CHEP Reports Solid Growth, Lands Major Tyson Foods Business
By Chaille Brindley
Date Posted: 7/1/2008
Brambles, the parent company of CHEP, announced solid performance results despite challenging economic conditions in a number of key markets. CHEP also landed significant new business volumes from Tyson Foods, the world’s largest meat processor.
Mike Ihlein, the chief executive officer of Brambles, called the Tyson announcement the largest new business win in several years. This development will help drive volume growth and improve asset utilization.
CHEP reported a number of new business successes in the U.S. foodservice and beverage markets including a major advocacy program by Sysco Corp., the largest foodservice operator in the country. CHEP continues to move ahead with expansion in Germany and Poland. Despite not securing much major retailer support in central Europe, CHEP has obtained 200 new pallet customers in Germany where the Europallet exchange system is fairly dominant. In the emerging market of India, CHEP has started to deliver its first pallets to customers. CHEP’s investment in both China and India remain fairly small given the immense opportunities for palletization in those two countries.
Volume growth for the Americas was lower in the second quarter than the previous period due primarily to a weaker U.S. economy. Brambles believes its U.S. business has a strong future thanks to the over 400 new contracts signed in the previous year that could contribute strongly to volumes in 2009 and beyond.
CHEP Americas delivered solid sales growth of 10%. Cash flow generation continued to be strong excluding significant investments to drive growth and improve quality in the USA, Europe, China, India and Australia.
Responding to customer concerns about quality, CHEP announced earlier in the year a program to increase repair standards and put inspectors into repair depots. CHEP is investing US$100 million over the next two years to add automated digital inspection equipment and quality control personnel as well as improve repair standards. Since CHEP has more than 80 million pallets in its U.S. pool, its new quality and innovation initiative is likely to impact only larger customers that rely on automated systems in their supply chains.
Higher fuel costs remain a concern although Brambles has taken measure to reduce costs. Brambles has attempted to optimize its transport networks and use online auctions to reduce acquisition costs. The recent acquisition of LeanLogistics, a leading provider of technology-based transport and supply chain solutions in the USA, will also enable CHEP to provide a new transport optimization service to both existing and new customers. Brambles uses various contractual arrangements with customers to assist in the recovery of higher fuel and transportation costs.
Brambles’ leadership downplayed the significance of the recent Wal-Mart moves to cut pallet rental costs. Ihlein said, “Good progress has been made. We are confident that we will soon reach an agreement with Wal-Mart.” Ihlein rejected the notion that other retailers are likely to follow Wal-Mart’s lead in passing along logistics costs to rental pool operators. But this seems more like wishful thinking than anything else.
