Sunday 4th Dec 2016 - Logistics Manager

Adapt or die

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The current surge for pallet network services is great news, but in a crowded marketplace operators have to adapt to stay on top in a survival of the fittest, says Johanna Parsons.

During the recession, volumes and margins were under threat across the board, and as our industry knows only too well, survival was the priority. As business has begun to bounce back the demand for pallet distribution services has been strong, but with so many key players the development of the market has been a case of survival of the fittest.

“Every network is under pressure now because of the volumes that have kicked in last year, and more severely this year,” says Mike Farrall, managing director of Farrall’s Transport, a founding member of Palletforce.

Having those volumes is obviously a good problem to have, but with such a dense market no-one can afford to slip a little, as the customer will just go to one of the waiting rivals. That’s a lot of pressure.

“You could say it’s a victim of it’s own success,” says Farrall. “Last Monday our volumes were up 25 per cent on last year – to sustain that is a tall order.”

The new managing director for Palletways in the UK, Luis Zubialde, is clear that there is still plenty of space for growth to meet new customer demands.

“We do not believe the market has fully matured. Far from it.

“While the UK market is by far and away the longest established marketplace, there are significant opportunities to win additional market share through continuous innovation of services which adds value to the customer proposition.”

And Palletline’s Martin Rantle reckons the impact of these market forces will drastically change the landscape of pallet operators. “While the UK market continues to recover and fuel [price] growth expectations we anticipate that this will continue over the next couple of years, but we’re also expecting a polarisation within the market, which will see the current abundance of players reduced to just a handful.

“Following the precedent set by the parcels industry, as margins reduce, networks will need to drive greater volume and operators will begin to buy each other out – we could see just four or five key players dominating the market within the next ten years,” says Rantle.

The analogy of the parcels industry is prescient as, with the changes brought on by the omni-channel phenomenon, one of the biggest changes for parcels networks has been the new types of customers – such as parcel carriers – that have been flocking to take advantage of their services. But the expectations for service requirements that these new customers bring with them represent a new challenge.

Big brand retailers and multi-nationals may want to take advantage of the convenience of pallet exchanges, but they still demand the service levels they have come to expect from other dedicated service providers in their supply chains.

But the success of the business model has been its ability to adapt and meet that new level of demand. Nigel Parkes, managing director of Pallet-Track says that the perception of pallet networks has transformed. “Ten years ago clients would have said: ‘what’s a network?’ but now even large 3PLs will be associated with a network of some sort, it’s become very sophisticated.”

And Zubialde, agrees: “The image of today’s pallet network is a far cry from the early days of the industry in the mid-1990s. It has moved from being UK-centric and seen as dealing with the ‘ugly’ end of logistics to a pan-European and highly sophisticated marketplace in just 20 years.”

Chris Dennigan, national network support manager of Fortec concurs: “Pallet networks are less of a frowned upon option these days. There’s no doubt it’s economical, but we’re no longer seen as the poor relation.”

Dennigan says he witnessed the changes himself, as he came into his role from a background with firms like TNT, City Link, Initial Group and Hays. He says the striking difference on joining the business was the relative lack of customer service and IT, but that the changing customer has forced pallet networks to up their game.

“Customers demand that now. They use alternative delivery methods. But the service comparison must be the same across all carrier options. We’re not anymore just a cheap alternative to running your own vehicle”

In many ways, the source of the challenge and the solution are the same, as the demands and expectations created by the rising tide of e-retail were fuelled by the same technologies and media that have subsequently enabled firms to meet these new standards.

“High speed internet is enabling quicker access to online software that is easy to use and highly functional, while integration with other emerging and established mobile and back office technologies is providing greater visibility, accuracy and peace of mind when dealing with all operators including long-standing trading partners,” says Lyall Cresswell, managing director of Transport Exchange Group.

“Meanwhile, significant volumes of ‘eBay style’ user feedback, alongside proactive management of our exchange has resulted in better visibility of present and past performance levels.

“As a result, some of the traditional barriers and misconceptions associated with exchanges have been removed to provide a valuable tool that can work alongside complementary systems and underpin an effective and, more importantly, an agile logistics operation,” says Cresswell.

And Farrall reckons that the influence of big retail and e-commerce will be wider reaching still. “Today we have depot operators, IT systems and the like so that we’re so much slicker than ten years ago. Retail delivery technology is flowing into pallets and it will come into full loads eventually, I can see it happening much quicker than you’d think.” 

Differentiation

But if the changing customer base means a whole new challenge for networks, it also presents the opportunity to meet that challenge in new and individual ways, presenting potentially unique offerings for the customer.

Parkes says that differentiation is now key. “In my opinion there’s no bad network in the industry, it’s just about which network is best suited to what each individual client wants. There’s a tool for every job.”

Cris Stephenson, managing director of Pall-Ex UK takes this further. “I would say that the focus on the all-important ‘point of difference’ has moved from being an internal focus, to one which is both internal and external.

“So, whereas it was initially a question of what networks could offer with regards to member relationships and benefits within the network, it is now about what we can do to help the customers of our members through the diversity of our service offering.”

And he says this will be fundamental to how operators go forward.

“If we’re taking a realistic view, growth will begin to slow down as the market matures. For all of us in the industry, the focus will become much more about individual market share as opposed to grabbing as much as we can within an expanding market,” says Stephenson.

The consensus is that this won’t happen by accident, and each network will, if they haven’t already, have to think carefully about where they want to be positioned in this new market landscape, and invest adequately.

Parkes says: “Of course you have to be cost effective, but I do not and will not ascribe to the ‘we’ll do it cheaper’ option. We operate at the high value end with higher charges, but better tech, which encourages more expensive goods to travel through our network, and gets better rates.

