Every year Modern Materials Handling magazine surveys pallet users to determine the mindset of its readership on key trends concerning palletization. This survey covers a broad range of U.S. manufacturing and retailing companies, and its results are among the most insightful look at the mind of pallet users and receivers available anywhere in the United States.
Pallet Enterprise has discussed the latest results as well as emerging materials handling trends with Modern’s executive editor, Bob Trebilcock. Having grown up around the pallet industry, Trebilcock is a materials handling journalist who loves to talk about pallets. Actually, Trebilcock said that his readers love pallets too since the pallet survey scores the best response rate of any survey that his company does every year.
This interview covers some hot topics including how warehouse and materials handling innovation will impact palletization in the future. He also shared insights from Modern’s recent survey.
Pallet Enterprise: How does the move toward multiple channels in retail supply chains impact palletization, packaging and retail logistics? What challenges will this present for the use of pallets and transport packaging in the future?
Trebilcock: My impression is that manufacturing is still the largest user of pallets, particularly consumer packaged goods. Things that are mass produced are still the sweet spot for pallets. Obviously, if a retailer, such as Costco, goes to a standardized pallet, it may not be bad for pallets in general although it could be problematic to the independent pallet maker. I don’t see that part of the industry changing. It is still more efficient to produce goods in a batch run and ship them out on a pallet. Where things are changing is distribution. Grocery stores no longer want to receive a whole pallet load of Campbell’s Tomato Soup. They want to receive pallets with layers of various products. Those bulk grocery items are still shipped on a pallet.
Many stores, particularly boutiques or specialty retailers, are going to smaller, more frequent deliveries. They are getting rid of their backroom. That means you are going to ship more cartons on a daily basis. They may put products on more roller carts like they do in Europe. They will try to minimize the number of pallets that they receive. They also may receive products shipped in boxes directly to the store from the manufacturer.
As you get more and more Internet orders, those are not palletized. It is one or two items in a box shipped via parcel carrier. Those items, even in the distribution facility, frequently are floor loaded or put into roller carts. The re-distribution phase of the process is increasingly not palletized due to online retailing.
Grocery stores are still receiving mostly on pallets. But places like Wal-Mart are trying to avoid some shipments even going to the distribution center and may request products be delivered directly to the store. They may not be palletizing as much in the future either. Overall, the trend is toward smaller, more frequent orders, and often those methods don’t require palletization.
Pallet Enterprise: In your pallet survey last year, sustainability took a hit in terms of its importance to pallet users. Obviously, price and service were the bigger drivers. But why has sustainability seemed to fall out of favor?
Trebilcock: It wasn’t just on our pallet survey where sustainability took a hit. The same thing occurred in our conveyor survey. I think what you are seeing is that before the recession sustainability was driven by boardroom executives from the top down. In many respects, that hasn’t changed. A lot of it was driven by consumers, who were demanding green products. And a lot of it was driven by marketing.
I put sustainability in the same category as radio frequency identification (RFID). There was a time where we were going to put RFID on everything including a can of Coke and track it through the supply chain. There was a lot of hype about that. If you listen to people talk about RFID today, you would think that RFID died, that nobody is interested in it, and that it was an abject failure. But the reality is that RFID in industrial applications is growing at a double digit rate, nearing 20% per year. RFID is just being used differently than people imagined; it is becoming routine, and people are not talking about it as much.
I think something similar happened with sustainability. It got a big marketing boost – a lot of talk, a lot of hype. Then you went through a recession where saving money was the highest priority over environmental stewardship. Companies are now asking how they translate sustainability into what they do. Warehouse and distribution center operators are still doing things around the area of sustainability. But these actions must pay for themselves, and many of the initiatives are focused on energy.
There are a lot of sustainability initiatives around replacing lighting in warehouses and distribution centers. You are seeing freezer warehouses where they are embracing automated materials handling processes to reduce the amount of space that needs to be kept cold, eliminating lighting, etc. A lot of the focus around sustainability is focused on energy first because that is the low-hanging fruit.
Wal-Mart still has a very aggressive program in place centered on reducing packaging. But it is not getting as much hype as it once did, and the initiative has become more focused rather than trying to make everything sustainable.
Pallet Enterprise: Was there anything in the latest pallet survey that changed compared to last year? What interesting trends did you notice?
Trebilcock: We asked some different questions because I was interested in what was going on in the cores market. Many of the numbers remained relatively the same. 46% said that they were using more used wooden pallets than a year ago, 41% said about the same, 11% said fewer used wooden pallets. I asked, “If they were having a problem procuring used wooden pallets?” 40% said that they had not experienced any problems and didn’t expect this to be a concern going forward. Only about 23% said that fewer are available. 17% said pallets were more expensive.
The average price increase for used wooden pallets was 9.3% for used wooden pallets. The general consensus was that pallet quality was worse.
We asked, “If you are having problems obtaining cores, what actions are you likely to consider?” 47% said that they would likely purchase more new pallets. Only 5% said that they plan to rent from CHEP, PECO, iGPS or another company as a result of a shortage. 22% said that they are investigating the option of creating or managing their own pool.
We asked, “Over the last twelve months, how many respondents had been asked by their customers to change their pallet design?” 81% said no. The vast majority had not been asked to change. Only 19% said yes. And of those who said yes, only 30% were asked to use more block pallets compared to 16% more stringer pallets. Of those who said yes, 41% said it was at the request of a retailer.
Pallet Enterprise: Was there an overall move toward rental or was that percentage of the market about the same?
