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Hays Container Services Taking New Approach to RPC Market
Hays Container Service's RPCs now accepted at Wal-Mart.
By Rick LeBlanc
Date Posted: 11/16/2001
In June, Hays Container Services quietly began renting its reusable plastic containers (RPCs) to California grape growers, thus heralding its entry into the group of RPC companies accepted at retail giant Wal-Mart.
And while it joined the ranks of Chep, IFCO and Georgia-Pacific in taking aim at the domestic produce industry, which uses some 2.5-3 billion corrugated cartons annually, Hays says that its approach to the corrugated-dominated market will be substantially different than its competitors.
Although well known in United Kingdom (U.K.), Hays is a relatively new name to shippers and distributors in the U.S. The publicly traded company has three core activities — distribution, commercial and personnel. With annual sales over $4 billion and 27,000 employees, it has one of Europe’s largest third-party logistics operations. About 35% of its revenues are generated outside the U.K., mainly on the continent of Europe.
Hays will launch a business model that is substantially different than the dominant RPC rental approach pioneered in the U.S. by Chep and IFCO, according to its president, Jim Vangelos. "We are not interested in what competitors are currently doing in the U.S. market because we are promoting a completely different service-driven concept which actively manages assets and thereby reduces costs," he said. "Instead of trying to invent a new North American model, our intent is to take Hays' strategic strengths and best practices out of the European market and apply them to the U.S., and that is in spite of the geographic differences that exist between the U.S. and the U.K. market."
Since it was founded less than four years ago, Hays’ RPC or crate rental business in the U.K. has enjoyed rapid growth. "In terms of the U.K., it really took off about three years ago," Peter McLoughlin, business sector director for Hays business support services, said earlier this year. "We started with Aldi and then got involved with IFCO. We wash crates for IFCO’s largest customer in the U.K. It’s been a fairly rapid growth during that time. The business has probably tripled in size each year."
Peter described the Hays approach as a logistics model. "It is very service orientated, and it is based on driving costs out of the supply chain. Long before we got involved with RPCs, we were running food distribution centers for retailers. That’s the background of the business."
Hays will attempt to stratify a pooling concept, including both perishable and dry goods. The result, Jim said, will be a program in which the "…container can be used year around, safely, effectively, and profitably." The company will focus on small retailers that are looking at self-encapsulating pooling systems, not the larger, more open-ended types of RPC rental systems that are currently operating in the U.S.
"We currently manage the Sainsbury logistical system in the U.K.," Jim noted, referring to the major grocery chain. "We would like to customize and use the best practices from that system and apply it to a specific company to demonstrate that this model does add value to U.S. businesses."
He believes there will be cost efficiencies up and down a customer’s logistical line by allowing Hays to introduce its container pooling system for both dry and perishable goods, providing greater throughput and more balanced utilization throughout the year.
In Europe, RPCs are used to ship about 22% of fresh fruit, 27% of vegetables and about 50% of meat, poultry and fish. "If you can establish some of the logic of RPCs in produce, then you should be able to extend that logic to other categories, such as meat and chilled foods," said Peter.
An estimated 50 million RPCs are in use throughout the U.K., and Sainsbury is one of the biggest users, employing about 8 million containers. Each one turns about 25 times annually. That velocity is much greater than the six or eight turns — or trips — per year that is achieved in the U.S., where retailers are hampered by greater distances and longer dwell times resulting from low volumes. Sainsbury now employs about 60% of its crates in other categories, such as perishable and meat.
The trend is away from proprietary retailer RPC pools to third-party management. "Historically, the U.K. retailers tended to own and operate their own crate pools," said Peter. "As margins have become squeezed, they are not looking to spend a lot of capital on something that does not give them any differentiation at all. The differentiation is in actually lowering their cost base and becoming more efficient." In the U.K., companies that provide third-party management — such as Hays — are filling this role. Within three months of taking over Sainsbury’s crate pool, Hays had increased efficiencies by 30%.
While the ‘one touch’ advantage has been a key selling point for RPCs recently, Jim believes that the environmental advantages of reducing solid waste will regain importance in the near future. About 75% of corrugated is recycled, but 25% ends up in landfills, Jim pointed out. "The simplest demonstration is to go out to a landfill, and you will find a lot of completely acceptable produce, dry grocery and meat corrugate ending up in the landfill."
"The problem is that you can’t make a decision for the end user," Jim added. "They either decide to recycle it or dump it. The only way you can change that is to change the system so they don’t actually have to make that decision."
Cooperation among Hays and other RPC providers through the Reusable Pallet and Container Coalition (RPCC) is critical to ensure the success of the RPC industry for its stakeholders, Jim noted. Container compatibility is mandated by the RPCC for the beginning of 2002. Hays already is compatible with other RPC suppliers and the standard corrugated container. The association also is involved in other initiatives, such as developing standards for labels and the meat packing industry. The companies are working through RPCC to develop other logistical synergies with respect to dwell and cycle models, including cooperation on sorting and washing. They want to compete on container performance, not logistical limitations that will hamper all of them during early stages of growth.
Where several brands of RPCs arrive at a retailer, sorting will not be the retailer’s problem. "It will be a collaboration between the pooling companies so it is seamless to the retailer and so that the grower is free to use whatever RPC he likes to use," Jim said. "We’ve already addressed that as an industry, and it is currently alive and well. They don’t want any additional costs or hassles."
This customer-focused approach should help bring success to the RPC industry, according to Michael McCartney of QLM Consulting, who has been actively involved with clients in the RPC sector for the past several years, including Hays. "What will determine to a large degree the success of the returnables industry," he said, "is the extent to which returnable systems can create a value proposition that revolves around providing end-to-end solutions based on real-time information. Information drives efficiency." The longer companies continue to focus on the container and not the customer and their systems, the longer it will take them to create a sustainable enterprise, he believes. "They are stuck playing checkers. The real game is chess, and the final logistics game looks like go. Hays Logistics knows how to play chess."
Responding to the rumor seen recently on the Pallet Enterprise Web site’s Pallet Board that Hays was interested in acquiring the Wal-Mart dock sweep business from Chep, Jim replied, "Definitely not. Chep is a great company. We are coming in with an entirely different model. Chep does quite an adequate job, and we have no interest in supplanting them."
Jim is enjoying the challenge of launching Hays in North America. "I think when you get a chance to build a business from the ground up, you only get a couple of chances, maybe only one in your life, and you certainly want to take advantage of it. I believe strongly in the industry, and the strongest belief for me personally is the environmental aspect. And as a result, being able to go to work everyday and telling people what you do, and knowing that you are actually benefitting society, feels really good."