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Plastic Pallet Makers Respond, Adapt to Market Opportunities:ISPM-15 Spurs Interest; Manufacturers Launch Edge-Rackable Versions
Plastic Pallets: Manufacturers of plastic pallets and containers have made a number of improvements and changes to their products in recent years as they adapt to new market conditions.

By Rick LeBlanc
Date Posted: 11/1/2006

More than 40 years after plastic pallets – often frail or flimsy prototypes – were first introduced to the U.S. auto industry, plastic pallets are now the dominant pallets in some industries, including automotive, downstream grocery and the U.S. Postal Service. They also appeal to manufacturers in a growing range of other applications, such as pharmaceutical ‘clean room’ products to pallets for export shipments.

Since Pallet Enterprise last examined plastic pallets over five years ago, there have been a number of notable developments in this segment of the pallet industry, from product development to the growth of plastic pallet recycling and management-pooling. Improved features, such as fire retardant resin and edge rackability, have become widespread among plastic pallet manufacturers. In addition, implementation of the ISPM 15 regulations for solid wood packaging has spurred interest in lightweight plastic pallets. Weight reduction is also an important consideration in both single trip and multiple use applications as manufacturers try to reduce material — and costs — in order to convert new customers in the face of rising resin prices.

Export Pallets

The ISPM-15 regulations require heat-treating or fumigation of wood pallets and other types of solid wood packaging in order to reduce the risk of migration of wood-eating insects. The regulations have been a high profile issue in recent years, and no wonder: total wooden pallet exports from the U.S. have been estimated at 60 to 70 million annually prior to the regulations. (See Table 1.)

PDQ Plastics, one of the earliest manufacturers of plastic pallets in the U.S., is one of several companies (including wood pallet companies) now offering a light-weight plastic export pallet in response to the opportunity in the export pallet market.

The low-end plastic pallets compete well with heat-treated and fumigated solid wood pallets, said PDQ’s Hartson Poland. “I have customers content with wood, but I have customers who insist on plastic and who are willing to spend a few dollars extra,” he said. In some regions, he noted, the price differential between plastic and wood may be negligible.

Rehrig Pacific, another plastic pallet manufacturer, launched its light-weight RPX 4840 Export Pallet a year ago. The pallet, made of 100% recycled plastic, weighs about 17 pounds and boasts a dynamic load rating of at least 2,500 pounds. While sales initially were slow they have grown, according to Mike Lochner, a sales representative for Rehrig Pacific.

Even though plastic pallets may be slightly more expensive than treated solid wood pallets, they are not detained by ISPM-15 inspectors at foreign ports, noted Mike. He cited Australia and New Zealand as two countries whose strict ISPM-15 enforcement policies have created sizeable interest in plastic pallets because shippers do not have to worry about their cargo being detained.

Rehrig Pacific also emphasizes the light weight of its plastic export pallet versus a typical wooden pallet, which weights about 50 pounds; the weight difference can create extra value for the customer because of the capability of shipping heavier loads or the reduced cost of air freight.

While durable plastic pallets often involve a long, patient sale and minimal opportunities for repeat business in the near term, expendable export pallets require a different approach for veteran plastic sales representatives.

“Export pallets provide a refreshing change,” said Hartson. “As a traditional top end supplier of over 30 years that has consistently sold on a cost-per-use, most-durable-in-the-world basis, it was rather strange for us.”

“But it was wonderful to sell pallets over and over rather than search out new customers every year,” Hartson added. The company’s regular durable plastic pallets are guaranteed for three years, he observed, “but we may not see a customer again for five or 10 years.”

In terms of the total export pallet market, one veteran plastic pallet sales representative reported that while sales have been solid, they have not taken off as his company anticipated. The reason is the effective response of the wooden pallet industry to the ISPM-15 regulations. For many shippers plastic export pallets remain a tactical solution for over-zealous ISPM-15 enforcement at ports of entry or may be preferred by shippers who want to simplify transport logistics by using one pallet that fully complies with the regulations. He sees the potential for a new spike in plastic export pallet sales if wood export pallets are additionally required to be bark-free for destinations such as the European Union.

  

Edge-Rackable

One of the limitations of plastic pallets in some applications has been lack of stiffness, which restricted their utility in non-supported racking systems. This was seen by many as one of the key deterrents to pallet pool applications. In recent years, however, plastic pallet manufacturers have launched new edge-rackable versions; stiffness in these pallets typically is enhanced by steel or fiberglass inserts.

The Buckhorn Universal Pallet, for example, has been produced since 2000 with its Flame Edge fire retardant version available since 2002. Manufactured of HDPE, the Universal Pallet is rated for edge rack applications up to 2,800 pounds lengthwise; upon request, support can be added to make it edge-rackable across the pallet’s width.

