The recycle pallet market rumor mill is grinding at full tilt. It’s no surprise considering recent developments with some of the largest players.
The CHEP/IFCO merger has generated quite a bit of buzz. The concern is obviously warranted as Brambles now controls two of the largest and prominent companies in the U.S. pallet market. Early speculation around the CHEP/IFCO merger stated that CHEP was primarily interested in the RPC business, especially in Europe. That has since been confirmed by CHEP.
The company’s primary interest in the deal did not however rule out their interest or desire to make the best of the U.S. pallet operations.
Many of our contacts were expecting the IFCO pallet division to be sold sooner rather than later. Thus far that has not been the case.
CHEP hasn’t shown any sort of desire to that. The company is currently speaking about white-wood operations with a very wait-and-see tone.
That sort of temperament doesn’t fit the company’s typical operating procedures. While most of the public statements about integrating the white-wood pallet business with CHEP’s operations is couched in terms of finding what works, the fly-by-the-seat-of-your-pants temperament doesn’t fit the company’s normal operating style.
It’s a given that the feeling out process will govern some of what happens. I am sure CHEP has at least a thought of a Plan B and Plan C, if Plan A doesn’t fall in line the way it hopes.
That is an important consideration when looking at the rest of the market and what the industry is saying about it.
White-wood core supplies are in a definite state of flux.
The recycled industry has seen core supplies go through a bit of yoyo style availability over the past year. It wasn’t too long ago that some major recyclers had seen the economy take a toll on prices for #2 GMA pallets to the degree that some were calling #2 pallets a liability. Some even took the drastic step of grinding fairly large volumes of the lower grade units as the value for the fiber produced was greater.
The economy began to show modest signs of life and since none of the other market fundamentals had shifted much, the core shortage was back in place and worse than ever.
The core shortage makes premium supply lines of critical importance. Core sources from distribution centers are guarded by incumbents like the great treasure they are.
The CHEP/IFCO merger has caused more than a little shifting on this front. We have confirmed through multiple recyclers that CHEP is not renewing contracts with recyclers who have taken cores from DC’s where CHEP handled the dock sweeps. It seems obvious that CHEP will want to divert these cores to its new whitewood pallet division.
A funny thing happened on the way to core supply dominance. Some retailers do not like the idea of CHEP and IFCO partnered together, holding such a large role in logistics services.
We have heard from multiple sources that IFCO lost numerous DC supply lines simply because of that factor.
Several companies were in negotiations with a mass marketing retailer to take over the DCs where IFCO has allegedly been ousted. It seems that a last second deal has allegedly brought a new company to the table, but this remained unconfirmed at press time.
Not just a pallet rental giant…
One of the more alarming aspects of the merger from the recycled pallet industry’s perspective is the potential to use their strength against the market.
Some recyclers report that CHEP employees have been making the rounds at DCs trying to garner more white-wood supplies. At the very least, this is a sign that CHEP plans to make a strong push at making the white-wood side of its business a big threat in the market.
In some cases, the DCs were told that the company is on a fact-finding mission, while others have relayed to incumbent recyclers that it was a full on attempt to take the dock sweep responsibilities and core supplies. In both cases it is evidence that CHEP is not going about this in the half-hearted fashion that some of its recent statements might make one believe.
We have not received any reports of CHEP’s success in taking DCs from incumbent recyclers.
One of the hurdles for CHEP points back to the idea of CHEP and IFCO holding such a large role in logistics services.
You paid how much?
Core prices had registered some concessions at the worst part of the economy. Those concessions bought recyclers precious breathing room – especially considering the state of the selling prices for #2 pallets at that time. Recycled pallet prices were already too competitive at that time. Profit compression was taking a toll on many recyclers’ bottom lines.
Core prices have remained largely unchanged since, though we have seen some upward pressure in the market.
It goes almost without saying that any successes that CHEP/IFCO enjoy in obtaining further core supplies tightens the same supplies in the current market.
This in turn will increase competition for cores in the open market. Prices for cores could press upward once again.
There’s no way to know the impact of the CHEP/IFCO merger until we actually begin to see serious change. Until then…
(Editor’s Note: Jeff McBee is an analyst who researches and writes about the pallet industry and its raw material markets for Pallet Profile Weekly and the Recycle Record, the only newsletters dedicated to serving the pallet industry. For information on subscribing to Pallet Profile Weekly or the Recycle Record, call 800-805-0263 and ask for Jeff.)
