Ferocious manoeuvres

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Stiff competition in the pallets market means that networks are looking for innovative ways to add value and out-manoeuvre their competitors. Johanna Parsons examines the strategies.

[asset_ref id=”1266″]Competition is ferocious between the pallet networks in the UK. The sector is barely 20 years old, but its coverage is ubiquitous, and the competition is breeding diversity.

Despite rising fuel prices and a sluggish post-recession economy, there is a general feeling of buoyancy in the market, with volumes rising steadily.

Adrian Russell, managing director of Pall-Ex is positive: “This year we’ve been heartened by renewed growth across the sector. We’ve been in growth since the start of 2010, and we’re now above pre-recession volumes. In fact, Easter was the busiest period in the company’s history.”

Fortec managing director, Neil Hodgson shares his enthusiasm: “The pallet industry has not been as badly hit by the recession as other sectors of the transport industry. Pallet networks have helped businesses to achieve a better return because generally they are a very efficient and cost effective way of delivering goods.”

Palletways has seen a 26 per cent boost in international volumes over the last year. “While the economic downturn has been challenging, we have emerged as a stronger player as a result and we continue to see growth,” says managing director Martyn Young.

Elsewhere, the response is more cautious. Adam Leonard, managing director of The Pallet Network, reports increasing volumes and says he has a “guarded confidence”. He sees the market as being reasonably buoyant. “The only cloud is that margins appear to be ever decreasing due to competition and fuel costs.”

And Kevin Buchanan, managing director of Palletline, warns that current rates of growth are a double edged sword. “Over the past 18 months our hubs have returned to normal, trading strongly with double digit growth. But our member companies are finding it tough. Fuel costs and too many networks scrambling for volumes are depressing profits.”

Palletline is owned by its members carriers which has an impact on its strategic imperatives. “Profits are less because we’re charging members less to get through the recession. Our strategy is about member wealth, not hub wealth,” says Buchanan.

The pallet networks have all benefited from changes in the logistics market, notably the trend for lean supply chains and lower inventories which require smaller more frequent deliveries.
Leonard says that at least some of The Pallet Network’s growth in volumes may well be down to the downturn for the alternatives. “Business is coming away from traditional routes such as haulage, so it may be that that accounts for a proportion of our increasing volumes.”

And David Brown, commercial director of United Pallet Networks, says: “It’s difficult out there” but he agrees that networks have benefited from the pressures on fuel prices. “Fuel costs have had a negative effect, but it makes it more economical to put something through a network rather than putting the groupage together independently. The recession’s been kind to pallet networks”

Changing habits
And he points out: “What we’re seeing is a change in peoples’ buying and selling habits. Smaller orders are coming through more frequently.”

Buchanan argues that while there will always be a need for specific dedicated services, “the recession has really focused people on the question: ‘Do I really need that particular dedicated service?'”

It is clear that third party logistics providers are using networks more than in the past. “We at UPN have been working closely with C Butt in Northampton for the past five years, and that gives them flexibility when they’ve got smaller consignments,” says Brown.

Nigel Parkes, managing director of Pallet-Track, says: “Pallet networks offer the opportunities for customers to move their products more quickly and reliably, therefore delivery times can be more flexible.”[asset_ref id=”1267”]

Hodgson sees this turn to the pallet networks, and their improved offerings as the shape of things to come. “More and more users are now considering moving away from dedicated services. There continues to be a greater recognition that pallet networks represent a viable alternative providing the whole package.”

In fact, Hodgson suggests that the overall success of the sector is down to increasing service quality: “The increasing strength of the Association of Pallet Networks is probably a good example of how pallet networks have developed. Whereas three or four years ago there probably wasn’t the complete package available to meet a lot of customers’ requirements. The industry is today a lot stronger and more professional than it used to be.”

The networks are increasingly responding to competitive pressures by developing innovative added value services.

