For those unfamiliar with the supply or reverse chain industries, consider the lowly wooden pallet as a shining example of the complexity of many of the world’s largest international supply chains. The wooden pallet? Are you serious? How could such a simple concept possibly be the cause of complexity in any application? Here’s a short story about its significance and how changing the design of this one little workhorse could dramatically turn the supply chain upside down.
There are approximately two billion wooden shipping pallets in the United States and we build about 500 million more each year to replace the ones that are discarded.1 They are in the holds of tractor-trailers, transporting Honey Nut Cheerios and oysters and penicillin and just about any other product you can think of: sweaters, copper wire, lab mice, and so on. They are piled up behind supermarkets, out back, near the loading dock. They are at construction sites, on sidewalks, in the trash, in your neighbor’s basement. They are stacked in warehouses and coursing their way through the bowels of factories.
The magic of these pallets is the magic of abstraction. Take any object you like, pile it onto a pallet, and it becomes, simply, a “unit load”—standardized, cubical, and ideally suited to being scooped up by the tines of a forklift. This allows your Cheerios and your oysters to be whisked through the supply chain with great efficiency; the gains are so impressive, in fact, that many experts consider the pallet to be the most important materials-handling innovation of the twentieth century.
Since World War II, most of America’s pallet needs have been met by several thousand small and mid-sized businesses. These form the nucleus of not just an industry, but a sprawling, anarchic ecosystem—a world, really, complete with its own customs, language, and legends, with a political class, with its own media. This world is known as “whitewood.” There are approximately forty thousand citizens of whitewood, ranging from pallet pickers (who salvage pallets from the trash) to pallet recyclers (who repair broken pallets and make them whole) to pallet manufacturers, pallet consultants, pallet academics, pallet thieves, and pallet association presidents. Whitewood includes people who crisscross the country selling pallet repair machinery, preaching the gospel of tools such as the Rogers Un-Nailer.2
Not all pallets belong to the world of whitewood. The most important other category—and whitewood’s chief antagonist—is the blue pallet. These blues are not just a different color; they are also built differently, and play by different rules, and for the past twenty-five years, the conflict between blue and white has been the central theme in the political economy of American pallets. And it is important to concentrate when plotting the future of pallets.
Although the technology was in place by the mid-1920s, pallets didn’t see widespread adoption until World War II, when the challenge of keeping eight million G.I.s supplied—“the most enormous single task of distribution ever accomplished anywhere,” according to one historian—gave new urgency to the science of materials handling. The Quartermaster General ordered a million pallets, and the domestic pallet industry was effectively born.3
The pallet industry boomed after the war, along with interstate highways, long-haul trucking, and the rise of a national consumer culture. The canneries of the Salinas Valley were early palletizers, followed by other grocery sectors, then the auto industry, then everything. In 1954, pallet manufacturers left the country’s wooden box association and founded their own trade group, the National Wooden Pallet and Container Association, or NWPCA. Its slogan: “Pallets move the world.” Sometime in the early 1970s, on a CBS news broadcast, John Kenneth Galbraith informed Dan Rather that pallets were the second-fastest-growing industry in America. “What are those?” Rather asked. Or so the legend goes.4
The boom ultimately created a problem, because all of these pallets did not disappear when they reached their destinations. They piled up: on loading docks, in stockrooms, in landfills. Beginning in the late 1970s, people realized these used pallets might have value, and the pallet recycling industry was born. There was good money in recycling, especially in the early days. The supply of raw material was cheap, if not free, the capital investment was minimal, and the whole thing had an appealing simplicity: acquire pallets from wherever they end up, fix them up, sell them back to manufacturers. The service this new generation of recyclers provided was the start of what is called “reverse logistics.”
The advent of recycling allowed the whitewood ecosystem to multiply in complexity. Recyclers arranged to leave empty trailers at the loading docks of their customers, who filled them with pallets and then called for a pickup. Meanwhile, individual pallet pickers began rescuing pallets from the trash and bringing them to recyclers, earning fifty cents or a dollar per piece. Higher up the food chain, pallet brokers fulfilled orders by aggregating shipments of pallets from smaller recyclers. A trade then developed between recyclers, who swapped pallets of different sizes and styles, and the graph of pallet movements became thick with arrows in all directions.
Blue pallets are an inch or so taller, often cleaner, and always more uniform than the pallets of whitewood. Crucially, blues do not have any stringer boards along their sides; instead, their height is obtained by way of nine wooden blocks sandwiched between the top and bottom deck boards. This block design allows forklifts and other tools to enter the pallet with equal ease from four directions. (Most stringer pallets, by contrast, offer either “two-way entry” or “partial four-way entry.”) There are approximately two hundred and forty million blue pallets in the world, circulating in over fifty countries. On the sides of each are the words, “Property of CHEP.”
