Red, White & Blue: An Analysis of Rental Pallets vs. Whitewood Andrew Mosqueda
Topics • Basic Rental Pallet Model • Differences in the Rental Pallet Models • Elements of a Rental Pallet Program • Management of a Rental Pallet Program • Whitewood Pallets • Competing with the Rental Pallet Market • Raw Materials • Transportation • Landfill Alternatives • Recycling Options • 3R Programs • EPAL & PALNET Formats
Rental Pallet Analysis • International & Domestic Inbound Movements • Rental Pallet Orders Inbound • Produce Company • Field • 3PL, Raw Materials & Packaging • Produce Brokers • Inter-Affiliation • Co-packers • Outside Storage • Distributor • Pallet Recycler • Service Center • End User
Rental Pallet Analysis Rental Pallet Analysis • International & Domestic Inbound Movements • Rental Pallet Orders Inbound • Produce Company • Field • 3PL, Raw Materials & Packaging • Produce Brokers • Inter-Affiliation • Co-packers • Outside Storage • Distributor • Pallet Recycler • Service Center • End User
Rental Pallet Analysis Rental Pallet Analysis • Financial Responsibility • Issue Fee • Fuel Surcharge • Lumber Fee • Transfer Fee – Part Dist., NPD • International Transfer Fee – Canada, Mexico, Puerto Rico • Emergency Load Fee • Lost Equipment Notices • Daily Hire Fee (Daily Rent) • How to figure: • 7 days x pallet balance= Product Days x Rent = Daily Hire Fee • Example 7 x 1000 = 7000 product days x $.03 = $210 per week
Rental Pallet Analysis Rental Pallet Analysis Wood Pallets Plastic Pallets • Strengths • Inventory • Pallet Spec. • Technology • Funding • Network • Industry Acceptance • Weaknesses • Contamination (iGPS video) • Quality • Program Management • Forecasting • Reorganization • Strengths • Weight • Pallet Spec • Technology • Quality • Network • Construction • Weaknesses • Industry Acceptance • Inventory • DecaBDE • Friction • Cost
Rental Pallet Analysis Rental Pallet Analysis Wood Pallets Plastic Pallets • Opportunity • Networking • Additional Supply Chain Services • Raw Materials • Consumer Education • Threats • iGPS • Traction of contamination claims. • Additional contamination protocols. • Success in the reorganization • Opportunity • Wood Rental Pallet marketing will help differentiate the differences between wood and plastic pallets • Focused on market share and defending • Threats • Acceptance in the produce sector • New and better plastic pallet business models entering the market. • Expansion of H.R. 4394
So How Do We Compete? • 3R (Repair, Reuse, Recycle)Programs • Supply Chain Recycling • OCC • Shrink Wrap • Transportation • Raw Materials • Comparison Education • Environmental • Landfill Waste • CO2 • Pallet Design
Recycling • OCC • Shrink Wrap • Trends: • OCC and Plastic are commodities and are priced based on market movement. Current price trends are on the rise. • Partnerships with recycling companies that sell your waste to the end user. • Opportunity: • Network material – Better pricing comes with consistent sourcing of material. • Value added to our customers beyond pallets. • Often the recycler will make arrangements (transportation, baler, etc.)
Transportation • Networking • Average delivery radius – 150 miles • Every mile adds to the individual pallet cost – less competitive for smaller companies • Larger companies can sustain losing lanes. • Broker out or work with networks like PALNET or EPAL system. • Current Market • Economy has caused rates to be determined by the market • As consumer purchasing increases so will the need for carriers. • Many independent carriers have closed their business due to lack of business, regulations, and fuel concerns • As a result, a lack of carriers will result an increase of rates. • 71% of total $ value • 69% of total product tons. • 40% of ton miles • All on trucks.
