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Industry Veteran Gives Insight To South African Market
Industry Veteran Gives Insight to South African Market: Despite a fragmented market and tight core supply, Pallet Supply Co. in Cape Town has found a way to make recycling work in South Africa; as the continent’s most progressive economy, it is also the largest pallet producer and user.
By Chaille Brindley
Date Posted: 9/1/2007
Known for its location at the southern tip of Africa, diamond mining, and reforms from Apartheid, South Africa has become the economic engine of Africa comprising around 25% of the entire continent’s gross domestic product. This also makes it the pallet capital of the continent.
Sandy Jeffery, president of Pallet Supply Co. in Cape Town, grew up around the pallet industry in South Africa. And he recently chatted with Pallet Enterprise to give readers a taste of what it is like to run a pallet shop in an emerging market that is struggling to balance both European and African cultures.
Sandy’s father started the pallet industry in Cape Town in the 1960s. Employing more than 100 people today, Pallet Supply Co. has grown to become one of the largest pallet companies in the area. It manufactures tens of thousands of pallets per month and even dabbles some in used pallets.
Most pallet activity is confined to the major ports and cities, especially Johannesburg, Cape Town, Durban, and Port Elizabeth. Sandy estimated that the country has a market of 40 million new pallets per year. Most pallets are made by hand even for the larger producers. There may be a few mechanized nailing plants in the country.
South Africa probably has 15 larger pallet producers and maybe 70 to 80 mom & pop shops. Customers use many different pallet sizes. The 1000 x 1200 mm pallet dominates, similar to the United Kingdom. Both stringer and block style pallets are used. Heavy manufacturing tends to use 2-way entry, stringer style pallets while retail grocery users prefer the block, 4-way entry design. Many retailers have gone to CHEP, which operates a pool of about 3 million pallets in the country.
There is no universal quality standard, like the EUR-pallet in Europe. Most pallets are customized to fit the exact application, similar to what takes place in the United States. Sandy said the closest thing to a standard, especially for retail applications is the CHEP design.
Goods move from the interior of the country’s manufacturing centers to the port cities to be shipped. Pallets are not recycled because it is too costly to ship them back to the interior cities. “Shack dwellers” take them home to use for fuel and housing needs.
Pallet Supply Co. is one of the few companies doing much recycling. Used pallets are becoming harder to find because companies usually give it to their laborers as a social commitment. Unlike in the past, now Sandy has to pay for cores, usually between $1.00 and $1.25. He got into the recycling business 10-12 years ago when cores were more available. He still does some recycled pallets because the production of cheaper, disposable pallets gives him a competitive edge for some accounts.
As in the United States, recycled pallets are sold for one-way applications. These pallets generally are not used in high-speed machinery due to safety concerns. Pallet dismantling is done on dismantlers and repairs by hand using crowbars and other hand tools. Pallet Supply Co. has teams of two workers at each station to repair pallets.
The technology used in South Africa is similar to what a smaller, semi-automated facility would use in the United States. Sandy said that it is cheaper to use laborers than machinery, but it depends on the volume and the timber supply inward to the manufacturing cities. Getting consistent lumber quality and size that can easily be used in automated machinery can be a challenge. Pallet Supply Co. has off-cut saws, thickness saws similar to a planer used in furniture manufacturing, molders, bandsaws and nail guns.
Most of the domestic timber comes from the coastal areas or the northern part of the country where the climate is more tropical. Very little timber is produced in the interior of the country. Timber arrives in the form of cants and is then cut for blocks, stringers and deck boards.
Precut lumber is virtually non-existent, except for CHEP, which has used it in some instances. Sawmills face labor shortage and timber supply issues. It is easier for the mills to produce cants and let the user saw the lumber to size. The key reason is that most pallet lumber volumes are not high enough to support cutting for a particular size. There are so many pallet sizes used in South Africa that most orders are custom jobs any way.
Sandy explained that there are both sophisticated mills with lots of equipment and bush mills that use banded tools to cut wet logs. The larger, automated mills primarily service the building and industrial markets. Pallet companies may buy excess volume or waste wood from them. Sandy buys a lot of lumber from bush sawmills, which can cut up to 3,000 cubic meters per month. Most of this bush sawn lumber has to be dried before it can be used to make pallets. Radiata pine is the dominant species used in pallets.
Importing timber is difficult because of the distance and logistical constraints of South Africa. Although the cities are fairly modern, South Africa is still considered a third-world country. The roads are poor for shipping lumber inland. Sandy has worked hard with his suppliers to reduce the inventory needed while ensuring his company has adequate supply to service accounts.
When customers want export certified pallets, Pallet Supply Co. buys kiln-dried timber and then makes the pallet. South Africa has limited controls over export certification. Fumigation is the primary treatment method used to treat pallets because the production volumes are too small to justify the capital required for heat treatment chambers.
As a growing economic center, South Africa has a lot of heavy users of wood pallets. This includes motor vehicle parts/assembly plants, breweries, the drink and bottling industries, brick manufacturers, mining industry, and chemical companies.
Vehicle production is the second-biggest industry in South Africa’s manufacturing sector, and one of the fastest growing. Vehicle exports now account for nearly 7% of the country’s exports. Mining and financial services remain the two largest business sectors in South Africa.
According to government reports, South Africa’s economy has been in an upward phase of the business cycle since September 1999. This is the longest period of economic expansion in the country’s recorded history.
Beyond the major cities, development is marginal and poverty still reigns despite government efforts. Consequently the vast majority of South Africans are poor.
The government has imposed Broad-Based Economic Empowerment (BBEE) programs to help improve the plight of the poor in the country. These policies have been controversial and have not always produced the desired effect. The government has issued reforms that give exemption to smaller companies and start-ups in their first year of operation, while allowing multi-nationals flexibility in how they structure their empowerment deals.
South Africa faces a number of issues that will sound familiar to U.S. pallet producers. The industry has a low barrier for entry, which means you never know when new competition will spring up. At the same time, a lack of timber supply has made the market very competitive. Limited communication infrastructure in rural areas makes it difficult to communicate with some bush mills.
Poverty has led to underground criminal operations in the country. Because of massive crime networks in Africa, few use cash and some are beginning to stop using checks which can be altered. Sandy said that online banking works best to secure transactions.
Pallet Supply Co. uses 3-4 salesmen who go out on calls to assess client needs and build up the business. South Africa is a very competitive market. Sandy talked about competitors shadowing his trucks trying to see where they go to steal customers. All the company’s trucks are not marked for this reason.
South Africa does not have any national pallet companies. Most companies are individually owned and their management lack the necessary skills and money to become big, national companies. Plastic pallets are much less common in South Africa than the United States although some food companies do use them.
CHEP has developed a sizeable following among the grocery user community. Sandy described rental as fairly dominate throughout the fast moving consumer goods chain in the country. Sandy, said, “CHEP is the blue cancer. Once you get it, you cannot get rid of it.”
South Africa provides a look at what happens when two cultures collide and work to co-exist and learn from each other. This journey is only in its infancy. Sandy explained that the country has plenty of laborers but lacks people with management skills. Pallet Supply Co. has instituted basic life skills and other training programs to help workers and develop leadership from within the company.
Although each market around the globe has its own unique challenges, many of the core issues are the same – lumber supply concerns, increasingly competitive markets, and the growth of new services to augment traditional pallet production.