What the CHEP/IFCO acquisition might mean to pallet users
CHEP discusses some of the reasons behind its proposed acquisition of IFCO
in the NewsQ4 2017 Rail/Intermodal Roundtable: Improvements apparent; work remains The State of the DC Voice Market Commtrex and Rockwood Steel study addresses operations gaps in freight railroad sector Behind the Koerber Group/HighJump acquisition Report: Amazon introduces new app for truck drivers More News
Over the weekend, CHEP announced its intention to acquire IFCO. The deal is pending until the completion of regulatory reviews and approvals from six of the countries where the two companies do business, including the U.S. and countries in Western Europe. That could take about nine months. Until then, the two companies will continue to operate as independent entities. You can read the announcement by clicking on this link.
What might the combined companies mean to users of CHEP’s pallet pool and IFCO’s pallet management services? I spoke to Derek Hannum, CHEP’s director of marketing, this morning to find out.
First, Hannum said that some issues, such as how CHEP may integrate IFCO’s pallet management capabilities with the pallet management services CHEP presently outsources, or whether CHEP will more aggressively pursue the market for new pallets given IFCO’s capabilities, won’t be answered until the regulatory reviews and the proposed acquisition is a done deal. “Any talk of integration of the two businesses, especially around wood pallets, is premature,” Hannum said. “How we’ll realize the synergies in the U.S. hasn’t been sorted out and is premature.”
What he could say is that CHEP is intent on broadening the products and services it takes to market, especially in the US. “Right now, we’re a one size fits all model,” he said, referring to the company’s pallet rental business. “We don’t want to be a one-size fits all model going forward.”
Here are some key takeaways from my conversation with Hannum.
Returnable plastic containers is a key market target: While CHEP is the market leader in the pallet rental market, IFCO is a market leader in reusable plastic containers, especially Western Europe. “The IFCO RPC pool is about twice the size of our pool, it’s well established and well managed,” Hannum said. “We don’t have an RPC business here in the U.S., and we believe that is 100 percent complementary to pallet pooling.” Ironically, CHEP once had a small RPC business in the U.S. that it sold to IFCO back in 2005 in order to concentrate on growing the pallet pooling business. “IFCO has grown that business 28% a year for the last three years,” said Hannum. “We see a lot of opportunity in the auto industry and upside in the fresh produce market as growers and retailers expand re-usables as part of their sustainability initiatives.”
The dock is another potential opportunity: While the details are still to be worked out, Hannum believes IFCO’s pallet management business is a nice stragic fit for CHEP. “We’re strong in pallet pooling and they’re strong on the back docks, where we don’t have much of a presence,” he said. “There’s not a lot of pallet customer overlap between our business and their’s.”
What about new pallets: In its current business model, CHEP does not manufacture and sell new pallets. IFCO does. While the white wood business – as the market for new pallets is known – is highly fragmented, with lots of mom and pop manufacturers competing against the big boys, IFCO has a national presence. “Overall, IFCO has a small percentage of the US market for new pallets, but they service a portion of the pallet market that the rental pallet market does not service,” Hannum said. “To the extent that some of our rental customers also purchase white wood pallets, we’ll now be in a position to compete for that business. Whether we do that under the CHEP name or the IFCO name is still to be determined.”
Is there a plastic pallet in CHEP’s future: Too early to tell, Hannum said. Clearly, iGPS has made inroads in the pallet pooling market. Whether or not CHEP decides to compete in that market down the road, developing a pool of plastic pallets was not a rationale behind the proposed acquisition. “We currently manage a pool of about 400,000 plastic pallets for one customer,” Hannum said. “More importantly, we have been looking at alternative materials to enhance our existing wood pallet for some time. That research continues.” The more important point, Hannum added, is that the wood pallet delivers value for the price to the vast majority of people in the CHEP pool. “That won’t change over-night just because of a new technology,” Hannum said.
Pallets and containers: A CHEP off the old block
More than a decade after entering the North American market, CHEP continues to be the leader in pallet pooling.
Reusable containers: Putting a cap on your container needs
CAPS does for reusable containers what CHEP does for pallets
About the AuthorBob Trebilcock Bob Trebilcock, editorial director, has covered materials handling, technology, logistics and supply chain topics for nearly 30 years. In addition to Supply Chain Management Review, he is also Executive Editor of Modern Materials Handling. A graduate of Bowling Green State University, Trebilcock lives in Keene, NH. He can be reached at 603-357-0484.
Subscribe to Modern Materials Handling Magazine!Subscribe today. It's FREE!
Find out what the world’s most innovative companies are doing to improve productivity in their plants and distribution centers.
Start your FREE subscription today!
10th Annual Salary Survey: The Price of Performance Let’s put Automatic Data Capture (ADC) Technology to Work View More From this Issue