Limits on Export Pallets Creating Corrugated Window of Opportunity;
Corrugated Pallet Suppliers Experiencing Renewed Interest for Export, Domestic Markets
By Rick LeBlanc
Date Posted: 4/1/2002
With current and proposed international regulations impacting the use of non-engineered wood pallets for export, the bug problem has led many packaging users and pallet suppliers to explore other options. Alternative materials in general, and corrugated pallets in particular, offer an avenue of promise for some applications.
Last fall, European Union nations imposed regulations on imported softwood packaging; softwood pallets and containers used to ship products into those countries must be made of heat-treated lumber in order to prevent the spread of wood-borne insects. In addition, an international standard is under consideration that would require either fumigation, heat-treatment or chemical pressure impregnation of any wood packaging, including pallets and containers made of both hardwood and softwood lumber.
Corrugated pallets have an obvious advantage when it comes to the issue of wood-borne insects because they do not provide a habitat or food source for pests that eat or burrow into wood. As such, they do not require specialized treatment for export under current or proposed regulations.
For wooden pallet suppliers that must contend with export regulations and others looking to broaden their product line, corrugated pallets and corrugated components and assembly equipment may be options worth considering.
Stanley Lee of Texas-based Corrugated Pallet Corp. estimates the size of the U.S. export pallet market at about 73 million units annually, and he is upbeat about the prospects for corrugated to serve that market and expand in domestic markets. Corrugated Pallet Corp. licenses other companies to manufacture its patented UNIPAL corrugated pallets, which are made of pallet members or corrugated lumber. They can transport loads in excess of 3,000 pounds and are made in sizes up to 75x65.
Corrugated Pallet Market
"The corrugated pallet market in the U.S. is more than $100 million right now, and within the next 24 months will probably triple in size," said Stan. "We know sales people for other manufacturers and we know what our volume is. Corrugated pallets represent 1 to 1.5 percent of the pallet market, which is $6 billion."
Corrugated pallet suppliers like Lewis Tomala of G.L. Packaging are enthusiastic that emerging opportunities in the export business may also open new doors in domestic markets. "Customers may only want a couple of hundred for export and like them, and then expand their use," he said.
Others in the corrugated pallet arena also report recent increases in activity, although it has not always translated into sales. Protecta-Pack has experienced a surge in interest, according to Kevin McNabb, product manager. Still, wood pallets have a slight competitive advantage in price. "Wood pallets are tough to compete with on price," Kevin conceded. Protecta-Pack also offers wood pallets and plastic. Ironically, the pinewood nematode scare originally resulted in a big spike in Protecta-Pack’s plastic pallet business because customers initially were more familiar and comfortable with plastic than corrugated. Interest in corrugated has increased as they seek to control or reduce costs.
Gil Liebert of Packaging Unlimited reported renewed interest in corrugated pallets after attending the Dimensions packaging trade show last year. "The IBM people, Proctor & Gamble, General Mills -- it just started coming in," Gil said. "But don't get me wrong," he added. "We're not flush with orders, but we're generating a lot of interest, and we're shipping 300 here, and 955 there." Packaging Unlimited has an agreement with Weyerhaeuser. "They are supporting us with some assembly houses they have across the U.S. to make sure we can sell their triple-wall."
National Companies Interested
Both Gil and Stan reported interest from national accounts for multi-million pallet requirements, but large companies may require a national network of corrugated pallet manufacturers or assembly locations to service multiple sites for them or their customers. A certain critical mass may be required to catch the interest of such high-volume customers, and that has not yet emerged. Such networks have been slow to build domestically, but the restrictions on pallets for export may spur their development.
Historically, Europe and Asia have demonstrated greater acceptance of pallets made of alternative materials. Corrugated Pallet Corp. has had success in such countries as Japan, Korea, and Spain. "China has put tremendous pressure on Korea and Japan to comply (with restrictions on imported wood packaging), so our licensees in both those countries are being overwhelmed with pallet opportunities," said Stan.
In North America, Corrugated Pallet Corp. has licensees in Illinois and Mexico. The company recently signed a new licensing agreement with Pasadena Skid & Pallet Inc. in Texas, and Stan has been in negotiations with other companies.
Corrugated pallets have been available for 25 to 30 years, according to Stan. His company researched patents in the U.S. and abroad, especially Japan, and found patented corrugated pallets as far back as the early 1970s. Some had particularly innovative designs. "However, none of them was commercially viable based upon the fact there was no way to make them with machinery," he said.
One major development was that manufacturers of paperboard containers and boxes began to make corrugated pallets. The first simple ones consisted of nine legs -- made from the same kind of cores found in the center of a roll of paper -- fastened with glue between two sheets of corrugated.. "In essence," said Stan, "you had created an elevated slip sheet, but you did get the load up off the floor and that became synonymous with the term ‘corrugated pallet.’ "
Stringer, Block Type
It was the only type of corrugated pallet until the late 1970s or mid-1980s, according to Stan. Then, companies started to experiment with other corrugated members or stringers in order to broaden the scope of corrugated pallets to heavier applications. Corrugated pallets have continued to evolve.
There are two basic types of corrugated pallets: block style and stringer style. "There are a lot of corrugated pallet manufacturers," Stan said, "but over 90 percent of pallets are similar in appearance" and are block-style pallets. The top sheet of a block-style corrugated pallet does the work of interacting with the fork-lift; the pallets typically are for lighter load applications. Load capacity can be enhanced by increasing the amount or design of corrugated on the top sheet, such as honeycomb corrugated or triple-wall corrugated. Corrugated pallets made with members or stringers have similar characteristics as a wood stringer pallet; fork-lift tines pick up the stringer just as they do on a wood pallet.
