Over the last four years the Enterprise has celebrated the New Year by looking back at the top stories from the previous year. I always select a story or topic as the News Story of the Year. In the past, this has included Ricky Mock’s win against CHEP in his fight for fair compensation, the devastation of Hurricane Katrina on the Southeast, the impact of the IFCO immigration raids, and the Emerald Ash Borer infestation.

            The economy has to be the number one issue over the past year. Earlier this month, economists finally admitted that the United States has been in a recession since December 2007. You can find more coverage about the economy on page 18.

            The obvious close second for story of the year is the landmark antitrust case brought by a group of recyclers against CHEP. This issue has been brewing for years, and the outcome of the federal case could have major industry ramification, especially if the case is certified with class action status.

            Pallet recyclers are suing CHEP claiming that the pallet rental giant has engaged in monopolistic cost shifting. At issue are recycler rights regarding the return of stray CHEP-marked pallets and fair compensation for these services.

            Attorneys representing the recyclers have hired some heavy hitters to help make their case, including Dr. Mark White, the former director of the Sardo Pallet Lab at Virginia Tech. Other experts consulted by the plaintiffs include Dr. Judd Michael and Dr. Charles Ray of Penn State and Nathan Associates. One of the main goals of this impressive team of experts is to conduct an in-depth analysis of the real world costs that CHEP imposes on pallet recyclers.

            An initial survey of eight recyclers has found that CHEP’s current compensation via its Asset Recovery Program (ARP) was not sufficient to cover the tangible and opportunity costs generated by obtaining, shipping, sorting, storing and managing stray CHEP-marked pallets. Analysis showed that on average the recyclers lost $4.78 for each CHEP pallet handled. The information presented to the court was anonymous although individual recyclers experienced various impacts depending on their efficiencies, transportation costs, core acquisition costs, opportunity costs, etc.

            Researchers found that CHEP’s burden ranged from $1.62 to $13.14 above and beyond CHEP’s compensation. This is a wide range, which underscores the need for more research to develop even more accurate cost information.

            Attorneys representing the recyclers will initiate a second phase of research and will need the cooperation of more recyclers. The involvement of other recyclers is critical to make the analysis as accurate as possible. If you are called on to participate, your input would be invaluable to the process.

            The initial results of the economic analysis are staggering. At a time when pallet companies are looking to cut costs, the results highlight the drain caused by proprietary pallet sorts as well as the reality that many recyclers do not fully understand the extent of these costs.

            At first, I was thinking it would seem like Christmas if CHEP were ordered to pay around $5 per pallet by the federal courts. But then I realized that this is not a gift. It is more like your tax return at the end of the year. That’s your money that the government has kept all year long interest free. The government is not giving you money. Neither would CHEP be doing anything more than giving back a portion of the costs its system has forced recyclers to bear for years. It’s not free money because CHEP has been getting free or subsidized logistics for years from pallet companies, customers, retailers and distributors.

            Free logistics reminds me of a big headache. It’s something you have to deal with and won’t go away. It doesn’t really help you although it is a sign of something wrong under the surface. If free logistics is a headache, than the pending litigation would be a new and improved pain reliever.  Think of it as extra strength ibuprofen for pallet costs.

            The point is that these are tough times. Now is not the time to subsidize your competition. I believe these two leading news stories are connected because they are both about taking necessary steps to survive in this increasingly price competitive market.