Pallets and the Supply Chain

Stephen DeAngelis

December 1, 2011

We’re all aware of the millions of pallets (or skips) in use around the world that help in the transportation of goods from one place to another. Despite their ubiquity, most people unconnected with the supply chain never give them a second thought. A lot of thinking, however, is given to pallets by supply chain professionals. The Center For Unit Load Design at Virginia Tech University is home to one such group of people. Bob Trebilcock, Executive Editor of Modern Materials Handling, reports that the “research lab [has] a heritage of putting wooden pallets to the test.” [“Shipping Pallets: The complete package,” 3 November 2011] The director of the Center, Laszlo Horvath, told Trebilcock, however, “We are material neutral. I think that’s important for people to know.” Trebilcock continues:

“The center, its students and faculty are still involved in research related to pallet design. But wooden pallets are now just one component of the unit load, which may also include alternative pallets such as plastic and metal along with corrugated containers, stretch film and strapping. With its emphasis on the unit load, the center is evaluating them all. ‘We do not push wood over plastic or any other material,’ Horvath says. ‘We are looking for the best pallet and the best materials for the application.'”

Horvath told Trebilcock that “purchasing people often take wood out of the pallet to save money.” He went on to say, “What they don’t realize is that there is a new stress distribution on the pallet that may affect some of the products in a package more than others.” As a result, “some bottles or cans may leak even if the load is in tact.” No retailer wants to receive pallets with leaking or damaged products. That is why most of them produce manuals that stipulate how products must be packaged and shipped. Failure to comply can result in significant deductions or outright rejection of a delivery. At Enterra Solutions, we’re very aware of these compliance issues because it is the area of supply chain in which we started offering our services. The type of pallet used, and how it is loaded, are generally included as compliance factors. Trebilcock notes that pallets can create problems beyond stress distribution. He explains:

“Pallets made the news last year when Johnson & Johnson blamed moldy pallets produced in the Caribbean for the contamination of product manufactured and packaged in Puerto Rico. The center is investigating ways to prevent the growth of food pathogens and mold on pallets using a wood byproduct that is already used in the production of food. ‘The material we’re working with is eco-friendly and approved by the FDA as a food product,’ says Horvath. ‘If you can put it in food, you can put it on a pallet.'”

Stories about moldy wooden pallets certainly beg the question about whether other materials would be better suited for pallet construction. Trebilcock reports that pallet material is another subject being investigated by the Center. He writes:

“Wood or plastic may not rank up there with the plastic or paper question at the grocery store, but it’s a question that pallet users often ask. Right now, there’s no way to answer that question based on real world experience. ‘We want to do a life cycle analysis of the pallet once it’s out there in the distribution world and create a tool that will help companies decide which is better for their application,’ Horvath says.”

IKEA thinks has come up with a better material for pallets: cardboard. [“Ikea’s Paper Pallet Challenges Wood’s 50-Year Dominance: Freight,” by Ola Kinnander, Bloomberg BusinessWeek, 4 November 2011] Kinnander reports:

“Wooden pallets churned out in their billions over the five decades during which they’ve dominated world trade face a challenge from a cardboard rival that’s the brainchild of furniture retailer Ikea Group. Ikea, which uses 10 million pallets to supply its stores with bookcases, pillows and candles, will ditch wood by January in favor of a lighter, thinner, paper-based alternative the Swedish company says will shave 10 percent from transport costs. ‘We don’t know if the paper pallet will be the ultimate solution, but it’s better than wood,’ said Jeanette Skjelmose, sustainability manager at Ikea’s supply-chain unit. Though made from folded corrugated-card, the design can support a load of 750 kilograms (1,650 pounds), the same as timber, she said.”

According to Kinnander, the cardboard pallets are single-use only, but can be pulped for recycling. The big benefit comes from space and weight savings. The cardboard pallets are “one-third the height of wooden trays at 5 centimeters (2 inches) and 90 percent lighter at 2.5 kilos, they’ll save thousands of truck trips and cut transport bills by 140 million euros ($193 million) a year at a cost of 90 million euros for paper purchases and new forklifts, Ikea says.” Skjelmose told Kinnander, “We hope this will be a start in making transportation systems smarter and freight as compact as possible.” Kinnander goes on to give a brief history of the wooden pallet, which has “dominated world trade since World War II.” She writes:

“Timber pallets originated a century ago as simple ‘skids’ that evolved into a design compatible with the forklift invented in the 1920s. Key to new handling systems added in the 1940s, they came into their own with containerization from the 1950s. As many as 500 million are made each year, with up to 2 billion circulating in North America alone, said Jeff McBee, pallet analyst at Industrial Reporting Inc. in Ashland, Virginia.”

