Mexican Pallet Company Weathers Change in Currency Exchange Rates

JUAREZ, Mexico – Companies that do business across the U.S.-Canadian border know how the vagaries of the currency exchange rate can impact business. In recent years the American dollar has depreciated relative to Canadian currency – a U.S. dollar buys less in Canada.

                      David Portillo has faced a similar challenge at the U.S. border — to the south, with Mexico.

                      A native of Mexico but now a U.S. citizen, David has made his home for years in El Paso, and he has built a successful pallet manufacturing business across the border in Juarez, Mexico. His company, Multipallets de Juarez, supplies pallets to manufacturing facilities in Texas and to the plethora of factories in and around Juarez.

                      At the company’s peak, most of its business was tied to light manufacturing plants in Texas. A majority of the company’s business – about 80%, David estimated – was due to the favorable currency exchange rates during that period. “We were very competitive in prices,” he said.

                      In early 2000, however, the exchange rate shifted, and the U.S. dollar was worth fewer Mexican pesos. “I had contracts already signed,” said David. He honored those contracts while they were in force throughout 2000 and part of 2001, and the company suffered considerable financial losses. “We were practically broke because the peso never recovered, and we lost all the business we had in the U.S.,” he explained.

                      He learned from the experience – learned that long-term contracts needed language to provide a safeguard against fluctuating exchange rates. “I made a mistake because I had to honor my contracts,” said David. “It’s one of the things in life you learn.” He could have terminated the contracts “but I wanted to honor my word.”

                      David, 41, has made his home in El Paso for about 20 years and lives with his wife and three children. Juarez is just a short drive from the U.S.-Mexico border. David’s home is only three miles to the bridge that crosses the Rio Grande River into Mexico, and driving to his shop at Multipallets only takes about 15 minutes.

                      David grew up in Juarez and attended schools there, then completed two years at the University of Texas in El Paso. He worked as a plumber for nearly 15 years.

                      His father built a part-time pallet manufacturing business, starting about 1980, and David began working with his father about 10 years ago. His father, 67, who remains in Mexico, retired four years ago, and David has continued to operate a pallet company on the same property.

                      When he began working with his father, also named David, the two men and a couple of employees built about 1,000 pallets per week. They nailed the pallets by hand. The only machines they had were a bandsaw and a radial arm saw, which was used to cut notches in stringers. Deliveries were made with a pick-up truck.

                      About a year after he began working with his father, David began exploring markets on the U.S. side of the border. He picked up some new accounts, and the company and its operations grew. By 1997 the company was producing about 3,000 pallets per week, and a year later production was up to about 5,000. David and his father had invested in air compressors, power nailing tools, rip saws and several trucks.

                      Prompted by the unfavorable change in the currency exchange rate, David switched gears in 2001, focusing on markets in Mexico. By early 2002 business had picked up again. The currency exchange rate improved, too. “The exchange rate now is better,” said David. “That’s what helped me out.”

                      At its low point, production sank to about 2,000 pallets per week, but now the business is back up to more than 4,000. The company has manufacturing customers on both sides of the border, some with more than one factory. One customer has 10 plants in Juarez. There are not many pallet manufacturers in the region that can supply that many plants with pallets, according to David.

                      “In the last two or three years, business has been going up,” said David, “and I predict that in the future it will be even better if only because of the heat-treatment regulation on pallets.”

                      Multipallets has received numerous requests from customers and other pallet-using businesses that want heat-treated pallets, according to David. “You can only do so much work,” he noted, “so I’ve had to decline a lot of work and protect my current customers.”

                      David invested in a pallet heat-treating system last year that was supplied by Marshall & Henderson. Multipallets has been using it for about six months to heat-treat pallets. It started out treating about five truckloads a week but has increased production when another customer began ordering heat-treated pallets in January. David expects demand for heat-treated pallets to increase this year.

                      David noticed an advertisement by Marshall & Henderson in Pallet Enterprise and called the company, which sent him literature and information. He also researched the system provided by another supplier. “Personally, I think this is the best one,” he said. Marshall & Henderson installed the system in one day. It has the capacity to treat about 500 pallets at one time.

