Online Auctions, Europallet, Import Restrictions Made Impact in 2000
Year in Review: The year 2000 brought a number of new developments to the pallet industry, and Pallet Enterprise provided readers with up-to-date information coverage
By Staff Writer
Date Posted: 12/1/2000
The year 2000 brought a number of new developments to the pallet industry, and Pallet Enterprise provided readers with the information on them.
Some of the more important issues that we reported in the pages of Pallet Enterprise during the previous 11 months included the use of online pallet auctions, the rising importance of the Europallet, import restrictions, Internet marketplaces, the changing third-party pallet management scene, the decision of the Canadian Pallet Council not to enter the U.S. market and more.
In this article we revisit these important issues that arose in 2000 and summarize some of the key points.
Online Pallet Auctions
Online pallet auctions became a hot topic in 2000 and were the subject of an in-depth report in the June issue of Pallet Enterprise. Technically, they are not ‘pallet auctions.’ Instead, pallet suppliers bid via the Internet on high-volume contracts. Several major manufacturing companies have purchased pallets through such online bidding procedures.
One of the major players that has emerged in this service is FreeMarkets, a company that provides online auction services. FreeMarkets has helped client companies purchase pallets and other products and services via online bidding. It provides computer software, training, and screening of vendors.
The effect of the bidding process, conducted over the Internet or otherwise, is to drive down pallet prices. The upside for pallet suppliers, however, is that it can provide access to new potential customers.
The Europallet grabbed some of the spotlight, particularly for pallet suppliers with customers who ship products to
European countries are in the process of implementing environmental laws and regulations that encourage recycling of packaging, including wood packaging. Packaging that cannot be reused is subject to taxation. In Europe, only Europallets or other pallets built to approved standards are recognized as reusable and therefore are not taxed under the new laws and regulations.
The European Pallet Association, which administers the Europallet program, established a U.S. affiliate to license American companies to manufacture the Europallet. The U.S. Europallet Council was established in cooperation with the National Wooden Pallet and Container Association.
International concerns about wooden packaging have been more common following infestations of the Asian long-horned beetle. The insect apparently was carried from China to the U.S. aboard wooden packaging. Restrictions were placed on incoming wooden packaging in such countries as China, Brazil and Finland.
An international task force of 20 people met in Canada to address this issue. Gordon Hughes, executive general manager of the Canadian Wood Pallet and Container Association (CWPCA), represented the pallet industry. The task force included two other Canadian representatives and two from the U.S.
The task force came up with a recommendation that will be made to nations around the world. Countries will have two years to respond, proposing changes and amendments. At the end of the two years, another meeting is planned to consider the suggestions. The task force is expected to present a final document to the World Trade Organization for international acceptance.
The forest products industry is beginning to embrace the Internet as a business tool for buying and selling goods and services. At this stage, most Web sites that are involved in online lumber sales mainly offer listings or advertisements. True business-to-business online transactions are few and far between.
The Internet is here to stay, however, and it likely will become intertwined and revolutionize business, including the lumber market. According to recent estimates, at least one-third of lumber and paper transactions will be conducted online within the next few years.
"Our industry is difficult for e-commerce to crack because of the nature of the small, independent owners," said Paul Gutchess, president of Paul Bunyan Products in New York. "But in two to three years, there will be no option for leading companies. Ready or not, here comes the Internet!"
Even those who prefer doing business with a handshake admit the Internet appears to be here to stay. The reason: customers will demand it. "The buyers want to use the Internet because they think they can drive prices down," said Art Willard, southern hardwoods products manager for Coastal Lumber.
Brokers may become a casualty of transactions made via the Internet. Online buying and selling may reduce the need for brokers as information and leads become easier to find.
In the arena of third-party pallet management, Chep continues to methodically grow its 48x40 pallet rental business in the Americas to 30 million units and beyond. Its continued growth is not the biggest development in third-party pallet services, however. Several suppliers of returnable plastic containers (RPCs) have entered the produce market, and suppliers of returnables have managed to wrangle some tax breaks in a few states. Technology is advancing to track returnable pallets and containers. Mergers and liaisons are changing the landscape. Add them up, and you get a rapidly growing, increasingly diverse infrastructure for pallet and container management falling into place.
