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If You Build It, Will They Come?
Europallets: North American manufacturers may be looking increasingly to the Europallet to ship their goods across the Atlantic. Will you be ready to supply them to your export customers?

By Chaille Brindley
Date Posted: 2/1/2000

Gone are the days when shippers could send any ole pallet to Europe. Changes in packaging laws are driving demand from users for the use of only recognized standards, especially the Europallet. Soon, European importers receiving goods on pallets will be taxed. As Europe prepares to extend the use of the registration to North America, pallet manufacturers and shippers are faced with the challenge of standardization, a concept that has never gone over well here.

The expansion of the standard will create new opportunities. The big question for pallet manufacturers and recyclers in North America is how quickly will their customers adopt it for shipments to Europe.

Europeís Taxing Situation

Since the mid-1950s, the Europallet has been the standard across Europe. Rail authorities developed the specification and policed it for years. Eventually, the Europallet Pallet Association (EPAL) was established to administer the Europallet program.

Recently, European packaging reduction and recycling laws have been introduced to tax packaging, including pallets. Packaging that cannot be reused or exchanged is hit especially hard. Despite the value or quality of a pallet, most pallets coming from North America do not match the European standards. Only official Europallets or other approved standards are recognized by users and European governments as commercially reusable.

"The packaging waste environmental tax is a law in all the countries in the European Common Market," said John Mead, consultant and EPAL United States representative. "Although implementation of the law varies slightly from country to country, properly marked Europallets are recognized as fully reusable and are highly desired by user companies."

Throughout Europe, taxes are being progressively imposed and will be in place within the next two years. Importers will have to incur the full cost of taxes for goods shipped on imported pallets. No doubt they will pass the cost on to their customers. Unapproved pallets will cost everyone in the supply chain more. Market pressure may force product manufacturers and shippers to demand approved pallets from their suppliers. According to Alain Skelding, the head of the pallet industry association in the United Kingdom, some companies already have refused to receive shipments sent on unapproved pallets.

Europallet Authorities in North America

EPAL has set up the U.S. Europallet Council (USEPAL), which will be responsible for licensing and administering the Europallet in the United States. Sam Cauffield, a pallet industry consultant and former Proctor and Gamble executive, serves as chairman of USEPAL. "We are building the standard, and the question is, will they come. Nobody is licensed at this point. But we are making it possible for U.S. pallet manufacturers to make official Europallets," said Sam.

Currently, there is no licensing body or standard in development for Canada. "We are in a wait and see situation right now," said Gordon Hughes, president of the Canadian Wooden Pallet and Container Association (CWPCA). Canadian pallet companies want to see how the Europallet is implemented first in the U.S. according to Gordon. Canadian manufacturers are concerned about the imperial versus metric sizing plus the cost of the pallet. But Gordon said the CWPCA would fast track a Canadian standard once the associationís board has an opportunity to review the U.S. standard. Canada and the United States pallet industries are somewhat different. Wood species in Canada closely matches those in Europe. However, the species chosen for the Canadian standard would still have to pass the performance requirements.

Most of the Canadian demand for Europallets is being handled by current inventories. The CWPCA assists members in locating used Europallets.

"Europallets are fairly common around here," said Gordon. "European automotive companies ship a significant number of Europallets to Canada. Nine times out of 10 we can locate Europallets to fill the demand."

According to John, some official Europallets are being shipped to the United States from Europe, but the U.S. supply will not fulfill the demand once the standard takes off. New Europallet production will be needed to supplement the current U.S. supply.

U.S. Europallet Passes the Test

USEPAL has been working over the past year to develop a U.S. version of the Europallet. Adjusted for wood species and fasteners used in North America, the standard recently passed tests conducted at the Virginia Tech Pallet and Container Lab. The U.S. standard requires detailed specifications, including fasteners, moisture content, species and dimensions.

"The tests are done, and the U.S. standard passed. We have a design that will satisfy EPAL," said Sam.

Since the U.S. standard passed, USEPAL has begun accepting registration applications from U.S. pallet manufacturers and recyclers. Applicants have to show they are properly equipped to manufacture the pallet. An initial inspection is made before USEPAL will consider the application and endorse it. Sample pallets must be made and inspected. The official inspection agency is Timber Products Inspection (TPI) of Conyers, GA. If a manufacturer or recycler passes the initial inspection, TPI will distribute the branding plates. Registration costs $300 per year plus inspection charges.

For more information, contact Sam Cauffield of USEPAL at (513) 522-8421 or email at circleback@fuse.net. Or, contact the National Wooden Pallet and Container Association at (703) 527-7667.

Setting the Standard

Europallets are made to an exact standard requiring precision manufacturing. Although the 800mm by 1200mm Europallet probably could be made by hand, USEPAL requires automated pallet assembly. Europallets are made using specific metric sizes and converting to inches may lead to errors. USEPAL strongly advises but does not require manufacturers to use metric sizes. The standard calls for a low moisture content, 22% or less. The only allowed species is kiln dried Southern Yellow Pine. But other species may be included in the future. The Europallet is a block style pallet, and the blocks can be made of SYP. Conglomerate materials for blocks will be tested with their own nails to prove they meet requirements.

"Accuracies are tight," said Sam. "These levels are met every day in Europe."

The six large blocks have four nails through the top board and stringer board joints. Nail specifications may be upgraded to require only three per junction. All three base boards must be double-stop chamfered. Nails must be clinched tight to the underside of the stringer boards. Nailing machines need to be able to cluster the four nails and the three nails for block assembly. Nail chucks must be able to feed 90mm nails. All six outer block faces on the 1200mm side are branded, best done with a six-headed branding station. The four corners of the completed pallet should be cut for corner rounding after assembly.

