The Problem With Pallets
Should fleets just say "no' to exchanges?
PATRICIA SMITH
SENIOR EDITOR
A few years ago Arctic Express notified all of its customers that it wasn't going to exchange pallets anymore. Dick Durst, president of the Hilliard, Ohio, based refrigerated carrier estimates that, at the time, they were spending $625,000 — almost 1% of gross revenue — for pallets. There was damage and loss ("leakage" in pallet lingo), but also intangible costs like harried drivers and loading delays.
"Every time we needed pallets we had a clean, empty trailer, and every time we needed a clean, empty trailer, we had somebody else's pallets," he recalls. "We were missing appointments because our drivers were waiting in line at pallet banks to pick up 24 pieces of wood. It was ludicrous."
Just about any fleet manager who hauls palletized freight has the same complaints.
"They'd break. They'd get rejected," remembers Dan Cushman, senior vice president, marketing operations for Werner Enterprises. "No matter what you did you had leakage so you ended up writing off a ton of money on pallets."
Most of the problems are unintentional. Considering the thousands of pallets constantly moving through the distribution chain, it's inevitable that some will be damaged or lost.
But carriers and especially owner-operators believe there's also a good deal of cheating: shippers who keep meticulous records of outbound pallets but "no paperwork" on pallets coming in, good pallets labeled bad by warehouse workers who are selling them out the back door, pallets that inexplicably disappear after being "stored" by a helpful dockworker.
The story is unconfirmed but we were told more than once of the food company executive who jokingly claims that it's actually the truck driver who governs his company's exchange policy. If the driver is a big, tough looking guy his pallets are all good. If the workers on the loading dock figure they can lick him, his pallets are all bad.
Pallet Rental
What's the cure for trucking's pallet headaches? Many think it's pallet rental which, for the most part, means CHEP.
CHEP was established in the mid 1940s as Australia's Commonwealth Handling Equipment Pool and today has operations in 38 countries on 6 continents. With more than 160 million pallets in the CHEP system, it is far and away the biggest pallet pooling company in the world.
What CHEP offers shippers is high quality, heavy duty pallets when and where they need them. What CHEP offers truckers is choice: get out of the pallet business altogether, or stay and get paid.
When a shipper rents from CHEP it's CHEP, not the freight hauler, who is responsible for making sure the right number and type of pallets are available for loading. At the delivery end it's CHEP, not the trucker, who worries about where the pallets are headed and how they'll be returned. In short, carriers are never forced to shuffle CHEP pallets. But if they do, they're paid for the service.
"The carriers are clean," says Gordon Kirsch, senior vice president of operations. "They don't have to worry about balance. Our system doesn't require them to do anything, but the opportunity does exist for them to go in with a load and leave with a load. It depends on what they can do in a given day."
As Werner's Cushman notes, it's a sweet deal when you can unload and reload at the same stop. But even without the pallet backhaul, rental is a boon for truckers.
"In the non-CHEP pallet exchange environment, a driver often has to spend time looking for return pallets of similar quality, or for somewhere to dispose of pallets," Cushman explains. "Issues like these negatively affect a carrier's asset utilization and, in turn, driver satisfaction and company profitability."
Pallet industry experts say rental is definitely the way of the future. Pallet Enterprise magazine estimates that during the 1990s the pool of North American rental pallets grew from practically nothing to over 30 million. Rental companies are expected to add another 10 to 15 million pallets a year over the next few years.
Wal-Mart is reportedly urging its suppliers to use rental pallets. Kirsch says CHEP pallets are used in a variety of food, hardware and automotive markets.
Trimming Exchange Costs
Sam Morgan, a load coordinator with Circle City Transport, estimates that the Dothan, Ala., based carrier spent some $80,000 on pallet-related costs last year. He also says the tab would have been much higher without the services of The Pallet Clearinghouse.
The brainchild of First Alliance Logistics Management, Charlotte, N.C., the Pallet Clearinghouse has lined up some 160 facilities around the country where pallets can be picked up and dropped off with no money exchanged. The Clearinghouse takes care of billing and paperwork. Once a week it sends client carriers a statement of credit due or payment owed.
Morgan says the service cuts deadhead miles and waiting time. It also reduces seemingly small headaches like getting cash for drivers to buy pallets.
"It costs us $2 to cash a check through Comchek," he explains. "If you've got 100 trucks out there every day and 50 of them need cash for pallets, that's $200 a day just in Comchek fees."
Also, the service makes it easier for Central City to keep track of pallet costs. The truck, trailer and trip number are recorded whenever a pallet is picked up or dropped off. Once a month, the Clearinghouse issues a report to each carrier showing exchange activity.
"That way," notes Morgan, "we know which loads we had to buy pallets on."
Charging Shippers
With fewer shippers using pallet exchanges, carriers have become bolder about charging shippers for the added costs.
Cushman says he can't remember the last time a customer told Werner they had a pallet exchange.
"If they did I guess I'd have to tell them "no offense but it doesn't work. It has never worked,'" he says. "Then I'd build a per-pallet cost into their rate and we'd throw them away."
If Arctic Express' experience is any gauge, shippers are as tired of the hassles as carriers. Durst says they had 36 or 37 customers with pallet exchanges when they issued their "no exchange" policy. Only 6 or 7 pulled their business.
"Once that 30 let us off the hook the other handful stuck out like a sore thumb," he recalls.
Some of Arctic Express' customers have gone to rental pallets. Many, says Durst, have decided it's more economical to use cheaper pallets or "one way wood" and add the cost to the price of their products.
Unfortunately, the move away from pallet exchanges has brought new headaches for Circle City. Morgan says some of their shippers are now floor loading freight — and lumper costs have gone through the roof.
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