Drama In The Warehouse

A battle over pallets turns nasty, even as the industry seeks efficiency solutions.

There's a tool commonly used in the food industry that's surrounded by political and business intrigue, bitterness, intense competition and related business pressures — and no doubt sleepless nights — as increased competition threatens market share and profits, with billions of dollars at stake.

At the heart of this drama is a technological innovation that has pitted a traditional, time-tested tool that's critical to the process of bringing products to market against a newer alternative that offers new advantages at little extra cost — advantages that proponents claim can improve distribution efficiency and perhaps even food product safety. Making this drama even more captivating is the fact that one of the engineers of the dominant traditional system is now a major force behind the new alternative.

Claims and counter claims are made. Press releases fly. Lawmakers call for investigations. Tempers flare. Court suits are filed. Big customers issue edicts. Worried suppliers scramble to respond.

What's at the bottom of it all?

Pallets — those 40-inch-by-48-inch platforms on which grocery products are stacked during transportation and in the warehouse.

For decades, pallets have been made of wood, typically yellow pine, nailed together in a specific format to provide a sturdy support base for food products. Their design evolved, with industry groups establishing uniform standards intended to improve efficiency and easily allow forklifts and pallet jacks to lift them and their loads, and move them throughout the distribution process.

An industry comprising hundreds of independent pallet makers evolved, supplying food companies with those foundations so basic to their operations.

Also for decades, the industry has been dominated by CHEP, owned by Australia-based Brambles Ltd., a powerhouse with more than 7,500 employees and 300 million pallets and containers serving more than 500,000 "customer touchpoints" in 45 countries. Its familiar blue pallets, rented by customers in a pooling arrangement, are used by most of the major suppliers in the industry.

But CHEP's market share is under attack. A supplier of rented wooden pallets, Yonkers, N.Y.-based PECO, claims growth and increasing clout as "the preferred supplier of high-quality pallet platforms and systems to the grocery/consumer goods market."

In March 2009, when PECO revealed a deal with Kroger to be a national supplier in the top-ranked Cincinnati-based supermarket retailer's pooled pallet program, Adrian Potgieter, VP of sales, noted PECO's "signature red pallets are benefiting the supply chains of many of the world's leading companies and brands, including private label shippers, to achieve state-of-the-art efficiencies, service and safety."

A New Player Challenges

But much as past pallet battles have been among the independent wooden pallet builders, CHEP and PECO, another player is also gaining share and causing consternation within the industry.

That company, launched in 2006, is Intelligent Global Pooling Systems (¡GPS). Run by chairman and CEO Bob Moore, Orlando, Fla.-based ¡GPS provides plastic pallets in a rental pool system much like the one Moore operated when he was president of CHEP.

Beside the fact that ¡GPS pallets are made of plastic, and thus don't splinter and jam up production equipment like wooden pallets can, there's another difference: They're the only pallets embedded with radio frequency identification (RFID) tags that track their locations all along the supply chain.

According to market research company The Freedonia Group, demand for pallets in the United States will grow by about 2 percent through 2012 to 670 million pallets across all business sectors. While wood will continue to account for a dominant share, Cleveland-based Freedonia says plastic pallet demand will increase by nearly 5 percent per year to more than 50 million units in 2012 — still less than 10 percent of the total, but a substantial gain nevertheless.

Freedonia says demand for wood pallets will rise at a rate just below the market average, restrained by the growth of pallet-refurbishing services that prolong the life of existing units and reduce demand for new ones.

The market researcher points out that plastic pallets can last a long time without needing time-consuming repairs and can be recycled easily once they need to be retired. "Concerns about the waste generated by pallets will also drive continued use of pallet refurbishing, as users seek to reduce the environmental impact of pallet consumption by trying to reuse and refit pallets, rather than disposing of them at the earliest opportunity," Freedonia predicts.

For its part, ¡GPS says its pallets provide shippers and receivers with "measurable sustainability benefits," pointing to an independent life cycle analysis that says its solution is "dramatically better for the environment than both one-way and multiuse wood pallets on every commonly measured metric, including global warming, ozone layer depletion and ecotoxicity." Further, the company estimates that over five years, customers by using its pallets have combined to prevent the destruction of nearly 750,000 trees, save 750,000 gallons of fuel and reduce more than 16 million pounds of greenhouse gas emissions.

