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CPC, Still Focused on Quality, Costs, ‘Stands Proud and Stable’
CPC still seems to be putting up numbers like an organization that plans on continuing to provide effective competition to CHEP.
Date Posted: 6/26/2002
Since its beginning in 1977, the not-for-profit Canadian Pallet Council (CPC) has proven to be as durable as the heavy-duty grocery pallet designed for CPC over 25 years ago by its long-time pallet consultant, Dr. Jim Reeves. Originally based on the concept of member ownership of pallets and efficient interchange practices, CPC has expanded to embrace other value-added pallet-related services, such as rental and third-party retrieval.
The Canadian grocery industry’s pallet pool cooperative has lost some of its gleam in recent years as CHEP market share has continued to grow. CHEP now has almost 9 million pallets in circulation in Canada, according to Mike Dimond, CHEP Canada’s president. This accounts for a 60% to 70% share of inbound unit loads to distribution centers, according to his estimate. Belinda Junkin, CPC’s president and chief executive officer, challenged that figure, but she agreed that CHEP Canada’s market share is increasing.
Some major CPC members have shifted to CHEP, most notably businesses with decision makers in the U.S. who view Canada as just a small part of a larger, consolidated North American market.
The short-lived IFCO Flex pallet program also caused problems for CPC last year. It diverted IFCO investments from CPC pallets to its own pallets, slowing the growth rate of the CPC pool. The Flex program also influenced some distributor pallet policies with the notion that IFCO could provide the necessary competition needed in the Canadian grocery pallet market without the CPC exchange program.
Although some foreign stock brokerage analysts that closely follow CHEP dismiss CPC as largely irrelevant, CPC still seems to be putting up numbers like an organization that plans on continuing to provide effective competition to CHEP. Despite a loss of members and market share, the CPC pool is at a record high number of pallets. Pool size increased for the eighth year, albeit modestly, and now approaches 8 million units, while pallet repair totals increased for the third year. Membership was off slightly but was still above 1,200 for the seventh straight year. This growth in the size of the pool is in spite of the challenges presented by NAFTA and the grocery industry’s attempts to rationalize supply chains at a North American level. "CPC stands proud and stable," Belinda said at CPC’s annual general meeting recently.
About 150 people representing CPC member companies attended the group’s 25th anniversary meeting at the beautiful Nottawasaga Inn in Alliston, Ontario. Many of those attending the meeting had decades of pallet experience as pallet program coordinators or distribution executives. In this respect, there probably is not another pallet system model in the world like CPC: pallet users with over 1,000 years of experience from a cross-section of the supply chain come together in a room with CPC pallet supplier members every year to explore ways to help improve pallet efficiency.
The CPC board of directors includes representatives from consumer product suppliers, distributors, third-party warehouses, transportation, as well as pallet industry representatives. Pallet industry board members for this year include Fraser Campbell, having returned to IFCO, Lino DiPoce of Woodbridge Pallet, Heidi Doering-Simpson of Pallet Renew and Herman Long of Scotia Pallets. Also on the board are representatives from pallet trade associations, including Gilles Ethier of the Association des Manufacturiers de Palettes et Contenants du Québec Inc., Gordon Hughes of the CWPCA and Bruce Scholnick of the NWPCA.
The annual meeting continued the trend of recent years of combining CPC business with a banquet and a program of professional speakers and educational sessions at a resort destination instead of a more immediately accessible location, such as in the Toronto area. (Members like the meeting format; the previous year’s meeting at Niagara-on-the Lake received the highest marks ever in member satisfaction.) Held over three days, there was ample time to renew old acquaintances and network with new contacts. Several members also took time out for golf.
Belinda described CPC’s accomplishments for 2001 and plans to make reports to regional gatherings of members later this year. The highlights for CPC in 2001 included:
!Elimination of double stringers from the CPC pallet pool.
!End plating of all new CPC pallets.
!Legal precedent established for non-member repair.
!Internal discipline process withstood legal challenge.
!Market share maintained during aggressive launch of a new pallet pool.
!Launch of the CPC education initiative, the Canadian Pallet Council Professional.
Protecting the integrity of the pool through litigation of non-member pallet suppliers and internal discipline of non-compliant members has come to take on a larger role in recent years. In 2001, 26 violations were issued to pallet industry members, down from 51 for 2000 and 50 for 1999.
CPC is no johny-come-lately to pallet pooling. Its roots reach back to 1968 when distribution managers of several major Canadian grocery companies got together to eliminate the costly problems associated with different pallet sizes and styles. They established a standard 48x40 wood pallet pool, sponsored by the Grocery Products Manufacturers of Canada (GPMC), which was based on the Grocery Manufacturers Association (GMA) in the U.S. With 3x4 outer stringers, the hardwood GPMC pallet looked a great deal like its eventual offspring, the CPC pallet. The GPMC pallet was unpainted but stenciled with GPMC brand.