“To me its about value added. We’ve invested a huge amount in our quality control and tech and we demonstrate that with POD, order transparency and track and trace – we don’t use a single piece of paper in our network,” says Parkes.

This assortment of the networks into different niches is great news agrees Dennigan. “It’s a huge opportunity if you invest now; it’s an exciting time to be in pallets.” 

Investment opportunity

He says Fortec has also focused on higher end, higher cost clients, and invested in the higher levels of service they demand. “To achieve growth you’ve got to get involved with your sectors. We’ve engaged with higher end customers, in pharmaceuticals, spirits and high tech where margins hold up well, so our investment in IT has been high as they require traceability, audit stamps etc.”

Palletline has focused on offering the fullest range of services as possible. Rantle says: “We realise the need to offer our customers a broader range of services, so we’re diversifying with the introduction of additional products through our new business, PLUS Logistics.

“PLUS Logistics will provide a range of new, complementary services to our pallet business, driving volume through the network and leveraging the resources of our members. We know that the UK market is where our strengths lie and we’ll be looking to develop our domestic product portfolio to support the existing range of services,” says Rantle.

But deciding the value of serving the relative ends of the market can be a complex equation. “We’re now dealing with less of the pallets of bricks and gravel, and as a result we have the lowest pallet weight of all the networks, which is great news for our members,” says Dennigan.

Equally, there are different ways to invest in any particular approach. Farrall says that for Palletforce, the drive to improve IT and service has also included significant investment in staff, specifically younger people, with internships and apprenticeships.

“It’s not easy to get the right people, they’re your biggest asset.” Indeed he says that the retail style technology that they are investing in has depended on having forward thinking and tech savvy staff on the ground who will run with the new systems, rather than seeing them as a barrier.

“Nearly all our workers, drivers, depot operators and so on, all use smart phones. We’re working with that so drivers and workshop guys alike can fill in everything, time sheets, delivery details and POD all via their own devices, and that helps communicate with both my customer and the customer’s customer,” says Farrall.

Palletways is also investing in technology, such as its hub-based Palletways Archway Scanning System and the Palletways Operations in Real Time systems, which the firm reckons directly account for an increase of more than 20 per cent in the number of pallets handled per employee per shift.

But it sees its global footprint as it’s differentiator. “One of the biggest opportunities is for cross border deliveries and between the UK and mainland Europe. We have increased our pallet volumes substantially in the last financial year for such requirements,” says Zubialde.

And likewise Pall-Ex which is known for its expansion into European markets and beyond has been investing in smart IT such as its full SMS text message POD, and the fact that since March all POD has been available in real-time, achieving more than 99 per cent compliance. And Stephenson adds that “the visibility we provide for our customers is enhanced by a flexible new range of free track and trace products”.

“Advancements in IT systems and technology in general have certainly pushed us to be on a par with dedicated service providers,” says Stephenson. 

Consolidation

For the future, Palletline has identified consolidation as the most significant game changer. Rantle says: “Larger retailers are moving towards more productive operations – where they previously received deliveries from multiple suppliers, we’re stepping in to collect the goods from these multiple suppliers on their behalf and transport in single deliveries. At Palletline we call it ‘Fewer and Fuller’ and it means less waste, lower fuel emissions, more efficient services and a reduction in costs across the board.”

With volumes at reassuring levels it seems the business model of pallet networks is thriving. But it is imperative that those models change to meet the new breed of customer expectations. While this is putting the pressure on operators to make big transformations, it also presents massive opportunity for differentiated and specialist services.

The corollary to the exorbitant growth promised by the online boom is the unpredictability of where that growth will be, and that makes deciding how best to invest in service offerings a bit of a gamble. Time will tell which direction will work, and which networks have made the right choices. As Dennigan says, it’s certainly an exciting time to be in pallets.


Market developments

  • UPN is extending its central hub at Fradley Park, Lichfield from 120,000 sq ft to 170,000 sq ft. It said it has seen a 30 per cent increase in pallet consignments coming through the network. Director Andrew Lowe said: “The investment in the hub, staff and equipment is essential to the whole network and demonstrates our commitment, not only to our members, but also our customers in delivering a first class service as pallet numbers increase. We are also investing in our forklift fleet and now have more than 40 available for the transhipment of pallets.”
  • The network of hauliers behind Palletline has launched a new logistics operation, PLUS Logistics, to offer a range of contract logistics services including warehousing and storage, through the night, pick and pack, consolidation services right through to click and collect.
  • Palletforce has added services to Norway, Sweden, Denmark and Finland to its portfolio. Aeroship, part of the Leman Nordic Group and a member of Palletforce, will operate the service.
  • Pallet-Track is to expand into continental Europe after signing a partnership deal with Hellmann Worldwide Logistics UK. Operations are due to start this month. Pallet-Track will have access to a Hellmann’s network across 56 countries.
  • Palletways has opened a new depot in Nijmegen to meet growing demand in the Benelux region. The depot will also host a Palletways Fulfilment service – the first outside the UK – and will have warehousing capacity for around 1,500 pallets. Fulfilment allows customers to store their products in Palletways’ warehouses, with the ability to manage stock.
  • Fortec has launched Fortec Connect, a proof of delivery solution for the Android platform. It will automatically time, date, and GPS stamp all signatures collected on any Android mobile phones, uploading information in real-time to both Fortec and its customers.
  • Pall-Ex is refocusing its operations, with the appointment of a new managing director 
Cris Stephenson who is to be tasked with strengthening and developing operations in the UK. 
He was previously assistant managing director.

Originally printed in Logistics Manager 09/2014