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Florida Recycler’s Focus Is Serving Region’s Strong Agriculture Market
Two PRS Platers and Plates Enable SB to Upgrade No. 2 Pallets to No. 1
By Tim Cox
Date Posted: 8/1/2003
SOUTH BAY, Florida – When a produce packing business needs pallets, it needs pallets. It cannot afford to have containers of fresh, ripe produce stockpiled, waiting for delivery to a processing plant. Packed produce may bruise easily, and it may require special care or handling, such as cooling.
SB Pallets has been built on supplying recycled pallets to packing businesses serving Florida’s thriving agricultural industry.
Owned and operated by Jorge Sanchez, who is originally from Colombia, SB is predominantly a pallet recycler and deals almost exclusively in GMA pallets. The company is located in South Bay, which is in the southern portion of the Florida peninsula. South Bay is roughly centrally located between the two coast lines of the Gulf of Mexico and the Atlantic Ocean, a region rich in farming.
Jorge ‘backed into’ the pallet industry. He worked in his mother’s fertilizer business in Colombia until the family began emigrating to the U.S. in 1985. His father, an agronomist, earned his master’s degree at Michigan State University and his doctorate degree from the University of Hawaii. (Jorge has two brothers who were born in Michigan.) After settling in Florida, Jorge owned and operated a small dump truck hauling business in Miami for about eight years.
Following hurricane Andrew in 1992, his company helped demolish damaged buildings at Homestead Air Force Base and haul away debris. After that, however, the hauling business slowed.
Jorge was approached by a produce packing business in South Bay in 1993 that wanted damaged pallets repaired and asked if he would be interested in the work. He took it on.
Jorge and a brother, Edward, bought a tractor and a flat bed trailer and hauled 400 pallets from South Bay south to Miami, a distance of about 70 miles. It took a week to repair them. "We would take them back and get another load," he recalled. "We did that for three or four months."
The packing business – the only customer for the fledgling pallet recycling business – suddenly closed. "We were left out hanging," Jorge said.
He began calling on other companies to obtain new customers. Jorge had another brother, Orlando Jr., who worked for a printer; Orlando talked to the purchasing agent, and the agent agreed to use them as a vendor to supply used pallets. "We started from there," said Jorge, who began focusing his efforts on sales. "We picked up a few customers here and there."
Since the printer was located in Miami, the brothers rented space at an old cement factory nearby. The company operated there two years.
The old cement plant was located on a main road that was the only main route from that vicinity south to the air base and Key West, and there was a significant volume of truck traffic going back and forth to the base. Jorge put up a sign outside the company’s pallet recycling yard – ‘we buy and sell pallets.’ "The sign worked out well. People started to know that we were there."
After two years they picked up a lot of customers in the South Bay region, where they began, prompting them to move north to South Bay. In addition, land was cheaper in South Bay. Jorge also made a deliberate decision to distance himself from other pallet recycling businesses in the Miami area. "People said it was crazy because it’s in the middle of nowhere," he said. South Bay is 70 miles from cities like Miami and Fort Myers and 60 miles from Palm Beach. However, the area is home to many produce packing houses, and Jorge was targeting these agriculture businesses that needed pallets.
SB has enjoyed steady growth. "We have kept on going," said Jorge, with sales increasing every year. Some of the growth was deliberate, some of it incidental. "We had to go after bigger volumes to maintain the same profit margin because prices were way down, and still are," explained Jorge, 43. In addition, SB has grown as some of its customers have grown. Jorge and Edward began building about 400 pallets per week and had sales of about $170,000 the first year. In their second year they were able to increase the volume of incoming cores, and revenues increased to $500,000. Sales reached $800,000 the third year and now are about $2 million annually. Jorge bought his brother’s interest in the business about four years ago, and Edward now has a trucking company.
When the company first relocated back to South Bay, it shared a customer with several other pallet recycling businesses in Miami. As SB grew and its core volume grew, it was able to supply more pallets to the customer and eventually supplanted the other pallet suppliers. The customer is an agricultural business that has seasonal pallet requirements; in its peak season, it may need as many as 30,000 pallets per week.
