Wal-Mart Changes Rental Pallet Policies
By Chaille Brindley & Jeff McBee
Date Posted: 5/1/2008
No more free logistics. That is the message that Wal-Mart recently sent to CHEP and other pallet leasing companies.
Effective last month, the retail giant began charging pallet poolers 43 cents for every rental pallet it receives as a way to recoop sorting, management and logistics costs. Wal-Mart also issued new policies for pallet pickup, downstreaming pallets to stores, and other procedures designed to reduce its cost of handling rental pallets.
One of the big problems with pooled pallets is that there is no asset that the retailer can sell to help pay for its pallet program. While there may be a lower purchase cost for the product manufacturer, the retailer is faced with a private asset that it can’t sell but most eventually return to the pool owner. This creates an inverse relationship where assets drop and costs increase. As soon as pooled pallets get above a certain percentage at any retail DC, sales of white wood pallets can no longer cover the added burden of a pooled pallet.
The new policy requires poolers to pickup pallets within an established time frame. Wal-Mart will charge the owner of pooled pallets a lot space fee of $50 per day per trailer for all loaded trailers the owner fails to remove within three days of notification. If the quantity of a particular pooler’s empty pallets becomes excessive, there will be fees and other actions taken. Pallet quantities are considered excessive if the number of pallets available for pickup at any facility is three times what the Pooler has retrieved on the average day for the preceding 30 days.
To limit impact and keep costs to a minimum, Wal-Mart will charge the Pooler $0.014 (1.4 cents) per pallet per day for every pallet in excess and may cease adding to the quantity of empty pallets by re-introducing the pallet back into the supply chain until the retrieval rate returns to acceptable levels for 14 consecutive days. This provides Wal-Mart justification to downstream pallets to stores if necessary.
Wal-Mart hinted that it could even charge poolers in the future for logistics cost associated with shipping a pallet back from a store to a DC. Currently, this is a cost that is picked up by the retailer.
Seeking to provide an insurance policy against pallet damage or loss charges, Wal-Mart told suppliers it would not be held responsible for shrinkage, or damage that occurs in the ordinary course of business and will not be responsible for the quantity of pooled pallets in inventory at any location.
Simply by charging poolers to manage their pallets, Wal-Mart appears to be admitting that pools have cost that may not be factored into the basic rental fee. Proprietary pallet companies have specialized in passing their logistics costs onto those handling pooled pallet in the supply chain. Now, it appears that some of those costs are being shifted back to the pallet owner.
Wal-Mart's policies will increase costs for poolers. It remains to be seen if those costs will be passed onto customers or if those costs will be eaten by CHEP, PECO and other poolers. Imagine what could happen if other retailers follow Wal-Mart’s play. A wave of mass policy changes could significantly impact poolers. It could also make white wood pallets more competitive in terms of initial price.
Another major change is that Wal-Mart has decided to no longer use CHEP to manage docksweeps/pallet management at its DCs. Wal-Mart has allegedly divided the CHEP locations among other existing suppliers including IFCO Systems, Rehrig Penn, and Propak Corp. This shakeup points to CHEP as the likely source of some of the problems that led Wal-Mart to change its policies.
Wal-Mart declined to comment about its new policies although we have obtained documentation and corroboration from reliable sources.
