Lawsuit Looks at Economic Impact of CHEP Pallets
By Chaille Brindley
Date Posted: 12/1/2008
Attorneys representing a group of independent recyclers have requested for class action status in a landmark antitrust case against Brambles Industries, the parent company of CHEP USA. Pallet recyclers are suing CHEP claiming that the pallet rental giant has engaged in monopolistic cost shifting. At issue are recycler rights regarding the return of stray CHEP-marked pallets and fair compensation for these services.
Attorneys representing the recyclers have hired some heavy hitters to help make their case. This includes Dr. Mark White, the former director of the Sardo Pallet Lab at Virginia Tech; Dr. Judd Michael and Dr. Charles Ray of Penn State; and Nathan Associates. One of the main goals of this impressive team of experts is to conduct an in-depth analysis of the real world costs that CHEP imposes on pallet recyclers.
An initial survey of eight recyclers has found that CHEP’s current compensation via its Asset Recovery Program (ARP) was not sufficient to cover the tangible and opportunity costs generated by obtaining, shipping, sorting, storing and managing stray CHEP-marked pallets. Analysis showed that on average the recyclers lost $4.78 for each CHEP pallet handled. The information presented to the court was anonymous although individual recyclers experienced various impacts depending on their efficiencies, transportation costs, core acquisition costs, opportunity costs, etc.
Neither the survey nor the lawsuit involve costs born by particpating distributors or CHEP users in returning blue pallets. However, the research does suggest that logistics costs involved in returning CHEP assets may be greater than most pallet recyclers anticipate. If this is true for pallet recyclers that are in the business of pallet logistics, what does this say about distribution centers whose main function is shipping products not managing pallets?
Although pallet recyclers have more costs associated with the return of these pallets than most distribution centers would encounter, the extent to which recyclers have underestimated the impact of rental pallets on their bottom line, simply underscore the hidden costs associated with the return of these pallets.
Researchers found that CHEP’s impact ranged from $1.62 to $13.14. This is a wide range, which underscores the need for more research to develop even more accurate true cost analysis. Attorneys representing the recyclers will initiate a second phase of research and will need the cooperation of more recyclers. The involvement of other recyclers is critical to make the analysis as accurate as possible.
Lawyers representing the recyclers recently petitioned the federal court for the Western District of Arkansas to certify this case with class action status. CHEP likley will oppose this motion, and the court could rule on the motion as soon as the first quarter 2009. Obviously, if the court grants the case class action status, the importance of the lawsuit would significantly increase. It would then have implications for every company in the United States that fits the class. This would include most pallets recyclers in the country.
According to the recycler’s petition, Dr. White has observed that “recyclers are, in effect, a conscripted collection army because of the nature and commercial reality of the pallet end-user disposal practice and demands.” Further, Dr, White appears ready to testify that “the current CHEP coercive practices…will result in CHEP being able to set prices always lower than recyclers but higher for pallet consumers than if CHEP was confronted by truly competitive recyclers unburdened by CHEP costs.”
This landmark case has been filed in federal court for the Western District of Arkansas. Plaintiffs include Best Pallets Inc, Itnolap Pallet & Crating, Pallet Express Inc., and Goeman’s Wood Products.
