No matter who you talk to among the pallet distribution networks, the saying is the same – “We don’t want to be the biggest, but the best”. Modest words from an industry that is currently in great demand and clearly has something to offer the supply chains that third-party logistics providers (3PLs) are either unable or loathe to do.
The pallet distribution business is estimated to be worth a potential £2Bn a year. It comprises at least eight “pure” networks – Fortec (part of Geodis), Pall-Ex, PalletFORCE, Palletline, Palletways, The Pallet Network, the United Pallet Network and Weaver, which has recently been bought by parcels company Business Post. Between them, they handle about 30,000 pallets a night in a market that is claimed to be growing by at least 25-30% year-on-year in terms of volumes.
B&Q Logistics has five distribution centres (DCs) around the UK and is now using Pall-Ex to collect products from its ten or 12 suppliers. Glen Goswell, of B&Q Logistics, says Pall-Ex takes the suppliers’ products, consolidates them and then delivers them to the DCs. The benefit to DIY retailer B&Q in using a pallet network, says Goswell, is that congestion at the DCs has been reduced. Instead of receiving deliveries from ten or 12 vehicles there is now just one, he adds. In addition to B&Q, Pall-Ex also has a contract with high street retailer Debenhams, which it has held for two years.
Palletline has just become the nominated carrier to handle single pallet deliveries from suppliers to Sainsbury’s. A spokeswoman for the supermarket chain says Palletline is one of several companies used and “came on board” at the request of the suppliers.
If you talk to the networks, teamwork, quality, cost-effectiveness and efficiency are the key words. For the end user, on the other hand, a major advantage of using a pallet network is that less congestion is created at distribution centres as fewer lorries are needed.
Hilary Devey, founder and managing director of Pall-Ex, believes shared-resources and greater flexibility with peaks and troughs are also major advantages that the networks can offer compared with 3PLs. Cost reductions can also arise through consolidating loads as DCs can reduce labour and the number of days the DC is working. Savings of 30% are feasible, says Devey.
Julian Maturi, managing director of Palletways, says his company and Palletline (the two oldest networks) recognised there was a gap in the market. “What has happened over the past three or four years is a recognition that we’re not now a fledgling industry. It’s matured as an industry and we’ve got credibility.”
He continues: “We’re quite happy to put our IT against some of the major 3PLs and say ‘have you got something as good as this?’. It’s a niche market, and a growing niche market. It’s significantly outstripping the logistics market place.”
Fortec director Rod Abrahams offers another theory – security. He explains: “You can shrink-wrap 20 boxes [depending on how big the boxes are] on to a pallet and straightaway, you’ve got a security element. Also there is reduced damage because of less handling; split consignments are more or less eliminated; and there will also be cost savings.”
Abrahams believes that even the logistics companies are now seeing the benefits of pallet networks, and Fortec is targeting such companies in terms of providing quality. “We’re not just after volume.”
It is thought among the pallet networks that “the Exels and the like of this world should be able to run rings round us”. But that is not happening because, as one network put it, “they don’t seem capable of actually controlling their own depots and networks. The 3PLs have got so big that their depots aren’t talking to each other to create a national network.”
The 3PLs are fine with the full loads but when it comes to one, two or three pallets, they have not, it appears got the infrastructure and do not want to put on extra vehicles because that is not cost-effective within the realms of their contract. The networks say that the 3PLs “welcome us to do that for them, which we very happily do”.
Bob Russett, chairman of Palletline, says: “We’ve got more incentive to make it work. Because the depots are owned and controlled by entrepreneurs, whose pockets are directly affected by their performances, and with a market place that’s getting tighter they know they are financially much better off as part of a system and will make sure it works.”
However, Russett does not see the networks as being competitors to the 3PLs. Instead, he says they are a tool and should work with the 3PLs.
Mick Scarlett, chief executive officer of the youngest network, PalletForce, says: “It’s interesting that the end users are very much aware of pallet networks. If you go and see an end user they do now know of pallet networks, of Pall-Ex, Palletline and PalletFORCE, whereas if you’d gone to see them a few years ago they would have known the local haulier but not the network he was a member of. There are a lot of contracts out there where part of the criteria for an independent haulage company to take on that contract is that they are part of a national pallet network. There a lot of these contracts so the end user is realising that unless they [hauliers] are part of part of a national pallet network, they aren’t going to be able to get the 10am next-day anywhere in the UK.”
There is also a feeling that the networks are no longer perceived as being just a bunch of hauliers but professional organisations instead. This is because the “pure” networks have invested heavily in marketing to promote their individual branding.
Maturi, of Palletways, feels that the sudden popularity is not so much to do with demand but the fact that people are now more aware of the pallet networks. Having joined Palletways three years ago from Wincanton, Maturi carried out research into the pallet market. He says: “I was very comfortable with the niche that was there and the demand and it was filling a gap, but my first observation was that ‘nobody’s heard of you all’. Nobody had heard of the networks or if they had, they had a perception that was very grey, cloudy and blurred.” Palletways decided as a result that it would have a brand policy and invested heavily in having a brand identity. Its members have to buy their vehicle curtains from the company to ensure they are the right shade of blue, for instance.
The pallet networks are similar to parcels companies in that they operate hub and spoke systems and customers are charged on a per pallet basis. Most of the networks handle one, two or three pallet loads on behalf of customers. Member companies collect loads in their area, deliver them to the relevant network hub for consolidation and onward delivery by their member colleagues spread around the UK and Europe.
The networks are enjoying great success but it can only be a matter of time before the rapid annual growth starts to abate. There are already concerns that there will be some casualties or a degree of consolidation over the next two or three years as the market strives to stabilise, similar to what happened in the parcels industry a few years ago.
Most of the networks are in agreement that the big players will survive because they have the critical mass.
Palletline’s Russett thinks there will be one or two casualties in the next three or four years as the market stabilises. Devey agrees but she says it will be investment in IT that will drive the networks. “Those that have the right IT systems in place and the funds will survive,” she says.
Perhaps it is no coincidence then that some of, if not all, the major players are investing heavily in new IT systems, web-based systems, RFID technology as well as handheld, in-cab equipment to collect signatures.
Mick Scarlett, at PalletFORCE, says those that are strong enough, and his company is one of those, will survive. He intends to seek out new markets as well to further the PalletFORCE’s growth including Europe, where he says “no-one has got a true network”.
However, it seems that the real loser in this boom time for palletised distribution is the traditional multi-user haulier, which faces a bleak future unless it can become part of a pallet network. According to Scarlett, customers are telling hauliers that if they are not part of a pallet network then they will not get their business.
And Palletline’s Russett is all too aware of the traditional hauliers’ plight, saying: “We formed a new sector, but caused the decline of another.” Maturi at Palletways says the haulage industry “is being squeezed. It’s getting tougher”.
Devey, of Pall-Ex, agrees that some traditional multi-user hauliers will fall by the wayside unless they are part of a pallet network. She says: “There’s still a lot of scope. When I started Pall-Ex in 1996, there were 10,500 hauliers registered with the Road Haulage Association. But it all comes down to quality and having a very good vetting process in place. Quality is essential.”
As Fortec’s Abrahams says: “It is the quality of a network’s members that will make you, or break you.” n