High Dollar Pallet

The biggest drawback of the Europallet is the high cost of manufacturing them.

"The Europallet requires 22 mm or approximately 7/8 inch thick lumber, which is not a commonly available size," said Dr. Mark White, director of the Virginia Tech pallet lab. "The Europallet will be an expensive pallet because of the board thickness and widths."

John agreed that Europallets will be expensive to manufacture in the United States. "In Europe, pallet manufacturers are equipped and have been for decades for this pallet," he said. "Components are cut in mills by the millions to fit the Europallet specifications."

North American pallet manufacturers will have to buy larger lumber sizes and process them into the correct specifications. Until mills cut lumber that match Europallet specifications, the wood cost will remain high. Of course, the testing, quality control and additional manufacturing steps add to the cost of producing the Europallet.

The question is will customers pay for the high cost of the Europallet? John pointed to the pressure to minimize the European packaging taxes, which will drive demand. USEPAL plans to pursue a pull-through strategy. USEPAL will be targeting pallet users encouraging them to ask for Europallets. Already pallet users are starting to inquire about it. But most are just looking. After all, there are no licensed suppliers yet. And who wants to pay more if they donít have to incur the cost? At this point, there is little demand. But demand may takeoff as taxes are levied. In the meantime, USEPAL has put the program in place so that any need can be satisfied.

What is the best course of action for pallet manufacturers? Be careful and evaluate your customersí needs first. Even USEPAL is not encouraging companies to start producing Europallets yet. If you have customers that ship goods to Europe, start evaluating the Europallet and be ready. Consider the machinery needed and the potential demand. To manufacture Europallets, you must have a block pallet nailing system and a six headed branding station. Companies with the right equipment can apply for Europallet registration with only a minimal investment. Others should carefully examine their customer base and business expansion plans before investing in the proper machinery or registration. By being prepared, you can respond and get the business if customers start asking for Europallets.

Current State of Market in Europe

With estimates of Europallet production hovering around 25 to 30 million, supply is greater than demand in Europe. The high volume of low cost Europallets coming from Eastern Europe has been the primary cause of downward pricing. According to Alain, 10 years ago the cost of Europallets hovered around 8 pounds sterling. Today, the same pallet goes for about 5.5 to 6 pounds.

Although governments have been the driving force behind the packaging laws, pallet users are complying. Retailers, especially the grocery industry, have taken a leading position on standardization. Since they are the last stop on the supply chain, they incur the highest cost in taxes if their pallets are not reusable.

What will happen to the market if Europallets start flooding into Europe from North America? Prices in Europe could drop even lower. However, Alain pointed out that the high cost of producing Europallets may lead to a two-way flow of Europallets between North America and Europe. Pallet manufacturers, users and shippers in North America will want to recover their investment. Receivers in Europe will want products sent to them on Europallets or other reusable pallets. Exchanging Europallets on shipments sent back and forth across the Atlantic will help build the pool of Europallets in North American. Thus, all parties would benefit from a two-way flow.

Distinguishing a Europallet

If a company makes a pallet with specifications similar to a Europallet, it cannot claim to manufacture Europallets. The only proper Europallet is one made, inspected and marked to the specification. The use of the branding marks is only permitted to registered companies. The brandís specification combined with the brand mark distinguishes Europallets.

"There have been so-called Europallets made and crudely marked to simulate the real thing," said John. "These are not acceptable in the Europallet system by users. They will be presented as a cheaper option. But they are not an option."

As the taxes begin to be enforced, Europallet look-alikes will be treated like other unapproved pallets.

"Unapproved pallets will get used again but are not acceptable as official pool or exchange pallets," said Alain.

The Future of Europallets ?

What does the future hold for Europallets? The tight specifications, odd dimensions and use of metric measurements all translate into high costs. Pallet buyers continue to demand and are accustomed to low prices. But now, manufacturers and shippers sending loads to Europe will have to pay a premium for approved pallets, including Europallets. In the near future, that appears to be the cost of doing business in Europe. Although the Europallet is the dominant standard, it is not the only approved standard. Chep has operated a successful pool of standardized pallets for years. Standards for specific applications, such as a chemical pallet, are also in use throughout Europe.

Alain said, "Implementation of the Europallet as the primary standard for exporting product to Europe from North America will take place gradually. The current 800mm x 1200mm is not the end-all,be- all of pallets in Europe. Users are looking at other specifications and sizes, including the 1000mm x 1200mm, which is prevalent in the United Kingdom."

Will the Europallet become the dominant standard for North American exports to Europe?

Gordon said, "I believe that the Europallet will become the first widely accepted international pallet standard."


Action Steps for North American Pallet Manufacturers & Recyclers

1.) Evaluate customer use of pallets. If many of your pallets are shipped to Europe, customers will likely start to inquire about the standard. Gauge customer interest.

2.) Inquire about costs and requirements to become an official Europallet manufacturer or recycler. Contact Sam Cauffield of USEPAL at (513) 522-8421 or the NWPCA at (703) 527-7667. For detailed questions, contact John Mead, consultant and EPAL United States representative, at MeadPartners@compuserve.com. For more information on the Europallet standard, visit our Web site at www.palletenterprise.com.

3.) Weigh all the variables including new machinery required, customer interest, your companyís long range plans, etc. Even USEPAL encourages pallet companies to wait for customers to start asking for Europallets before producing them.

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