Orbis and Rehrig Pacific are both well respected, high quality manufacturers of edge-rackable plastic pallets sold to U.S. Industry. Mike Lochner of Rehrig Pacific said his company has substantial engineering capabilities to manufacture custom pallets to meet specific requirements; the high pressure injection molding process can create
detailed ribbing and other features required for complex parts. Orbis also offers custom plastic pallets.

Newer entrants into the edge-rackable plastic pallet product group in the U.S. include Scholler-Arca, Greystone Logistics and Primepal.

Greystone supplies plastic pallets to the beverage industry for customers such as Miller Brewing and Corona. Greystone, whose new, two-piece, fiberglass reinforced 48x40 pallet has a free racking rating of 2,800 pounds, is known for its competitive pricing and aggressive resin acquisition program.

“We are always on the lookout to prevent plastic going to the landfill,” said Warren Kruger, Greystone’s president and CEO. A recent report in an Iowa recycling publication described Greystone’s interest in recycling automobile bumpers in order to help meet its rapidly growing need for plastic raw material. It operates a plastic recycling plant parallel to its new Iowa pallet plant.

"The plastic pallet concept has been around for a long time,” Warren noted. “There have been a lot of things that have affected penetration. Cost has been number one.”

PrimePal has been in the market with its Diamondback 2,800-pound rated rackable pallet for about a year. The Diamondback was in development four years, according to PrimePal’s J.D. Swanson, who refers to the pallet as “the light-weight champion of the world.”  It is a compression molded product that features a structural frame with components that snap together.

Scholler-Arca is a familiar name to the North American material handling community, although typically for plastic containers, not pallets.  The company recently made headlines with the announcement that it will manufacture pallets for iGPS, the new plastic pallet rental company. It is a leading pallet supplier in Europe, according to Glen Williams of Scholler-Arca.  The company’s Web site lists a great variety of pallets, including rackable pallets. Scholler-Arca is starting U.S. production at a plant in Michigan.

There are some noteworthy differences among plastic pallets, and users must weigh the pros and cons of price, durability and other attributes that may or may not have implications for a specific application. Features may include steel or fiberglass inserts, one- or two-piece design, water retention, washability, compatibility with radio frequency identification (RFID) technology, picture frame versus cruciform base, and more. (See accompanying sidebar.)

 

Fire Retardant Pallets

The issue of fire ratings emerged as a huge challenge for the plastic pallet industry several years ago. The National Association of State Fire Marshals was concerned about varying fire code interpretations by different enforcement bodies, in particular those related to plastic pallets. The association launched a campaign to review and improve compliance with existing codes pertaining to plastic pallets.

The plastic pallet industry, through the Reusable Plastic Container and Pallet Association (RPCPA) of the Material Handling Industry of America, took a very proactive role in supporting research, customer education and introducing new products to meet the challenge.

A number of companies – including most of those mentioned above — now manufacture plastic pallets with fire retardant ratings from Underwriters Laboratory or Factory Mutual. Although interest has been high, sales have been modest because the fire retardant compound typically adds weight and cost to the pallet.

Some large businesses often find it is more valuable to invest in improved building sprinkler systems rather than fire rated pallets, commented Bill McMahon of Orbis. Larry Porter of Buckhorn agreed. “Customers have a choice,” he said. “Sometimes in high volume situations, the cost is more to buy fire retardant pallets than to upgrade the fire suppression system. In some of the smaller quantity applications, the fire retardant pallets are preferred. In the higher volume applications, the trend is to make investments in sprinkler systems where required.”

“Because of the price of fire retardant resin, the market is small, but the interest is very high, however,” Larry concluded.

 

Impact of RFID

The idea of plastic pallet rental pooling has been around for many years. In theory, a durable, long-lasting pallet should provide lower cost per trip through repeated use. In addition, plastic pallets offer other benefits; for example, they use no nails in the assembly process – nails that may become loose and damage product on the load or snag in material handling equipment. However, wood is still the preferred material of choice by the world’s leading pallet rental company, CHEP. The company, known for its distinctive blue pallets, has looked very closely at plastic pallets over the years but has not yet made a significant move in this direction.

“CHEP is perpetually looking for the right plastic pallet,” said Bill McMahon of Orbis. “Unfortunately, to build a pallet that would meet the broad range of requirements encountered in a pool, the pallet would have to be designed for such an application.”

The problem, in a nutshell, is that a pool pallet has to be designed to
accommodate the complete range of the most demanding applications required, which translates into an expensive plastic pallet. Increased durability has not yet made a compelling economic argument in the face of such factors as pallet losses and slow turns that deter asset reutilization.

