance between supply and demand between regions of the U.S., it may be necessary for the PRO to commission deliveries between producer facilities to rebalance inventories. Producers should be required to retrieve all PRO cores, even when they are damaged or contaminated. In remote areas, it may be advantageous for the PRO to operate transfer stations that act as a hub between distant users and producers, making retrievals in these areas economically viable for producers. All producers’ deliveries and retrivals should be required to be logged in the life cycle tracking database to establish a chain of custody for these products. Similarly, producers should be required to maintain service histories of these products and perform repairs according to a set pre-emptive remanufacturing schedule optimised against resource value loss from prematurely replaced components. A standard for repair practices and grading of repaired products should also be set. All producers should be required to remanufacture intact components from dismantled cores and practice material recycling of damaged components. Cores must be deregistered from the database at EOL, and landfilling, donation and incineration of cores without energy recovery should be prohibited. The PRO is also responsible for inspecting producers regularly for compliance, distributing information to packaging users about best practices for loading and handling of products to minimise damages, identifying and targeting sources of product leakage and unusually high product damages, and issue penalties to producers for violations.
The role of wood packaging procuders
Unlike the EPAL system, which requires participants to use an exchange business model, producers under the proposed PRO are free to monetise their activities in whichever fashion suits them. Independent manufacturers and recyclers may freely purchase and sell cores at prices governed by market competition, and poolers may continue to work with a rental business model or transition to a buy/sell model. This approach results in the least disruption to the business activities of producers, which may reduce the industry’s resistance to the establishment of a PRO for wood packaging.
Producers are responsible for altering their existing portfolios of product designs to align with the standards set by the PRO and procure only certified wood for manufacturing. Producers will be responsible for manufacturing the initial stock of cores and maintaining appropriate inventory levels according to market pressures. Producers must scan all deliveries and retrivals into the life cycle tracking database. Poolers, whose capacities are tailored to very large customers, should work to incentivise cross-docking practices among their customers where it is feasible to do so. Independent recyclers should consider utilising lower capacity vehicles to serve the needs of LTL customers in addition to their FTL orders. All producers must perform product repairs according to PRO standards and pre-emptive remanufacturing schedules and log these services into the database to maintain service histories for these products. They must also deregister cores at EOL and report the mass of material they send to each EOL destination in aggregate. If producers are given access to certain information within the life cycle tracking database, they may use it as a tool to assess the product loss and damage risk of their customers and factor it into their pricing, similar to the way insurance companies and lenders use actuarial methods to price their products according to customers’ relative levels of risk. This practice could incentivise wood packaging users to minimise losses and damages in their operations without the need for PRO intervention.
The role of regulators
The role of regulators is to provide initial financing for the establishment of a decentralised pallet pool, set producer responsibility obligations related to reporting and life cycle practices, and encourage the widespread use of the pool through economic incentives. They provide the “teeth” to the rules set by the PRO. Most importantly, regulators should impose a tax on all wood packaging products produced outside of the PRO programme sufficient to incentivise participation in the programme. Exceptions could be made for products which are not compatible with the programme, such as those which will be exported outside the jurisdiction of the PRO and not returned. Regulators should also consider imposing a tax on imported wood raw material to encourage local procurement.
The estimated cost to establish the 9BLOC pallet pool in 2012 was between $160 million and $250 million [I2]; indexed to April 2023 using the U.S. PPI for wood pallets and container manufacturing, this figure is now between $300 million and $460 million (U.S. Bureau of Labor Statistics, 2022a). Initial costs include the production of an initial stock of PRO cores large enough to ensure an adequate degree of market penetration, developing a life cycle tracking infrastructure and database, and administrative costs related to the creation of the PRO and its standards of practice. The PRO will require recurring public funding to cover costs related to administration of the system and incentivising producers to perform important activities which are not economically viable (e.g. retrieval of contaminated and extremely distant cores), though these costs cannot be accurately estimated at present.
Regulators can also take actions in adjacent areas to improve the resource efficiency of the American wood packaging industry and provide environmentally beneficial destinations for diverted material. These actions include incentivising the adoption of alternative fuels and drivetrains for road freight and incentivising the adoption of mass timber construction.
Related reading
- Wood Pallet Reuse: Best Practices
- Minimizing the Impacts of Wood Packaging: A $20 Billion Problem
- Summary: Circular Transformation of the American Wood Packaging Industry