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It’s A Small World After All - Will Global Standards Impact Local Markets?
Efforts Multinational Corporations to Reduce Global Supply Chain Costs May Drive Standardization
By Chaille Brindley
Date Posted: 8/1/2002
Developing standard footprint sizes for pallets has been discussed since the 1970s. Today, there are a number of regional or industry-based standards in use throughout the world. However, government and business leaders around the world have not been able to agree on globally acceptable size standards. This may change in the future as multinational corporations look to reduce global supply chain costs. Standardization may impact the pallet industry in a variety of ways, and many do not agree whether it will be good or bad for the pallet industry.
Common Sizes & Standards
The most notable standard in North America is the 48x40 pallet used in the grocery, produce and consumer packaged goods industries. According to a National Wooden Pallet & Container Association (NWPCA) size survey, the five most common footprint sizes in the U.S. are: 48x40 (30.5%), 42x42 (5.7%), 48x42 (4.7%), 40x48 (3.8%) and 48x48 (3.7%). The NWPCA has conducted surveys for 20-plus years and over that time the percentages have changed very little. "Pallet sizes have been somewhat stable in the U.S.," said John Healy, former NWPCA president and industry consultant.
The survey found that U.S. companies used over 400 different pallet sizes. John speculated that the reason for so many sizes in the U.S. is that this country has been palletizing more loads longer than any other area in the word. Custom pallets remain a preferred option for many non-48x40 industries.
The 1200x1000mm and the 1200x800mm are the most common sizes in Europe. The most prevalent size in Asia is the 1100x1100mm design, which has been championed by Japan.
The International Standards Organization (ISO) develops voluntary global standards for everything from technology to packaging. Once a standard has been approved, standards organizations within each country begin implementing them. ISO has established a working group to develop international size standards for wood pallets. There are six sizes currently being considered by the ISO.
1067x1067 (All sizes are in metric units.)
The ISO draft standard calls for six sizes, not one. Thus, the ISO has avoided the controversial issue of picking sides in the debate over which size would be best for the whole world. If the ISO standard follows its current timetable, it may be published before the end of 2003. Then implementation would be left up to each country. As a voluntary standard, nations are not required to follow the ISO’s direction. The ISO also has a recycled pallet standard in the works.
Standards…Why Do We Need Standards?
According to the World Trade Organization, $1.1 billion worth of products are shipped every hour of every day around the globe. Billions of pallets are used throughout the world. However, pallets quickly lose their value and even become a financial burden once shipped to another part of the world. For example, the U.S. GMA pallet does not function well in European material handling equipment designed for block pallets. Goods shipped to Europe on 48x40s may need to be repalletized, and fees may be imposed on these shipments.
The lack of harmonization between pallets, packaging and material handling systems worldwide has created unnecessary inefficiencies. This has resulted in many loads having to be repalletized or partially empty loads being shipped long distances. "Companies are spending millions to ship empty space around the world," said Dr. Marshall "Mark" White, director of the Sardo Pallet Lab. Mark stated that harmonization of pallet sizes would save energy, conserve natural resources and eliminate costs from the global supply chain.
Whether or not the pallet industry wants size standards, multinational corporations may force the issue. The electronics industry has developed an international standard for wood pallets used to ship computers and other electronics around the globe. After evaluating several footprints/designs, the Electronics Industry Pallet Standard (EIPS) Task Group settled on the 1200x1000mm size in the U.S and the 1200 x 800mm in Europe.
What’s the Best Size?
Everybody seems to have a different reason why you should use the size they have adopted. With hundreds of sizes and designs used around the world, agreement on one size may be virtually impossible. Even, getting most companies to use the six sizes in the ISO draft standard may be difficult, especially in the U.S where custom pallets are widespread.
For starters, North America does not use metric measurements. Most air and sea cargo containers are measured in feet and inches while the racking and materials handling systems in areas other than the U.S. are metric-based. Existing systems can accommodate a slightly smaller size easier than a larger size platform. Thus, the larger sizes will not be as compatible as the smaller ones.
The Sardo Pallet Lab conducted tests on the six common sizes used for international transit. According to its research, the best overall fit seemed to be 1200x1000mm, which is close to the 48x40 (inches) size used in the U.S. The 1200x1000 design fits the standard ISO 400x600mm package module, freight containers, and air cargo pallets. "The 1200x1000 can work quite well in Europe, but it would causes problems in the Pacific Rim countries," said Mark.
