Lawmakers in Arizona are attempting to deal with one of the most controversial issues to ever plague the pallet industry – proprietary pallets that have leaked out of a closed loop system.
The state legislature is currently weighing a bill that its sponsor says is intended to curb pallet theft. HB 2168, which was passed by the Arizona House of Representatives near the beginning of March, would require pallet and other bulk container recyclers and brokers to keep detailed records of most pallet purchases. These records would include:
• Name, address and telephone number of the seller or representative.
• License plate number from any vehicle used to deliver the containers.
• A description of the containers, including the number being purchased.
• Verification of the identity of the seller or representative from a government issued photo ID.
This information would be required on any purchase of five or more marked plastic pallets or 10 or more wooden pallets. According to reports, beverage industry representatives approached Congressman Bob Robson about introducing the legislation, which may account for the lower threshold for plastic containers. The bill would also prohibit companies from documenting purchases from the same person on the same day as multiple transactions and requires that these records be available for inspection from law enforcement officers.
For veteran recyclers, dealing with pallets leaked from pooled systems is nothing new. How to handle proprietary pallets has long been a contentious issue. Court cases between some of the large pallet pooling companies in the U.S. or soft drink companies and pallet recyclers have made industry headlines over the years with varying results. Whether it’s the major poolers, such as CHEP, iGPS or PECO, beverage companies, such as Coca-Cola or Pepsi, or even Uncle Sam looking for his postal pallets, multiple pallet recyclers have had the misfortune of dealing with legal issues over proprietary pallets that have come into their possession for one reason or another. Many times, how they came to be in possession of them is ignored and they are left asking how can we steal something we paid for?
One of the most recent court cases over proprietary pallets was between CHEP Canada and LES INDUSTRIES PALBEC INC., a Quebec pallet recycler. According to CHEP, the pallet pooler had made many attempts to negotiate the return of CHEP pallets that were on the PALBEC premises and was finally granted a search and seizure order by the Quebec courts. During the search, CHEP said it successfully recovered a number of CHEP pallets including some that had been painted orange. The court ruled that the pallets were the property of CHEP. In the court’s final decision, it was noted that all CHEP identified blue pallets in circulation belong to CHEP, they cannot be sold and CHEP was entitled to claim its pallets. The court also ordered PALBEC to pay financial damages to CHEP and prohibited the company from trading any CHEP pallets in the future.
CHEP Canada operates in a similar fashion to CHEP USA in terms of how it deals with reyclers. It has a reimbursement program and asset protection personnel. One major difference is that CHEP operates more of its own depot facilities in Canada than it does in the United States where CHEP uses primarily third party operators.
One challenge in Canada for CHEP is that its pallet speification is the same as the CPC pallet pool. The only difference is the color – blue for CHEP and orange for CPC.
The PALBEC case was important because a pevious case decided years ago has set a precedent in Quebec that pallet recyclers have used to justify trading in CHEP pallets. Mike Dimond, president of CHEP Canada, said, “We now have a precedent set across the country that recognizes our ownerhsip rights. We plugged the hole that we had in Quebec.”
Laws in Quebec can vary from the other provinces which are dominated by English legal precedent.
Dimond added that CHEP does face added loss in Canada compared to the United States due to the similarity in the designs. Some recyclers will merely paint over a CHEP pallet to make it look like a CPC pallet and then sell it as a CPC pallet. Dimond was clear to point out that CPC does not encourage this type of activity. But some recyclers do it any way because they can sell a “converted” pallet for $8-$10 each.
This and other similar cases highlight the legal dangers that recyclers and brokers can face when they come into possession of proprietary pallets. Despite this, some recyclers have found that the situation with proprietary pallets is better now than it was in the past.
“Five to eight years ago there were a lot more issues than there are today,” said John Swenby, president of Paltech Enterprises in Urbana, Iowa. “Overall, they’ve done a better job understanding our needs and our requirements.”
John said his company has open relationships with the three major poolers and receives reimbursement from all of them for returned pallets, at differing rates. He acknowledged that dealing with pooled pallets is not always convenient, but knows that it’s part of doing business.
“We just try to make it work to everybody’s benefit,” he said.
Interestingly, despite a history sprinkled with high profile lawsuits and being considered difficult to deal with by many recyclers, CHEP seems to have made a significant shift over the last 5-10 years. “I never thought I would hear myself say this, but out of the three major players, CHEP is the easiest to deal with,” said one recycler who has been in the industry for over 30 years.
