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A Look into China's Expanding Logistical Framework and Its Path Toward Palletization
Interview with Jon Wan, president of CHEP China, about the growing pallet market in China and the unique challenges created by Chinese logistics.
By Chaille Brindley
Date Posted: 11/1/2010
The dragon has become a symbol in the West of China's culture. It also serves as a good representation of the emerging supply chain in China. Chinese art typically depicts dragons as long, scaled, serpentine creatures with four legs. Emerging supply chains in China are very long and complex due to the vast nature of the country and logistics flows. The legs represent the core population centers that are the base of support. Scales represent levels of cultural and business tradition that may need to be shed or changed as modern practices take hold.
Curious about how the world's largest pallet pooling company saw this emerging market, I recently posed a number of key questions to CHEP's top executive in China. John Wan, president of CHEP China, responded with insights into the challenges, opportunities and hurdles in this emerging market that is quickly moving toward Palletization.
Pallet Enterprise: How is the CHEP model in China similar to and/or different from the model in the USA?
John Wan: "In every region CHEP operates, we work with our local partners to refine the model so it's as effective as possible for our customers. The supply chain in China certainly has different characteristics to the USA. In China today, movement of pallets between CHEP customers is fairly limited, so most of our effort is around helping individual customers use our equipment pooling solutions to make their own operations more efficient. Over time, pallets will flow more openly between our customers, allowing those customers to realize greater efficiencies. We'll be ready to facilitate that."
Pallet Enterprise: Wood or plastic: which is likely to be the bigger force in China? Why?
John Wan: "Ultimately, we have to work with each customer to establish what solution is going to give them the best outcome. We operate using both plastic and timber pallets in China and we see both materials as having a role to play long-term. It's fair to say wood does have the advantage of allowing a more attractive price point for many customers because it's less expensive."
Pallet Enterprise: What sizes seem to work best in China and why?
John Wan: "We operate using 1210s at this stage - that is, pallets that are 1200 millimeters by 1000 millimeters. This is the size the Chinese government recommends and it's the most popular pallet. The other common standard is the T11, which is the 1.1 meter square pallet introduced from Japan and Korea."
Pallet Enterprise: What is the Chinese attitude toward palletization? Are longstanding preferences for floor-loading changing as large multinational companies expand their presence?
John Wan: "Palletization is growing fast because companies, both multinational and local, are setting up large distribution centers using high-bay warehousing and factories using racking systems. As an increasing number of individual customers realize the improved efficiency and safety of palletization, manual handling will become less common and the benefits to the whole supply chain will become even more apparent."
Pallet Enterprise: What is the size of CHEP's pool in China? Are CHEP pallets used primarily for imports or exports? What type of goods work best for palletization?
John Wan: "We have more than 1 million pallets in China today, used exclusively within China. There is no import or export business at this stage. Beverage and grocery are the biggest segments because the cycle time is short. Multinational companies and larger scale local companies receive good value from palletization as they have the distribution centers and scale to benefit from the standardization of process it brings."
Pallet Enterprise: Are there any changes taking place in relation to increased palletization of goods from China to other market such as Europe or the USA?
John Wan: "A lot of the export from China to the USA and Europe is palletized today but using one-way. Using pooled pallets on international flows would save money for the customer, but the regulations are not in place to cope with it at this stage."
Pallet Enterprise: Is there a major difference between how Chinese companies and multinational companies operating in China look at pallets? If so, what are the differences?
John Wan: "Many multinational companies use pooling services in other countries and are therefore more familiar with the concept but, increasingly, local companies are seeing the benefits of palletization so over time we expect any differences to disappear. Local third-party logistics companies palletize as much as their multinational third peers."
Pallet Enterprise: How do provincial differences and distances complicate pallet logistics in China?
John Wan: "It's mainly a cost issue because China is a very large country and the distances between provinces are great. That can make establishing large scale pools harder because of its impact on relocation costs. However, the more CHEP can establish a network, the more it can help its customers overcome these costs. Today, we are focusing on four major regions around the cities of Shanghai, Beijing, Guangzhou and Wuhan."
Pallet Enterprise: Does CHEP plan to provide pallets from China to foreign markets, as it has done in providing pallets to the USA from Latin America for customers importing bananas?
John Wan: "Certainly these flows add significant value for pooled pallet customers in CHEP Americas. We will be open to opportunities along these lines in China once regulations accommodate this business model."
Pallet Enterprise: At what stage of the commercialization process is CHEP in China? How many pallets are in the pool? How many locations does it have? What'sits market penetration?
John Wan: "We set up the operation in 2006 and we now have established offices in Hong Kong, Shanghai, Guangzhou and Beijing. After three years, we now have well over 1 million pallets and a commercial business model that's accepted by the market. We have hundreds of customers in the fast-moving consumer goods industry and in the automotive industry. We are no longer in the 'business proof' stage; we're now in the expansion stage."
Pallet Enterprise: What does CHEP believe is the future of palletization over the next five years? Specifically what will be the three biggest obstacles and opportunities over that period?
John Wan: "CHEP believes the current trends towards palletization in China will continue over the coming five years. However, the speed of any change will always be difficult to predict. Obstacles would include prevailing manual handling techniques and the challenges presented by China's sheer size. Opportunities would include the development of the supply chain that is taking place and the strong support of the government, which recognizes and supports the role of global logistics systems."
Pallet Enterprise: How has the political environment or state rules affected the decisions CHEP has made in launching its pool? For example, I was told that one reason CHEP chose plastic as its primary pallet type is that fire rules are more favorable to plastic in China than in the USA?
John Wan: "In general, the Chinese government is very supportive of the development of the logistics industry and I think that's definitely good news for CHEP. The government is also pushing for a green agenda such as reducing carbon emissions: this makes our service more attractive to both existing and potential customers because white wood pallets create waste. While we know safety issues around fire retardants are an issue for some plastic pallet companies in the USA, legislation concerning fire standards has not been a factor in CHEP China's product decisions. CHEP is the global leader in pooling and operates in 45 countries, so we come against a great range of legislation.
"Wherever we operate, we comply fully with local regulations, and we take our responsibilities seriously when it comes to working with industry associations and government bodies to develop standards. Plastic and wood solutions each have their place, and we operate pools made from both around the world. Ultimately, it comes down to customer preferences with regard to value."