CHEP, a subsidiary of Brambles Limited, an Australia-based multinational corporation, is the largest pallet business in the world. The company earned $3.5 billion in pallet-related revenues during fiscal year 2013, and in many markets has achieved pallet monopoly.5 CHEP’s roots stretch back to World War II, when the American military shipped millions of palletized loads to Australia. At the end of the war, those pallets were abandoned, and CHEP was formed out of this accumulation. After four decades of growth and expansion, the company entered the US market in 1990, in what amounted to an obscure case of military blow back.
CHEP doesn’t sell pallets; it rents them. This means that, in contrast to the world of whitewood, where a pallet may change ownership many times, CHEP maintains control of its pallets throughout their lives. But the company’s experience operating what is known in the industry as a “closed pool” didn’t translate easily into the American context, where supply chains were longer, more complex, and geographically dispersed. In 1995, CHEP wanted to grow, fast, and so they loosened controls on their pool, and millions of blue pallets poured into the stream of commerce. After completing their journeys, however, a significant number of these pallets did not end up where they belonged, back at a CHEP depot. Instead, they ended up in the yards of whitewood recyclers.
Courts have generally affirmed CHEP’s right to reclaim its pallets, but the question of whether and how much to compensate recyclers depends on the specifics of the case and the particularities of state law. Currently, CHEP pays recyclers $1.25 for the return of a pallet, plus up to $1.75 more if the recycler transports the pallet to a CHEP depot.6 Most recyclers grumble, but accept the arrangement. Unless they want to pick a fight, they have little choice: they receive blue pallets whether they want them or not, and if they sell them on the black market, or grind them into mulch, or do anything other than return them to CHEP, they are inviting the wrath of the industry’s powerhouse.
By 2002, there were ten million blue pallets floating around the US, unaccounted for, and a report by Credit Suisse warned investors that CHEP USA was experiencing “a loss of control of [its] pallet pool.”7 Despite these lost pallets, CHEP continued to grow. In 2010, in a shock to the industry, Costco announced that it would only accept shipments on CHEP-style block pallets: they break less, they have tighter quality controls, and full four-way entry promises tiny but measurable efficiencies when loading and unloading trucks. Panic ensued in the world of whitewood.
Meanwhile, other disturbances threatened whitewood. In 2006, an upstart company called iGPS declared that the future of pallets had arrived, and it was neither blue nor white, but plastic. These plastic pallets were expensive to produce, but they promised to be strong, uniform, clean, and individually trackable by way of embedded radio-frequency identification, or RFID, tags.
It now appears unlikely that iGPS will be the future of pallets. After fomenting a wave of concern about wood, spending half a billion dollars to build a pool of ten million plastic pallets, and winning accounts with General Mills, ConAgra, and other big manufacturers, iGPS proceeded to lose a million and a half of its pallets, RFID tags notwithstanding. In 2013, the company declared bankruptcy.
This does not necessarily help whitewood in its current predicament. Creating a viable pool of block pallets will be an uphill battle, requiring a high degree of coordination and major capital expenditures. Meanwhile, orders for new stringer pallets are down, and without a steady infusion of new pallets, the health of the entire ecosystem seems to be suffering.
A relatively new player came onto the scene in 2002 by the name of 2ic Pallets claiming that “it has developed the leading independent pallet tracking and pallet reconciliation software in the world”. 2ic Pallets says it focuses on saving “Pallet Controllers” time managing pallets and reducing the risks of losing them.
Pallet Controllers? Pallet tracking software? This pallet industry is bigger than we realize and seems to be growing dramatically. Plastic pallets are still around in all kinds of shapes and sizes. So are metal pallets, corrugated paper pallets and a host of other types of pallets all designed and produced for unique applications. Efforts to reduce costs, protect products, reduce environmental impact, optimize display, improve ergonomics and support food safety are all part of the equation that increases pallet management complexity. The battle for supremacy in this arena is fierce and international but, represents only a small fraction of the makeup of the entire supply chain. Complex? Absolutely! Necessary…..?
There’s a Canadian consulting company that started handling recyclables and “distressed” inventory in Western Canada for Walmart, Sears, Costco and the Bay way back in 1998. They were early pioneers in reverse logistics before e-bay or Amazon were even heard of by most people. They diverted truckloads of merchandise away from landfills and into the hands of secondary users through their wholesale warehousing operations. And, guess what? They did it all on the back of that same little workhorse, the lowly wooden pallet. Those were the early days of the Circular Economy and they’ve come a long way since then. Today they’re engaging academic, industry and government leaders worldwide in research and innovation projects on smart, hyper-connected and sustainable logistics, supply chains, transportation, businesses and regions.
