I have talked with a number of recyclers and even some of the top guys at CHEP USA about fair compensation for the return of blue pallets. CHEP says one thing. Many recyclers say another. The issue seems quite simple to me.

    Recyclers should be able to make the same amount of profit on a CHEP or PECO pallet as they do anything else. When a pallet comes back to a recycler, I don’t care if it is a blue, red or white pallet it usually goes through the same process. The only exception is that the recycler does not repair a blue or red pallet.

    Here’s the simple formula that I suggest: Average pallet price – repair costs = what you should get from CHEP or PECO.

    In many cases, CHEP’s Asset Recovery Program (ARP) is not even covering the cost of picking up the pallet and returning it to the recycler. When CHEP came up with its ARP, it viewed the compensation as mostly pure profit. CHEP thought the recycler had nothing into it, maybe 50 cents in trucking. But that’s not true. Most recyclers that I have talked with are not making anything on a CHEP pallet. That has become even more so as DCs started requiring pallet companies to pay for everything, including blue and red pallets.

    Let’s break down the numbers and see where a fair price might fall. On average, the most you would probably put into a pallet in terms of repairs is $1.25. If you took what you get for your “A”s and subtracted out your repair costs, which I found to be on average no more than $1.25 per pallet, then you arrive at a fair price for returning stray proprietary pallets.

    I estimate that only 20% of most white wood pallets go through a recycling operation without any repair. If you could sell a CHEP pallet on the open market, you would get the price of an “A.”

    If you were in Minnesota where you are currently getting $7.25 for an “A”, then the CHEP pallet would fall into the $6 range. These figures would vary depending on the region, which is another reason why CHEP should be willing to negotiate based on the true costs in each market. In Alabama, recyclers are getting $5.75 for an “A”, the pallet would fall somewhere near what the courts awarded Mock Pallet Co. (see article page 20).

    In my opinion, CHEP USA has been robbing the recycler. It is time for the recyclers to strike back now that there is a federal precedent set on the books. CHEP is going to have to go back and look at this. They will have to look at this because companies can’t afford to keep on returning blue pallets at a loss.

    When CHEP first launched its ARP, most recyclers did not have to pay to get blue cores. But that has changed.

    The pallets are bought today on a trailer load basis. Pallets used to be sold on the basis of counts that were determined by the recycler as it sorted through what was in the trailer. The total value was based on the number of “A”s and “B”s after deducting the scrap in the load. Over the last five years, DCs have basically said that they don’t trust the counts coming from the recyclers. They have decided to come up with their own pricing plan. They are going to fill trailers full of pallets, which they never quite do. Then they sell the load for a predetermined price no matter what is in the load. The recycler is still doing the same amount of work and getting less reward for it. When I first saw this practice five years ago, the DC charged the recycling company that I worked for at the time $600 per load. This included the blue ones, which used to be free.

    Based on my many travels to plants around the country, I estimate that 50% of the loads are being sold on a flat rate basis and this number is increasing every day.

    Getting 430-440 pallets for $600, that’s not too bad a deal. That would be true if they were all white wood GMAs. They are not. You will lose on the scrap, the long pallets, the blue pallets, purple pallets, etc. CHEP might want you to think this is not a cost you should consider in determining fair compensation.
I disagree because each blue pallet on the load takes up space. This means that you will have less white wood to sell. The opportunity cost of not being able
to sell a white wood pallet may be
the greatest cost of blue pallets “leaking” to recyclers.

    And you can’t say anything to the DC because if you won’t pay their price, somebody down the street will. This reduces headaches for the DC and CHEP. But it costs the recyclers big bucks.

    Sometimes handling a CHEP pallet adds cost to what you would normally have for a white wood pallet. A CHEP pallet is taller than a typical GMA. You are losing space in your trailer every time you load a CHEP pallet. I estimate that for every three CHEP pallets that go into a trailer, you are losing the space of four white wood pallets.

    Dealing with CHEP pallets may force a recycler to add another sortation step depending on how the operation is setup. The pallets require extra handling, get in the way of more profitable business, take up storage space and force additional steps in your processing. Delivering CHEP pallets can tie up your trucks for hours if the CHEP depot is running slow, which typically does happen in busy seasons.

    With the CHEP pallet, by the time you “bought” the thing, you already have a buck and a half into it because it was in your trailer. You have had to touch the pallet numerous times. It had to be unloaded, then go through your system, then you had to store it, then you had to load it onto a trailer and drop it off.

    If CHEP had to do this itself, the cost would be much higher than the ARP. CHEP would have to have a massive fleet of trailers. Most trucking companies charge $35 per drop, $45 if over 15 miles, $65 if it is over 25 miles. You would have to do that twice. A drop, a hook and a go. Best case if they were right next door, the cost would be $70 plus the cost of the trailer. That’s not unloading it or anything else. No management or dispatching. To do this nationwide would take several people just to handle the logistics in the trucking. It would be a dispatching nightmare, the pallet recycler network breaks it up and makes everything manageable.

    In all fairness, if CHEP were getting its pallets from the DCs for nothing and having to transport them anywhere, CHEP would have two bucks in a pallet just to get it where it needs to go. This does not include sortation, handling, management logistics, etc.

    In all likelihood, a non-participating distributor would refuse to sort and load CHEP pallets anyway. They are not going to do it for free. CHEP may not even get access to pallets without the recycler.

    Many of these costs are not even in CHEP’s world. They don’t want to talk about the real pallet world and what it costs. I believe the fair market price is simple to calculate. I would like to see the average company get somewhere between the cost of an “A” and a “B.” This differs from market to market.

    Do you think that you are being paid what you are worth?