I know what many of you must be thinking – orange is just an unlucky color for a pallet pool. It didn’t work out for PEP-branded pallet used by National Pallet Leasing Service for the ill-fated nationwide expansion of its pallet rental program in 1998. And as for the future of the leaky U.S. Postal Service pool of used orange plastic pallets, you wouldn’t want to guarantee that the check is in the mail.
Seriously though, as the Canadian Pallet Council (CPC), Canada’s orange cooperative pallet pool, contemplates closure, it is tempting to look back at the last few decades and see what might have been done differently to keep it afloat. If anything, the story of the CPC offers helpful instruction going forward for other pools, such as 9BLOC. But then maybe I’m just being negative.
Perhaps a more positive tone would be to look at what was done well to keep the CPC afloat as long as it did. Some industry observers predicted its exit from the market for over the last decade. You decide. I’ll just serve up some facts, figures and opinions.
Let’s be clear, the CPC is not dead yet. Its management team is looking for a workable transition strategy, and the CPC in some form may stay around for quite some time. We just don’t know yet. But the future doesn’t look bright at this point without some major restructuring.
Hindsight being 20/20, the world of grocery logistics had changed over the last decade, and CPC no longer seemed to fit. The ship had been listing for quite some time, but more recently decisions by remaining key retailer (distributor) members, such as Costco and Loblaw Companies, has accelerated the reduction in pallet volume. The fact that Loblaw, the country’s largest grocery retailer, will no longer support CPC through empty pallet returns makes its future all the more precarious.
To be certain, the downward spiral of CPC was no surprise. Looking back at an article I wrote for Pallet Enterprise in 2002, I talked about international CHEP analysts referring to CPC as “irrelevant” even then. The trends in CPC pallet sales and repair speak volumes, showing the gradual decline of pallet purchases and repairs in the 2000s as CHEP market share grew in both Canada and the United States.
In talking to veterans around the Canadian pallet scene these past few weeks, there was the point of view stressed that if CPC would have gone to a rental or one-way model earlier, perhaps it could have persevered.
I looked at that very issue in a policy paper I wrote for CPC back in 1992. My thought at that time was that if CPC migrated to a CHEP-like model, the best members could anticipate would be CHEP-like pricing. It was my belief at the time that through collaborative grocery industry efforts, pallet management could be done cheaper and better by industry itself through the interchange program. Furthermore, I argued (somewhat in error as I outline below), that those who didn’t want to manage pallets could utilize CPC members which offered pallet rental and retrieval services. If the industry wanted to migrate to rental, it could do so while continuing to use CPC pallets.
A similar conclusion was reached by the Lande-Luton study in the mid-1990s, which suggested the best path forward was the “Enhanced” pallet interchange program with more ambitious member pallet repair requirements (25%), rather than a “full depot” or one-way solution which was one of the other options considered.
Meanwhile, the landscape was changing in a way that we hadn’t anticipated. Third party logistics was rapidly spreading roots in the grocery supply chain, resulting in new partners with less interest in managing pallets both in warehousing as well as transportation. A lot of the tribal pallet management knowledge gradually was lost as logistics became increasingly transactional, and much less about enduring relationships. At the same time, new generations of management increasingly began to view CPC as a complicated inconvenience rather than as a collaborative best practice.
And as for my view that CPC members could increasingly shift to CPC rental/retrieval programs if that is the way they wanted to go, I failed to anticipate that decreasing pool quality would make the economics of rental more daunting as rental providers argued they were receiving inferior CPC pallets back and not the ones supplied to customers by the rental company. Thus, decreasing pool quality hurt the viability of such a business. This scenario led the largest CPC provider to introduce a new, albeit short-lived pallet pool called Flex.
Flex was the rental program launched by IFCO Canada. IFCO Canada (the acquired Superior Management Group, and today Paramount Pallet) launched the rental program because the quality of CPC pallets was poor and made the economics of renting CPC pallets unprofitable for IFCO. It started rolling out green Flex pallets but then IFCO corporate got cold feet and stopped the project.
While the development of a CPC-based rental pool was a nice concept, it didn’t really catch on as some had hoped. The movement to pallet rental was not realized in terms of CPC interchange to CPC rental providers, but rather from CPC interchange to CHEP rental.
To be fair to CPC, the organization did respond with better quality through its enhanced program, as well as eliminating companion stringers. The CPC changed to a third party quality assurance provider, and did launch CTSweb, an Internet-based software program that greatly enhanced pallet management for members. CPC emphasized the environmental benefits of the ECT (electronic container transfer) component that would help reconcile imbalances without physically moving pallets. At the end of the day, however, it was still an exchange program with a heavy stringer pallet, when the market was increasingly interested in a one-way system with a lighter, block pallet.
If CPC could have changed to a block pallet and a one-way model somewhere in its journey, maybe ten years or so ago, it might have had a chance. But when it became clear that my 1992 thinking was wrong and the organization didn’t make the necessary changes, time was short for the pool. One major problem was that the CPC’s cooperative structure made it difficult to change the organization due to competing interests. The industry looks at some of the pallet user industry cooperative pallet pools in Europe as being successful with one-way 4-way entry pallet programs, notably SRS in Sweden and NLP in Norway, and wonder if things might have been different for CPC. But it should be noted that CHEP penetration in Scandinavia is still in the early stages.
Hindsight is 20/20, and it will be interesting to see how some of the other cooperative pools can hold their position as CHEP further penetrates those markets in the years ahead. If there is a message to those other pools, it is to do the things that have always been good practice. This includes primarily to actively manage the pool, maintain good lines of communications from the loading dock to the board room with all parties involved and to be responsive to customer priorities.
