Analyst Projects ?Nice? Growth for Plastic Pallets Next 5 Years

When an East Coast consultant phoned me last month, looking for information about the plastic pallet market, the first thing I did was refer him to Dr. Peter Mooney. Peter, an independent economist and veteran plastics industry analyst, recently finished an exhaustive report on the plastic pallet and container industry. It follows upon his 2000 report, which won kudos from plastic pallet industry insiders.

“The whole mantra today is productivity, cost efficiency, reduce your costs, six sigma, lean and mean” Peter explained when I reached him by phone at his office in Advance, N. C. “All these models are forcing people to look right across their operations. They’ve closed plants and downsized their employee base.”

Wal-Mart in particular has generated a lot of interest, Peter noted.   “Look at how they’ve cut their costs. They have tremendous supply chain management, from material handling, to warehousing and transportation. And now everyone is what I call ‘Wal-Martized.’ They’ve got to adopt that kind of a supply chain model in order to be competitive and achieve profitability.”

Pallet people might argue about the success of the Wal-Mart pallet program, but overall the Wal-Mart supply chain opened a lot of eyes and crushed a lot of competition.

From his research, Peter concluded that most businesses that use plastic pallets love them. “The Post Office loves plastic pallets,” he said, “and Proctor & Gamble, which has been dabbling in plastic pallets, loves them. There are very few companies that have been using plastic pallets that have said that plastic pallets don’t work for them from an overall efficiency perspective, from a safety standpoint, and so on.”

Unfortunately for plastic pallet vendors, however, pallet-using businesses consider reusable plastic pallets as a capital expenditure, not a current expense. “You have to shell out for something that is going to last for five or 10 years,” Peter noted. “But the bean counters that come out of Harvard Business School say, ‘Hey folks, my bonus is based on next quarter, not three, four or five years out.   I might not even be here.’   They are resistant to shelling out for a capital expenditure, which is what plastic pallets are all about.”

In spite of this hurdle, Peter projects “nice” growth for the plastic pallet category — in a range of up to 8% annually over the next five years. “We are going to see a lot of export-import applications,” he said.   “I’m fairly optimistic about the growing penetration of plastic pallets over the next few years.” Downstream retail applications will continue to lead the way in terms of growth.   “Once they start putting more pallets on the retail floor, you are going to see more plastic pallets,” he said.

Not surprisingly, plastic pallet vendors report the best success in selling to closed-loop applications. “One could ask over time what percentage of the supply chain is going to be closed-loop versus open-loop,” Peter said, “and I just don’t know. There are only one or two companies in the United States that are involved in the pooling of material handling products, like CHEP.   In Europe there are many more. I think the trend will be towards more pooling players in this country, and that will lead to a larger percentage of closed-loop versus open-loop.”   The applications will be more of an external closed-loop versus an internal closed-loop, or in other words, just within a company.

Europe, with its stronger presence of material handling equipment pools and businesses that use them, has been a trend-setting innovator in another respect. Polypropylene is the plastic   of choice for plastic pallets in Europe, according to Peter, versus high-density polyethylene, which is preferred in North America. Polypropylene is less costly, and for that reason Peter anticipates that it will become more widespread in plastic pallets in North America as long as the price for natural gas – from which polypropylene is derived – does not go through the roof.  

Structural foam pallets will continue to be used in industrial and automotive applications, and cheaper thermoform pallets will be attractive in terms of price, according to Peter. He cited high-volume pricing for single-sheet thermoform pallets in the $12-$15 range and twin-sheet units,   $18-$20; by contrast, structural foam pallets are priced at $50-$60 each.

Interestingly, Peter learned from a New England pallet distributor that there apparently is a $23 price barrier. Customers seem to resist plastic pallets priced any higher. Why the $23 threshold? It was not clear. The distributor discovered it through trial and error.

One thing that has worked against plastic pallets has been a dramatic increase in resin prices since early 2003 following low prices in 2001 and 2002. Another problem has been the hot-or-cold nature of sales. For example, the Post Office may order 2 million plastic pallets one year and none the next. Fluctuating sales make it difficult to gauge with accuracy the size of the plastic pallet market. Nonetheless, Peter estimates that it is about 9 million units per year – or about 2% of the total new pallet market in the U.S.

If you want to know more about the plastic pallet business, I strongly recommend Peter’s report, The Opportunities for Plastics in Material Handling.   For more information, contact his consulting business, Plastics Custom Research Services, at (336) 998-8004 or visit his Web site at www.plasres.com.