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Trends of the 1990s Propelling Pallet Industry into 22nd Century
What's the Road Ahead? - Insights into the future including pallet core supply, continued growth of pallet rental, and the tight labot matket.

By Rick LeBlanc
Date Posted: 12/1/1999

The pallet core shortage, the continued growth of rental, and the tight labor market top the list of the pallet industry’s leading concerns going into the next century.

But make no mistake about it. The lag factor looms large when considering how the pallet industry got to its present state and its outlook for the future. The events that triggered the pallet industry’s current core supply problems did not come out of the blue. They began earlier this decade with the introduction of rental or even earlier with the erosion of GMA standards in the 1980s. Likewise, the solutions that will provide new opportunities over the next few years probably already are sprouting.

In any industry, there is a period of time required for new technologies or practices to work their way through the economy. It took decades, for example, before North America knew the full impact of the automobile industry. One could say the same about the growth of palletization. The Internet is a technology that is still gathering momentum; its ultimate impact on productivity and the economy remains to be seen.

If pallet companies have been slow to react to the changes spurred by the growth of pallet rental, and if they find themselves either caught short of cores or without new market opportunities, it may be due in large part to the delay between cause and effect. During the 1990s the core "crunch" was delayed by the temporary release of cores from the grocery industry as they were displaced upstream by rental pallets and downstream by plastic order-picking pallets. Now, however, the supply of cores is beginning to deteriorate; not enough new, unpainted pallets are being purchased to replenish the supply.

"The pool is not shrinking," said Bill Biedenbach, president of Allegheny Recycled Products in Pittsburgh. "It is only the ownership that is changing. And that ownership is (represented) in painted colors, such as blue, orange, silver, and red."

"I think the cores are the same as they always were except the top 30% or 32% are painted cores," he added. "When you take the top 32% out and you are dealing with the bottom 68%, then things have changed. But that’s the game we’re playing."

To play the game, pallet companies must be prepared to change. One option is to work with third-party providers. "If you want to repair pallets, repair painted pallets," Bill offered. "You can’t make as much money repairing painted pallets, but you might want to get in bed with one of the painted pallet guys."

The tightening of the labor market during a strong economy will continue to prove to be a challenge to the pallet industry. "I think labor is going to be a major issue," said Joe McKinney, president of McKinney Lumber in Muscle Shoals, Ala.

"Demographics say we are creating more jobs in this country than we are getting new folks into the labor market," said Joe, who is chairman of the National Wooden Pallet and Container Association. "I think that’s a big issue, and I’m not sure where that one ends up." The labor shortage may prompt the pallet industry to automate some tasks that now are performed manually, he suggested.

"I think in this country, especially in our industry, we’ve got to stop thinking about how cheap we can get labor," Joe said. "That only works as long as there is someone else in line to hire." Instead, he said, the industry needs to start asking the question, ‘How can I run my business without labor?’

The answer to the question leads to mechanization and automation. This approach, Joe pointed out, has been embraced by the Europeans, who have faced labor shortages for several years. "And that’s what the U.S. is just starting to face, in my opinion," he said. "Even if you’re willing to pay an extra 50 cents or $1 an hour, the workers are just not there. With current immigration issues, I don’t know where they (pallet companies) are going to get them."

Reducing labor is becoming an important factor in helping redefine distribution from the manufacturing plant to the retail store shelf. As labor costs increase, automated material handling systems and shelf-ready pallets and containers become more attractive. Automated material handling systems require high quality pallets to run efficiently. Similar labor market forces will impact pallet users and pallet suppliers alike.

Another factor that recently raised eyebrows and trepidation about the future was the emergence of the Internet for bidding on contracts to supply pallets. The Internet ‘auction’ by Quaker Oats shaved already slim profit margins even closer as pallet companies bid on-line for plant-level pallet contracts or pallet ‘lots.’ In the short term, it seems likely that only very large pallet contracts will be candidates for this type of approach.

The technology likely will prompt changes in the pallet industry, perhaps at a fundamental level not seen before. "A lot of this technology everybody’s talking about, we haven’t really developed it yet," Joe said. "So far we’ve just tried to speed up existing manual systems. Now we are on the verge of asking the question, ‘What was it we were trying to do in the first place?’ I think we are going to find some drastic changes in the way we do business."

However, there will be plenty of business opportunities in the pallet industry, Joe believes. "People are worried about cores and rental pallets," he said. "Those are going to bring changes. With change, however, there also is opportunity."

Opportunities will be there for those who are willing to adapt and change. "I think the first thing you’ve got to do is to convince yourself that doing business the way we used to do it is not the way to go," Joe added. "That’s number one." He ticked off a list of conveniences that are relatively new but are standard in any office today, such as the fax machine, sophisticated telephone systems, and e-mail. "You’ve got to look at some of the things we accept around us today as part of doing business that haven’t been around 15 years. If this is going to change this much, we have to believe that our area is going to change that much. We’ve got to be willing to change with it. "

"The opportunities are always there," Bill agreed, "but you are not going to be able to walk into the Wal-Marts or the Krogers, because they’re all going to rental. You better find someone else to deal with."

As recyclers find themselves squeezed out of big markets by rental, they will turn to niches. "You’ll get the big guys who are used to putting 3,000 or 4,000 48x40 pallets through their line a day" looking for smaller orders, he said. "When they start trying to do 100 here and 100 there, and they apply the same numbers to it, things are going to get real ugly."

Yet, there will always be a place for recycling, according to Bill. "Any time you can close the loop, you are going to have to take a very strong look at that and figure out a way to make it economically viable. Maybe we don’t have the technology to close all loops today. That doesn’t mean that we should quit trying."

Approaches such as pallet retrieval and recovery systems might help, as might a registry of proprietary pallets. Food Distributors International recently sponsored a study that recommended its members insist on GMA specifications from pallet suppliers and trading partners. These developments together have the potential to improve efficiency in the pallet system and to clear up some nagging disposal issues.

Speculation aside, however, pallet companies must operate successfully in today’s market place if they want to be around in the future. "What you see is what you get," Bill warned. "It’s going to get tougher. Everybody is squeezing."

It may be that retrieval and recovery programs will be the tonic the industry needs, but they will need time to be fine-tuned and to catch on in a bigger way — providing pallet users accept them. There is no guarantee this transition will succeed except through the hard work of the industry. It will be a few years before the technology and tools of retrieval, such as tracking and truck routing software, become more widely understood by companies entering this arena.

It is one thing to come up with a game plan; it is another thing to successfully execute it. "A hundred years ago when we were transitioning from an agricultural society to an industrial one, there were folks who said, ‘We are going to keep farming these acres, plowing it with a horse,’ " Joe noted. "They’re not around anymore. For people who said, ‘We can make cars or machines,’ huge fortunes were made.

"We have to realize we are not in the pallet business. We are in the goods distribution business. And if you think about it that way, we’ll do what ever it takes to get the job done."

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