In terms of product value, there is a shift toward air cargo from sea freight due to the time issue. More and more products need to get to the final destination faster, and companies are willing to pay for the extra shipping cost. Yet, more total product volume is shipped via sea than air.
What about the cost to update the existing material handling equipment and systems to mesh with a global standard? What will the CFO say when a senior packaging engineer presents a plan to spend millions revamping existing warehouses and distribution centers just to standardize a pallet? Indeed, selling an international standard can be difficult inside just one company, let alone thousands. Changes will have to be made gradually as companies upgrade facilities. Multinational corporations will have to drive the issue or it will never fly. The typical life cycle of a distribution center is 15-20 years. The average life span of a packaging design is four years. Standardizing the pallet requires standardization of racks, forklifts, hand jacks and other materials handling equipment.
Despite the lack of harmonization between pallets, packaging and materials handling equipment, Mark believes that the tremendous savings will lead multinational corporations and industries to embrace increased standardization in the long term. "It will take a generation to achieve a global pallet standard," said Mark.
Market Impact – Bomb or Boom!
The thing pallet companies really want to know when it comes to standardization is how will this affect me. In the short term, standardization remains mostly a dream except for regional or industry standards. But suppose that 25 years from now there are two major pallet sizes used for 85% of the goods shipped in the world. What would such a scenario mean to the pallet industry?
Some see increased line efficiencies for pallet manufacturers, which favors larger producers. Others believe more standardization will make it easier for alternative materials (plastic, corrugated, metal, etc.) or rental pools to dominate the market.
Indeed, CHEP has been able to dominate markets around the world where a sector uses one or two primary sizes. "Global standards fit pooling to a tee," said Brian Beattie, senior vice president of marketing for CHEP International. Currently, CHEP uses four major sizes 48x40 inches (North America), 1200x1000mm (Europe), 1200x800mm (Europe), and 1165x1165 (Australia). Increased standardization may allow CHEP and other rental companies to expand beyond the grocery industry in North America. Although CHEP does service other sectors, most of its business in the North America revolves around the grocery/retail industry.
"The little guy would be gone…standards are a threat to the industry. All you will do is make the big guy bigger," said Gordon Hughes of the Canadian Wood Pallet & Container Association.
Europeans have widely embraced standardization due to their focus on quality and control. However, the end result has been an extremely competitive market. Europallet prices are in the dumps. According to Gordon, imports from eastern Europe are driving prices way down, which has hurt pallet manufacturers in western and central Europe.
Mark agrees that standardization would reduce the use of custom pallets making the pallet even more of a commodity item. This could put downward pressure on pricing, which favors more efficient manufacturers. Regardless of the impact on the pallet industry, "We will see standardization grow," said Mark. "Standardization reduces the cost of doing business for the packaging user…this will all be customer driven."
Others believe increased standardization will not really harm the industry as a whole. "I don’t think it’s a doomsday situation. We have to look at it from a macro point of view," said Bruce Scholnick, president and CEO of the NWPCA. Pallet companies will differentiate themselves more by value-added service than product design. The market radius makes a difference; you can only ship a pallet so far before it becomes cost prohibitive.
John pointed out that not everyone will embrace a voluntary standard. Designing the pallet to fit the footprint of the unit load to avoid either overhang or underhang and to provide maximum product protection will remain a key factor in selecting the proper pallet size. Unless pushed by customers, many companies will stay with whatever sizes work best for them. In some cases, this means fewer sizes.
The Future of Standardization
Don’t expect the world to settle on one major standard any time soon. John said that major industries are starting to look at cutting the number of sizes, but he does not see one size dominating the global market. "People do not need to be running scared… Will the 48x40 go away? The short-term answer is no," he said. John even doubts the long-term implications of the 48x40 going away here in the U.S. given that two of our largest trading partners – Canada and Mexico – both rely on it.
Down the road, Mark hopes the world settles on one standard. He points to the waste it would eliminate and the efficiency the global supply chain would achieve. "There are six international pallet sizes in the draft standard and that is five too many," said Mark. He envisions a future where the pallets, packaging and materials handling equipment function together in harmony.
All you can do is keep an eye on the situation and encourage the NWPCA, CWPCA and other associations to represent your interest as you see fit. If mass standardization occurs in the future, it will likely be driven by customers. Since the customer is always right, you may not be able to do much to stop it.
"Ideas that 5-10 years ago would have been unthinkable are starting to be considered today," said John.
For now, regional and industry standards will continue to play a major role, and many customers in the U.S. will want pallets customized to their needs. It will be interesting to look back 30 years from now and see if the same thing can be said then.