The Pallet Network has developed a new service as part of its economy drive, which Leonard describes as “sweating the assets”. To optimise running it has set up a haulage exchange where its members collaborate and match loads and vehicles to share the work in the most efficient way. Some 45 of its 92 members have subscribed to this service since its launch in April.

Palletline now offers evening deliveries under its “City24” service, and also B2C services that include home delivery. Its proof of delivery system has been operational since 2009, and will include text alerts and automated ETAs from October. This currently provides a digital signature capture, along with a recorded time and GPS position of each delivery on some 90 per cent of the firm’s deliveries.

“The service improvements as an industry are much better than the customer perception – they’re often quite surprised by the reliability that they get as opposed to the cost,” says Buchanan.
However, Buchanan adds: “The recession, for transport operators, was a real mixed bag. The general trend was that a huge amount of capacity has been taken out of the sector, which resulted in pushing load prices up. But the opposite is true for networks where the price to the customer is still too cheap.”

The demands of the retail sector have also had an impact, pushing service levels beyond the standard B2B “drop and go” approach. “For retail you often have to break down the pallet at the point of delivery, and then walk it through to a stock room, unpack the cardboard and tale away the packaging too,” says Russell.

UPN has offered live signature capture since 2006, and now offers home deliveries with flexible delivery as standard. UPN has also diversified its pallet options, including the micro-pallet and a half pallet in response to demand for smaller consignments, and bridging the gap between parcels and pallets. “For us it’s not about doing the job cheaper, which is a slippery slope, but being more competitive.”

Pallet-Track also has a POD track and trace system and Palletforce has invested £1 million in a visibility tool, called Alliance which integrates the third party IT systems across its 100 depots, allowing online ordering.

Palletways has focused much of its recent UK investment on IT. “For example, we’ve invested in hub scanning, a first for the industry, which enables complete vehicle loads to be scanned in one go rather than using hand-held terminals to scan each pallet,” says Young. This provides for a more efficient turn-around of product at the hub and greater accuracy of scanning thereby further enhancing our proposition to customers.”

European coverage
Palletways has also been investing heavily in its European coverage, recently spending five million euros on establishing a German domestic network. Young says that in contrast to the UK market which is relatively mature, Europe is seen as a major growth opportunity. “Our approach at Palletways, since we started investing in the European market ten years ago, has been to set up our own networks, rather than sub-contract, and this formula is paying dividends. Palletways has experienced 26 per cent growth in international volumes over the last year.”

But this is just one strategy, and other networks have preferred to go into partnerships with European businesses with established operations ready to link straight into their UK networks. UPN, for example, has partnered with Signet which has a strong European presence and has subsequently become a member.

Palletforce is more hesitant, and Buchanan argues that for Palletline, trying to extend the brand could dilute its service quality in countries where attitudes to customer service vary. “We have members who are big European operators and we’re confident that that gives us a competitive single pallet solution for customers that do most of their business in the UK.”

Pall-Ex has taken a twin track approach. Since 2006 it has partnered Kuehne + Nagel for distribution across Europe and beyond but all the while it has also been establishing its own brand. Russell says: “Pall-Ex Italia started in 2009 and its week on week growth matched Pall-Ex UK’s initial growth 13 years ago.”

Following this up, Pall-Ex Iberia was launched in June and Pall-Ex Romania will also be up and running by the end of 2011.

With all the networks taking slightly different approaches to differentiating themselves, the closest to a consensus is on the lack of space in the market.

Russell says that the formalised networks are at optimised size and “the challenge for any newcomer would be getting full UK coverage”. Parkes points out that two networks have tried and failed to establish themselves since Pallet-Track started in 2004. Brown goes further, and says the big question is “whether we will see the demise of one of the established networks”.

Hodgson is more wary: “I think we need to be mindful that with the number of pallets delivered in the UK there is always an opportunity for someone to do something different.”

Adam Leonard sees capacity as a key challenge for the future, and is hopeful for a breath of fresh air. He says: “Road transport as a whole has lost so many players over the years, the challenge is to recruit new players, new businesses and new blood.”

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