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White Wood Dream or Recycler Nightmare?
Exploring the future of a white wood exchange pool.

By Chaille Brindley
Date Posted: 8/1/2003

Over the past decade, the white wood pallet industry has seen its share of the market drop as pallet rental has become a more popular alternative for many major customers. With the promise of lower costs, high quality pallets and less hassle, users have tried pallet rental with various results. One thing is for sure; pallet rental and third party management seems here to stay.

The pallet industry, especially independent recyclers, is faced with a decision. Either ignore pallet rental or find a way to compete on a national scale. There are at least two organizations ó Pallet Asset Recovery (PAR) system and the Penn Alliance ó seeking to unite recyclers to service national accounts with a white wood pool. CHEP, the countryís largest pallet leasing company, has experienced some problems over the past year, creating a window of opportunity for independent recyclers. The catch ó nobody really knows for sure if anyone can make a white wood pallet system work.

Fragmentation of the industry continues to be a stumbling block for the white wood exchange market as customer demands change. Users are looking more and more at pallet rental because it offers the ability to service national accounts with a unique solution to many pallet "problems." Previous attempts to develop industry standards and unite small players in coalitions have failed to deliver on a large scale.

Letís look at what the two systems are proposing as well as how the development of a sustainable white wood pool network would impact the rental market.

PAR Prepares to Enter the Market

The Pallet Asset Recovery (PAR) system plans to unite independent recyclers to service large national accounts while still preserving the individual integrity and autonomy of each member company. Unlike most rental systems, PARís intends to use white wood pallets. These pallets will be inspected, repaired to a high quality standard and tagged with bar codes according to Alan Miceli, PAR president.

Although PAR is not the first attempt to unite recyclers, its design is unique. Pallet Pallet ô for example, did not have the same level of coordination and accountability that the PAR system promises to offer. PalEx/IFCO bought member companies to assemble its network, which cost a lot of money.

The PAR approach does not require as much capital as a traditional pool because it will use many of the assets already in place among the member companies. "We donít need millions of dollars to compete with the big rental companiesÖAnd right now, customers are begging for an alternative," said Alan.

PAR would service clients from member companies depending on customer demand and member company willingness to supply a particular client. Each member company remains independent to run its business as the owners see fit. If a member company decides to service a PAR customer, it would have to comply with PAR standards and rules for that particular account.

PARís system will look more like the Pallet Banking exchange program offered in the 90s by Pallet Pallet. Based on a 48x40 footprint grade #1 standard, PAR pallets will not be painted and thus will have a street value for those looking to make money on the other end. The PAR system will be flexible enough to accommodate stringer and block pallets as well as odd sizes. PAR pallets can be shipped to destinations outside of the program for a small fee. Unlike traditional rental relationships, PAR members will pick up their pallets at the distributor at no extra cost to the distributor.

PAR will not charge many of the fees typically levied by rental companies including daily rental, reissue, transfer or storage fees. Each PAR customer will pay a flat fee to use a PAR pallet plus agree to return a comparable pallet after use. PAR will calculate a float (number of pallets needed) for each customer location. Once the number of pallets issued to the location exceeds the pre-determined float volume, the PAR customer would have to return pallets or pay a lost core charge for those pallets exceeding the float volume and not returned by the distributor.

The biggest benefit of PAR is the ability for independent recyclers to recapture profitable business lost to the rental companies. Independent recyclers have lost these customers as long as they require pallet vendors to be able to service national accounts.

PAR serves as the sales and administrative arm by putting together a national sales team, inspecting/monitoring quality, overseeing the record keeping, training members on tracking technology, billing PAR customers and balancing/managing the overall pool. Members may be able to save money by group purchasing for things such as nails, insurance, equipment, etc. Given the high cost of insurance and other business necessities, combining purchasing power makes sense in the long run.

Pallet companies wanting to join PAR must meet minimum requirements, pay a license fee and sign a contract. Members will have a say in how PAR is run and a right to vote for and serve as board members and committee positions. However, members are not buying ownership interest in PAR like they would if they bought stock in a publicly held company. The principle owners of PAR are Alan Miceli of Innovative Data Systems of New York and John Britt of Direct Wood Products, West Point, Va.

As with any new idea, the PAR system has its risks. Look for rental companies to become very competitive with pricing if PAR begins to make inroads with customers. It may be difficult for PAR to find enough quality cores to fill its network without spending money building or repairing pallets. Depending on how much it costs to get the system running, PARís membership fees may not be enough seed capital to make the business work.

Some recyclers privately expressed interest in owning part of the company if they were going to bankroll it through fees and pallet cores. According to Alan, PAR is willing to discuss equity ownership with recyclers. However, ownership will not be part of the membership benefit.

The PAR system calls for recyclers to be partially compensated by returned cores in addition to part of the issue fee. PAR members would have to be willing to ship #1 quality pallets for possibly less up front money than they are getting now and wait to be fully compensated with returned cores. Member recyclers would get back cores as PAR customer accounts are reconciled each month. Also, there is a possibility that the inbound core quality would improve. But that is not certain. PAR members would have to be willing to risk bank-rolling the system initially until pallets are returned to members. PAR does guarantee in writing to return comparable cores (reconciled every quarter) and pay recyclers within 45 days.

