Insights into Pallet Rental & Pallet Management Options
By Chaille Brindley
Date Posted: 1/1/2008
One day while walking through a trade show, you meet a person who claims to have the answer to all of your pallet headaches. It sounds too good to be true. Then you hear that some of the largest companies in the country are on board. Maybe this is your lucky day.
More than likely you just heard a sales pitch from someone touting the benefits of a colored pallet in rental pool format. Pallet rental is nothing new. It has been around the U.S. market since CHEP launched its pool in the early 90s. Many companies have found pallet rental to be a good solution to some logistics and pallet problems. On the other hand, there are horror stories too. You have to realize that the sales person is going to present a one-sided picture. And in reality, logistics is never one-sided. The following insights will help anyone considering pallet rental.
The first thing to realize is that pallet rental is a completely different approach than a traditional exchange pool system. In the traditional format, a company buys new or used pallets and then sends that packging onto customers who then in turn cover the cost of the packaging in their prices. The customer is then free to do whatever it wants with the pallet.
In rental modules, the pallet user never owns the pallet. The packaging is an asset owned by the rental company. Users in the supply chain are responsible for returning the asset to the pooling company. Renters are charged daily usage fees as well as other transaction fees. Rental fees are generally much lower than the cost to outright buy a pallet. But lost pallet fees and other charges can add on unforseen costs.
Since a rental pallet is going to be used for years by the rental company for years, these pallets are built to a much heavier specification than most pallets. Pallet quality can vary a lot depending on the rental company and the age of the pallet in the pool. A major liability for pallet rental is that it depends on high volumes to be effective. This limits the degree to which a pallet can be customized for a client. Most pallet companies offfer primarily 4-way, block, GMA-style pallets. This means if you need an irregular size or design, you will probably have tohus, you are li
One of the things that pallet rental promises is less headaches. This tends to depend on your situation and the complexity of your supply chain. If your system results in a lot of lost pallets or longer dwell times than expected, costs can be higher than you initially forecast. Higher costs translate into more headaches, paperwork, reconciling invoices, etc. Pallet rental may not always produce fewer headaches than traditional pallet programs. In some cases, it may just replace one set of headaches with another one. You have to know your distribution environment and how well everyone will respond with any new pallet procedure required by the rental company.
No matter how well intentioned you or other executives are at the company. The lowest common denominator is always the point where things break down. In most companies, this is the guy at the dock door or the forklift driver who loads pallets. That is the person who can cost your company thousands if not millions in extra fees just because he thinks all pallets are the same.
If you do decide to switch to a rental system, you will want to make sure that everyone is familiar with new procedures. They will need to know how to identify a rental pallet and what to do with it. Make sure they understand that mishandling the asset can result in added costs.
Here are number of things to consider when eyeing pallet rental options:
- No two rental companies are the same. Each provider has a reason it is in business. Look at the strengths and weaknesses of each rental service provider. Can the company supply the volumes you need? What are the total system costs not just the initial rental fee? What about lost pallet fees and transaction fees?
- Billing surprises! Since CHEP bills in the rears for estimated usage, some customers have run into problems with surprise bills for usage or lost pallet fees. Sometimes these bills have been significant - mucho dinero. This may not be a problem for you if you have moved onto another position at the company. But do you want to leave your successor with headaches? Do you want to be the guy who bought the sales pitch only to institute a system that your company was not really ready for?
- Get a detailed understanding of all the fees and how they might impact the total cost. This includes all rental, issue, transfer, lost pallet, and additional service fees. Find out exactly what you and others in your supply chain are required to do to for each system?
- Make a list of the features and service that you decide are critical for your situation. Find out how the various providers perform to meet your needs. Do you need certified pallets for export? Do you want less than truckload quantities? Do you need RFID tracking or sortation services? How important is the pallet design or quality to you?
- It's the network not just the pallet design that can make the difference. Each rental company has some retailers, manufacturers and logistics operators that it has stronger relationships with than others. You will need to have a program that your business partners will accept and sign on to participate. It helps if they are already familiar with the rental provider and a licensed distributor or receiver. If not, you will have to convince your contacts to participate. And that is just another headache to overcome. CHEP allow customers to ship to companies outside of its network for an additional fee. Neither PECO or iGPS offer this service.
- Ask your business partners what rental companies they are already participating in and how they like each one. Their feedback will help you identify potential problems before you sign on the dotted line.