Intelligent Global Pooling Systems (iGPS) believes that plastic pallet rental is now viable, however, due to RFID technology. Retention and utilization can be improved dramatically with the technology. The company announced earlier this year that it plans to introduce RFID-equipped plastic pallets, backed by the financial support of Pegasus Capital Advisors.  “Pegasus’ significant equity investment gives us the scale to capture that market opportunity,” Bob Moore of iGPS said at the time.

Bob, former CEO of CHEP, indicated that the iGPS plastic pallet would cost about $50 and be equipped with RFID tags supplied by Xterprise, its RFID solution provider. Xterprise worked closely with Scholler-Arca, the iGPS plastic pallet supplier, to design cavities in the pallets for the RFID tags.

iGPS has identified grocery, beverage, home improvement, pharmaceutical and consumer electronics customers as target segments of the rental market. “With each pallet being tagged and having its own unique serial number, we set the system up to let us know when a pallet has not been scanned for a specific number of days,” Bob told Pallet Enterprise earlier. “The system alerts asset protection to investigate the situation. We stop the bleeding almost instantly.”

 

Plastic Recycling, Pallet Losses

With the ISPM-15 regulations, pallet recyclers have enjoyed a hot market for used plastic pallets for export applications. At the same time, rapidly climbing oil and resin prices have spurred interest in recovering plastic pallets and containers and grinding them to recycle the plastic material. Both trends have resulted in increased pressure on plastic pallet users to adequately manage their pallet or container assets.

Case in point, the U.S. Postal Service appealed to trading partners earlier this year to help them control an unprecedented shortfall of its plastic pallets. Its replacement numbers were an eye opener, to say the least. In 2004, the Postal Service bought 2,244,672 pallets at a cost of $25,506,006 ($11.36 each). In 2005, it purchased 670,000 pallets for $9,532,856 ($14.23 each).  In 2006, through mid-March the Postal Service already had bought an additional 299,700 units for $6,818,175 ($22.75 apiece).

The Postal Service attributed the losses to various causes, including theft for plastic recycling, unauthorized use, reduced pallet payloads (requiring more pallets for same amount of mail), seasonal and competitor hoarding, doubling of nestable pallets under load to increase stiffness, and unnecessary use of pallets as top caps.

In addition, some grocery chains report shortfalls in their downstream plastic pallet inventories, and dairy and soft drink industries are experiencing unprecedented increases in stolen plastic pallets and crates. Crate losses increased 25% and 30% over the last year, according to two major California dairies. Members of the Pennsylvania Association of Milk Dealers have increased purchases of crates to $6 million annually, up from $4.5 million in 1998.

Dairies and soft drink manufacturers have pressed authorities to take action. Earlier this year, a plastic recycler in California pleaded no contest to a misdemeanor charge of illegally grinding milk crates and was fined $90,000. Now he is seeing proof of ownership before grinding raw material.

While high resin prices and ISPM-15 have provided more opportunities for recycled plastic pallets, the flip side has been increased losses for the U.S. Postal Service and these industries that use plastic crates and containers.

 

Future Plastic Friendly?

Some material handling and logistics trends seem to favor plastic pallets and containers over wood. “The world is increasingly looking at a clean and tidy, germ-free, splinter-free solution because industry is demanding it,” stated J.D. Swanson of PrimePal.

Mike Lochner of Rehrig Pacific agreed that there will be greater opportunity for plastic pallets as automated material handling systems become more prevalent, sanitation standards become more stringent, and RFID technology becomes more widespread.

As always, the decision to purchase or invest in wood or plastic pallets hinges on a number of important cost and benefit factors. The plastic pallet industry is working to continue to reduce weight and price, but it must deal with rising resin prices, which for now at least seem to have reached a plateau. At the same time, some applications will come under closer scrutiny where increased interest in plastic recycling results in greater inventory losses. Even some early RFID applications are not providing the extremely high recovery rates that would help boost sales of high quality plastic pallets.

Generally, RFID projects in the pallet and container tracking arena have not been overly successful, according to a corporate researcher who spoke recently at the RFID Online Summit.  Our statistics indicate that approximately 10% of containers in use in a specific container program ‘disappear’ in a year,” said Dr. Rod Franklin, vice president of product development for Kuehne & Nagel Management AG. “This is a significant number for anyone managing a returnables operation.”

Bob Moore of iGPS and others, however, anticipate that RFID will provide significant improvement in plastic pallet retention and utilization. If that proves to be true, it will translate into a sizable boon for durable plastic pallets and other reusable logistics assets.

“I believe that there will be substantial (plastic pallet) penetration in the next five years,” said Warren Kruger of Greystone Logistics.

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