What is a fair price for shipping, sortation, storage and retrieval services involved in returning stray proprietary pallets, especially CHEP-marked pallets? If you line up ten recyclers, you might get fifteen opinions on the matter. CHEP maintains that its Asset Recovery Program (ARP) is fair and 1900 recyclers have joined the program since it first started.
But rising costs and the issue of recycler compensation being tried in a federal court is once again raising questions about the fairness of CHEP’s ARP program. At this point our own survey finds that some recyclers believe it is fair while many others do not.
Ricky Mock, president of Mock Pallet Company (MPC), Covington, Ga., obviously does not believe the ARP is fair. Mock Pallet has been sued by CHEP and has counter sued the rental giant for unjust enrichment. This is the second time that the case has come before Judge Beverly Martin of the U.S. District Court for the Northern District of Georgia.
In the first trial, a jury gave Mock Pallet a large award, nearly $20 per pallet, which was reversed on appeal. The case was then sent back to Judge Martin for her to decide just compensation for recycler services done by MPC and the cost for 1,970 CHEP-marked pallets that MPC outright sold to customers.
While the first trial covered some of the costs associated with returning stray pallets, the second trial produced some key documents that show the real value of the service to CHEP.
According to internal analysis conducted by CHEP before the ARP began, services offered by recyclers to help collect stray pallets could have a value as high as $4.67 per pallet. The analysis provided two ranges. The low end range was 80 cents to $1.18, and the high end range was $2.40 to $4.67. Before the ARP, Glen Kolb, then director of financial planning and analysis for CHEP USA and the author of the report, told others within CHEP that the real value had a greater probability of being closer to the higher end than the lower end.
In court, CHEP tried to downplay this information by pointing out that the value of the service likely reduced to somewhere in the lower range as it closed more holes and more recyclers participated in the ARP. But this doesn’t negate the essence of the message. Recyclers provide a very valuable service to CHEP. And in some cases, the value is likely much more than what CHEP has offered through its ARP. Whether or not the ARP is fair compensation, well that’s up to each recycler to decide.
During the Mock trial, CHEP’s attorney claimed that CHEP designed the ARP to compensate recyclers for their costs and provide a profit.
In a recent settlement, CHEP agreed to pay a recycler $4.96 per pallet, which indicates that it has veered from its ARP in at least one case if not more. CHEP contended that the $4.96 covered much more than simply returning and safeguarding stray CHEP pallets. The terms of the settlement were not disclosed during the trial so it is impossible for the public to really weigh the value of the $4.96 settlement.
Since the ARP started, CHEP’s acquisition costs to get pallets back directly from cooperative, non-participating distributors have been as high as $3.14 per pallet. This means that it has cost CHEP more to obtain pallets from places where CHEP knew the source than it has paid recyclers.
Judge Beverly Martin said that there’s simply nothing wrong with a recycler refusing to participate in CHEP’s ARP. She admonished CHEP to figure out a way to work with those who don’t like the ARP. She also encouraged the Mocks to be reasonable and work toward a fair compromise. At press time, Judge Martin had not issued a decision about fair compensation.
The math is really simple. Generally, it costs a recycler the same amount of money to handle a proprietary pallet that it does a regular, white wood pallet. The only major difference is the repair cost. Retrieval, sortation, storage, shipping, overhead, etc. – that’s all the same. Pallet acquisition cost can vary depending on the situation. So when you calculate your cost, back out the expense to repair and possibly the core acquisition cost depending on your situation. Then add your typical profit margin. This should give you an idea whether or not the ARP makes smart business sense. Consider your cost structure for ready to go pallets that you get in your normal course of business.
The Mock trial is once again reviving old questions. You have to look deep within to find the answers. Is the ARP fair? Well, I guess all is fair in love and war. Oops, I meant the pallet business.
Pallet Enterprise is currently sponsoring a survey of recyclers on the costs associated with returning proprietary pallets. Regardless of your opinion on the matter, the more surveys that we get completed the better our results will be. It only takes a few minutes. You can complete the survey on page 69 and fax it to 800-397-9153. Or you can complete the survey online at www.palletprofile.com/assetsurvey.asp
