Brambles Ltd., the parent company of CHEP, has begun putting the pieces together and figuring out what works and what doesn’t as it seeks to integrate operations from CHEP and its newly acquired IFCO Systems, the world’s largest reusable plastic container (RPC) pooler and the largest pallet recycler in the United States. Brambles now controls the two most dominant single companies in the U.S. pallet market. Questions are starting to arise about the integration of the two busineses.
The acquisition of IFCO Systems was finalized on March 31, 2011 after Brambles purchased the majority of ownership shares and the deal passed regulatory hurdles. The biggest deal to ever impact the U.S. pallet industry sailed through without much of a fight from the industry. Although it may have made little difference because the acquisition was fairly small in comparison to other deals in telecommunication and retail sectors that have not been stopped by the Department of Justice (DOJ).
The DOJ allowed the acquisition even though some now worry that it gives Brambles too much influence over the pallet and packaging logistics market that drives the U.S. retail sector. Pallet industry contacts have already reported that one major retailer has shifted pallet management functions for some regions away from IFCO Systems in order to encourage competition.
Some in the pallet recycling industry are starting to worry as CHEP has diverted white wood cores that it obtained through pallet management programs to IFCO Systems. As one recycler stated, if you have no inventory (used cores), you are out of business as a recycler. Before the acquisition, Brambles had assured the industry that its main focus was reusable plastic containers (RPCs). And although that seems to be true, one potential impact on some markets is cores being diverted away from independent recyclers to IFCO.
In terms of the number of white wood pallets it controls flowing through retail distribution centers, CHEP is less influential today than in the past. But the rental giant still controls millions of white wood pallets and has traditionally sold them to the highest bidder. In some cases in the past this was IFCO while in other situations these pallets went to regional pallet recyclers.
Brambles has every right to manage its businesses how it sees fit, including diverting white wood to IFCO. But it also relies on independent pallet recyclers to help return stray CHEP assets, and it needs to continue a collaborative relationship. Speculation has ranged from Brambles ultimately desiring to sell off the pallet services division of IFCO to the desire to integrate the two businesses. Some industry contacts report that the diversion of pallets to IFCO is an attempt for Brambles to bolster the business to improve performance to justify the cost to investors or possibly even prepare it for selling off in pieces. A spokesman within CHEP denied that there was any short-term strategy to sell off the IFCO pallet business pointing to the fact that integration conversations were ongoing.
Seeking to answer common questions about the integration of CHEP and IFCO Systems business units, Brambles Ltd. recently launched a new website www.globalrpcpalletsolutions.com.
Brambles claims that the website will provide key updates on integration concerns as well as a vehicle for stakeholders to submit questions.
Brambles recently appointed an integration team, which includes members from both Brambles and IFCO. They are currently working to deliver on their plans to integrate CHEP’s global reusable plastic container (RPC) business into IFCO’s RPC operations. This will be phased over a period of time. The first phase of this work will focus primarily on transitioning the European RPC business. The RPC businesses in Asia-Pacific, Latin America, Finland, Turkey and South Africa will be transitioned in a later phase.
Brambles stated that in the near term, RPC customers should not expect any differences in the way they deal with CHEP. CHEP will continue to provide service to RPC customers.
The goal of the IFCO acquisition in the U.S. pallet sector is to enhance customer service and product offering and strengthen relationships with small-to-medium sized enterprises. A CHEP spokesperson pointed out that both CHEP and IFCO have very different pallet customers in the United States.
The integration website suggests in the future that customers may be able to order either CHEP or IFCO pallet services from either their CHEP or IFCO account manager. Brambles declared, “One key aspect of our integration plan is the work underway in the United States to deliver a go-to-market strategy that will allow us to enhance our product and service offering for our combined customer base.
“Our goal is to deliver a comprehensive pallet and container services solution that offers customers flexible, cost-effective and tailored solutions that will help drive efficiencies throughout their supply chains. Nothing will change in how you order either white wood pallets or pooled pallets until we have implemented our comprehensive commercial offering. We will communicate these plans in due course.”
Looking at CHEP’s U.S. pallet operations, Brambles stated, “We value strategic relationships with third parties including vendors, service center management groups and the US recycling community among others. We will continue to look for ways to collaborate with third parties to drive value for our companies. In the short term, nothing will change until we begin to operationalize our integration plans. We will honor our existing contracts.”
CHEP may continue to work with its current depot network in a lot of cases because many of those facilities are much more automated and designed to efficiently handle CHEP pallets than IFCO operations. And in the interim, don’t look for much to change except for the diversion of white wood to IFCO by CHEP.
Brambles explained, “CHEP pallet returns will continue to go back to CHEP plants only, both from recyclers and our representatives. IFCO will not receive returns at this time. CHEP continues to offer the same Asset Recovery Program to pallet recyclers. Any operational changes will be communicated to our strategic partners in due course.”
Even though Brambles is starting to provide some answers, many questions remain although initial moves have shocked some pallet recyclers, especially those that have lost cores to IFCO.
