The year 2000 brought a number of new
developments to the pallet industry, and Pallet Enterprise provided
readers with the information on them.
Some of the more important issues that we
reported in the pages of Pallet Enterprise during the previous 11
months included the use of online pallet auctions, the rising importance
of the Europallet, import restrictions, Internet marketplaces, the
changing third-party pallet management scene, the decision of the Canadian
Pallet Council not to enter the U.S. market and more.
In this article we revisit these important
issues that arose in 2000 and summarize some of the key points.
Online Pallet Auctions
Online pallet auctions became a hot topic
in 2000 and were the subject of an in-depth report in the June issue of Pallet
Enterprise. Technically, they are not ‘pallet auctions.’ Instead,
pallet suppliers bid via the Internet on high-volume contracts. Several
major manufacturing companies have purchased pallets through such online
bidding procedures.
One of the major players that has emerged
in this service is FreeMarkets, a company that provides online auction
services. FreeMarkets has helped client companies purchase pallets and
other products and services via online bidding. It provides computer
software, training, and screening of vendors.
The effect of the bidding process,
conducted over the Internet or otherwise, is to drive down pallet prices.
The upside for pallet suppliers, however, is that it can provide access to
new potential customers.
Europallet
The Europallet grabbed some of the
spotlight, particularly for pallet suppliers with customers who ship
products to
Europe.
European countries are in the process of
implementing environmental laws and regulations that encourage recycling
of packaging, including wood packaging. Packaging that cannot be reused is
subject to taxation. In Europe, only Europallets or other pallets built to
approved standards are recognized as reusable and therefore are not taxed
under the new laws and regulations.
The European Pallet Association, which
administers the Europallet program, established a U.S. affiliate to
license American companies to manufacture the Europallet. The U.S.
Europallet Council was established in cooperation with the National Wooden
Pallet and Container Association.
Import Restrictions
International concerns about wooden
packaging have been more common following infestations of the Asian
long-horned beetle. The insect apparently was carried from China to the
U.S. aboard wooden packaging. Restrictions were placed on incoming wooden
packaging in such countries as China, Brazil and Finland.
An international task force of 20 people
met in Canada to address this issue. Gordon Hughes, executive general
manager of the Canadian Wood Pallet and Container Association (CWPCA),
represented the pallet industry. The task force included two other
Canadian representatives and two from the U.S.
The task force came up with a
recommendation that will be made to nations around the world. Countries
will have two years to respond, proposing changes and amendments. At the
end of the two years, another meeting is planned to consider the
suggestions. The task force is expected to present a final document to the
World Trade Organization for international acceptance.
Internet Marketplaces
The forest products industry is beginning
to embrace the Internet as a business tool for buying and selling goods
and services. At this stage, most Web sites that are involved in online
lumber sales mainly offer listings or advertisements. True
business-to-business online transactions are few and far between.
The Internet is here to stay, however, and
it likely will become intertwined and revolutionize business, including
the lumber market. According to recent estimates, at least one-third of
lumber and paper transactions will be conducted online within the next few
years.
"Our industry is difficult for
e-commerce to crack because of the nature of the small, independent
owners," said Paul Gutchess, president of Paul Bunyan Products in New
York. "But in two to three years, there will be no option for leading
companies. Ready or not, here comes the Internet!"
Even those who prefer doing business with a
handshake admit the Internet appears to be here to stay. The reason:
customers will demand it. "The buyers want to use the Internet
because they think they can drive prices down," said Art Willard,
southern hardwoods products manager for Coastal Lumber.
Brokers may become a casualty of
transactions made via the Internet. Online buying and selling may reduce
the need for brokers as information and leads become easier to find.
Third-Party Management
In the arena of third-party pallet
management, Chep continues to methodically grow its 48×40 pallet rental
business in the Americas to 30 million units and beyond. Its continued
growth is not the biggest development in third-party pallet services,
however. Several suppliers of returnable plastic containers (RPCs) have
entered the produce market, and suppliers of returnables have managed to
wrangle some tax breaks in a few states. Technology is advancing to track
returnable pallets and containers. Mergers and liaisons are changing the
landscape. Add them up, and you get a rapidly growing, increasingly
diverse infrastructure for pallet and container management falling into
place.