Pallet management continues to expand and diversify. Customers are increasingly engaging pallet people in a broader dialogue about management of other unit load packaging, such as containers, bins and collars. Likewise, topics like customer and down-stream automation systems, labor requirements and product quality are finding their way onto the negotiating table. Providers of third-party pallet management services are not only broadening their services, but they also find themselves honing a different kind of marketing approach.
Coalescing to work like a patchwork quilt, this mix of retrieval networks, tools, measures and initiatives could become the foundation for the pallet industry’s retrieval and recovery grid of the future, the platform for growth.
Chep continues to gain market share in its key market segments, such as dry grocery, perishable goods, and foodservice. Its share of produce pallet trips reportedly is in double digits in a domestic market estimated at 60 to 70 million pallet trips. Many of the major growers and shippers have conducted trials or are planning to in the next 12 months, according to Chep. In addition, Chep’s returnable plastic container (RPC) program has been gaining momentum. Working with the Reusable Pallet and Container Coalition, Chep was able to eliminate user and sales taxes on rental pallets and containers in Florida and California.
In another significant development in the third-party arena, IFCO Systems, the parent company of PalEx, decided that it will divest its pallet manufacturing operations, which consist of 17 facilities from Florida to Maine and California. The company is trying to line up a single buyer for the pallet manufacturing division, which generates about $175 million in annual revenues.
IFCO also made a number of important acquisitions in the pallet recycling industry, purchasing Bromley Pallet Recyclers and Texas Pallet. Behind IFCO, they are two of the largest pallet recycling companies in North America. IFCO also bought three pallet recycling businesses in the Southwest and Belfer Drum in Grand Rapids, Mich. The acquisitions further strengthen IFCO’s strategic position as a nationwide provider of rental pallets and containers and related services.
IFCO also launched a new pallet rental pool in Canada — called the Flex Pallet System that gives companies another choice besides the top two players in the Canadian market, the Canadian Pallet Council (CPC) and Chep. The pooled pallets are identical in specification to the CPC pallet except they are painted green. The IFCO Flex Pallet System, which is being marketed in Canada to grocery and consumer goods manufacturers and distributors, gives customers the option of owning pallets, renting them, or any combination of the two.
IFCO hinted the new program may be expanded to the U.S. A news release issued by the company noted the "potential to extend (the Flex Pallet System) throughout North America." It has been rumored in the pallet industry for some time that PalEx might take on Chep, which operates the largest pallet pool in the U.S.
CPC Won’t Expand
On a related note, the Canadian Pallet Council (CPC) decided to abandon the idea of expanding into the U.S., a prospect the group’s president raised a year ago but now says should be discarded. Mike Therrien, re-elected president of the CPC, also indirectly criticized Chep, which dominates the North American pallet rental market.
Speaking at the CPC annual meeting, Mike emphasized the difference between the CPC cooperative approach and the Chep system of pallet rentals. "Being a CPC member means being part of a democracy in motion rather than a business partner with a firm that seeks to monopolize the industry," he told delegates to the meeting.
The CPC should drop consideration of plans to enter the U.S. market, Mike said. "I, along with the other members of the executive committee, am recommending that we abandon an aggressive launch into the U.S.A. and focus on our core competencies. I believe it’s time to return to our basic roots and begin an aggressive campaign of education and training for members.
"CPC members need to understand pallet costing," he continued. "They also need to fully understand that the CPC is a co-operative. Working together members share in the lowest cost pallet program. We need to develop benchmarks, so members can determine how they are performing versus others within the industry."
The CPC moved to implement a new policy of requiring end plates on stringers of new CPC pallets. The CPC board of directors approved a requirement for end plates on all new CPC pallets manufactured after Sept. 2; the deadline was later postponed to Jan. 1, 2001.
Grocers Embrace RPCs
As closed loop systems have emerged, RPCs have attracted interest from major grocery retailers. The retailers — not growers or packers are beginning to dominate packaging decisions.
Wal-Mart has endorsed RPCs and is converting its stores. Kroger, Food Lion, Publix and other grocery store chains are either testing RPCs or moving toward utilizing them in stores. So far, though, RPCs only comprise about 2% of the produce packaging market.
As major grocery store chains evaluate RPCs, the field is opening for more competition. For example, Georgia-Pacific entered the RPC business.
