Pallets and containers: A CHEP off the old block

When it comes to pallets, Big Blue doesn’t stand for IBM. It stands for CHEP USA, maker of the distinctive blue 48- x 40-inch wooden block pallet you’ve probably seen on the shelves at your local Home Depot, on the floor at a Wal-Mart or loaded up on the back dock of your grocery store.

With a pool of about 65 million pallets in North America, CHEP is the 600-pound gorilla of the pallet pooling market. While hard numbers are difficult to come by in the pallet market, Derek Hannum, CHEP’s director of marketing, estimates that the company has a 90% share of the pooled market and that it may represent 20% of all pallet usage.

Given its dominance in the market, who is a candidate to jump into the CHEP pallet pool, and how do you work with CHEP?

The short answer is that participation in the CHEP pool is primarily determined by a manufacturer’s end customers. That’s because CHEP needs to be able to recover its assets from the distribution center or retail store that receives the blue pallets. Many of the country’s best-known big box retailers, grocery chains and club stores accept CHEP pallets. However, in recent years, some manufacturers have begun asking their suppliers to ship raw materials, parts and components to them on CHEP pallets.

“In the U.S., manufacturers of fast-moving consumer packaged goods, including the food service and beverage channels, represent the vast percentage of our business,” says Hannum. “We are more pervasive in other industries in Europe and Australia.”

Part of the reason for that is that CHEP has been in the market for a longer period in Europe and Australia, and part of it is that the supply chains outside of the U.S. are less complex. There are fewer major retailers, and shorter hauls to get pallets back to a CHEP repair and logistics depot. For instance, while CHEP’s production is concentrated in the Midwest, the consumption of CHEP pallets is primarily in the west, east and south, where most of the population lives.

The No. 1 reason for participating in a pool: Retailers – especially those that may store product on shelves in their stores or on the floor on a pallet – want a higher quality and consistent pallet for both aesthetics and safety reasons.

How then does it work, and what does it cost?

While a CHEP customer can call or send in a fax to place an order, a customer can interact with CHEP online, either through EDI (electronic data interchange), standing orders or through CHEP’s Web portal, known as Portfolio Plus.

Typically, CHEP requires orders for full truckload quantities of 580 pallets. While large users of CHEP pallets may negotiated a flat per pallet rate, more typically CHEP charges a fixed issue fee to order the pallets plus a daily rental fee. And, like any other rental fee, the price is based on how long you keep the pallet in your facility. The clock stops ticking not when the pallet arrives at your end customer, but rather when you report to CHEP that the pallet left your dock.

“We do have some customers that have been with us for a long time, and we have a consistent usage history,” says Hannum. “They get a flat rate and pay only so much per pallet.”

The challenge for CHEP is keeping track and retrieving its assets. That’s one of the reasons that the participation of end users – retailers and distributors – is important to the CHEP pool. “Once a manufacturer ships a pallet, they’re done with it,” says Hannum. “The pool works because retailers and distributors have agreed to help us get them home. They get to use the pallet for free, but are also responsible for keeping track of the pallets, which is their stake in the game.”

Currently, there are 20,000 to 30,000 active receiving locations in North America.

How much then does participation cost? While the cost may vary based on the amount of pallets you use and how long you hang on to a pallet, CHEP estimates the price at between $4.75 to $6.00 per trip. “From a financial standpoint, our profitability is driven by asset utilization, and so is the cost to our customers,” says Hannum. “The faster the pallet turns, the better it is for us and the customer.”

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