                      The Marshall & Henderson pallet heat-treating system uses a direct fire furnace. It produces 1,200,000 BTU to heat-treat quickly and to maintain moisture content. Under optimum conditions, the Marshall & Henderson pallet heat treating system can achieve a one degree increase in core temperature per minute. Depending on the number of pallets treated and the starting core temperature, heat treating can be completed in two hours or less per charge. Fuel costs are as little as a penny per pallet, according to the supplier.

                      The Marshall & Henderson pallet heat-treating system is completely portable and can be moved from place to place or can be installed on a slab or blocks. It is designed for complete forklift access for easy loading and unloading of pallets. The system, which holds a full truckload of pallets and features aluminum construction, is easy to operate with computerized record keeping.

                      When the unit is delivered, Marshall & Henderson provides on-site start-up assistance and support to ensure the equipment is running correctly and to answer any questions.

                      Multipallets supplies heat-treated pallets to manufacturing plants in Mexico. Many are owned and operated by U.S. companies. The pallets typically are shipped under load to destinations in the U.S. and eventually will be export shipments.

                      Juarez has about 300 manufacturing plants, according to David, and 60-80 companies manufacturing pallets, he estimated. Many of the pallet businesses are small, he indicated, producing perhaps only about 500 pallets per week.

                      Multipallets, with about 19 employees, manufactures only new pallets, and the company makes about 20 sizes.  Some of the most common sizes are 42×42 and 30×36. Those two sizes account for about 75% of the pallets produced by Multipallets. About 85% of the company’s production is hardwood pallets (oak) with the other 15% made of pine.

                      The company has about 18,000 square feet of property. There are a couple of small offices plus a couple of shed-like buildings; the sheds are constructed of block walls on three sides with one side open, and they have a raised metal roof.

                      Multipallets does not have a sawmill or extensive lumber remanufacturing capacity. It buys pre-cut pallet lumber from sawmills in Mexico. One of the reasons that David prefers doing business that way is that he wants to eliminate the risk to employees in using saws and wood cutting machinery.

                      In fact, if he buys wood from Mexico, it must come from the Mexican state of Chihuaha — which neighbors Texas — in order to be accepted into the U.S., according to David, who enjoys playing golf and hunting in his leisure time.

                      Oak is plentiful in Mexico, according to David, although there is a shortage of pine. The sawmills in Mexico are relatively small, and David buys from as many as seven different suppliers. The lumber quality is very good, said David – better than American lumber manufacturers. He occasionally buys cut stock from U.S. suppliers but it is more expensive. The Mexican sawmills will agree to supply him with a certain volume of lumber on a yearly basis.

                      The company’s principal machine is a home-made, single-head notching machine that runs Econotool cutter heads. “We only make the notch on the stringer,” said David.

                      Multipallets is equipped with other lumber remanufacturing machinery but generally only uses it to process wood in an emergency. The company has a Baker Products horizontal bandsaw system as well as a rip saw, a cut-off saw and a pair of radial arm saws. A couple of air compressors power Stanley-Bostitch nailing tools. David buys Stanley-Bostitch collated nails and replacement saw blades from local suppliers in Mexico. The company also is equipped with three forklifts and several trucks.

                      All the company’s pallets are assembled by hand. David has looked at automated pallet nailing systems but has decided not to take Multipallets in that direction. “My personal opinion…I’m more for the people,” he said.

                      “Labor is kind of cheap in Mexico, really,” he added. His Mexican employees earn $2-$5 per hour. With the cost of labor so low, it is more attractive to him to assemble pallets manually. His workers can build an average of 300 pallets per day. They usually work alone except that employees assembling large pallets work in pairs.

                      David made a venture into pallet recycling but later decided against the strategy and discontinued recycling operations. He set up a small pallet recycling shop in El Paso. Starting with one employee, the company produced about 300 recycled pallets per week. “Labor was too high and the pallets were priced too low,” he said.

                      David puts a strong emphasis on worker safety in his business. “We buy all kinds of protective equipment for the employees, like safety glasses, gloves, shoes and masks, and we always try to enforce them to use it.”