The launch of CPC marked an important parting of ways between comparative U.S. and Canadian pallet pools of the day. While formal grocery industry involvement in U.S. pallet pooling through GMA and GPC disappeared, ongoing industry stewardship of grocery pallet pooling became entrenched in Canada through the formation of CPC in 1977. The new association was dedicated to providing a low-cost pallet system for the Canadian grocery industry through administering the CPC pallet system, including specification of pallet standards and formalized exchange procedures.
Building on its central Canadian base, CPC further refined its program over the 1980s, including innovations such as pallet control software. Major Canadian shippers began to ship across the country on CPC pallets and were provided free rail return, although most distribution centers in Western Canada still preferred white 48x40 pallets. Both CPC and CHEP, which entered Canada in 1978 a year after CPC, were still minority players in the Western pallet scene. By the early 1990s, however, the CPC had spread east and west from its original base in Ontario and Quebec. With grocery distributors across the country now demanding CPC as the pallet of choice, the CPC orange pallet emerged in rapid order as a truly national pallet system.
In 1995 the CPC came to an important crossroads. It assessed the relative merit of several strategic options to improve the quality of the CPC system and its value to stakeholders, including conversion to a one-way depot system, partial depot system and others. Research indicated that the lowest cost option was the Enhanced CPC program, which maintained the basic exchange system but required members to repair 25% of their inventory annually. The result of this program has been a gradual increase in CPC pallet quality. CPC also chose to phase out double stringers from the pool and to require end plates on all new pallets; these changes became effective in January 2001.
"We continue to focus on the core competencies on which the association was founded," John Stephens of A&P, chairman of the CPC board, said at the annual meeting: "A pallet exchange system that continues to provide a quality, cost effective program driven and controlled by the members."
In recent years CPC has found itself increasingly challenged by CHEP. With NAFTA, many big grocery manufacturers began consolidating North American operations. Decisions once made at Canadian subsidiaries were increasingly being made in the U.S.; decisions to switch to pallet rental in the U.S. resulted in Canadian operations being forced to follow suit. Plant specialization on either side of the border made it more difficult to separate Canadian-bound pallets from the rest. Also, as big box retailers enter the Canadian market, they have imported their pro-rental pallet policies.
Victor Cheng, a long-time information technology consultant to CPC, gave an overview of a potential new Internet-based pallet control system. The Windows-based computer program must be modified whenever Microsoft modifies Windows. With an Internet-based program, however, such modifications would not be necessary. With the growth of Internet access, Victor noted, a tracking system can be developed relatively inexpensively. When he asked who had access to the Internet, everyone raised their hand.
An Internet-based pallet control system has the potential to fundamentally change the CPC program, according to Victor. For example, it would enable CPC consultants to respond to problems earlier. Pallet flows could be monitored by CPC staff, who could intervene on behalf of members before pallet exchange imbalances got out of hand. Another benefit of centralized tracking is that it would make it easier to move to a fee structure based on trips, which might be a more legitimate measure of CPC usage and provide greater equity.
Other speakers at the annual meeting included Gordon Hughes of the CWPCA, who discussed treating and marking pallets moving in international commerce. CPC pallets may enter European Union nations, he said, after providing information on the latest global requirements.
Rick LeBlanc, contributing author to Pallet Enterprise, talked about various pallet pooling systems around the world and their possible implications to CPC. Drawing a parallel to the emergence of pallet usage in the U.S. during World War II, he noted that developing countries with high unemployment rates and poor logistical systems have not yet established major pooling systems.
In spite of the commonly held belief of the grocery industry in Canada and the U.S. that a strong alternative pallet rental system will at some point emerge to challenge CHEP, other pooling companies -- Loscam (G.E. Returnable Packagins Systems) in Australia, PECO and IFCO’s Flex program – have not grown to the same level; some, such as NPLS or FNPR, have become casualties. Markets with strong common exchange pools, such as the Europallet system in Europe, CPC in Canada, and the 48x40 white pallet system in the U.S., have seemed to provide the best competition, Rick noted.
One market to watch, he pointed out, is the United Kingdom, where CHEP reportedly enjoyed near monopoly share and strong margins. With the recent entry of the French rental company LPR into the United Kingdom and its threat of discounting, it will be interesting to see what kind of value will emerge for pallet users and pallet suppliers alike over the short and medium term.
The keynote speaker for the CPC annual meeting was former National Hockey League great Paul Henderson, who scored the winning goal in each of the last three games in the Canada Cup series against the U.S.S.R. in 1972; his last is almost universally recognized in Canada as the hockey ‘goal of the century.’ Paul gave a motivational speech on his determination to make the Team Canada roster in 1972 against very long odds, and his key role in winning the Canada Cup. His theme was ‘going the distance,’ something that CPC continues to do in the face of growing competition.