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Pallet Industry Feeling Jolt of Online Auctions
Pallet Industry Jolted: Online Auctions, Third-Party Services, Other Issues Impacting Pallet Industry
By Staff Writer
Date Posted: 8/1/2000
Bidding via the Internet for contracts to supply pallets, the growing importance of the Europallet to U.S. pallet manufacturers, and a rapidly growing, increasingly diverse infrastructure for pallet and container management — these are just some of the major issues that have involved and impacted the pallet industry.
Bidding online the Internet for pallet contracts has become a topic of concern. To bid or not to bid, that is the question for many pallet manufacturers and recyclers across the country. For an industry that is already slim on profits, online auctions could spell disaster if suppliers do not wise up and learn from their mistakes.
FreeMarkets, based, in Pittsburgh, Pa., has become a leading provider of online auction services. It has conducted over $5.4 billion in transactions since the company started in 1995. FreeMarkets boasts that it has saved clients on average 15% across a broad array of products, from pallets to tax preparation services. Major manufacturers, such as Quaker Oats, Owens Corning, GE, and Honeywell, have given online pallet auctions a try, and FreeMarkets has helped them and other clients to purchase millions of dollars worth of pallets.
Online auctions pit sellers — not buyers — against each other. In addition, unlike a conventional auction, a bidder’s identity is kept secret.
Some pallet suppliers have participated, bidding against each other over the Internet for contracts. FreeMarkets gives the bidding information to its client, which makes the final contract decision. The major concern for pallet suppliers is the affect on prices. The impact of the online auctions has been to drive down pallet prices. In fact, many online bids appear to be below cost.
"Pallet people are going online and bidding business at ridiculously low prices," said Frank Falzone, president of FPF Pallets Plus in Chicago. "Most pallet companies don’t know how to calculate their costs." Some pallet companies have declined to participate in online auctions.
Bid specifications are an area of contention. Some companies that have participated in online auctions argue that pallets delivered to FreeMarkets’ customers differed from specifications spelled out prior to the bidding process.
In addition to the service provided by FreeMarkets, there are a number of online exchanges and marketplaces currently on the Internet. Most are devoted to disposing of excess inventory or capital assets. Unlike FreeMarkets, these auctions are not for consistent suppliers of everyday goods needed for industrial production. In addition, some manufacturing companies have opted to develop their own online procurement system. For example, the Big Three automakers plan to work together to develop an online system for purchasing parts.
Changes in European recycling laws are driving demand for standard types of wood packaging, especially the Europallet. The new laws impose taxes on packaging that cannot be reused or exchanged. Most pallets made in the U.S. do not meet European standards. Only official Europallets or other approved standardized packaging are recognized by users and European governments as commercially reusable.
The big question for North American pallet manufacturers and recyclers is how quickly will their customers adopt the Europallet for shipments to Europe.
The new taxes will be implemented throughout Europe within the next two years. Importers will have to incur the full cost of taxes for goods shipped on pallets that are nonstandard or deemed non-recyclable. Taxes on unapproved pallets will cost everyone in the supply chain more. Market pressure may force product manufacturers and shippers to demand approved pallets from their suppliers. Some companies already have refused to receive shipments on unapproved pallets.
The Europallet Pallet Association has set up the U.S. Europallet Council (USEPAL) to license American companies that want to manufacture the Europallet. Sam Cauffield, a pallet industry consultant and former Proctor and Gamble executive, serves as chairman of USEPAL. There is no similar licensing body for Canadian pallet manufacturers.
USEPAL has been developing standards for a U.S. version of the Europallet. Europallet specifications were modified for wood species and fasteners used in North America, and pallets built to the Americanized standard passed tests conducted at the Virginia Tech Pallet and Container Lab.
For more information, contact Sam Cauffield of USEPAL at (513) 522-8421 or email at email@example.com. Or, contact the National Wooden Pallet and Container Association at (703) 527-7667.
Third-Party Spurs Shift
Chep continues to methodically grow its 48"x40" pallet rental business in the Americas to 30 million units and beyond, but its continued growth is not the biggest development in the arena of third-party pallet services.
