While you can still see a lot more blue and white pallets across America’s logistics landscape, red pallets are growing at a 35-40% rate per year. Red, of course, is the distinctive color of PECO Pallet, Inc. (www.pecopallet.com), a pallet rental company that was originally started by a number of wood pallet companies. Since its inception in the late 1990s, PECO has followed a strategy of measured growth and has now managed to bring a reasonable rate of return for private investors.
PECO has quietly grown from a regional player to a viable rental option for major companies including Kimberly Clarke, Nestle, Georgia Pacific and Fresh Express.
“We don’t consider ourselves a regional or niche player any more,” said Joe Bongiovanni, vice president of operations for PECO.
PECO now has 120 depots and 2.3 million pallets in its pool making nearly 12 million issues this year. The company is close to completing deals with some major retailers according to Joe. It already has strong relationships with Costco and BJ’s Wholesale Club.
PECO has been steadily increasing its pool by 50,000 pallets per month. Its latest round of financing is for anticipated growth over the next 18 months. Joe said that PECO expects to grow the business next year, and therefore double the pool size.
Quality has been a major selling point for PECO, which has helped grocery/consumer goods manufacturers meet retail standards for transport packaging. Joe mentioned work that PECO has done for some customers to help them reduce charge backs from Publix, a major grocery retailer in the South.
PECO utilizes strict repair standards in all of its depots and has a third-party firm inspect to make sure that quality is being maintained.
Joe said, “We continually get inquiries from CHEP customers due to its pool quality issues…PECO is focused on service, simplicity and quality.”
Some key differences between blue and red is that PECO only allows customers to ship to receivers within its network. For an extra fee, CHEP will allow its blue pallets to go to non-participating distributors (NPD). This has both pros and cons.
Shipping to NPDs gives customers more flexibility to ship to more locations. At the same time, it makes retrieving stray pallet more problematic and costly. This complexity also makes the CHEP billing process more cumbersome according to some clients. PECO bases its fees on a flat rate structure that is recalibrated every six months. This makes it easier to set a budget and eliminates any surprises unlike the CHEP approach.
Comparing their pricing structures to CHEP, Joe said, “We believe that when you add in all CHEP’s accessorial charges; potential charge backs from manufacturers; incremental handling costs the customer has in order to sort bad quality CHEP pallets from inbound loads and production downtime associated with poor quality pallets in an automated environment the ‘all in’ costs of their pool are far greater than ours.”
PECO has made the switch from stringer to block pallets. It hasn’t made any stringer pallets since 2002 although they still make up 3% of PECO’s total pool. Joe said, “We feel that most companies in the grocery sector are going to go to block pallets.”
Commenting on the current state of the pallet rental market, Joe said, “We know that we have made the market more competitive.”
Looking to the next generation of pallet design, PECO is close to launching a new composite pallet. Joe said, “To my knowledge, there is nothing out there like it.”
PECO’s composite design has the structural integrity of plastic without its typical fire rating issues, according to Joe. It is not porous like wood and also has less of a problem with protruding nails because the composite material holds the nail better than conventional wood. This composite pallet is close to 75% wood, which lowers the cost compared to conventional all plastic designs.
At this point, PECO intends to launch the pallet in 2008 and will introduce it to lower overall damage rates.