Pallet management continues to expand and
diversify. Customers are increasingly engaging pallet people in a broader
dialogue about management of other unit load packaging, such as
containers, bins and collars. Likewise, topics like customer and
down-stream automation systems, labor requirements and product quality are
finding their way onto the negotiating table. Providers of third-party
pallet management services are not only broadening their services, but
they also find themselves honing a different kind of marketing approach.
Coalescing to work like a patchwork quilt,
this mix of retrieval networks, tools, measures and initiatives could
become the foundation for the pallet industry’s retrieval and recovery
grid of the future, the platform for growth.
Chep continues to gain market share in its
key market segments, such as dry grocery, perishable goods, and
foodservice. 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. In addition, Chep’s
returnable plastic container (RPC) program has been gaining momentum.
Working with the Reusable Pallet and Container Coalition, Chep was able to
eliminate user and sales taxes on rental pallets and containers in Florida
and California.
In another significant development in the
third-party arena, IFCO Systems, the parent company of PalEx, decided that
it will divest its pallet manufacturing operations, which consist of 17
facilities from Florida to Maine and California. The company is trying to
line up a single buyer for the pallet manufacturing division, which
generates about $175 million in annual revenues.
IFCO also made a number of important
acquisitions in the pallet recycling industry, purchasing Bromley Pallet
Recyclers and Texas Pallet. Behind IFCO, they are two of the largest
pallet recycling companies in North America. IFCO also bought three pallet
recycling businesses in the Southwest and Belfer Drum in Grand Rapids,
Mich. The acquisitions further strengthen IFCO’s strategic position as a
nationwide provider of rental pallets and containers and related services.
IFCO also launched a new pallet rental pool
in Canada — called the Flex Pallet System that gives companies another
choice besides the top two players in the Canadian market, the Canadian
Pallet Council (CPC) and Chep. The pooled pallets are identical in
specification to the CPC pallet except they are painted green. The IFCO
Flex Pallet System, which is being marketed in Canada to grocery and
consumer goods manufacturers and distributors, gives customers the option
of owning pallets, renting them, or any combination of the two.
IFCO hinted the new program may be expanded
to the U.S. A news release issued by the company noted the "potential
to extend (the Flex Pallet System) throughout North America." It has
been rumored in the pallet industry for some time that PalEx might take on
Chep, which operates the largest pallet pool in the U.S.
CPC Won’t Expand
On a related note, the Canadian Pallet
Council (CPC) decided to abandon the idea of expanding into the U.S., a
prospect the group’s president raised a year ago but now says should be
discarded. Mike Therrien, re-elected president of the CPC, also indirectly
criticized Chep, which dominates the North American pallet rental market.
Speaking at the CPC annual meeting, Mike
emphasized the difference between the CPC cooperative approach and the
Chep system of pallet rentals. "Being a CPC member means being part
of a democracy in motion rather than a business partner with a firm that
seeks to monopolize the industry," he told delegates to the meeting.
The CPC should drop consideration of plans
to enter the U.S. market, Mike said. "I, along with the other members
of the executive committee, am recommending that we abandon an aggressive
launch into the U.S.A. and focus on our core competencies. I believe it’s
time to return to our basic roots and begin an aggressive campaign of
education and training for members.
"CPC members need to understand pallet
costing," he continued. "They also need to fully understand that
the CPC is a co-operative. Working together members share in the lowest
cost pallet program. We need to develop benchmarks, so members can
determine how they are performing versus others within the industry."
The CPC moved to implement a new policy of
requiring end plates on stringers of new CPC pallets. The CPC board of
directors approved a requirement for end plates on all new CPC pallets
manufactured after Sept. 2; the deadline was later postponed to Jan. 1,
2001.
Grocers Embrace RPCs
As closed loop systems have emerged, RPCs
have attracted interest from major grocery retailers. The retailers —
not growers or packers are beginning to dominate packaging decisions.
Wal-Mart has endorsed RPCs and is
converting its stores. Kroger, Food Lion, Publix and other grocery store
chains are either testing RPCs or moving toward utilizing them in stores.
So far, though, RPCs only comprise about 2% of the produce packaging
market.
As major grocery store chains evaluate RPCs,
the field is opening for more competition. For example, Georgia-Pacific
entered the RPC business.
RPCs are not expected to have an immediate
impact on the wood pallet industry. Most of the containers are designed to
fit on a standard 48×40 GMA pallet. But increased retailer interest points
to a change in mindset from one-way to multi-trip packaging. This may
translate into retailers "encouraging" the use of more plastic
pallets in the future. RPCs will help fuel the growth of third party
management companies. With some of these companies also offering wood or
plastic pallets, they will likely become a factor in some markets where
they currently lack a strong competitive presence.