Fighting Back

CHEP, of course, doesn't take claims like this — and others made by ¡GPS that promote the benefits of its plastic pallets — without a response. And independent pallet makers, who belong to the Alexandria, Va.-based National Wooden Pallet and Container Association (NWPCA), are fighting back as well.

CHEP says its tree farm-sourced materials "are a responsible and sustainable source of timber." The company adds that its pooling system encourages repair and reuse of pallets, and that broken or damaged components are recycled, rather than being sent to a landfill. "We make every effort to operate our business in an environmentally sustainable manner," says CHEP marketing director Derek Hannum, noting the company's tagline that "blue is the new 'green.'"

The company also has an online tool that allows customers to estimate the positive environmental impact they can make by using CHEP pallets, depending on the number of pallets used in a given period of time.

Environmental claims, however, are only part of the battle between wood and plastic pallets today. Another key issue that's prompted claims and counterclaims is food safety, and that has brought politicians into the fray and resulted in the filing of at least one lawsuit.

¡GPS likes to promote its pallets as cleaner and nonabsorbent, as well as not subject to wood-boring insects. In fact, the company says it offers completely sanitized pallets for use in the pharmaceutical industry.

When Congress passed the Food Safety Modernization Act late last year, ¡GPS was quick to point out that "a wave of foodborne illnesses involving products as varied as spinach, cookie dough and medicines have shaken consumer confidence." It cited the Atlanta-based Centers for Disease Control and Prevention (CDC) as saying that three pathogens, Salmonella, E. coli and Listeriosis, were responsible for an estimated 112,500 illnesses and more than 900 deaths.

"There are many opportunities for food to become contaminated as it is produced, prepared and transported," says Moore, adding that the new bill, signed by President Obama in early January, "goes a long way in ensuring that the nation will utilize the best technologies that are available to better track and trace the distribution of food products." Of course, the ¡GPS system of placing RFID tags on its pallets can help with this process, Moore adds.

Sen. Sherrod Brown (D-Ohio), in a November 2010 floor statement regarding the food safety bill, said the measure would "ensure further study by the FDA on enhanced safety and sanitary methods for the transportation of foods, and we must ensure this includes an examination of the pallets on which our food is shipped." Wooden pallets, he noted, "can collect … way more bacteria than you can imagine." Brown also stressed the importance of being able to track and trace products throughout the supply chain to find the source when a food contamination event occurs.

To be sure, the wooden pallet industry wasn't terribly happy with this turn of events.

"There is a lot of misinformation in the marketplace about wooden pallets," says CHEP's Hannum, who notes that his company has never found a documented case in the United States where any pallet has been responsible for food contamination. "We feel extremely confident that our platform is safe," he adds. "It is used in food production everyday."

Hannum does acknowledge that placing RFID tags on wooden pallets "doesn't work that well," and the economics "are very challenging." However, he adds, finding a way to help track and trace loads is "probably inevitable."

The Butter Battle

This past December, the NWPCA called for a government investigation to determine whether plastic pallets contributed to the contamination of butter in five Dallas grocery stores by polybromi-nated diphenyl ether (PBDE). One of several chemicals classified as a PBDE is decabromodiphenyl ether (decaBDE), a flame retardant used in plastic pallets.

Bruce Scholnick, NWPCA's president/CEO, contended he wasn't saying plastic pallets were the source of the chemical contaminants in the butter. "But I am encouraging further testing of food that is transported on those pallets," he said. "This time of year, households around the country are baking butter-laden cookies and cakes. Are families eating flame retard ant-filled cupcakes? We should know."

Then the NWPCA apparently lined up a senator to speak on its behalf. Just before retiring, Sen. Christopher Dodd (D-Conn.) in December wrote to FDA commissioner Margaret Hamburg urging the agency to notify "food manufacturers, transporters and retailers inspected by the FDA that plastic pallets containing decaBDE are inappropriate for use in scenarios that may bring decabromine into contact with food."