Acquiring that account and eventually becoming its sole pallet supplier was a significant milestone, Jorge recalled. "We were giving them good service, and they’d seen that." SB was only a five minute drive away. "Just by picking up the phone and asking for a load...they could have it in a half an hour," Jorge said. By contrast, pallet recyclers in Miami would not be able to deliver a load until late in the day or even the following day. The company’s success in serving that particular customer eventually helped it obtain other agricultural accounts as word of mouth spread SB’s good reputation.
Produce packing businesses may schedule, say, 50 trucks on a given day, said Jorge, but get 70. "They need pallets right away," he explained. SB’s location and willingness to respond to packers on very short notice have been factors in its success in the agricultural market.
Today, SB’s is still heavily tied to agricultural customers – more than 50% of its pallets go to customers in the agriculture industry.
Part of the focus on agricultural markets has been a business strategy formed in part by bad experiences with other industries – primarily with regard to receivables. Simply put, his customers in agricultural business pay on time. "I don’t have to call them to get my money," said Jorge.
"Every time I venture out of the agricultural industry," he added, "people want to go 60, 80 days without paying. Some have gone six months without paying." On the thin margins of pallet recycling, he noted, it is difficult to service and supply new customers and not get paid for lengthy periods of time. In addition, with its success in the agricultural market, SB has not needed to venture into other markets.
SB has a cooperative relationship with other pallet recyclers in Miami – it buys cores and rebuilt pallets from smaller companies – and Jorge has heard similar stories from them. Jorge’s contacts at those recycling companies have related to him the difficulties of collecting receivables from various customers and industries.
The company supplies other pallets besides GMA pallets but they are 48x40 and only vary by different deck board patterns. In addition to repairing and reselling pallets, SB also uses 100% recycled material to build ‘new’ pallets from scratch. The company also manufactures a small volume of pallets from new lumber.
All sales are truck-load quantities. The company sells about 500,000 pallets yearly. Counting odd-size pallets that are dismantled for used lumber, SB probably recovers another 100,000 used pallets.
For its pallet dismantling and lumber recovery operations, SB is equipped with a JBC dismantler and an Industrial Resources Pass One dismantler. A National Pallet end trim saw is used for cutting reclaimed deck boards and stringers to length.
Some of SB’s agricultural customers require new pallets, and some new lumber is used for pallet repairs. (About 10% of SB’s volume is new pallets.) For new pallets and repair stock, Jorge buys Southern yellow pine in virtually any dimension and in random lengths – 1x4, 2x4, 4x4, 2x10, 2x12, and so on.
Jorge only began investing in cut-up equipment in the mid-1990s; the first machine was a Baker Products band resaw that later was replaced with another Baker resaw. He also invested in a Holtec package saw, buying it at the East Coast Sawmill and Logging Equipment Exposition in Richmond, Va. about five years ago.
Southern yellow pine lumber is remanufactured into deck boards and stringers with the aid of the Baker band resaw and the Holtec package saw. Some new lumber is also used for pallet repairs.
The company makes notched stringers with a Morgan double-head notching machine; SB also is equipped with a Morgan chop saw.
Jorge has tried different suppliers for notching tools, including ICE and Econotool. The most recent notching tools were supplied by Profile Technology. Saw blades are supplied by Saw Service & Supply. The company uses Stanley-Bostitch power nailing tools and nails.
SB has steadily added to its truck and trailer fleet and now has three tractors and 15-20 flat bed trailers, van trailers and dump trucks. With drop decks, the company’s trucks are able to haul about 700 pallets to a load.
SB’s most recent investments in machinery have been for a Duratech tub grinder and material handling equipment (a John Deere loader and a Kimatzu dozer) and a Morbark Enviromulch mulch coloring system.
The company recently found itself entering the arena of producing mulch and colored mulch. A contractor previously removed all scrap pallets and material for free, using them as raw material to produce mulch.