Drum, Pallet Similarities
Pallets and drums have a long history of
working together in material handling. Drums are the container of choice
for many non-bulk commodities — quantities of 119 gallons or less —
and pallets are the preferred unit load platform for protecting, storing
and transporting them.
Although the drum reconditioning industry
is significantly smaller in scale than the pallet industry, there are many
business hurdles and opportunities that are shared by both.
As in the pallet industry, companies that
supply drums have alternative materials on their radar screen; plastic
products continue to gain market share. As in the pallet industry, drum
suppliers are trying to steer their customers into more durable,
multi-trip products; durable drums are viewed as lowering per-trip costs
for customers while providing drum suppliers with a steady source of
reconditionable drums. And as in the pallet industry, drum suppliers have
seen their ranks narrow because of consolidation; in fact, one company has
been in the thick of consolidation in both industries — PalEx.
Wirebound Still Growing
Wirebound containers, those crates made of
thin wood slates and held together by wire and commonly used for shipping
certain types of produce and also industrial products, have been around
longer than pallets. It is a market that still continues to show steady if
modest growth, however, and the industry introduced a new product to go up
against modern-day competitors.
The wirebound container industry is
inextricably linked to Stapling Machines. The New Jersey-based company is
credited with originating loop-closed wirebound boxes. It began
manufacturing wirebound box-making machines in 1904 and today is the only
U.S. manufacturer of such equipment.
Stapling Machines closely follows the
markets for wirebound containers, noted Dave Dixon, the company’s
executive vice president. The market for wirebound containers is about
$125 million to $130 million, he said, and is almost evenly divided
between two broad segments, agricultural and industrial. Annual sales of
wirebound containers for industrial applications are about $60 million
while sales for agricultural applications range from about $65 million to
$70 million. A standard wirebound produce container may sell for $1.25 to
$1.60; wirebound containers for industrial applications may sell for
anywhere from $3 to $90. About 20 plants manufacture wirebound containers.
The market for industrial wirebound
containers continues to grow at an annual rate of about 5%, according to
Dave. The agricultural market is growing more slowly, at rates of about 2%
to 3% annually, he said.
New Service: Cleaning
As manufacturers increasingly treat pallets
and containers as assets, cleaning shipping platforms has emerged as a new
service opportunity for pallet manufacturers and recyclers. Very few
companies in the wood pallet industry offer washing services. However, as
more pallets are actively managed and reused, traditional pallet
manufacturers that move toward providing third-party management services
will need to look closely at pallet and container washing.
Pallet and container washing goes hand in
hand with the trend toward reusable packaging. "Many companies are
converting to plastic pallets or containers, and washing systems are being
used more and more by them," said Wayne Carrigan, sales manager for
Industrial Resources of Michigan, which sells the Eliminator washing
system. "Pretty much any type of reusable packaging needs to be
washed and sterilized."
Cleaning can be another source of revenue
for pallet businesses, but it is not for everybody. Evaluate your customer
base and business by asking yourself the following questions:
• Are you located in a major distribution
area?
• Do you service customers with special
requirements for cleanliness and hygiene?
• How many pallets and containers go
through your area?
• Are you a wood pallet supplier or a
pallet management company?
The type of washing or cleaning required
for a shipping platform depends on the type of unit load and the goal.
Hand-held pressure washers that generate about 3,500 psi get limited use,
usually for finishes or touch-ups, such as removing an extra sticky label
or a big cake of mud.
Washing systems range from basic turnkey
models to custom designed, fully automated, high volume systems. Automated
systems reduce labor costs and are more efficient; they are at the core of
most washing or cleaning operations because of their ability to handle
large volumes. A typical system, in which pallets and containers move
along a conveyor from start to finish, includes a washing stage, optional
rinsing process, and a drying segment. Cleaning solutions may be added to
the water. Some automated systems come complete with destackers and
stackers.
Plastic Lumber
Plastic lumber and composite products —
made of a mixture of plastic and wood fiber — are gathering momentum,
particularly in markets for building-related products, such as decking.
There have been a number of signs of the
growing acceptance of plastic and composite lumber products, including the
rapid growth in production and sales of some manufacturers and the gearing
up of machinery suppliers for the budding industry.
