The ongoing expansion of Chep’s North American 48″x40″ pallet pool, now estimated unofficially at 30 million pallets, is pretty much taken for granted. Chep continues to gain market share in its key market segments, such as dry grocery, perishable goods, and foodservice.
The leading pallet rental company surprised some observers last year, however, by getting involved with ‘white wood.’ It reached an agreement with Wal-Mart to perform dock sweeps at the retail giant’s distribution centers. Chep subcontracted with several pallet recycling companies to perform the dock sweeps. Chief among them is Bromley Pallet Recylers, which reportedly is performing sweeps at 10 Wal-Mart locations. Wal-Mart wrote to its vendors, encouraging them to consider using Chep pallets.
Chep announced in late 1998 that it would be willing to negotiate with individual pallet recyclers for sorting, handling and returning incidental accumulations of blue pallets that made their way into their yards. This was widely thought to be a positive move for both Chep and independent recyclers, using market forces to help stimulate the flow of stray blue pallets back into service. It has not been all smooth sailing, however. Chep negotiated with a major pallet recycler in the Northwest for sorting and handling services, but the two sides were not able to agree on terms; Chep filed a lawsuit against the company in an attempt to recover its pallets.
The leading rental firm continued to grow its key product markets. Its share of produce pallet trips reportedly is in double digits in a domestic market estimated at 60 to 70 million pallet trips. Many of the major growers and shippers have conducted trials or are planning to in the next 12 months, according to Chep, which already counts among its customers such businesses as Fresh Express, Larsen Farms, Sunkist, T&A, A. Duda and Sons, and Boskovich. In addition, Chep’s returnable plastic container (RPC) program gained significant momentum in 1999, a trend that should continue well into the next decade. Chep managers are working with top growers and shippers on selected trials of this initiative.
Chep’s RPC program made several substantial breakthroughs in 1999. Participating retailers and wholesalers have been able to reduce labor costs at the retail level, according to Chep, particularly when produce is displayed in the container. Retailers also have reported a reduction in damaged produce because the containers cross-stack; one retailer said the Chep RPC provides the most stable unit load in his produce distribution center. Growers and shippers in Mexico and South America are scheduled to ship their first grapes, citrus and tomatoes in Chep RPCs.
Chep continues to make news and raise eyebrows in other areas of the third-party arena, where it has successfully lobbied a couple of states for favorable tax treatment of rental returnable containers. Working with the Reusable Plastic Container Coalition, Chep was able to eliminate user and sales taxes on rental pallets and containers in Florida and California. Many states still tax leases of pallets and containers from third-party service companies, a tax policy that Chep argues creates an uneven playing field that tilts in favor of one-way pallet systems and non-reusable containers. The taxes also run counter to public policy that seeks to encourage increased recycling and conservation of natural resources and reduction of solid waste. “We are attempting to provide industry with an incentive to do the right environmental thing,” said RPCC spokesman Scott Cameron, who also is a Washington, D.C. lobbyist for Chep. Members of Congress and their staffs told the RPCC that tax incentives for returnable containers were “a good idea, but it’s kind of narrow,” he added. “They said maybe it should be partnered with something else.” As a result, Cameron and his allies are attempting to garner support from other groups with interests in environmental tax incentives.”
Foodservice — food products for restaurants and institutions — is another rapidly growing Chep market. It entered the U.S. foodservice industry about four years ago. Chep has been endorsed by a number of major distributors, and its list of big clients is growing. In a recent foodservice industry survey, 42% of distributors viewed third-party as the cheapest route for pallets while 35% indicated exchange was the least expensive option. Chep foodservice clients report such benefits as reduced unloading times, reduced product damage and improved material handling and control. Major foodservice manufacturers and distributors in the Chep pooling program include: Sysco, Campbell Soup Co., Gordon Foodservice, Kraft, Monfort, Shamrock, Nestle, U.S. Foodservice and Proctor & Gamble.
Monfort, a boxed beef producer, began palletizing all of its shipments on blue pallets, Chep announced last fall. Monfort’s decision covers shipments from its meatpacking facilities in Texas, Kansas and Nebraska to all sales channels. Monfort, like many beef products producers, previously floor-stacked product or used one-way pallets. It switched to Chep in order to improve product handling operations throughout the supply chain, including quicker unloading, reduced dock times and eliminating the need for ‘lumpers’ — those temporary laborers hired by truck drivers to do unloading.
“Monfort is committed to delivering the highest quality product in the most efficient and cost effective manner possible to our valued customers,” said Mike Croot, vice president of sales. “The Chep program takes costs out of our delivery system while improving customer service, so it is a key component in achieving these goals.”
A survey of Monfort customers indicates that the Chep pallet program is substantially less expensive than either floor loading or other pallet systems. “The savings our customers will see accrue from eliminating pallet repair and disposal, an increase in receiving dock productivity and a reduction in transport costs,” said Ed Fitzgerald, vice president of operations and transportation. “There are also environmental benefits in the Chep system; that is within our goal to ‘reduce, reuse and recycle.’ “
Chep has announced the opening of a third premium service center or mega-depot. It has chosen a 250,000 square-foot warehouse in Wappinger, N.Y. as the site for its new depot. The company will collect, inspect, and repair wood and plastic pallets at the new facility. “Locating our premium service depot (in Wappinger) enables us to improve the quality and service that Chep provides its customers,” said Ed Fuller, Chep vice president of operations engineering. The Wappinger site will join two other Chep premium service centers already operating in Garland, Tex. and Davenport, Fla. The premium service centers complement the company’s network of more than 180 third-party depots throughout the Americas. Chep has also operated company-owned depots in Canada for many years.
Chep officials said earlier that they expect to open three or four more premium service centers during 2000. The ability to automate the pallet repair and handling process will lower costs in 2002 and beyond, they said, but in the short term establishing the new premium depots will cut into profit margins.
