Even though Israel is known more for its history, it features one of the most dynamic economies in the Middle East. Israel has a technologically advanced market economy with substantial, though diminishing, government participation. It’s really a tale of two different pallet markets.

            One is dominated by exports and multinational companies served by a handful of major players that have the automation and quality controls in place to satisfy those customers. The other market serves primarily small, local customers that use limited numbers of pallets and a wide variety of specialized sizes. It is somewhat similar to the large new pallet manufacturer/small recycler dynamic in the United States although recycling is not as significant in Israel as the U.S. market.

            The Israeli pallet industry has one pallet company that stands above the others in terms of production and efficiency. During my recent trip to the Middle East, I had the opportunity to visit this facility in person. Located in Netivot, the company is called Tri Wall Ltd. and has a production capacity of more than 2 million pallets per year making it one of the top production facilities in the Middle East.

            Tri Wall owns two factories in Israel. Tri Wall Netanya produces triple-wall boxes,   wood boxes, plywood boxes and pallets made of wood and triple-wall corrugate. Tri Wall Netivot produces wooden pallets of all kinds using three automatic machines and some hand labor.

Expanding Through Automation

            Last year, Tri Wall decided to expand its production capacity by adding a new stringer machine to its existing machinery lines. Gabi Hadari, Tri Wall’s general manager, said, “We needed a mechanized solution for stringer pallets to supply pallets to the chemical industry.”

            Tri Wall opted for a GBN Explorer line after seeing one run in the United States. Gabi said, “We are very happy with the GBN line. It does what they said the machine will do, and the GBN staff spent a significant amount of time making sure the initial install was done right.”

            The GBN Explorer will produce about 900-1,000 pallets per shift with only two operators. The Explorer is a forward feeding machine that never requires operators to turn the pallet to complete the manufacturing process. The only special requirement Tri Wall required was an automatic stenciler attached to the stringer feeder at the back of the line.

            Gabi said, “GBN is an excellent machine because it is very efficient in terms of labor required to produce a high volume of pallets. The GBN machine cut the number of operators we needed in half. It gives us an edge when it comes to pricing.”

            Besides the new GBN line, Tri Wall also has an old Bohm & Kruse machine for making block pallets and a Cape line. The new GBN machine is obviously the pinnacle of Tri Wall’s pallet operation. Some specialty pallets are also made by hand.

            Tri Wall serves a wide variety of export and high end clients. Its primary markets are leading companies in hi-tech, chemicals, agriculture, plastics, mechanics, aerospace and defense industries.

Understanding the Israeli Market

            Gabi claimed that Tri Wall is the oldest and first major pallet manufacturer in the country having started making pallets in 1982. He estimated that there are three to four big companies with 20 smaller ones and a bunch of independent recyclers in the country.

            When it comes to competition for local business, “The small ones are problematic because of proximity to a big producer,” said Gabi. Tri Wall has focused on the export market, which requires a degree of technical precision that really small companies cannot match. 

            Even though Israel is a small country, fuel prices are fairly high. This gives small players an advantage when it comes to local, small order business. Gabi said, “The geographical location is a major issue because transportation is a major cost factor for each pallet.”

            Local products and agriculture tend to be a more price sensitive sector whereas quality assurance is a major concern for exporters.  Gabi said, “Not just anyone can work with big general industrial companies in Israel.”

Improved Lumber Availability Increases Competition

            Sourcing lumber used to be a challenge in Israel. But that has changed over the last few years. Gabi said, “An influx of lumber into the country has increased the number of pallet companies.”

            Growth in the construction market has led to increased importation of lumber from around the world. Gabi said, “High tide of constructing allows wood importers to be more aggressive when it comes to other markets.”

            Gabi estimated that Israel imports about 500,000 cubic meters of lumber per year. Only 50,000 is used for furniture compared to 120,000 for pallets and 330,000 for construction. Most buildings are made with stone and concrete in Israel. Wood is used more for wall supports, roofing and some decorative functions.

            Israel has little to no domestic timber source. Most wood comes from Europe, Canada, Russia and other major wood exporters. Increased competition thanks in part to more lumber has helped even the playing field in the country.

            Gabi said, “Israel is a very open market. There are no regulations that make any difference. Prices are known, and pallets have really become a commodity.”

Weathering Tough Times

            Although the Israeli economy has faced a recession like the rest of the world, it has still faired better than other areas of the world. Gabi said, “The Israeli economy is suffering much less than the U.S. economy because it is more conservative in terms of banking.”

            Since the economic crisis started in early September 2008, pallet volumes have steadily decreased each month according to Gabi.

            “Exporters have been most severely hit,” said Gabi. Exporters are down as much as 40% in volume compared to the same time last year.

            Gabi’s focus has been cost reduction and cash flow management not expansion ever since the recession hit. Yet, he looks forward to the time when he can expand into specialty packaging.

Niche Packaging Presents Business Opportunities

            The future seems brightest for those that can offer specialty packaging services according to Gabi. He would like to expand operations to provide a full spectrum of specialty packaging services for expensive, high tech machinery. This would include packaging design, quality control, testing and shipping.

            The key industries for this business are bio chemical, heavy machinery, medical and explosives. Specialty packaging is dominated by a host of small players now. Gabi would like to develop a one-stop shop with expertise covering environmental, vibration and other logistics issues. The key is to acquire the engineering expertise and integrate all the functions under one roof.

            Gabi said, “I have a wish list of businesses that I would like to acquire. Our aim is to be a one-stop shop specialty packaging company.”

            Tri Wall already offers specialty pallet and packaging design services. According to its Web site, Tri Wall has a staff of packaging engineers located across the country who provide computerized design services using unique software, including 3D software.

Inside Tri Wall’s Netivot Plant

            Besides the equipment mentioned earlier in the article, Tri Wall has a Baker Products double head notcher. Gabi said, “The Baker notcher machine works so fast that Tri Wall only has to run it a few hours per day.” It can manufacture more than 2,500 stringers over almost one shift.

            Tri Wall doesn’t have an automatic feeding on its pallet line because it produces a large variety of small quantity runs. There are no real dominant pallet sizes in Israel.

            Gabi said, “There is not a huge recycling market in Israel due to the very diverse number of sizes used. There is no dominant standard size like the GMA in the United States. And as a result, pallet companies would not know which size to focus on in terms of recycling.”

            Tri Wall buys a lot of kiln dried lumber to meet ISPM-15. Tri Wall doesn’t currently use an on-site a heat treatment chamber although it does produce export certified pallets. Tri Wall is also an ISO 9001 certified facility.

            Similar to some of the bigger companies in the West Coast pallet market in the United States, Tri Wall’s workforce is unionized.

            Gabi said, “Tri Wall is the only player in this market that has a union.” This has led Tri Wall to have insurance and benefits costs that are about 20% higher than its competitors. Gabi has had to work with the union to either reduce some salaries or else have to cut the number of workers due to the economic downturn.

            Just like in the United States, illegal aliens are an issue in Israel. They tend to come from Turkey, Africa, China and Thailand and work for some of the smaller pallet companies. Illegal workers enter the country on short term visas and stay. It’s not a matter of needing more laws to restrict their activity. Gabi said, “We have rules up to here (pointing to his head); the problem is enforcing them.”

            Market economics is certainly having an impact on Israel, which started out as more of a socialized country in the 1950s. Over the last 20 years, foreign investment and companies have entered the market. The role of the government had dwindled as large retailers and multinational companies have impacted
society. Israel is still very much a country of contrasts. From the ultra modern city of Tel Aviv to the outdoor markets in Jerusalem, it really is a tale of two countries dominated by vastly different priorities.