Last summer CHEP began sending letter to recyclers notifying them about changes to its Asset Recovery Program (ARP). CHEP, the pallet rental giant, introduced these new policies in stages. Recyclers were far from happy because the core of the message was a rate cut. Those new rates have been imposed throughout the country now, and recyclers are taking different approaches.
Some recyclers are just accepting the new compensation rates. Others are saying “come and get em” and refusing to handle the transport at the new rates. Others are fighting back with letters and meetings to lobby for better rates. Others are finding more “creative” solutions.
CHEP USA sent out a letter to recyclers stating that it would unilaterally change its published compensation rates. The rental giant stated that it would pay $1.67 for CHEP pallets returned to the closest service center plus a fuel surcharge based on the National Average DOE Diesel Fuel Index. If CHEP collects the pallets from a recycler, it will pay $.98 for CHEP pallets loaded onto a collection truck.
These prices are reduced from $2.25 for delivered pallets to a CHEP depot and $1.25 for those loaded by a recycler onto a CHEP trailer. Based on conversations with various recyclers, it is clear that CHEP did offer varying levels of compensation based on travel distances, fuel, and other considerations.
At a time when most costs are rising for labor, safety compliance, warehouse space, and more, CHEP is reducing its ARP.
In a letter to recyclers, Dan Gormley, the vice president of asset control for CHEP USA, stated, “From a logistics standpoint, we prefer to collect our pallets directly from retailers. We also reviewed in detail the use of the ARP program by some recyclers to subsidize other asset collections or to provide incentives to retailers.”
Gormley added, “All these factors contributed to a change in the ARP program. We value our partnership with the recycler community and believe the new pricing structure provides fair compensation for stray CHEP assets that they handle and return to us or make available for collection.”
Why the new rates? CHEP found its approach was subsidizing and encouraging some customers to take actions that strained its business model. Some just believe CHEP is trying to lower costs as other system costs rise. Others recognize that lowering the ARP could impact core pricing.
Regardless of the motivation, the outcome could be that CHEP just “kicked a hornets’ nest.” For years the ARP has kept recyclers somewhat acceptable to returning stray CHEP pallets. They have wanted more, but they found the compensation acceptable. Nobody was getting rich off CHEP pallets, but they were getting something. This reduction has triggered some angry responses from recyclers.
So, what can a recycler legally decide to do? For starters, you are NOT legally required to return proprietary pallets. All you have to do is notify the owners and ask them to promptly pick them up. You do not have to subsidize your competitor’s logistics, which is what you are doing in some cases if you return CHEP pallets to a depot.
Then, there are those who will say, “You want em, come get em.” These recyclers will receive .98 per pallet and are legally participating in the program without subsidizing CHEP logistics. Yes, they will receive less money. But if enough companies take this route, CHEP may be forced back to the negotiating table due to higher rates charged by their common carrier partners. The logistics headache of collection falls back on CHEP. Since this is part of the ARP, CHEP has no real legal response.
Another legal option is for a recycler to say, “You want em, here they are, come get em, but I am not loading them.” What you decide to charge for this collection, sorting, storage and safeguarding service is up to you since you are not part of the ARP. CHEP may or may not agree to those terms. If you issue CHEP official letters with established timelines, you could then start charging daily storage fees after a certain period of time (maybe 30 days). If CHEP refuses, you could then sue CHEP in small claims court for fees or possibly abandonment. As long as you allow CHEP to obtain its assets, you provide little legal groundwork for counter claims, such as conversion or lost revenue. Of course, you may want to discuss this and any other strategy with your legal counsel. Nothing in this column should be considered legal advice.
Why does the ARP really matter, especially if you don’t do a lot with blue pallet returns? The reason is that many recycled pallet contracts now have some considerations built in for rental pallet impact. ARP fees have become such an integral part of the cost calculation, that any major change is going to have ripple effects. These factors must be considered in any future contract negotiation moving forward.
CHEP’s statement certainly points to concerns about rebates monkeying with its business model. Every recycler has to decide how it plans to deal with these recent developments. It all starts with knowing your costs and doing what is right for your business.
