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Letter from Ed - The Rumors Can Now Change!
PE publisher examines what the PalEx/IFCO merger means for pallet and container rental/third party management.

By Dr. Ed Brindley
Date Posted: 5/1/1999

Speculation about PalEx has been all over the board. People have been wondering what the largest pallet company in North America was doing because the news waves had been devoid of any significant hard PalEx news. Many have speculated that PalEx might be working on a pallet rental system to compete against Chep. PalEx held a news conference March 30 and announced its quarterly financial results, but its merger with IFCO was the topic that dominated peopleís interest.

Our article in this issue (starting on page 35) contains the facts about the merger between PalEx and IFCO. My letter is meant to explore the mergerís implications for both PalEx and our industry. The new company being formed is IFCO Systems.

Who in the world is IFCO? It is not a pallet company. It is not even a North American company. IFCO is the leader in the RPC (reusable produce container) rental business. Corrugated containers dominate this industry worldwide, but even in its infancy RPC rental is showing great potential ó much like Chepís pallet rental has expanded around the world into the U.S. One could easily make a strong argument that RPC rental makes much more sense than pallet rental, so its future is likely to be bright.

In its two year history, PalEx has made a reputation of taking aggressive steps -- major pallet leadership acquisitions, buying heavily into steel drum refurbishing, dropping its biggest customer, Chep, and now merging with the leader in RPC rental. PalEx is not competing currently in the U.S. against Chep pallet rental, but it is the second largest North American pallet rental company with its Canadian CPC rental program. And soon it will be competing against Chep in the North American RPC rental market.

PalEx has made several moves into products other than pallets, but pallet manufacturing, repairing, and recycling still constitute the largest single part of its business. Some people suggest that now it is moving away from its first love toward what appear to be move profitable fields. After all, who could blame them? While this might be true, consider the possibility that the future pallet world will lead others to make similar moves. A marriage between different aspects of the unit load industry makes sense. And pallets are the bases on which so many unit loads will move through our society. While on the surface the details connected with wooden pallets and containers may appear to be dramatically different from steel drums and RPCs, they are all part of the unit load materials handling industry. They all have similar logistical characteristics, can utilize a depot network system, and offer benefits from closed loop systems.

Is PalEx moving away from pallets? Or is it moving toward more profitable unit load business opportunities that interface with pallets and returnable containers? If the later is the case, it could well be pointing to the wave of the future in the wooden pallet and container industry.

Some people have expressed concern that PalEx has put people who know little if anything about pallets into the companyís leadership positions. None of the PalEx management people whom I know has said anything to me that would suggest there is unrest in the ranks. While some pallet people may wonder whether or not the PalEx model will work, it appears to me that IFCO Systems still depends heavily on its pallet people and probably will for a long time.

It has been suggested that some of the original PalEx management leaders may not want to stick around when their original contract period is up, particularly if the stock price is favorable. Such predictions are mere speculation. Obviously, at the right time some if not all of them may sell IFCO Systems stock to get cash.

They say that beauty is in the eye of the beholder. The same can be said about business opportunities. Does the PalEx-IFCO merger signal positive future opportunities for the pallet industry? Or does it signal bad things about PalEx and maybe others who take a similar route? What do you think? Time will eventually sort out the wheat from the chaff.

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