When Australian pallet pool company Loscam first was encouraged to enter the Asian market by some of its multinational customers a dozen years ago, it knew it would have its work cut out
for it.
Loscam would rely on the local pallet industry for pallets to fill its pool in those countries, but — no surprise — the pallet industry typically was very rudimentary, recalled Gary Bachell, the company’s business development
manager.
Gary came in on the ground floor of Loscam’s move into Asia in 1993-4. He and Scott Neubauer, general manager,
recently discussed the Asian pooling market.
A supplier in Thailand was a ‘mom and pop’ business that relied on assembling pallets with hammers and nails when Gary first contacted them in 1994. “We had to work with them, work with them, work with them,” Gary explained. Today the Thai supplier has 40 employees as well as modern equipment and buildings, including a large kiln to supply heat-treated pallets, which are increasingly in demand.
Loscam now has operations in five Asian countries, including Singapore, which it entered in 1994. The others are Hong Kong, Thailand, Malaysia, the Philippines and Indonesia, and plans to soon be in Viet Nam. As in the Thailand example above, it has local pallet suppliers in each country.
Loscam is the pooling market leader in four of the five countries and is in a ‘dead heat’ in the other. It is a competitive area of the world for pallet pooling. CHEP has operations in Singapore, Hong Kong and Thailand while LHT Holdings, a publicly traded Singapore lumber company, has operations in Hong Kong, Singapore and Malaysia; they have a combined 500,000 pallets in their pools.
Loscam has annual sales of about $60 million (Australian). The company has a pool of about 4.4 million pallets and about 200 employees with a portion of its pallets and workforce positioned in the Asian market. While its Australian business is mature and stable, Asia represents not only a substantial challenge but also a big opportunity.
“The market has been developing,” Gary noted, “and it is starting to
explode.”
“Our business is growing very strongly in Asia,” added Scott.
The catalyst for growth has been the introduction and expansion of large multinational suppliers and retailers in the region of Southeast Asia. The large, modern retailers in turn are influencing local suppliers to conform pallets as a condition of doing business. (Prior to standardization, the Singapore grocery industry had 13 footprints, according to May Yip at LHT.)
Some Southeast Asian nations, such as China and Indonesia, have a huge new market potential while more mature markets also offer substantial opportunities for increased penetration.
Although the pools have operated largely within each country, this is beginning to change. Increasingly, Gary noted, the multinational businesses, such as Unilever and Proctor & Gamble, are rationalizing their production across the region — serving the region with fewer plants that ship internationally. With an Asian free trade deal in the works, in the near future the market will begin to look like a single one rather than several separate national markets.
One of the pressing problems for Loscam is lumber supply. China has a voracious appetite for lumber and is gobbling it up. In addition, lumber generally is unavailable in some of the island countries. One of the trees used for making pallet lumber is the rubber tree; however, the wood has become hard to get because rising rubber prices have kept old rubber trees in production longer and out of the sawmill.
Gary sees a tight lumber market for the short term. However, with much improved forestry practices now in place in China and similar improvements beginning to take shape in Thailand, he feels the lumber supply will significantly improve over the next 10-15 years, which will help to supply material for millions of pallets that will be needed.
Loscam provides an interesting
example of a pallet company successfully answering that often-asked question, ‘Where do we look for sales growth?’ Through foresight it has set up the infrastructure required to service the emergence of a hot, new neighboring market.
