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International Commerce Impacts U.S. Pallet Demand
Many Products Imported to U.S. Not Palletized

By Chaille Brindley and Rick LeBlanc
Date Posted: 4/1/2004

As the United States continues to run a large trade deficit with other parts of the world, people in the industry may be wondering what impact this economic reality will have on pallet demand. There is no one answer because each exporting country and customers are different. It does seem that many of the products imported into the United States are not palletized. This may be good news for domestic demand of new and used pallets while somewhat bad news for the domestic core supply.

            "We do not receive any significant amount of product palletized from imported goods," said Ron Reed, of Wal-Mart Stores, Bentonville, Ark. Most of the goods it receives are floor loaded into containers. This tends to be especially true for products coming from third world countries or Asia. A contact familiar with the practices of JC Penney said that it gets pretty much everything from foreign countries in floor loaded containers as well.

            David Mezzanotte, President CHEP USA, said, "Primarily in the past, goods that have been imported into the U.S. have not been palletized. This is an example of the classic problem of people only looking at their part of the supply chain."

            In many parts of the world, the cost for paying labor to floor load the product is virtually nothing. Without the pallets, the product manufacturer can get even more product in each container, which reduces the shipping cost per item. With international shipping rates starting to go up, saving space has become even more of a priority over the past year. All the international regulations impacting wood packaging due to phytosanitary concerns also provide another reason why some importers might find it advantageous to floor load items.

            As companies use new measurement techniques, such as Six Sigma, that look at the entire supply chain, more international shipments may get palletized at the point of manufacture. If major retailers and distributors push the suppliers, they will likely comply, which would reduce domestic demand for new and used pallets.

            It really all comes down to the freight savings versus the higher domestic pallet and labor costs of palletization. Which is more expensive to the total supply chain? If a container of electronics comes into San Francisco and is offloaded onto pallets by dock workers earning $35 per hour, then the space savings may not make much of a difference. If the container is unloaded at a distribution center, the labor cost associated with palletization may be much less than if it is done at a port by a longshoreman.

            Changes in the hours of service regulations for truckers may also impact the cost equation. Some trucking firms are charging "detention fees" for delays in loading or unloading freight. Palletization does make this process much quicker, which would help receivers avoid these fees and might make international palletization a more attractive option.

            "Only a small percentage of the total shipping space is taken up by the pallet, and the cost savings of the labor and material on the other end is huge," said David. "CHEP has been doing some importing into the U.S. on CHEP pallets from Asia for some time. It just hasnít been a huge volume. But I think that volume is going to pick up significantly."

            There are some goods that just canít be floor loaded very easily due to weight or bulkiness. Items such as heavy equipment, chemicals in large drums and other bulky products are more than likely palletized.

            "Itís not odd to see a mixture of palletized and non-palletized goods in one container," said Heidi Larsen, vice president of sales for Cape Systems. Heidiís company specializes in software designed to help shippers maximize the utilization of space in containers. Shippers might try to fill out a container with bulk items if they donít have room for a complete pallet load.

            At the end of the day, whether or not to palletize loads coming into the United States is going to be a shipper/SKU-based decision. As shippers fine tune their processes and foreign exporters become more accustomed to palletization, you may see more products coming into the United States on pallets. This will take time to develop and may not materialize in some cases if international shipping rates climb.

            Michael Rummelhoff, vice president of operations for Meyer Corp., said, "Due to the extreme increases in ocean freight coupled with the fuel surcharges, it is absolutely imperative that we make complete use of every cubic inch of space when we transport goods.  The loss of cube for an ocean container, given a 45-foot high cube, is approximately 15%." Meyer is a leading American cookware company with most of its product manufactured overseas.

            One factor impacting international palletization is the lack of uniformity in international size standards. With the U.S. still clinging to the imperial system and most of the rest of the world using metric measurement, there continues to be integration problems. As size standards become more a reality, you may see more palletization before the product reaches the final import country.

            Barry Horowitz, a transportation consultant marketing GE SeaCell containers, said that some shippers may opt to palletize because it offers the convenience to deliver small segmented loads to the customer directly out of the shipping container, which allows the shipper to make multiple stops while altogether bypassing the U.S. distribution center.

            Even if palletization is a major advantage for international transit, many foreign countries currently do not have enough modern materials handling equipment to effectively utilize the shipping platform. Letís just take one major exporter to the Untied States Ė China. The United States is Chinaís largest export market, with 22.5% of Chinaís total exports coming to this country last year. Yet Chinaís distribution and logistics infrastructure is very antiquated. It has only a limited number of modern warehouses.

            According to one consultant, "Most warehouses (in China) are little more than brick and concrete shedsÖwith minimal or no capacity to store product in pallet racking." The consultant went on to comment that, "High damage rates resulting from considerable multiple manual handling is commonplace. The utilization of pallets and other transport aids is very limited for several reasons. No available or manageable pallet pool for pallet hire, lack of standard pallet configuration for China, rear loading of goods and no specialized equipment such as dock levelers and limited use of fork lift equipment."

            All of these trends tend to point to the fact that increased imports may not be such a bad thing for the U.S. pallet industry, at least in the short term. This may not hold true forever though, especially if more loads start to be palletized in the country of origin.

            Are you in danger of being squeezed out due to shifts caused by international commerce? The only way to know for sure is to talk with your customer and find out about their supply chain. If they have high domestic palletization and labor costs, you may be out of luck.


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