Trebilcock: I didn’t notice a big movement toward rental. 58% said they don’t use a rental provider and have no plans to do so. 26% said that they do use a pallet rental company. 16% said another type of pallet retrieval or recovery system. Then we asked, “How likely are you to participate in pallet retrieval, recovery or rental system over the next year?” 7% said highly likely, 9% said likely, 32% said not very likely, 40% said not at all likely. So, 72% were in the not really category. 12% said they don’t even know what these things are.
We also asked, “If available, how interested would you be in using a pallet pooling service managed by the pallet industry that would serve as an alternative to CHEP, PECO and iGPS?” 3% were highly interested. 12% were interested. 20% were mildly interested. So 35% are interested to some degree. 30% not very interested. 36% not at all interested.
Pallet Enterprise: So it seems that more of your respondents are in industrial markets than the fast moving consumer goods supply chain?
Trebilcock: We do have a good manufacturing mix. It could be auto or chemical manufacturers who aren’t shipping into consumer goods or food and beverage markets. Our respondents are pretty broadly dispersed across industry verticals.
Pallet Enterprise: What effect did Costco’s switch to block pallets have on your survey respondents?
Trebilcock: We asked, “If companies were planning on switching from stringer to block pallets?” 63% said no. 58% said that I haven’t heard anything about this. Only 8% of the respondents to that question said yes.
Pallet Enterprise: Of course, if that is the right 8% in the retail world, then you are still talking a huge volume shift?
Trebilcock: Yeah, and I don’t really know the answer to that. But what I do know is that we had roughly 672 respondents. That may not sound like a lot. But a typical reader survey for us is about 350.
Pallet Enterprise: How is automating going to impact palletization?
Trebilcock: There is definitely a trend toward more automation. That started in 2009. I don’t see that trend going away for a bunch of reasons. Automation is more reliable now thanks to better software and systems, which has brought down the cost of automation. Secondly, you have had a major change in the way that distributors look at labor. Manufacturers have been trying to remove labor for years because manufacturing labor is so expensive. Distribution labor has been pretty cheap until recently. It is still relatively cheap compared to manufacturing labor.
Going through the recession, it was pretty emotional for a lot of companies to lay off a lot of the employees that they had to lay off. They got pretty lean and good at running their operation with a lot fewer people. And now they really don’t want to add to the head count. Even in a recession, it is harder for warehouses and distribution centers to pass the background check as well as the drug and alcohol check. And then if they can pass all of that, show up after lunch. What you are finding is that more and more distribution centers have reduced their labor force. We have the employees we like. Let’s automate to make the lives of our employees better as well as use the automation to scale up as business gets better. There is no question that this trend has been going on since 2009 when Congress changed how you can depreciate equipment.
The second part of that discussion is the e-commerce piece. I used to be able to make a profit on my shipping but now I have to give it away even though it still costs me money. The company down the street says that if you place an order by noon, we will get it on a truck by five the same day. Those shifts are creating real competitive nightmares for the distribution side of the business. And there are only two ways to do that. You either throw a lot of warm bodies at the problem or you automate so that you can execute very quickly some very complex order fulfillment strategies. Going all the way to where we started, since it is all being driven by e-commerce, there tend to be fewer pallets involved.
Pallet Enterprise: When you say automation, what exactly are you talking about? More automated storage retrieval systems (ASRS), conveyors, palletizers, robots, etc.?
Trebilcock: I mean all of it. It’s all software driven. You are seeing more automated data capture systems. You are seeing more pick-to-light systems. Rather than a barcode scanner, a bar of lights come on at a carton where you have to pick an item, and the display will tell you the quantity to pick for that load you are building. A carton comes in and I scan the barcode on the carton. And six locations will light up, one will say pick 5, another will say pick 3, two. When I pick the items from that location, I hit a button that turns off the light. You are seeing more light and voice directed picking because what they want is someone who doesn’t have to carry around a barcode scanner to build loads. You are seeing more conveyor and sortation systems. You are seeing more automated storage, but it is not for storage. What they want to avoid is people having to walk up and down aisles to pick things. One of the trends is goods-to-person picking. So what you have is a work station where a guy has a bunch of cartons and lights. And the carton that has the item you are going to pick from comes into your area from an automated storage system. A display or light will indicate the quantity to pick and the carton is automatically moved back into storage. This keeps the order pickers from having to move as cartons are automatically moved to them. You don’t need a big, huge automated ASRS. But you need a big storage area to store all the cartons that you are going to be picking from. We are seeing more robotics for palletizing particularly in the beverage industry.
Pallet Enterprise: So does this increased automation mean that the quality and consistency of pallets is a bigger deal?
Trebilcock: Yes, and when you talk about quality, e-commerce is a big driver. Mistakes made in retail store shipments are not as much of a customer nightmare as order fulfillment mistakes for e-commerce applications. If you are shipping pallets of mixed loads to a retail store, the retailer can easier deal with too much or not enough product. But if a customer has placed an online order and doesn’t get what he or she needs, that can impact the reputation of that company for any future business. The growth in e-commerce is driving the quest for the perfect order. The average e-commerce order is one or two items. If you make one mistake, you have blown the entire order, and automation is just more accurate than people.”
Pallet Enterprise: Is there any move toward greater use and adoption of non-wooden pallets, such as plastic, metal, composites, etc.? Are these trends toward greater automation increasing demand for non-wooden pallets?
Trebilcock: We are not seeing it. Our survey always seems to suggest that companies are using more plastic pallets than they really are. Our survey doesn’t give quantity comparisons. 94% of respondents say they use wooden pallets. 40% say they use some plastic pallets. But there is no way to know what this usage means in terms of the quantity.
