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What's the Future for Family Owned Businesses?
The future still holds promise for family owned businesses, but don't rule out pallet networks of some kind; they will grow in importance.
By Ed Brindley
Date Posted: 11/16/2001
I am writing this letter on the eve of a long awaited sell off of the pallet manufacturing division of IFCO Systems. The PalEx/IFCO situation serves as an outstanding example of the uncertainty that surrounds the future of our industry.
Until the 1990s, the wooden pallet industry was comprised almost exclusively of privately held (typically family owned and run) businesses. A few had multiple sites, but they were still relatively small in number. The nature of pallet recycling appeared to favor multiple plant locations in large metropolitan areas where retrieving and dispensing used pallets presented a logistical challenge. Pallet manufacturing was done in plants that were typically in rural areas, away from the higher city prices and closer to both rural labor pools and raw material sources. During the 80s, pallet recycling evolved into a mostly urban industry where receiving used pallet cores and distributing recycled pallets often fit a multiple plant concept.
The 1990s brought a focus on managing pallets and containers, a service often needed by many customers. Pallet management often requires a pallet company be situated to efficiently handle the tasks of collecting, sorting, and repairing a customer’s pallets and containers. Pallet management frequently requires dealing with pallets that are widely dispersed.
As the need for wide geographic coverage emerged, the potential for larger, better-financed pallet companies arose. We went through a period during the 1990s when many pallet people considered selling their companies or joining one of the then-emerging pallet networks. In fact, many did sell or join. But keep in mind that the vast majority of pallet companies continued to be single location companies.
PalEx is probably the best example we have of a publicly held pallet company that covered a considerable geographic region. It was a $100 million company put together in the mid-1990s from three prominent pallet companies, Ridge Pallet, Fraser Industries and Interstate Pallets. PalEx grew rapidly by buying other major pallet manufacturers, pallet recyclers and drum refurbishing companies. It sold out to IFCO. All these entrepreneurial companies came together under one large corporate umbrella. The concept of a network to serve customers continued to have its appeal. But the truth is that the economics of pallet manufacturing does not lend itself to benefiting much from a large corporate structure.
Now, after a relatively small number of years, IFCO Systems has sold off its pallet manufacturing division to a new company called PalletOne. PalletOne immediately becomes the largest pallet manufacturer in North America and probably in the world. There are still many pallet manufacturers who believe that PalletOne has no advantages over individually owned and operated pallet manufacturing companies. I believe that PalletOne will survive and probably grow to a great extent because it is made up of good people with good manufacturing plants.
At the same time, closely held, single plant, pallet manufacturing companies will continue to survive. Pallet manufacturing does not require a network to be successful, but that does not mean that a large pallet manufacturer cannot be successful.
In order to be successful in the future, our industry will require networks of different pallet plants, repair facilities and depots to serve customers. Do these have to be publicly owned, as a large corporation? Maybe not. But sharing both information and pallets or containers from a pool seem to be necessary ingredients to bring real efficiencies into customers’ logistics systems. That was – and still – is the driving reason to consider large, multi-location pallet companies.
The future still holds promise for family owned businesses, but don’t rule out pallet networks of some kind. They will grow in importance.