RPCs are not expected to have an immediate impact on the wood pallet industry. Most of the containers are designed to fit on a standard 48x40 GMA pallet. But increased retailer interest points to a change in mindset from one-way to multi-trip packaging. This may translate into retailers "encouraging" the use of more plastic pallets in the future. RPCs will help fuel the growth of third party management companies. With some of these companies also offering wood or plastic pallets, they will likely become a factor in some markets where they currently lack a strong competitive presence.
Drum, Pallet Similarities
Pallets and drums have a long history of working together in material handling. Drums are the container of choice for many non-bulk commodities — quantities of 119 gallons or less — and pallets are the preferred unit load platform for protecting, storing and transporting them.
Although the drum reconditioning industry is significantly smaller in scale than the pallet industry, there are many business hurdles and opportunities that are shared by both.
As in the pallet industry, companies that supply drums have alternative materials on their radar screen; plastic products continue to gain market share. As in the pallet industry, drum suppliers are trying to steer their customers into more durable, multi-trip products; durable drums are viewed as lowering per-trip costs for customers while providing drum suppliers with a steady source of reconditionable drums. And as in the pallet industry, drum suppliers have seen their ranks narrow because of consolidation; in fact, one company has been in the thick of consolidation in both industries — PalEx.
Wirebound Still Growing
Wirebound containers, those crates made of thin wood slates and held together by wire and commonly used for shipping certain types of produce and also industrial products, have been around longer than pallets. It is a market that still continues to show steady if modest growth, however, and the industry introduced a new product to go up against modern-day competitors.
The wirebound container industry is inextricably linked to Stapling Machines. The New Jersey-based company is credited with originating loop-closed wirebound boxes. It began manufacturing wirebound box-making machines in 1904 and today is the only U.S. manufacturer of such equipment.
Stapling Machines closely follows the markets for wirebound containers, noted Dave Dixon, the company’s executive vice president. The market for wirebound containers is about $125 million to $130 million, he said, and is almost evenly divided between two broad segments, agricultural and industrial. Annual sales of wirebound containers for industrial applications are about $60 million while sales for agricultural applications range from about $65 million to $70 million. A standard wirebound produce container may sell for $1.25 to $1.60; wirebound containers for industrial applications may sell for anywhere from $3 to $90. About 20 plants manufacture wirebound containers.
The market for industrial wirebound containers continues to grow at an annual rate of about 5%, according to Dave. The agricultural market is growing more slowly, at rates of about 2% to 3% annually, he said.
New Service: Cleaning
As manufacturers increasingly treat pallets and containers as assets, cleaning shipping platforms has emerged as a new service opportunity for pallet manufacturers and recyclers. Very few companies in the wood pallet industry offer washing services. However, as more pallets are actively managed and reused, traditional pallet manufacturers that move toward providing third-party management services will need to look closely at pallet and container washing.
Pallet and container washing goes hand in hand with the trend toward reusable packaging. "Many companies are converting to plastic pallets or containers, and washing systems are being used more and more by them," said Wayne Carrigan, sales manager for Industrial Resources of Michigan, which sells the Eliminator washing system. "Pretty much any type of reusable packaging needs to be washed and sterilized."
Cleaning can be another source of revenue for pallet businesses, but it is not for everybody. Evaluate your customer base and business by asking yourself the following questions:
• Are you located in a major distribution area?
• Do you service customers with special requirements for cleanliness and hygiene?
• How many pallets and containers go through your area?
• Are you a wood pallet supplier or a pallet management company?
The type of washing or cleaning required for a shipping platform depends on the type of unit load and the goal. Hand-held pressure washers that generate about 3,500 psi get limited use, usually for finishes or touch-ups, such as removing an extra sticky label or a big cake of mud.
Washing systems range from basic turnkey models to custom designed, fully automated, high volume systems. Automated systems reduce labor costs and are more efficient; they are at the core of most washing or cleaning operations because of their ability to handle large volumes. A typical system, in which pallets and containers move along a conveyor from start to finish, includes a washing stage, optional rinsing process, and a drying segment. Cleaning solutions may be added to the water. Some automated systems come complete with destackers and stackers.
Plastic lumber and composite products — made of a mixture of plastic and wood fiber — are gathering momentum, particularly in markets for building-related products, such as decking.