Over the years they’ve turned their focus more towards sustainability and the Circular Economy. Their primary focus is now on the reduction of greenhouse gas (GHG) emissions and deforestation resulting from supply chain operations. Climate change is affected by GHG emissions more than any other cause and they’re developing systems to limit these effects dramatically within the supply and reverse chains. Wooden pallets use more of the annual hardwood harvest than all other uses combined. Current supply chains are so inefficient and unsustainable that we’re actually shipping more “air” than we are merchandise when you consider empty back hauls (the return trip after delivery), partial loads and the excessive packaging used to protect products in transit.
The transport sector is the second greatest contributor to GHG emissions next to energy production and transport uses pallets as much as anyone. Unfortunately, diesel fuel is the dirtiest fuel of any available and it emits more harmful elements into the atmosphere than any other fossil fuel and yet heavy duty trucks handle about 70% of all the consumer packaged goods and groceries that we use today. This Canadian outfit has been in the reverse chain industry for over seventeen years so what better area to focus their efforts? They’re experts in this field and they say they’re frustrated with the protracted inefficiencies and environmental nightmares of such a mature and capital intensive industry so, they asked themselves, “What if we were to think outside the box regarding the “entire” supply chain?”
Hmmm…..what if we were to think outside the box? Managing the pallet life cycle is a formidable task in and of itself but, what if we were to eliminate the “return” side of the pallet’s life cycle completely? Why do we even have that “return” side? What if we were to use that return side as a new, ongoing, never ending supply side? What if we imposed a penalty every time a pallet was removed from a trailer or warehouse without being replaced? What if we got rid of loading docks completely? What if we staged entire containers instead of just pallets? Better yet, instead of imposing penalties, what if we could develop a “sensor” system that wouldn’t let the trailer door or warehouse dock door close until that system recognized that every pallet had been replaced for ongoing use in the next leg of the supply side whether on a trailer or in that warehouse? Sound far fetched? Not really.
If we were to limit the number of pallets needed for for use in a trailer to the maximum capacity of that trailer and never allowed that number to change we would never have to track those pallets. A 53 foot trailer has room for 26 pallets on its floor and, double-stacked, that would be 52 pallets total. If we could devise a way to make sure that those 52 pallets were always returned to that trailer before it left any dock any time, we would always know that 52 pallets were on that trailer. The same principle would hold true for a warehouse. A given number of pallets may be needed for staging but, again, if there were penalties or sensors that could eliminate upsetting the exact pallet count within that warehouse or within that trailer we would always know how many pallets were available for use in their respective locations.
That brought these consultants to the next phase in this thinking. Why do we continue to use wooden pallets at all? What if we could design a “pallet” that could reduce costs, protect products, reduce environmental impact, optimize display, improve ergonomics and support food safety all at once and combine that “pallet” with the aforementioned sensor system? Would that eliminate the “return” side of the cycle? Would it change the efficiency of the supply chain and its environmental footprint? Could such a “system” even be developed? And, if it could, would the existing antiquated supply chain have the wherewithal to adopt it?
That last question is yet to be determined but, a patented system is in development that will achieve all of this while offering warehousing mobility, collaborative distribution with all 3PL’s, a hands-free delivery system for customer or courier pickup and the elimination of empty back hauls, partial loads, dock levelers and even docks themselves.
Now, that would go beyond just thinking outside the box and the word is out that this system will be production ready by the end of the year! Interesting? Feel free to contact the writer if you’d care to learn more because the hardest part of adopting anything new is taking the first step.
The greatest threat to our planet is the belief that someone else will save it ~ Robert Shaw
- Estimates of the number of pallets vary, and none are precise. This number comes from Philip A. Araman, a researcher at the US Department of Agriculture’s Forest Service.
- See the US Census Bureau’s revised “Statistics for Industry Groups and Industries” for the year 2011.
- Alvin P. Stauffer, Quartermaster Depot Storage and Distribution Operations, Q.M.C. Historical Studies, no. 18 (n.p.: Historical Section, Office of the Quartermaster General, 1948), pp. 1, 101.
- Rick LeBlanc and Stewart Richardson, Pallets, p. 43.
- Brambles Limited, 2013 Annual Report.
- Chaille Brindley, “The True Cost of Pallet Logistics—Time for a Raise?,” Pallet Enterprise, 1 September 2013.
- Greg Ward et. al, “Brambles Industries: CHEPUSA—Broken or Damaged?” 27 February 2002 company update by Credit Suisse/First Boston.