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Truck Leasing Program Puts Valley Pallet in the Driver’s Seat for Savings
By Paul Alexander
Date Posted: 5/2/2005
SALINAS, California -- Started in the back of a station wagon in 1987, Valley Pallet has grown into a sizable pallet manufacturing and distribution company and third-party logistics provider. From its start recycling used pallets, Valley Pallet has developed pallet manufacturing facilities in four locations. In addition, it launched Valley Trucking to retrieve and deliver pallets to customers in several industries.
Valley Pallet, with its headquartered in Salinas, started modestly. The company began by buying used pallets and recycling them – repairing broken pallets and reselling them to a produce company. It grew by obtaining more used pallets and selling the reconditioned pallets to additional customers. Within five years, the company started similar operations in the heart of the winter vegetable industry in Yuma, Ariz.
Today, Valley Pallet has grown to $38 million in annual sales and nearly 300 employees. It has six facilities in California and two in Arizona. While the bulk of the business – more than 70% -- remains selling new and reconditioned pallets to the fresh produce industry, Valley Pallet also supplies pallets to manufacturers, including such industries as building supplies, stone products and fertilizer. Valley Pallet also manufactures and repairs pallets for a pallet leasing company.
Valley Pallet’s Salinas location is the company’s largest at 13 acres, including three buildings covering about 100,000 square feet. The plant has four pallet nailing machines.
Its second largest facility is a 30,000-square-foot building located on eight acres in Yuma, a plant that is equipped with five nailing machines.
Additional plants are located on seven acres in Terra Bella, Calif., near Bakersfield, and a three-acre site in Sacramento. The company also maintains three smaller distribution-only centers in California and a fourth in Arizona.
Some of the company’s principal suppliers are Viking, GBN, Stanley-Bostitch, Simonds, and Garnett Co. Valley Pallet used to manufacture its own line of bandsaw pallet dismantling machines under the brand Valley Saw, and its pallet recycling operations are equipped with the Valley Saw dismantlers.
At the plant in Salinas, for example, the company has two Viking 504 nailing machines, a Viking 505 nailing machine and a GBN Explorer nailing machine. Other principal equipment includes a West Salem Machine grinder and two High Point band resaws (a two-head and a single-head machine). Fourteen of the Valley Saw dismantlers are in use along with an Industrial Resources Pass One dismantling machine.
The plant in Yuma, Ariz. is equipped with a Viking 504 nailing machine, two Viking Duomatic nailing machines, a Viking Champion nailing machine, and a GBN nailing machine. The plant also is equipped with a High Point band resaw, a Baker Products chop saw as well as some shop-built chop saws, a West Salem grinder, and six Valley Pallet dismantlers.
The Terra Bella facility operates a Viking Duomatic nailing machine and four Valley Pallet dismantlers while the Bakersfield plant has a GBN nailing machine and two Valley Machine dismantlers.
Valley Pallet uses bulk nails supplied by Garnett Co. for its Viking and GBN nailing machines, and its uses Stanley-Bostitch power nailing tools and fasteners throughout its plants for performing pallet repairs and assembling pallets by hand.
The company buys Simonds bandsaw blade coil stock and welds its own blades, and it buys circular saw blades from local suppliers.
Valley Pallet provides transportation and logistics services for manufacturers, such as hauling corrugated boxes and containers, as well as pallets. An unusual logistics service unfolds every winter when produce companies shift their operations from California to winter harvesting in Arizona. Valley Pallet helps them make the move.
“The fresh produce industry migrates to follow the growing seasons,” noted Frank Shean, president and owner, who joined the company more than 10 years ago and bought the business a few years ago. “In winter months all of the fresh produce is grown in the Imperial Valley in southern Arizona. In order to process the crops, they pick up their harvesting equipment and processing plants and move to Arizona. We play a big part in that by moving the equipment and supplies, everything from slicers to conveyor lines to forklifts. Our trucking business evolved from working with the pallet business.”
New pallet manufacturing accounts for about half of total sales while reconditioned pallets represent another 40%, according to Frank; transportation and logistics services account for the rest. More than 70% of the business is in standard 48x40 GMA pallets. Valley Pallet has more than 300 accounts among industrial, agricultural and commercial customers.
Besides manufacturing and recycling pallets, Valley Pallet manages pallet supply programs for major retailers, such as PetsMart, Costco and Albertson’s; for its big retail accounts, Valley Pallet provides pallet management services. A Valley Pallet employee often will be stationed at a retailer’s distribution center. This worker will sort through pallets that have arrived with shipments and take inventory of pallets. The distribution center requires a certain number of pallets for its own internal use. Surplus and broken pallets are purchased by Valley Pallet and transported in one of its trucks back to a Valley Pallet plant. In some cases, Valley Pallet will deliver pallets to the shipper’s location for reuse.
“We will sort the broken pallets, buy the pallet ‘cores’ and take them out of the supply chain,” said Frank. “We then repair them, bring them back to usable condition and sell them as reconditioned.”
As Valley Pallet’s business has grown, reliable transportation has been essential to the company’s success. The company runs a fleet of 18 heavy-duty Peterbilt 379 tractors under a full-service lease through Salinas-based Coast Counties Peterbilt PacLease, the local franchise of PACCAR Leasing Company. The company also owns six trucks that will be sold and replaced with more Peterbilts leased through PacLease.
Valley Pallet did not always lease its vehicles. In the early years, company owners bought trucks. “We bought our first truck, a pick-up,” Frank recalled. “Then we went to a flatbed truck as the business grew. After that we graduated to double-axle trucks when we started driving longer distances.”
Over time Valley Pallet’s fleet grew to more than 20 trucks of different makes and models. “It was a hodgepodge of trucks,” said Frank. “If we had a nickel in our pockets, we’d go and buy a used truck. Our fleet grew to 28 trucks, but it was an aging fleet. We bought trucks coming off leases that were five to six years old and ran them for another six years. We also were handling all of the maintenance for those trucks, everything from engine and transmission overhauls to oil and fluid changes.
“I started reviewing our fleet and determined that among our 28 trucks, at least three or four of them were broken down at a time,” Frank continued. “We were still paying insurance on those trucks, and the maintenance costs were killing us. And we were employing maintenance personnel and paying all the costs that go with that.”
PacLease approached Valley Pallet about leasing its trucks as a solution to the high cost of ownership. At the time Valley Pallet was only averaging about 4.5-5 miles per gallon from its trucks. The fleet was aging fast and maintenance costs were climbing.
“We were running our trucks for 10 years, and we were averaging $1,000 per month in maintenance per truck,” said Frank. “I never knew from month to month what our maintenance costs were going to be. Then when I would have to replace a truck, the cycle would start all over again. If we went with a new leased fleet, our costs each month would be fixed, and we could budget for that amount. It’s a number we could put our arms around and plan for.”
Valley Pallet decided to make the switch to leasing in 2002. The company sold 21 trucks through PacLease and kept the seven newest. They were replaced with 16 leased tractors – since increased to 18 – under a 5-year lease. Valley Pallet ended up with fewer trucks in its fleet, but they were more productive than the previous owned fleet because down time was reduced.
“Instead of owning 21 trucks with three or four of those frequently broken down, with PacLease we’re running 18 leased vehicles that are always on the road,” said Frank. “If we do have a maintenance problem with a truck, PacLease will provide a substitute to keep us running. Plus, we’re paying licensing, insurance, permitting and so on for fewer trucks.”