There have been a number of signs of the growing acceptance of plastic and composite lumber products, including the rapid growth in production and sales of some manufacturers and the gearing up of machinery suppliers for the budding industry.
In addition, a study by a market research and consulting firm predicted the industry will enjoy double-digit growth in the first decade of 2000. The total size of the plastic lumber and wood composites market in 1998 was 565 million pounds, valued at about $220 million, according to the study by Principia Partners, which predicted annual growth of 13% through 2008.
Plastics and composites have not gone unnoticed by the pallet industry, either. Several companies now are manufacturing plastic pallets, and Chep, the leading pallet rental pool company, has introduced plastic pallets into its operations.
Canadian-based Dura Products International, which makes pallets and other products from a composite material comprised of recycled plastic and cellulose fiber, branched out into decking products. The company also signed an agreement to supply composite pallet boards to Canadian Pallet Corp.
In most pallet applications, plastic is molded by various means to make the pallet although in at least a few cases companies are making pallets or skids in whole or in part with plastic lumber components.
Pallet businesses and sawmills produce significant volumes of waste wood material as a by-product of their operations. Suppliers of grinding and shredding equipment can help them convert wood waste to other marketable products.
Whether the company is fully integrated, with its own sawmill or scragg mill, remanufacturing lumber into pallet parts, making pallets from cut stock, or repairing pallets and conducting other pallet recycling operations, new and recycled wood waste accumulates. The slabs, trim ends and shims pile up; at pallet recycling operations, broken or otherwise flawed used pallet parts and entire pallets mount up.
Waste wood is a solid waste challenge. How can companies dispose of the material? Some companies explore another option: how can they convert waste wood to a value-added product and market and sell it to add to their revenues.
Various types of grinding and shredding equipment have provided solutions to pallet companies and sawmills. Technological advances have improved both the product produced by the machinery and their performance. Suppliers offer systems to process relatively small volumes of waste wood or an individual pallet to much larger machinery that can grind entire pallets or skids and other large wood debris, such as limbs or stumps. Grinding and shredding machinery varies widely in terms of production capacity, size, portability, and other factors.
Some companies have made investments in machinery to grind scrap wood and to produce colored mulch. Some businesses sell colored mulch wholesale to landscaping companies while others also invest in systems to bag finished colored products for eventual retail sale. Others may choose to partner with companies that are involved in the colored mulch business, perhaps by supplying scrap wood or uncolored mulch.
There are a number of companies now supplying machinery and technology to produce colored mulch. Some suppliers have focused on expertise in coloring wood fiber while others offer systems that both grind wood and color the mulch product. There also are a number of companies that supply colorant products in a wide range of colors.
Converting waste wood to colored mulch may not be appropriate for many pallet businesses. On the other hand, it certainly deserves attention from those companies looking for ways to increase revenues.
Standards for pallets will become more widely accepted as businesses become more global in nature and because of the growing importance of a standards-setting organization.
That was the message that Dr. Marshall ("Mark") White, director of the Virginia Tech pallet and container research lab, delivered to an audience at the annual meeting of the Canadian Wood Pallet and Container Association.
Increased acceptance of standards "is inevitable," Mark told the gathering, for two reasons: the increased globalization of the economy and the increased role of the International Organization of Standardization (ISO) in standardizing packaging and pallets for intercontinental and international transport.
Although pallet standards are overwhelmingly voluntary, they can be binding in sales agreements or contracts between pallet manufacturers and their customers. A contract or agreement that calls for pallets to meet a certain standard can be the subject of civil litigation if the pallet supplier does not comply.
A number of different organizations and associations have published pallet standards, including the National Wooden Pallet and Container Association, the American Society of Mechanical Engineers, ISO, and groups in Japan and Europe.
Of the various organizations, Mark believes that ISO will increasingly assume a leadership role in setting standards involving the pallet industry. "The International Organization of Standardization, I believe, in the world of pallets is going to grow and grow and grow in influence." In the future, its standards will be referenced more often in relationships between pallet suppliers and their customers.
Finally, a survey of pallet recyclers conducted by Pallet Profile Weekly, and the subject of a special report in the November issue of Pallet Enterprise, revealed a number of trends. The growth in demand for recycled pallets appears to be approaching 10% instead of the 20% experienced throughout the 1990s. In addition, a growing number of recyclers report that pallet cores are easier to obtain.
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