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Lone Star Survivor: Ups & Downs of Pallet Life Along the Border
Surviving Along the Border: Edgar Lozano of Atlas Pallet in San Antonio, Texas talks about switching focus from used to new pallets, fighting CHEP, dealing with border issues, and diversifying to plan for the future. This 20-year industry veteran speaks candidly to small and mid-size companies about what the future holds and how they can make the most of it.
By Chaille Brindley
Date Posted: 3/1/2007
Edgar Lozano’s life could be turned into a movie. As the owner of Atlas Pallet in San Antonio, Texas, he’s seen up and downs in the industry and his personal life. Edgar is a survivor who was the first recycler to take on CHEP back when the rental giant refused to pay pallet companies for services connected with safeguarding stray blue pallets. This dispute led to a police raid and a long battle that eventually impacted his health, family and business. Both sides eventually settled out of court.
With all his CHEP legal wrangling in the past, Edgar has sought to diversify his company and take steps to preserve his future in a very difficult pallet world. He has seen politics and safety concerns along the border make it difficult to do business. Atlas Pallet used to ship a lot into Mexico. But that has changed as border security has increased. Now it has become difficult to do business across the border.
Pallet Enterprise recently caught up with Edgar who was working on jump starting some new business ventures. Edgar shared his candid thoughts about what it will take to make it in the future of the pallet business. Having experienced boom and bust times, Atlas has now firmly positioned itself as a boutique providing specialty pallets.
The story of Atlas Pallet will seem familiar to many in the industry. It has undergone a number of transformations through the years.
According to Edgar, over the last 25 years the rate of change in the industry has been incredible. This reality forces companies to adapt to preserve their markets or find new ones. Edgar said, “If you think that you are going to be doing the same thing in ten years that you are doing today, you are probably going to be out of business.”
Through the years, the emergence of pallet rental and larger national or regional players has changed the market according to Edgar. Cores are not as readily available as they once were. There are fewer sources. Acquisition costs are up because many people now realize that cores have value. Fewer new exchangeable pallets are being introduced in his area. And a number of the larger core sources are controlled by rental companies or those connected with them. Changes in the recycled market spurred Atlas to get back into the new pallet business as well as diversify to other industries. Edgar decided to take some of the money that he made in the pallet industry and use it to develop other markets.
Going Back to the Future
Atlas Pallet originally started out as a new pallet shop. But it struggled to make the new pallet business work. The company then jumped on the recycling bandwagon when the market heated up in the 80s. Atlas Pallet changed focus again in 1993 when the company bought Border Pallet of Laredo, Texas. This acquisition allowed Atlas to move into new pallet manufacturing aided by Border Pallet’s equipment and expertise.
Edgar said, “There’s a big jump from going to used pallets to new pallets. It’s not easy.” New pallet production raises a whole new set of issues that you may not understand. For example, you have to know how to quote new pallets, design pallets to custom requirements, maintain equipment, process lumber, setup equipment to maximize production, etc. Even when you are hand nailing for short runs, knowing how to produce quality pallets with a high profit level takes a lot of experience. Little things can make a big difference. Edgar found that buying an existing company with the knowledge of how to do it right made all the difference the second time he jumped into new pallet production.
New pallet manufacturing allowed Atlas to diversify and expand. Today, the company provides both new and used pallets; it has about a 50/50 mix. Facing a tough market and a number of unique personal challenges, Edgar has decided to reduce staff and diversify again.
Right now the pallet company is down to about 20 employees from a high of 87. One reason that Atlas’ pallet business has actually shrunk is that it is only taking in business that comes in without much solicitation. Lately, much of Edgar’s focus has been on transitioning two un-related businesses that he bought.
For a number of years, Atlas suffered as Edgar fought some personal and family issues. Edgar explained, “There are always going to be companies doing well and some doing poorly given the same set of circumstances. We lost focus and drive. And that’s why we haven’t had as much success.”
He added, “If you lose focus and then you don’t adapt to changes quickly enough, then you are not going to do well.”
As Edgar has dealt with those distractions and started to focus more on his work again, he found the paradigm in the pallet industry had changed. He had to adjust his expectations and adapt. Edgar said, “What could have been accomplished ten years ago is no longer possible because the world has changed. It’s not the same game. For me to think that I could have done what was possible before rental pallets came into the picture, it’s just not practical. I have had to find new ways to generate income and new services to provide to customers.”
Atlas shifted focus from big orders and few customers to smaller runs and a larger customer base. Edgar said, “No one customer is 80% of our business any more. Instead of ten big customers, we now have 25 small customers.”
This change has not happened by choice. It is just the simple reality in a world where larger accounts have gone to rental pallets, a national service provider or larger regional player. Edgar believes the cost and effort to compete with any of those compared to the risk was not worth it. He indicated that there was a window of opportunity to grow big, but he believes in his market that window has closed unless you are willing to bet a lot of money on something you don’t know will pan out.
Atlas now specializes in odd sizes, anything that is not a 48x40 pallet. Atlas uses hand nailing to customize each order. Lumber and cants are sawn on site to fit each unique footprint. Atlas uses Smith jump saws and resaws to process lumber.
Changing from large volume runs, Atlas has moved to smaller trucks to be more efficient. Edgar said, “Everything is smaller and quicker. The approach of standardizing production and having longer runs is no longer what we are going after.”
Despite changes in the industry, Edgar remains positive about the future. He said, “There is still a lot of opportunity. The only thing is it is not the same as it used to be.”