In addition, a study by a market research
and consulting firm predicted the industry will enjoy double-digit growth
in the first decade of 2000. The total size of the plastic lumber and wood
composites market in 1998 was 565 million pounds, valued at about $220
million, according to the study by Principia Partners, which predicted
annual growth of 13% through 2008.
Plastics and composites have not gone
unnoticed by the pallet industry, either. Several companies now are
manufacturing plastic pallets, and Chep, the leading pallet rental pool
company, has introduced plastic pallets into its operations.
Canadian-based Dura Products International,
which makes pallets and other products from a composite material comprised
of recycled plastic and cellulose fiber, branched out into decking
products. The company also signed an agreement to supply composite pallet
boards to Canadian Pallet Corp.
In most pallet applications, plastic is
molded by various means to make the pallet although in at least a few
cases companies are making pallets or skids in whole or in part with
plastic lumber components.
Grinding, Coloring
Pallet businesses and sawmills produce
significant volumes of waste wood material as a by-product of their
operations. Suppliers of grinding and shredding equipment can help them
convert wood waste to other marketable products.
Whether the company is fully integrated,
with its own sawmill or scragg mill, remanufacturing lumber into pallet
parts, making pallets from cut stock, or repairing pallets and conducting
other pallet recycling operations, new and recycled wood waste
accumulates. The slabs, trim ends and shims pile up; at pallet recycling
operations, broken or otherwise flawed used pallet parts and entire
pallets mount up.
Waste wood is a solid waste challenge. How
can companies dispose of the material? Some companies explore another
option: how can they convert waste wood to a value-added product and
market and sell it to add to their revenues.
Various types of grinding and shredding
equipment have provided solutions to pallet companies and sawmills.
Technological advances have improved both the product produced by the
machinery and their performance. Suppliers offer systems to process
relatively small volumes of waste wood or an individual pallet to much
larger machinery that can grind entire pallets or skids and other large
wood debris, such as limbs or stumps. Grinding and shredding machinery
varies widely in terms of production capacity, size, portability, and
other factors.
Some companies have made investments in
machinery to grind scrap wood and to produce colored mulch. Some
businesses sell colored mulch wholesale to landscaping companies while
others also invest in systems to bag finished colored products for
eventual retail sale. Others may choose to partner with companies that are
involved in the colored mulch business, perhaps by supplying scrap wood or
uncolored mulch.
There are a number of companies now
supplying machinery and technology to produce colored mulch. Some
suppliers have focused on expertise in coloring wood fiber while others
offer systems that both grind wood and color the mulch product. There also
are a number of companies that supply colorant products in a wide range of
colors.
Converting waste wood to colored mulch may
not be appropriate for many pallet businesses. On the other hand, it
certainly deserves attention from those companies looking for ways to
increase revenues.
Pallet Standards
Standards for pallets will become more
widely accepted as businesses become more global in nature and because of
the growing importance of a standards-setting organization.
That was the message that Dr. Marshall
("Mark") White, director of the Virginia Tech pallet and
container research lab, delivered to an audience at the annual meeting of
the Canadian Wood Pallet and Container Association.
Increased acceptance of standards "is
inevitable," Mark told the gathering, for two reasons: the increased
globalization of the economy and the increased role of the International
Organization of Standardization (ISO) in standardizing packaging and
pallets for intercontinental and international transport.
Although pallet standards are
overwhelmingly voluntary, they can be binding in sales agreements or
contracts between pallet manufacturers and their customers. A contract or
agreement that calls for pallets to meet a certain standard can be the
subject of civil litigation if the pallet supplier does not comply.
A number of different organizations and
associations have published pallet standards, including the National
Wooden Pallet and Container Association, the American Society of
Mechanical Engineers, ISO, and groups in Japan and Europe.
Of the various organizations, Mark believes
that ISO will increasingly assume a leadership role in setting standards
involving the pallet industry. "The International Organization of
Standardization, I believe, in the world of pallets is going to grow and
grow and grow in influence." In the future, its standards will be
referenced more often in relationships between pallet suppliers and their
customers.
Finally, a survey of pallet recyclers
conducted by Pallet Profile Weekly, and the subject of a special
report in the November issue of Pallet Enterprise, revealed a
number of trends. The growth in demand for recycled pallets appears to be
approaching 10% instead of the 20% experienced throughout the 1990s. In
addition, a growing number of recyclers report that pallet cores are
easier to obtain.