- Consider working with a number of rental providers. This allows you to keep from being too dependent on any one supplier while maximizing the effectiveness of each one. You will be able to learn first-hand how you like various services. There are limits to how many pallet providers will work before it becomes too cumbersome to manage. After all, how many pallet sorts do you want going on at your DCs?
- Don't realistically expect pallet rental to eliminate all your pallet headaches. It will cause some new ones until a system is developed that will ensure proper asset utilization. You will still have to monitor quality, reconcile bills and work to make sure that pallets are properly used.
- Read the contract language very carefully. Have your corporate attorney approve it. Understand your liabilities and obligations, service level guarantees, ability to ammend or cancel the contract, etc. Rental companies may soft sell the contract language at first. But they will not hesitate to use it in the end if the situation develops into a mess.
- Get service level guarantees, pallet quality specifications and pricing in writing so that you know exactly what you are paying for and what should be expected. Just because a rental company shows you a nice new pallet in its sales presentation, that does not guarantee you will receive new pallets each time. Generally, the bigger customers get the better deals and the higher quality pallets. You should go and tour some locations to see what kind of pallets are generally out there. Look for missing deckboards, protruding nails, spotty repairs, mold, etc. Paint can cover up a lot of mistakes on a pallet.
- Talk with current and former customers to understand the good, the bad and the ugly about each rental company. Some companies have better reputations than others.
- Find out how close the nearest depot is to your key manufacturing or distribution locations. This can impact shipping costs and make it easier for on-site managment if problems arise.
- Maybe a private network just for you is the best way to go? Talk with your existing pallet supplier to see if it will help you set up a pallet network. Some pallet recyclers have joined forces to help customers manage private networks. Read this article to find out more. Also, beverage companies and bottlers have successfully done this themselves because they need unique footprints and already own a large fleet of vehicles that are actively involved with on-site distribution functions.
Pallet Rental Companies
Here is a quick review of the largest pallet rental companies serving the U.S. market.
CHEP - The largest pallet leasing company in the world, it has been the market leader for years. It has more than 80 million pallets in its U.S. pool. Some customers complain about its aging pallet pool in the United States. Others feel it is the only company cable of serving large-scale customers.
CHEP allows shipping outside of its network although charges for this service. CHEP offers RFID-enabled pallets, export certified pallets, plastic pallets and other add-on options.
One of the biggest complaints about CHEP has been its size because customers fear any one supplier getting too strong as well as its sometimes cumbersome billing procecures. www.chep.com
iGPS - The new kids on the block. iGPS offers a very distinct service. It is the first rental company to operate the only all-plastic pallet pool in the United States. Each pallet is equipped with radio frequency identification tags (RFID) for tracking.
iGPS claims its pallets are 30% lighter than wood, which saves on transport costs, are easier to handle and eliminate protruding nails and splinters that cause workplace injuries and damaged equipment. RFID technology enables shippers and receivers to track and trace shipments in real time. Launched in March 2006, the company is led by pallet and supply chain veterans with decades of experience.
Although a fairly new company, iGPS has obtained sufficient financing to fuel growth. The company hopes to have a pool of 20 million pallets by the time it celebrates its fifth anniversary. www.igps.net
Kamps Pallets - Headquartered in Michigan, the company focuses on the Upper Midwest market, although it claims to have a national network of partners. Offering rental since 1998, Kamps has a unique model offering 48x40 stringer pallets for rent. It offers all participants a one-time "fixed" rental rate. According to Kamps, its rental program never has daily rental fees, transfer fees, or taxes. Through the use of our user-friendly state of the art Internet tracking system, the Kamps Pallet Rental Program provides supply chain efficiency and cost savings to all participants.
Kamps could be a good fit for any company looking for a small rental program with a simple billing approach.
www.kampsinc.com/palletrental.cfm
PECO - Is much smaller than CHEP with only 2.3 million pallets in circulation. However, PECO has some large customers including Kimberly Clarke, Nestle, and Costco. Quality has been a major selling point for PECO, which has helped grocery/consumer goods manufacturers meet retail standards for transport packaging. It utilizes strict repair standards in all of its depots and has a third-party firm inspect to make sure that quality is being maintained.
PECO only allows customers to ship to receivers within its network. It bases its fees on a flat rate structure that is recalibrated every six months. This makes it easier to set a budget and eliminates any surprises unlike the CHEP approach.
PECO plans to launch a new composite pallet later this year. The new design has the structural integrity of plastic without its typical fire rating issues. www.pecopallet.com
Pallet Management Services
Bett-A-Way Pallet Systems - http://www.bettaway.com
PalNet USA - www.palnetusa.com