Diversification Can Drive Bigger Profits
Beyond Border Pallet, Edgar has bought a trailer rental business and a steel drum and paving supplies company. As Edgar mentioned, if you have trucks, space and employees, you can provide other services to other companies or existing clients. He uses the same office for all three companies and splits overhead even though the ventures are all run as separate businesses with different names and phone numbers.
Edgar separated the businesses because he feels it provides more assurance to customers. He said that you don’t want a customer to think that you are doing this part time.
Instead of starting companies from nothing, Edgar prefers to buy them. Edgar said, “The smartest thing to do is to buy a company. If you try to start from scratch, you may not be able to make it work because you lack a knowledge base…There are so many questions that you don’t even know about.”
Some companies may feel boxed into one industry. But it is possible to diversify without losing focus. Anything having to deal with recycling could be a smart idea for pallet recyclers. From plastics to electronics, recycling in general is becoming a bigger deal especially as landfill costs rise or new regulations are passed. Some pallet companies have gone into the grinding business. This may be a smart idea for companies with excess grinding capacity, especially if you are located near an area impacted by storms. Drums, bulk containers and other forms of industrial or transport packaging could be a good fit if you already service industrial accounts. Renting trailers or providing logistics services may be another source of new business.
You have to decide what is right for your market, customer base and level of experience.
New Realities along the Border
Even before 9-11, realities on the U.S./Mexico border were changing. Edgar said, “When I got in the new pallet business it was booming along the border, but there was a change with the whole devaluation of the currency. It enabled people on the other side of the border to compete even more.”
After 9-11, the situation has gotten worse. Edgar said, “The threat of terrorism has changed the dynamics along the border.”
New regulations have impacted the crossing of pallets from the U.S. to Mexico and vice versa. Edgar said, “If we used to be able to go back and forth three times a day, that was cut to maybe one time per day.”
Eventually, Atlas decided to stop directly servicing customers across the border. Today, all of its business is north of the border. Many of those pallets are eventually shipped to Mexico. But he sells to a third party, which handles the border logistics. Some companies have sprung up that specialize in dealing with border issues. That was a business he decided to leave to others.
Large companies with manufacturing plants in Mexico run trains and have processes to help expedite shipments across the border. Due to their volume, these companies can get across the border easier. The paperwork is streamlined for them.
The giant sucking sound you hear isn’t just jobs leaving the United States. Mexico has experienced the same situation as many of the plants that sprang up along its border have gone to China or other parts of Asia. Known as maquiladoras, the main purpose of these facilities is to assemble import parts for goods to be shipped to the United States. While there are still a lot of these facilities still running, some of them have gone to places where labor is even cheaper.
Getting pallets across the border has also become more complex due to drug, gang and criminal activity in Nuevo Laredo, the Mexican city across the border from Laredo Texas. Edgar commented how the local economy of Nuevo Laredo is dying. Tourism, which used to be a major source of income, has shriveled up.
Nuevo Laredo remains the primary transportation hub for trade between the United States and Mexico. Nuevo Laredo is the only border city strategically positioned at the convergence of all land transportation systems.
Large multinational companies ship primarily through rail to avoid gang activity and border delays. Changes in the dynamics along the border have made it difficult for both U.S. and Mexican pallet companies.
Immigration Issue – More of the Same
As a Hispanic American, Edgar has a unique perspective on the entire immigration/illegal worker issue. He believes the focus on the Mexican border is a smokescreen for the real cause of U.S. job losses, which is companies shifting production to Asia, especially China.
Edgar said, “I see a lot of manipulation of the public. Our opinion and attitudes are molded by those who control the media.”
Edgar said, “U.S. workers have lost their jobs to communist workers. No where is that being addressed or talked about. All those products in Wal-Mart that are coming from China are made by communists.”
The loss of U.S. manufacturing has impacted pallet accounts according to Edgar. He has seen a number of accounts go away simply because the company relocated to Asia.
Trying to put everything in historical perspective, Edgar said, “The whole immigration/border issue has been around for a long time.”
Edgar pointed out that the country had big immigration sweeps around WWII in the 1940s. He said that everything they are talking about doing they have tried in the past from guest worker programs to enhanced monitoring to even amnesty. The issue seems to be going in cycles as politicians jump to do something only to see the momentum fade when public attention goes away.
Edgar said, “I don’t think the government wants to solve the problem. If you want to understand what the future is going to look like just look at the past because it has already happened.”
Looking to the Future
On a recent phone conversation, Edgar sounded better than ever. He refused to blame his business and personal woes on any one thing, including his long battle with CHEP. A variety of factors have impacted where Atlas is today.
Speaking of CHEP, Edgar does not believe the whole battle between rental and exchange pallets is a done game. Everything from customer dissatisfaction to higher recovery costs to new services could help the exchange market grab back business. But that won’t happen by accident.
Edgar said that the pallet industry has to define itself and meet customer need. For example, Edgar said, “We don’t use the terminology white vs. blue because that is terminology that was defined by CHEP. If your opponent defines the terminology, they are framing the argument. You are half way beat already. The correct way to look at it is rental vs. exchange pallets.”
Currently, Atlas Pallet is going after higher profit items, such as HT pallets. Each of the three businesses make up about a third of the total revenue, which has helped Edgar make money even while the pallet side has taken a dip. The pallet business was up to about $2.7 million in sales and is now down to around $750,000. By today’s standards, Atlas is a pretty small pallet company. But Edgar now has the entire enterprise in a more stable position that will likely last well into the future. Through diversification, Edgar is back on track to build a company that one day his children could run.
Edgar summarized his philosophy, “The pallet business is a good business. Shipping platforms should be around for a long time. There will always be a need for custom manufacturers. As business people, you have to make a decision whether you’re a pallet guy or a business man.”