Dodd's letter prompted Moore at ¡GPS to fire off a letter to customers emphasizing that ¡GPS pallets weren't involved in the butter matter, adding that "NWPCA's veiled suggestion that they are is just one more dishonest and reckless statement from the leadership of an organization that is desperate to hinder competition and innovation in the pallet industry."

He said the butter manufacturer wasn't an ¡GPS customer and that the butter was shipped on wooden pallets. "Not only were ¡GPS pallets uninvolved with the shipment of the product, but the safety of our pallet has also been repeatedly confirmed by independent tests. In short, no product contamination has ever been linked to our pallet."

In turn, ¡GPS sued NWPCA and Scholnick "for false, malicious and defamatory statements" suggesting that its pallets might be the cause of the Dallas butter contamination. A few weeks later, in early January, Moore wrote to the U.S. Justice Department and the Florida attorney general requesting a formal investigation "into the misleading and abusive trade practices of the wood pallet industry."

Costco Shakes Things Up

Meanwhile, as the butter battle continued, national club store operator Costco Wholesale Corp. dropped a bombshell that prompted NWPCA and some of its members to quickly develop a new system to meet its needs, as well as to address today's changing supply chain demands.

Issaquah, Wash-based Costco's new Structural Packaging Specifications require suppliers to use one of three pallet rental companies or purpose-built wood block pallets that have been preap-proved by Costco. The companies are CHEP, ¡GPS and PECO.

"These narrow new requirements could debilitate many independent wood pallet companies who currently provide pallets to Costco suppliers," according to NWPCA, which in turn launched a new Pallet Industry Management System (PIMS), intended to provide "high-quality block pallets managed by independent wood packaging companies collaborating through a national cooperative coalition."

According to NWPCA, Costco representatives have reviewed the PIMS block pallet specification and say it will be accepted provided the pallet has the official PIMS marking. To use the trademarked PIMS logo, pallet companies must participate in the program.

Industry logistics consultant David Sandoval, owner of Spring Grove, Ill-based B.U.S. Systems Inc., believes the Costco requirements could spread within the industry, further challenging independent pallet manufacturers.

Shifting Trends

Despite the flap over plastic vs. wood, and concerns about sustainability and the environmental impact of pallets, the fastest-growing trend, according to Sandoval, is the use of inexpensive pallets that are essentially used once and then turned over to recyclers. Those pallets are typically produced by the independent members of NWPCA. The cost, he maintains, is less than the rental rates charged by the pooling companies, and the system is easier, too. After their loads have been transferred to the distribution center, the one-way pallets are stacked for recyclers to pick up.

What once was a trend in the industry — the pallet exchange programs that were devised and promoted by trade organizations — has largely lost favor, say Sandoval and other industry sources.

"Pallet exchange is not completely gone, but it is a really inefficient model," observes CHEP's Hannum. "The movement today is toward one-way or pooling."

As pressures to reduce supply chain costs continue to increase, there is recognition that the block-style pallets, such as those required by Costco, offer more efficiency in operation and less likelihood of broken wood interfering with high-speed automated equipment used in distribution centers than do the less costly stringer style previously produced by independents.

Additionally, CHEP and its major competitors, besides providing pallets, work closely with customers to help them improve logistical efficiency. While this collaboration between trading partners is likely to continue, the battle between pallet competitors shows no signs of easing up.

Pallet Truck Foot Protection

The FootGuardian Pallet Truck Foot Guard was engineered to protect an employee's feet from crushing and rollover injuries during the operation of a manual pallet truck. It can be used in any operations where a manual pallet truck is needed, and works on inclines, declines and level surfaces.

It's constructed of 5 pounds of welded steel plates that attach to the post between the truck's wheels with a universal V-Block mounting bracket. Once attached, it provides complete foot protection with a 0.375-inch carbon steel barrier between the user's foot and the truck's wheel.

Designed to fit most major manufacturer brands of pallet trucks with a 7-inch wheel and a non-tapered post of 1.75 inches to 2.125 inches in diameter, the FootGuardian can be installed in under four minutes, according to the vendor, Tikiguard LLC. It also features a 0.75-inch floating mechanism that can negotiate a 20-degree incline or decline.

For more information, including a demonstration video, visit www.thefootguardian.com.