Asian Expansion: LOSCAM Reveals Key Insights for Asian Pallet Market Growth
LOSCAM: The largest pallet pooler you may have never heard of has taken a dominant position in Asia. LOSCAM executives offer insight on the Asian pallet market, particularly the huge growth potential in China.
By Chaille Brindley
Date Posted: 8/1/2014
The biggest pallet pool that you may have never heard of is taking Asia by storm. The company, China Merchants Loscam (LOSCAM), has been around about as long as CHEP and has become the dominant player in Asia, particularly China.
LOSCAM was founded in Australia in 1942 supporting the logistics effort for World War II both with pallets and the YALE fork lifts agency.
Today, LOSCAM operates in three major regions Australia-New Zealand, Southeast Asia and China. A major shift in the market occurred a few years ago when China Merchant Group (CMG), one of the largest logistics conglomerates, acquired LOSCAM from private equity interests. CMG is a government-owned enterprise in China with major access to key political and business interests.
Even though LOSCAM and CHEP entered China at about the same time, the acquisition of LOSCAM by CMG has helped the pool operator to maintain its relationships with Unilever and Proctor & Gamble in China. Daniel Bunnett, regional director of LOSCAM Australia, explained, “Based on our change in ownership about four years ago becoming part of a state-owned enterprise, we have experienced significant growth momentum in China and become larger than Brambles in that region.”
Both major poolers operate under similar management principles although there are some differences. When it comes to billing and fee structures, LOSCAM operates similarly to PECO Pallet. LOSCAM charges clients daily rental fees calibrated based on the experience of each client instead of charging extra fees, such as relocation, trip or issue fees. This approach helps reduce surprise charges that has been a complaint in the past about some CHEP bills.
Bunnett said, “We avoid lots of extra fees because we want to keep it simple. Customers are okay to take the occasional rate increase as long as you can explain why, such as the cost of timber going up or their account is trading differently than was originally negotiated. When you start adding on fee after fee that is when you start to anger customers.”
As a major player in the Asian market, LOSCAM has a unique perspective on the region, particularly the huge growth in palletization set to occur in China.
The China Boom
According to analyst, the China market is expected to grow at almost unprecedented rates over the next ten years as the country works to improve its logistics. China is undergoing an industrial metamorphosis that took 50 years or longer in other countries.
“We expect a palletization boom to occur in China over next 10 years, and pallet pooling will be a big part of that movement,” said Ronald Lee, operations director for LOSCAM China.
In China, the block pallet is the dominant design for a number of reasons, and the 1000 x 1200mm is the most common footprint followed by the 1100 x 1100mm (mainly Korean and Japanese products). Lee commented, “The block pallet will continue to take the largest share of the China market because companies like the true 4-way entry of block pallets. Secondly, a lot of the warehouse operations still rely on hand jacks. They don’t move product as much with forklifts. And this trend tends to favor block pallets due to their ease of entry.”
What will the palletization boom look like in China over the next 10 years? Lee suggested, “There is a three phase process for China to move toward palletization. First, you have to get rid of hand building loads into sea containers and placing onto trucks. You have to start to use pallets for loading trucks and containers. The next step is pallet pooling – transferring and tracking pallet movements between parties. The third step covers expanding and improving on pooling and pallet networks.”
Currently about 15-20% of retail goods are shipped on pallets in China. Lee believes this could reach 50-60% within the next 10-15 years. China is a huge country, and it will take years for pallet to permeate the supply chain the way it does in the United States.
The Chinese Market Up Close
Although China does have a lot of central management by the government in its economy, there can be a lot of local control too. Lee explained, “Culture is very different from province to province including how people do things on a daily basis.”
Most of the growth in China right now is fueled by new pallet manufacturing, and most of that is done by hand because mechanization is just starting to take hold in the country. According to Lee, only two of its supplier partners use automated pallet lines. Both are CAPE systems designed for block pallet production. There are very few recyclers in the country because the focus has been on new pallet production. Lee forecasted, “Right now we have very few pallet recyclers in China. Eventually this could change. But right now most of the pallet companies are focused on new pallet manufacturing.”
According to Lee, automated pallet manufacturing will be critical to fuel growth because labor is not always easy to obtain and it is getting more expensive in China.
The primary type of lumber used in China for pallet production is softwood, usually pine. Much of this is imported from the United States and Canada because the domestic supply of timber is not sufficient to meet the market demand.
One key question for U.S. markets is how will palletization impact Chinese exports to the United States and Europe? Will many containers continue to be floor loaded with product? Or will this change with a greater amount of palletization?
Lee commented, “This is all a comparison of labor cost to container space utilization. I see a trend toward more and more palletization of exports because labor costs in China are climbing as a shortage exists in some areas. The other thing is efficiency of loading and unloading a container in the import country.”
This trend suggests that what happens in China will have a bigger impact in the future on pallets used to ship goods into the United States.
While CHEP has focused on growth in the United States and Europe, LOSCAM has clearly done the same thing in Asia. It is the largest pooler in China and Southeast Asia while it takes a strong #2 position in Australia and New Zealand.
In Australia LOSCAM uses stringers pallets. LOSCAM also operates a small pool of plastic pallets in the region due to laws and standards required by food production facilities. Bunnett said that raw materials used in food processing plants tend to be shipped on plastic pallets due to the sanitary concerns even though they are more expensive.
Most of the pallets produced for LOSCAM in the region are produced on Viking pallet lines. LOSCAM outsources its new pallet production to regional partners while its recycling, repair and depot facilities are owned and operated by the country. This is a different strategy from what CHEP has deployed here in the United States.
Bunnett stated, “We are not a manufacturer. That is not our core business. We have been able to work with a few long-term strategic partners on that front who have been able to support us through a significant period of growth in the region.”
LOSCAM has decided to keep its depot network restricted to company facilities because it believes there is danger in losing quality control if you trust pallet inspection and repair to third parties.
The clear sweet spot for future growth is China. Bunnett commented, “The acquisition of LOSCAM by CMG is a clear indication that the leaders in China see pooling as best practice.”
LOSCAM has 40 depots in Australia. But that number will be much larger in China. Bunnett explained that 200-300,000 thousand pallets is a big customer in Australia. But a big customer in China is more around 2-3 million pallets under hire. He added, “The scale of the thing in China is so vast that is hard to comprehend. The growth opportunities are enormous for us in China. It is truly a situation where we are investing hard for the future.”
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LOSCAM: A look at the Asian pallet market.