Currently, CHEP compensates recyclers in the United States for costs involving returning of stray pallets through its Asset Recovery Program (ARP). Despite a fuel cost component that fluctuates, CHEP has not raised the price it pays in its ARP since the initiative was started. The ARP has been a success for CHEP in keeping logistics costs low while ensuring the safe return of stray pallets.
The heavy-handed enforcement role has been taken over by Intelligent Global Pooling Systems (iGPS) as the company had to show it was serious about asset protection to safeguard its expensive plastic pallet. iGPS has already setup stings involving local law enforcement. A number have resulted in media exposure or legal action over the last few years.
For example, a Kentucky man was accused of allegedly selling $34,000 worth of pallets online in 2009 via Craig’s List, a well-known classified Website. iGPS worked with Houston area authorities to conduct a raid on a houston pallet recycler in 2009 and had the owner arrested for grand theft involving iGPS plastic pallets.
Last year, four people were arrested for taking plastic pallets from retail locations in California, particularly Trader Joe’s, Albertsons and the U.S. Postal Service. These pallets were sold to local plastics recycling operations for $2-10 each. The total value of the pallets was reported to be around $2.5 million.
Most recently, iGPS pursued a police response having a pallet company owner in Virginia arrested in 2010 for dealing in stolen pallets.
“We will not tolerate theft of our pallets,” said Ben Stoller, iGPS vice president. “We diligently protect our assets and we will pursue remedies to the full extent of the law.”
In a case previously reported by the Recycle Record, a pallet industry recycling report, iGPS filed a lawsuit in 2009 against WholesalePallets.com, a pallet broker based in California, for alleged violations of the Federal Racketeer Influenced and Corrupt Organizations Act (RICO), specifically selling stolen iGPS pallets. On several occasions, WholesalePallets.com bought and sold iGPS pallets that had had the iGPS markings removed. WholesalePallets.com contends that it never knowingly sold stolen pallets and claims that, as a broker, they never took physical possession of the pallets or even saw them. The case was eventually settled last year by the wholesaler agreeing to pay costs to iGPS and abide by its proprietary pallet guidelines.
iGPS has followed both a strong asset enforcement attitude mixed with compensation to recyclers in some instances. Needing to get its pallets back, iGPS increased on September 1, 2009 what it offered for reverse logistic costs to obtain stray pallets. iGPS increased compensation to $2 if it had to pickup the pallets and $3 for delivered pallets.
Some recyclers report getting paid on time and being fairly compensated. Others tell about iGPS refusing to pay for some pallets claiming that they are not lost based on RFID scan data.
“They’ve really soured every recycler with any real knowledge of what’s going on in the country,” said one recycler who is forced to deal with iGPS due to leakage through his customers. “They’re just not a good company to deal with.”
For companies trying to avoid coming into contact with proprietary pallets, one way of avoiding them was suggested by John Swenby, who has found an effective way of keeping the number of pooled pallets entering his facilities as low as possible. He said many of his customers have agreements with one pallet pool or another and that they often work with customers to limit the mixing of pooled and other pallets.
“We bring it to the attention of some of our customers that their guys on the floor don’t really care or pay the proper amount of attention to the issue,” John said. “So we work with those customers and make sure they understand what’s happening.”
In order for this to be effective, Paltech has often found it necessary to monitor how many proprietary pallets are ending up on their trailers and work with their customers as part of an ongoing and repetitive process.
“It goes up and down,” said John. “Somebody gets lazy and intermixes some pallets and throws them on when we know that they’re working with that vendor. Then we let them know that they’re getting on our trucks and trailers and they tend to clean up their act for a while. Then somebody gets lazy again.”
However, many customers that utilize pallet management programs are not part of any rental pool. This can put the recyclers working with them in a tough situation. When leaked rental pallets show up at these customers’ facilities, they have no more use for them than they do for one-way pallets and they expect their removal to be included in the pallet services they pay for. For recyclers that do not have a cost effective way of returning the pooled pallets it can be even harder to deal with. Though the recycler may want to avoid coming into contact with proprietary pallets, they are put in the difficult position of choosing between dealing with the rental pallets or facing an unhappy customer.
“If you want to keep your customers you have to take care of their needs,” said one recycler who usually finds between 30 and 40 proprietary pallets on any given trailer load his company picks up from customers.
The best defense against legal issues for recyclers is to avoid proprietary pallets to whatever extent is possible and try to come to a clear understanding with each rental pool on how their return program works. If the Arizona law, or others like it, is passed, the records the recyclers would be required to keep could end up being used as evidence against them. Having a working relationship with the pooler in place before that happens will do a lot to protect companies that are forced to deal with proprietary pallets during the course of normal business.