Some of the applications served by corrugated pallets are impressive in terms of load weight. For example, Gil has one customer that ships 2,500 to 3,000 pounds of flat steel on a corrugated pallet.
Generally, corrugated pallets must be kept dry. However, minor exposure to water should not cause significant problems except perhaps for edges. Packaging Unlimited’s hardboard-lined stringers will withstand exposure to water, according to Gil. Corrugated pallets still may be more competitive when additional costs associated with wood pallets are considered, said Stan; pallet users often store wood pallets outside, he noted, and if they get wet, a vapor barrier may be required on the top deck to protect the load from moisture.
In another indication of how advanced corrugated pallets have become, some designs are rackable. Both Corrugated Pallet Corp. and Packaging Unlimited make stringer corrugated pallets that are rackable. Packaging Unlimited’s rackable corrugated pallets have been tested at the Virginia Tech Center for Unit Load Design, and the test results are available on the company’s Web site. Rackability of UNIPAL pallets depends on the design; some customers have used UNIPAL pallets for racking loads close to 1,000 pounds on standard, two-rail racks with loads evenly distributed over the pallet, according to Stan.
Over 90 percent of corrugated pallets are patented, and licensing agreements are required to manufacture them. However, wood pallet suppliers may test the waters by representing corrugated pallet manufacturers on a commission or non-stocking distributor basis. (A list of some corrugated pallet companies accompanies this article.) Several companies, such as Corrugated Pallet Corp. and Packaging Unlimited, also market and sell equipment to manufacture and assemble corrugated pallets.
There are two levels of manufacturing. The most basic process is the manufacture of the corrugated components or members. The second level is assembling corrugated components, which may be more cost effective at lower volumes.
If Corrugated Pallet Corp. had eight manufacturing facilities across the country, it would become economical to ship pre-manufactured corrugated members or pallet lumber to remote locations up to 500 miles, according to Stan. "We can put almost four times as many knocked-down corrugated pallets on a truck as we can assembled pallets," he said. The corrugated parts could be assembled by pallet suppliers just as wood pallet manufacturers assemble pallets from cut stock.
For an investment of about $25,000, a wood pallet company could be equipped to assemble corrugated components supplied by Corrugated Pallet Corp. Assembly operations with three to four unskilled workers can produce up 1,000 pallets daily, according to Stan.
"You don't need any other significant equipment other than fixturing," said Stan. "It’s easy for people to get into. Insurance requirements are minimal because we just don't have anything very hazardous. Some customers want to assemble their own."
On a more ambitious scale, the cost to establish operations to manufacture UNIPAL corrugated components would be about $375,000. The equipment would enable a company to produce enough components to assemble up to 1 million pallets annually, according to Stan. That volume would allow a company to supply other pallet companies with corrugated components for assembly.
Packaging Unlimited’s stringer corrugated pallets can be assembled by unskilled workers using nothing more than a paint tray, roller and glue. Like Corrugated Pallet Corp., Packaging Unlimited also sells equipment for manufacturing corrugated members; it requires an investment ranging from $125,000-$200,000. For an investment of $200,000, for example, a company would be equipped to produce 2,500 pallets daily, according to Gil.
"We are interested in entertaining any of the wood pallet people," said Gil. "We'd like to invite them in here." The company offers training sessions at its facilities and also will supply sales leads to companies that purchase Packaging Unlimited equipment.
Corrugated Sales Tips
A full understanding of an application is critical for selling corrugated pallet. Sales personnel must have a knowledge of the entire supply chain, load conditions, handling, and storage environments. Many material handling systems have been set up for wood pallets, and the compatibility of conveyors, racking and handling equipment for corrugated pallet must be taken into account. Corrugated stringer pallets may be better suited to heavier loads.
This is one reason that Stan feels that wooden pallet sales people will have an edge selling corrugated pallets over a corrugated box sales person. "The difference between a box and a pallet is that the box is only responsible for the product within it," he explained. The box interfaces with the product and the pallet that carries the box. The pallet is entirely different. It not only has to support the load, it has to interface with the forklift, the pallet jack, the conveyors, and the racks. "The pallet is the thing that has to shield the load from the most feared gorilla in the world," said Stan, "and that is known as the forklift operator. The corrugated pallet industry today would be a half-billion dollar industry if it wasn't for forklift operators."
Corrugated pallets are close to wood in pricing but a little higher. Packaging Unlimited’s corrugated pallets are priced about $1.20 to $2 more than wood, still making them much more attractive from a price stand-point than plastic, Gil noted. G. L. Packaging prices corrugated pallets in the $5-$12 range.
Exports aside, corrugated pallet suppliers are reporting success in a number of different industries, including automotive, computer, chemical, air freight, and food and retail applications. Packaging Unlimited been successful in marketing half- and quarter-pallets for retail applications. Wood pallet recyclers may be reluctant to recover wood half- and quarter-pallets, Gil said, because they have limited value for resale; as a result, they can collect in a clutter behind retail stores. Corrugated pallets, on the other hand, are easily recycled into the paper-making stream. It is also possible, he noted, for retail customers wearing sandals or open-toed shoes to stub or cut a toe on a wood pallet -- a risk that is reduced by corrugated.
Another consideration is the weight of the pallet. Corrugated pallets that meet performance requirements using the least amount of corrugated material are likely to have cost advantages. That light weight of corrugated pallets also is attracting interest from health and safety managers at pallet-using businesses who are trying to improve ergonomics for workers.
As with any new product, translating interest from one part of a business organization -- such as safety, retail operations or international sales -- into a order from a purchasing agent often remains a challenge. It may be a long sell requiring patience and persistence.
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