Transportation “As freight volumes increase and capacity lags behind, providers will take control via higher rates.I would predict that in the next 12-18 months we will begin to see this change. Now is a critical time for shippers to forge critical relationships with transportation providers. If at all possible, I would suggest returning to the bargaining table now and trying to solidify multi-year tiered contracts that will provide some stability when the economy regains strength. Those shippers that do not prepare could face dramatic increases in transportation spends that will be hard for some transportation managers to grasp given how they have had their way in the past 2 years. Those that have taken advantage of providers during the economic downturn will find themselves on the receiving end before long.” Charles Jarnig – Customer Service Manager at Schneider Logistics • As an industry, what can we do to prepare our customers and ourselves? • Offer our trucks for backhauls: Pallets in – Products out… • Warehousing opportunities – cross docking and short-term storage • Keep our trucks running, pays for our fuel, and create customer loyalty.
Comparison Education • White Wood Pallet • GMA Pallet: 23.55 b.f. • 63% Top Deck Coverage • Wood Pallet Raw Material Source • Washington, Oregon, Mexico and Canada • $200M-$255M – softwood (doug fir, pine) • Quality – Utl/Btr, Econ/Btr, & Exp/Btr • Wane, Bark, overall poor quality • Temporary and permanent closures of mills in the Pacific NW & Canada • Resulting in market driven pricing • #1 use of softwood – Housing and home improvement is the largest market • #2 use of softwood – Pallets, Crates and Containers • #1Use of Hardwood – Pallets, Crates, Containers, and Furniture • Perceptions • Unorganized • Not ethical • Limited resources • Toxic to the environment
Comparison Education • White Wood Pallet – Perceptions • Unorganized • With the emergence of networks like PALNET, EPAL, and the WPA coverage of national chains are possible, making us more competitive. • Not ethical • Slow Pay, No Pay – Economic realities have effected all. • Not honesty in 3R inspections and reports. • Limited resources • Toxic to the environment • Fact – Pallet Recyclers have recovered over 300 million pallets per year as a core source. • Fact – Of the 300 million pallets recovered less than 1% was returned to landfills. USDA Forest Service • Fact – Over 32% of MSW landfills reject pallet waste. • Fact – Disposing wood waste alternatives has diverted 7 million metric tons from the MSW system. • Alternatives: • Products made with recycled wood composites • Mulch – example Southwest Forest Products creates a line of mulch products from left over wood material • Energy – Covanta Energy • Pulp & Paper • Fiber Composites
Comparison Education • Rental Pallets • iGPS added 1100 new manufacturing jobs in the U.S., • iGPS reduced tons transported by 1.2 billion pounds, • iGPS saved 600,000 gallons of fuel, • iGPS reduced greenhouse gases by 13 million pounds, • and saved 145 million trees since 2006 • CHEP Pallet – 78% Top Deck Coverage • Brambles (CHEP & Recall) saves 19 million trees per year. • Brambles – a reduction of 2.2 billion pounds of solid waste (95% reduction compared to one-way pallets) • Brambles – 7.8 trillion BTUs of energy (enough to power 200,000 homes for a year). • Brambles – 1.2 billion pounds of GHG emissions. • Brambles – Also pools over 40 million plastic containers worldwide. • Size Matters • In California CHEP service centers process over 90,000 pallets per week. • That equates to 167 truck loads per week • Inbound raw materials to cover repairs of 30% or 27,ooo pallets – including nails and paint. • In California there are four CHEP Service Centers that repair and ship. • Transporting bulk inventory to cover seasonal surges and lack of inventory in a specific region. • Mainly caused by inaccurate forecasting.
News Effecting the Market • HR4394 – Provides for a phased ban of decaBDE • When passed how will it affect iGPS? • Answer: It Won’t…in my opinion… • Quota: 2010 – 100%, 2011 – 66%, 2012 – 33% • Percentage decaBDE in the iGPS pallet: 7.01% (3.4 lbs in a 48.5 pallet) • Section 7(b) – A recycled article that contains decaBDE shall be exempt from annual quotas and ban. • Section 7(c) - Resold Articles: The Act does not apply with regard to decaBDE product subsequent to its first sale at retail. It is a rental pallet and never changes ownership. • Section 7 (d) The Administrator (EPA) may by rule make exemptions from this Act for articles that contain decaBDE in concentrations that the Administrator determines to be unavoidable due to contamination of the environment by decaBDE. • Products containing low levels of decaBDE can be exempt by the Administrator. • Does this mean iGPS will continue to use decaBDE? • Answer: No…kinda. In a letter this month released by Bob Moore, he states that iGPS will continue to use decaBDE…but will discontinue will within the 3-4 year timeline U.S. Manufacturers agreed.