The contractor suddenly stopped servicing SB. "I had to do something," said Jorge, "so I bought the grinder." A co-generation plant about three miles away was a steady customer for hog fuel until it went bankrupt. When the grindings began to pile up, Jorge bought the Morbark coloring equipment as a way of adding value to the wood fiber and selling it to other markets. The co-generation plant has since come back on line, however, and now buys about 85% of SB’s grindings as hog fuel. The remaining 15% is sold as mulch or colored mulch.
Strong management and attention to cash flow and the purse strings have been important factors in the company’s success, said Jorge. Profits have carefully been invested back in the business to put it on a solid footing. "We didn’t blow it. We kept it in the business. We kept our lifestyles to a certain point. If we spent it...we wouldn’t have been able to achieve what we’ve done."
Strong management of cash flow has been critical. Jorge compared a pallet recycling business to a bank; banks lend money and earn their profits in interest as loans are repaid over time. Core suppliers – truckers, pallet recyclers, other businesses, small entrepreneurs – are paid at the time of sale, Jorge noted. "We have to pay them right on the spot." The cores are sorted and processed by SB, which turns around and sells them to customers who want 30 days to pay. "Some times it’s a stretch," said Jorge. "It’s pretty tough to do if you don’t have your cash flow right on track" he added.
SB has a workforce of about 16 employees that increases by about 10 during peak produce packing seasons. Jorge’s mother, Olga, 65, manages the company’s office.
Pallets are designated one of three grades: premium, A or B (or 1 or 2). The company is able to upgrade a considerable number of No. 2 pallets to No. 1 by repairing them with plates. SB operates two platers from Pallet Repair Services (PRS) and also buys plates from PRS.
Two workers sort incoming pallets. Ready-to-go pallets are sorted out, and pallets that can be repaired are routed to repair stations. SB normally has about five workers repairing pallets. In peak season, up to nine men may be repairing pallets.
Each man sorting pallets goes through between 800-1,100 per day, said Jorge. Pallets to be sorted are in stacks 15 high and staged in blocks of about 54 stacks. As the sorters pull a pallet from a stack, they form new stacks 20 pallets high. The work is done entirely by hand.
One practice that has helped SB to provide fast service and turn-around to customers is linking the sorting process to current orders. For example, if the company has to repair 2,500 A or No. 1 pallets that day, the sorters will only pick out the A pallets, which will be steadily moved to the repair stations.
Virtually all workers, regardless of their duties, are paid by the piece. The sorters are paid per pallet, the repair workers are paid per pallet, and workers in lumber recovery operations are paid by the piece.
A benefit of this practice is that it helps SB know and control the cost of each pallet. Factor in the core price and the piece rate for the various tasks "and you know how much you’re going to spend on each pallet," said Jorge.
Another benefit of the piece rate system is that it has helped to rein in payroll costs. When the company first started, employees were paid an hourly wage. After 40 hours, workers earned time and a half. "In peak season," Jorge said, "our payroll was sky high. It was eating a big piece of the pie. We had to go to piece work to stabilize the business."
Jorge also has made it a habit to scrutinize repair workers to ensure they utilize all usable recycled lumber. If they are repairing A pallets and a deck board is not good enough for an A, they need to put it their box of lumber and use it later for a B pallet, he noted.
"Recycling is the big word. You have to do it real well to make it profitable. If you throw away a good board, that’s about 15 to 30 cents you’re throwing away." It can quickly add up, he observed. "If they’re not careful, they’re throwing away dollars, not cents...and we’re growing mulch piles. We’re in the pallet business, not the mulch business."
Jorge has looked at automated repair lines at other pallet recycling businesses. "They probably save quite a bit of money," he said, but he also noted a lot of good lumber and repairable pallets were destined for the grinder at other pallet recycling companies. "I’ve seen pallets going to the tear-down station that could be repaired." Some pallet recyclers, he noted, put limits on how many repairs they will make to a pallet. For example, the company may make up to four repairs, but a pallet needing five or more will be dismantled for lumber. At SB, "Any pallet that is repairable, we repair it."
The cooperation of employees also has been important to SB’s success. "Team work has a lot to do with it," said Jorge. The employee who buys incoming cores is as important as the sorters, the repair workers and the truck drivers, he said. "Everybody in the company is considered a key person. We can’t do anything without having each one of them in place."