Several suppliers of returnable plastic containers have entered the produce market, and suppliers of returnables have managed to wrangle some tax breaks in a few states. Technology is advancing to track returnable pallets and containers. Mergers and liaisons are changing the landscape. Add them up, and you get a rapidly growing, increasingly diverse infrastructure for pallet and container management falling into place.
Pallet management continues to expand and diversify. Customers are increasingly engaging pallet people in a broader dialogue about management of other unit load packaging, such as containers, bins and collars. Likewise, topics like customer and down-stream automation systems, labor requirements and product quality are finding their way onto the negotiating table.
Providers of third-party pallet management services are not only broadening their services, but they also find themselves honing a different kind of marketing approach. While 48"x40" pallet rental now is widely understood, customer awareness of retrieval and recovery programs is not as widely grasped. Trade promotion has helped, but often sales people have to work hard to explain what they have to offer.
Coalescing to work like a patchwork quilt, this mix of retrieval networks, tools, measures and initiatives could become the foundation for the pallet industry’s retrieval and recovery grid of the future, the platform for growth. "We are really excited about prospects for growth," said John Lorentzen, president of First Alliance Logistics, a company formed several years ago by a number of major pallet businesses to take advantage of third-party management opportunities.
Network logistics aside, the idea of third-party as a sales tool is steadily growing. For a new generation of pallet people, taking lumber out of the pallet may no longer be the instinctive response to price pressure from a pallet buyer. Now, it is far more likely than ever before that a pallet company sales rep will ask what happens to pallets when they reach the customer’s shipping destination. Pallet people can explain the potential savings of capturing and reintroducing reconditioned pallets — which typically generate higher profit margins — where feasible in order to reduce the customer’s cost per-trip cost -- the proverbial win-win situation for both.
One of the most significant developments has been the merger of PalEx and IFCO. A the time of the merger, PalEx owned the second largest pallet rental pool in North America through its Superior Management Group’s inventory of Canadian Pallet Council pallets. Since then, IFCO announced it will launch a new pallet rental program in Canada that will utilize pallets made to the same specifications as the Canadian Pallet Council.
There have been other interesting liaisons as well, both formal and casual. San Francisco-based Container and Pallet Systems (CAPS) raised its profile considerably in the last year. It partnered with software company Savi Technology to enable CAPS to expand its radio frequency identification (RFID) tracking capabilities.
Companies with a vested interest in third-party pallet and container services also have been involved in the formation of a new trade organization, the Reusable Pallet and Container Coalition. The group is comprised mainly of companies that make plastic pallet and container products.
While some networks are emerging, some have failed. PalletPallet recently went out of business. It had two significant third-party divisions, Palletbanking® and National Pallet Leasing Systems, a 48"x40" pallet rental program.
The ongoing expansion of Chep’s North American pallet pool is pretty much taken for granted. Chep continues to gain market share in its key market segments, such as dry grocery, perishable goods, and foodservice.
The leading pallet rental company surprised some observers last year, however, by getting involved with ‘white wood.’ It reached an agreement with Wal-Mart to perform dock sweeps at the retail giant’s distribution centers. Chep subcontracted with several pallet recycling companies to perform the dock sweeps. Wal-Mart wrote to its vendors, encouraging them to consider using Chep pallets.
Chep announced in late 1998 that it would be willing to negotiate with individual pallet recyclers for sorting, handling and returning incidental accumulations of blue pallets that made their way into their yards. This was widely thought to be a positive move for both Chep and independent recyclers, using market forces to help stimulate the flow of stray blue pallets back into service. Earlier this year, however, Chep rescinded this move and has fallen back on its original policy of not reimbursing recyclers for costs.
New NWPCA President
Earlier this year, the National Wooden Pallet and Container Association (NWPCA) named Bruce N. Scholnick to be its president and chief executive officer. He has a background in glass packaging, consulting for packaging companies, and executive positions in association management.
Bruce’s most recent position was with the National Association of Professional Insurance Agents; he served for seven years as division vice president of member services and products. He also previously worked as vice president for corporate planning for Thatcher Manufacturing Corporation, a division of Dart & Kraft Industries, and as director of marketing and economic research for the Glass Packaging Institute.
Bruce, replacing former NWPCA president John Healy, who resigned last fall to accept a position with PalEx, said he wants to ensure that the association "is seen as a critical knowledge clearinghouse and that the products and services we provide have real value to sustain business growth."
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