News Effecting the Market • iGPS counter-attack on the white wood industry • Video proving 5 of 30 pallets tested positive for Listeria. • Listeriosis is the leading cause of death among food borne bacterial pathogens. • 1st – The wooden pallets tested were not pooled. • 2nd – Pallets in video were used #2 pallets. Not evident that contamination occurred upon deliver, in transit, while loaded or after stacked for collection • 3rd – It is the contention of iGPS that there is a clear connection between contaminated unpainted plywood shelves used in an egg factory and wood pallets. Quotes from Moore “There is a growing body of evidence that wood pallets pose unacceptable risks to our nation’s food supply.” “Wood pallets often contain broken wood pieces that puncture packaging materials, exposing food to contamination from both the pallet and other potential sources.” “There are more than one billion wood pallets used in the United States, so it’s critical to understand the role they play in outbreaks of food poisoning…We urge Members (Congress) to examine the data and consider the role wooden shipping platforms play in food contamination…” “….there is not independent testing confirming transference of decBDE causing the contamination to packaging or food.”
News Effecting the Market • Tylenol has announced Friday afternoon that they will not use wooden pallets with the fire retardant TBA. • McNeil has linked the illness to 2,4,6-tribromoanisole (TBA), a chemical used to treat pallets that contained packaging material used in the tainted products. • Investigators surmise that the chemical leached into the packaging material. • Johnson & Johnson said it is investigating the issue and will stop shipping products with the chemicals on wooden pallets. And the Contamination Wars continue…
Industry Perspective on Wood Dave Bourne – Industrial Lumber firstname.lastname@example.org “The market is reacting to sawmill closures and curtailments. Many pallet companies are feeling the squeeze and dealing with pricing that leaves no room for error or waste. With the upper grades of dimension difficult to market due to the housing industry, it is only natural that sawmills are running at a very restricted capacity. Hopefully, if the housing market can start to see some improvement, the flow of production will increase and more low grade lumber will enter the market. Export markets and the changing of building codes in China also add to the demand for some utility grade from BC to overseas markets. Therefore, as you can see we have a perfect storm and surely many are looking forward to some much needed relief.” • What does that mean for the pallet industry? • Although the pallet industry is the 2nd largest market for softwood, mills are not cutting specifically for the pallet industry • As a secondary market, this provides from more Econ/Btr for the used #1 & #2 market and Utl/Btr for new GMA 48x40
Industry Perspective on Pallets Gordon Hughes – Wood Packaging Solutions Inc. email@example.com • It is my estimation that 10%15% of all wooden pallet and wood packaging companies of North America were lost to the recession. • Within three to four years, I can see that all wooden pallets and packaging crossing the border from USA into Canada and the reverse will be regulated to meet ISPM No. 15. • Now the core market! Be advised, there is a huge quantity of #2 and #3 cores on the market that will never make it to a consumer. • The wooden pallet industry must get smarter, improve their image and promote quality and positive environmental facts that must be met with an honest price. Gordon Hughes is the President of Wood Packaging Solutions Incorporated offering his 39 years of experience to the wooden pallet and packaging industry and consumers of wood packaging. He can be reached by calling 705-887-9631 See the full analysis at www.supplychian1.wordpress.com
In Closing • Movement in the Pallet Industry • Contamination wars • Transportation Concerns • Raw Materials • New Companies with Funding • iGPS Growth • CHEP Reorganization • Benefits to the Industry For information on material sourcing, references, or general questions please email me: firstname.lastname@example.org