Although PAR claimed to have received positive interest from some pallet users, the system would be much more enticing to recyclers if PAR already had one or two big customers already signed up.

The biggest obstacle may be the recycling industry itself. Getting pallet companies to work together has never been easy. Pallet companies tend to be suspicious of each other and vigorously defend their turf. But CHEPís growth may convince enough independent recyclers to lay down their differences and work together.

The Penn Alliance Emerges

Penn Pallet of St. Maryís, Penn. is developing an alliance of recyclers and has a tentative agreement with Wal-Mart to setup a white wood program. Penn Pallet already runs dock sweeps in two Wal-Mart distribution centers and is the only recycler doing this service right now for Wal-Mart outside of ProPak. Penn Pallet saw the opportunity and first approached Wal-Mart about the viability of a white wood system as a competitor to CHEP. Given its close ties to Wal-Mart, Penn Pallet may have the inside track to getting Wal-Mart related business.

Penn Palletís system will be called the Penn Alliance. Doug Cunningham of Penn Pallet would not comment about specific dates for the launch of the Penn Alliance program. He did say that the company already had the key personnel in place to run its pool. He also said that the management team for the Penn Alliance does not include any former CHEP employees. The Penn Alliance is not openly soliciting involvement from the industry. Instead, it will contact recyclers as the organization is ready to move. Doug did not dismiss the possibility of working with PAR or other organizations looking to take advantage of the white wood pool to serve large accounts.

The Wal-Mart Factor

Signaling a major shift in policy, news has leaked out that Wal-Mart is considering endorsing a white wood program for use in the United States. This move could have a major impact on CHEPís strategy for attracting new business and working with recyclers in the United States.

For a number of years, Wal-Mart, the largest retailer in the world, has been one of the biggest supporters of CHEP. Wal-Martís endorsement has helped CHEP grab new business from some major manufactures. Today, CHEPís penetration rate into Wal-Mart has reached somewhere around 80% and has slowed significantly over the past year.

According to a number of industry sources, a growing level of dissatisfaction among the product manufacturers has led to Wal-Martís eagerness for an alternative. Companies shipping on CHEP pallets have complained about poor service levels and pallet quality. Some CHEP sales representatives have even been forced to go to white pallet recyclers and buy semi-trailer loads of white pallets to fill customer demand. Large orders of new CHEP pallets have recently been shipped to help meet demand or fill in holes caused by leakage and pool inefficiencies.

The impact of the Wal-Mart decision could be enormous. While Wal-Mart is not throwing out CHEP or pulling its endorsement, the move could dilute the punch of the retailerís previous endorsement of CHEP. Wal-Mart has never excluded non-CHEP pallets, but it has billed suppliers for poor quality pallets. By endorsing a white wood alternative, product manufacturers would feel freer to use white wood for shipments into Wal-Mart.

CHEP paints a different picture. Deb Spicer, CHEPís vice president of communications, said that the Penn Pallet announcement was "nothing new." Deb pointed out that over the past year Wal-Mart has opened 17 new distribution centers, and all of them have gone to CHEP. Deb called the Wal-Mart developments "mere speculation at this point."

Deb also denied that CHEP was having any major problems servicing customers and would not comment further on the issue without specific instances of customer complaints. Deb said, "Our service level continues to grow along with the growth of our market."

A white wood program should allow Wal-Mart to improve the quality of white wood cores floating through its system while giving manufacturers more options and greater competition in the marketplace.

The Future of White Wood

Given the fragmentation in the recycling market, nobody knows for sure if either the Penn Alliance or PAR Systems programs will catch on in the industry. Donít expect CHEP to go away any time soon. It has become firmly entrenched in the U.S. market and has more resources than any one recycler. CHEP has spent more than ten years and hundreds of millions of dollars building its pool and its brand. Any competitor to CHEP has a long way to go to be able to claim victory. Yet CHEP is vulnerable. CHEP has troubles with its stock value, a pallet leakage problem, changes in management and a market calling for alternatives. A major announcement by Wal-Mart would only open the door even further, thereby making it easier for white wood recyclers to compete.

Recyclers must decide if they want to team up or remain independent. Recyclers faced the same decision when PalEx/IFCO was running around gobbling up companies. Many of these former owners were left with stock that never produced the return they expected. One big difference this time is that these two systems preserve a companyís independence while offering them the opportunity for new accounts. Still, some pallet companies will pass because they donít like the risks. Depending on the success of these new white wood networks, recyclers that stay on the sideline will either be saying in five years, "Iím glad that I didnít buy the lemon" or "I lost out on one of the biggest business opportunities of my life."

What does your future hold?


PAR is aggressively looking to add members/service centers. PAR remains open to independent pallet recyclers that are not part of an existing pallet rental/management company. If you want more information, call PAR at 800/PAR-2136 or visit www.parsystem.net


Still being formed, the Penn Alliance is not openly soliciting involvement from the industry. Instead, it will contact recyclers as the organization is ready to move.

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