Kinnander reports that one of the big challenges facing any transition to cardboard pallets is reuse. Since cardboard pallets are “designed to last for a single journey” they “represent a challenge to pooling systems used by many of the container industry’s biggest customers, including Cincinnati- based Procter & Gamble Co. and Rotterdam-based Unilever, the world’s two largest consumer-goods companies.” Kinnander continues:

“Pooled pallets like those provided by industry leader CHEP, a unit of Sydney-based Brambles Ltd. deriving its name from Australia’s Commonwealth Handling Equipment Pool, which oversaw defense supplies in WWII, have gained in popularity as companies find it easier and more cost-effective to outsource flows. Brambles, which counts Procter and Unilever as customers, services 54 countries with 400 million pallets, distinguishable by their blue edging from the red-edged pool run by leading rival PECO Pallet Inc. of Yonkers, New York. … CHEP doesn’t use paper-based pallets and has no plans to change, Brambles spokesman James Hall said by telephone. ‘Paper pallets and other cardboard packaging products are not suitable for pooling,’ Hall said. ‘They’re not durable enough, not capable of withstanding heavy loads or extremes of weather and temperature, and they can’t be repaired. It’s not what our customers are looking for.'”

I suspect that Harvard Business School professor Clayton Christensen would tell Hall to be cautious about insisting you know what your “customers are looking for.” He is on record as saying that customers will tell you that you’re giving them just what they want until they decide they want something else. That’s the “innovator’s dilemma” that he wrote about. Nevertheless, single-use pallets do seem destined for limited markets. Kinnander explains why:

“Pallet pooling is especially useful for companies that need to turn around products quickly, such as food suppliers, while a wooden structure is preferable for industries dealing in heavier goods, MacQuarie Group Ltd. analyst Russell Shaw said. Wood helps to prevent product damage,’ said Sydney-based Shaw, who has an ‘outperform’ rating in Brambles. ‘If you’re transporting something really light such as cushions or candles, like Ikea, you probably don’t need a high-quality pallet.’ Skjelmose said the furniture company’s pallets have the same limitations as the wooden alternative if stacked properly.”

Although cardboard pallets may not become as ubiquitous as wooden ones, Kinnander reports that their use is growing. She continues:

“IPP Logipal has begun producing paper pallets at a plant in Goch, Germany, and may enter France, Belgium and the Netherlands next year, according to Ruud Schrama, its marketing manager. ‘We want to triple or quadruple our paper pallet business within five years,’ Schrama said in an interview, declining to give specific figures. ‘Our growth ambition is enormous.'”

Kinnander reports that paper isn’t the only contender trying to displace wooden pallets. She explains:

“Other new materials are also in favor, with Air France-KLM Group, Europe’s biggest airline, planning to throw out 7,000 aluminum pallets used in its 120 freighters by mid-2012 in favor of composite ‘Herculight’ pallets developed by Driessen Group, a unit of Zodiac Aerospace SA, that are 35 percent lighter. ‘We’ll use less fuel and it’ll be possible for us to carry more freight,’ Gijsbet Woelders, vice president of worldwide operations for KLM Cargo, said in an interview. ‘We’ll save a lot of money, millions of euros. It’s important.’ While alternative materials that also include plastic and steel will have some success, they currently represent no real threat to wood, Industrial Reporting’s McBee said, enjoying only a ‘single digit’ revenue share that could double and still remain a minor part of the market.”

CHEP, PECO and iGPS, the three big pallet pool providers, improve their profit margins by pooling only block pallets which are built to be durable. In another article, Trebilcock reports that since January, Costco has only accepted shipments loaded onto block pallets. [“Shipping Pallets: Costco says a better pallet really is, well, better,” Modern Materials Handling, 11 November 2011] From Trebilcock’s headline, you can tell that Costco is pleased with its decision. John Thelan, Costco’s senior vice president for depots and traffic, told Trebilcock, “When you’re walking through a Costco store, and all our product is up on steel racks, you want a safe pallet. We felt that the stringer pallet world had deteriorated and we were concerned with a less than perfect board finding its way through our system. In our opinion, block pallets are more durable than a stringer board.” Since “Costco does not store products in pallet racks in warehouses: instead, it cross-docks merchandise directly from depots to its stores, where pallets are stored in pallet racks,” ensuring that pallets don’t become a big liability risk is obviously important.

 

Thelan also pointed out Trebilcock that when you handle millions of pallets annually, having pallets than can be lifted from any side saves both time and money — stringer pallets can only be loaded from the ends. The bottom line is that wooden pallets aren’t likely to be displaced in any significant way in the near future. Scientists, however, are always at work developing new materials. It wouldn’t surprise me if they came up with something that is affordable, durable, and lightweight that could revolutionize the pallet business. If they do, they will make a small fortune and save a lot of trees.