Other Voices: Your Freight Costs will increase through 2014. A review of your pallets could help.

Editor’s Note: The following column by John Clarke, technical director, The Nelson Company, is part of Modern’s Other Voices column. The series features ideas, opinions and insights from end users, analysts, systems integraters and OEMs. Click on the link to learn about submitting a column for consideration.

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Most people who buy pallets think of them as a commodity item. Potential suppliers are asked to bid on an existing specification, without deviation. The difference between one supplier and another is typically a matter of pennies per pallet.

I think there’s a better way to approach the process. We look at whether a review of your pallet specification in the broader context of how a load moves through the supply chain has the potential to deliver much bigger savings. Some call this a system based approach to unit load design.

Freight costs is one example. I was recently asked to deliver a presentation on pallets at the International Safe Transit Association TransPack conference. One of the areas I looked at was the impact of pallet design on transportation costs.

Logistics Management magazine shows that price trends for Trucking, Air, Water, and Rail are all forecasted to increase through 2014 (see report, page 28). The American Trucking Association estimates that there will be a shortage of 110,000 drivers per year beginning in 2014. The shortage is a result of the demand for trucking services increasing faster than the number of drivers entering the field. At a recent supply chain conference, a presenter from Accenture estimated that transportation costs account for 63% of total supply chain costs.

Clearly, transportation budgets represent one of the highest costs for most shippers to get their products to the end customer. If shippers do nothing, these costs are going to increase.

One way to approach the problem is to negotiate better freight rates or fuel costs for specific types of loads and modes of transportation. But, if you think about it, that’s a little like negotiating over pennies on a given pallet design. A better approach is to review your packaging and pallet designs and come up with a freight-friendly unit load that lowers transportation costs.

Here’s what I mean. Most pallets and packaging are designed to best protect the product at the lowest cost. However, if you take a system-based approach to the problem, pallet and packaging modifications can be used to lower the LTL classification – which results in lower LTL costs, better fill a trailer that currently cubes out or add more products to a trailer that currently weighs out.

A higher level of cost savings is usually possible if your pallet supplier can work with your transportation department to identify key shipping costs, constraints and potential for the pallet to play a role in minimizing these transportation costs.

For instance, one of our customers shipped a large, lightweight metal rack system using a 48” X 48” pallet using an LTL carrier. The pallet construction incorporated wire to keep the load from tipping over in transit. Rather than get into a bidding war over the price of the existing pallet, we came up with a new design. This allowed us to use a smaller pallet with a smaller footprint. What’s more, we also made packaging modifications that prevented tipover but also reduced damage to the product in the event that the load did tip. The new design lowered their LTL classification. The pallet and packaging were more expensive, but they reduced their freight cost by 66% per unit. Those more than offset the increase in packaging costs.

Another customer was using a unit load design that would not allow them to double stack inside an overseas shipping container. We were able to come up with a new crate design that accommodated the product and allowed the customer to double stack inside the container. Once again, the packaging cost was greater than the original design, but the customer was able to ship twice the amount of product in each container, dramatically lowering the cost per unit shipped.

Both examples are reminders that pallet users too often negotiate over pennies per pallet without evaluating whether a better design might save many dollars per unit load.