The mature approach

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The networks have achieved growth in two main ways. The first is bringing in new members which have pallet traffic that can go through the network; the second is organic growth in the market.

As the market has matured the scope for recruiting hauliers to the networks has declined while economic conditions over the past year has had an impact on the market. Glyn Jones, managing director of Palletline, points out that market has been slowing down as the fall in consumer confidence has affected organic demand. “I am very pleased that we have now got the lowest cost capacity – our financial performance this year is healthy. Richard Eldred, chairman of The Pallet Network agrees that it has been a tough market over the past year. However, he says, The Pallet Network managed to maintain its growth at more than 20 per cent. Craig Hibbert, Palletways marketing director, says: “Our experience is that it is the toughest year since 1994 but despite the downturn we have still experienced growth.”

In fact, he says, traffic in the first half of December had been 10 per cent up on last year.

Hopefully, he says, this year will be better – “it’s all about positioning yourself in the market to exploit the volume that is available.”

Mick Scarlett, chief executive of Palletforce has also seen a flattening out of the market and highlights the fact that a lot of the growth has been the result of new transport companies entering the market. Now there are fewer companies entering the market, it is no surprise that growth has slowed, he says.

For Palletline, the past year has been one of consolidation, says Glyn Jones. In particular, it has been focusing on ensuring that it has the right capacity at the right cost through consolidation onto one site.

Two years ago, the company took a temporary lease on a second hub as it needed more capacity.

“We came out of that in July and rebuilt this site,” says Jones. “We chose to put the two sites together in the Summer before the Christmas rush. “We are now back to a very good service.”

Palletline has been responding to the slowdown in the market by bringing in new members. “We want strong hauliers,” says Jones. “We don’t use franchisees.”

At the moment Palletline has some 60 members – fewer that some of its competitors, but Jones points out that its members tend to be larger companies. The aim is to increase the membership to 70. The growth of the pallet networks means that there are fewer and fewer hauliers that are not members or one network or another so finding members is increasingly enticing them away from competitors. However, Jones points out that two of the four newest recruits were not members of any network before joining Palletline.

Palletforce is continuing to grow, says Mick Scarlett and over the next two years it plans to recruit another 15 depots. Delivery area consolidation is key to going on and getting stronger. He points out that with fewer hauliers moving into the sector, if Palletforce wants to recruit, then the new members are going to have to come from rival networks.

And he argues that some of the weaker networks could fail because they don’t have the influx of new members that they need.

There will be a battle for members of the next couple of years. More than 30 of Palletforce’s 85 depots were recruited from other networks – ‘and we have never lost one to another network,” says Scarlett. What is going to sort out the market is the ability to recruit.

Scarlett argues that Palletforce is able to recruit new members because it has a quality brand that attracts people from other networks. The model of membership ownership means that future development is always for the benefit of the members rather than a private company. Transport companies are increasingly seeing the importance of being in the right network. Palletforce needs to be profitable to reinvest in the business. Growth last year was 27 per cent in a flattening market.

Terry Richards, managing director of UK Pallets says the company has had a busy year with an increase in overall pallet volumes and revenues from new business wins as well as increased trading from existing customers.

The key focus at UK Pallets, which is part of Business Post, is the execution of a ‘right first time’ performance throughout the business. “We believe that concentration on service excellence and high delivery performance, will help us achieve our aim of becoming the undisputed number one in the pallet delivery market, measured not by price but the quality of service we offer,” says Richards.

Richard Eldred of The Pallet Network says about half its growth has come from new members joining the network while the rest is organic growth.

TPN has seen half a dozen companies joining over the course of 2005 bringing the total to some 75 companies.

The company which was set up and owned by four of its directors has been extending ownership to its members with a share issue earlier this year.

Fortec, the network owned by French group Geodis, has developed a slightly different business model from its rivals.

Network development director Alan Cramley describes the business as operationally-based – doing what it does well. It handles some 2,500 pallets a night but does not see pure volume as the only driver.

Fortec has its own IT system, CarrierNet, a web-based system which allows licensees to send information to the hub and receive information back. Next year, the aim is to give customers access to the system enabling them to get PODs online.

Cramley says Fortec is also looking at an online booking system – at the moment it offers implant software to big customers but clearly, there would be an advantage to making online booking generally available.

We are all fighting against the idea that a network is just a network, he says. “It’s the little differences that make the difference between us all.”

Recruiting and retaining the right hauliers is a key issue for any network. Cramley points out that it is relatively easy for members to leave the smaller networks as there are not massive joining fees. Therefore, it is necessary to ensure that the network works well. We depend on the individual selling and then deciding to put the pallet through the network.

Some companies have built up a complete business putting traffic through the networks he says, although there will be companies that join a network and use it only as a last resort.

This year Fortec has launched a multiple pallet service designed to allow licensees to offer their customers a more competitive pricing structure for larger consignments and give them the opportunity to send freight through the network rather than using their other resources for part loads.

The multiple pallet service uses the same operational, administrative and IT structure allowing track and trace via barcode scanning and freight movement visibility on Fortec Pallet’s CarrierNet system.

Alternative resource

As with the core activity, services include next day deliveries, timed, AM, Saturday AM, book-ins, tail-lift and an economy delivery service and covers the whole of the UK.

Cramley says: “We’ve taken a while to launch this service but we wanted to make sure that the network could offer the same high service levels on larger consignments that it does for our core business. As always the choice is down to our licensees whether they use the service or use their own vehicles, but at least they have an alternative resource if they need it.”

Pall-Ex has recruited a number of new members, notably the Potter Group which has taken over responsibility for pallet collections and deliveries in and around an extensive area including Peterborough and will provide a daily service through its nearby Ely depot.

Derrick Potter, chief executive of the Potter Group says: “Our entry into the Pall-Ex network completes a long journey to find a suitable partner within the pallet network market.”

Pall-Ex has been expanding its services in Ireland with the appointment of PalletXpress, based in Mullingar, Co Westmeath. This is a network of hauliers providing a nation-wide distribution service for palletised freight in Ireland.

Pall-Ex has also brought in Davies Turner which is collecting and delivering freight from a region encompassing the Bromley and Dartford postcodes in South East London.

Philip Stephenson, joint managing director of Davies Turner says: “Our membership of Pall-Ex gives us access into a top quality UK distribution network for palletised cargo and will benefit all our branches, allowing us to guarantee customers’ 24-hour delivery effectively throughout mainland UK. This is good both for national consignments moving within the UK and also for international shipments using our European, ocean freight and air cargo services.”

As a result of joining the Pall-Ex network, Davies Turner will be introducing a new specialised service for consignments on both standard and outsize pallets for customers in the UK who are exporting and importing within Europe.

“We will be covering all EU countries and will be quoting prices on a simple, easy to understand all-inclusive per pallet basis,’ says Stephenson.

Pall-Ex has also launched a system to give customers online track and trace and real time signature capture.

Combining the strengths of the company’s “Pall-IT” system, with the latest handheld EPOD technological advancements from “RoadRunner” Pall-Ex is able to provide clients with full track and trace of palletised freight consignments and real time signature capture further streamlining the delivery process.

The next step is for the Pall-IT system to become a real time information management system providing immediate notification of in and outbound freight for each depot enabling advance planning of required trailer capacity and routes needed.

Hub accounts

One of the ways that some networks, such as Pall-Ex, have developed their business is by building up large national accounts at the hub.

Palletforce’s Mick Scarlett expects some networks to go down the route of hub accounts to meet the challenge of lower growth in the future.

“We won’t be doing that, he says, pointing out that Palletforce is owned by its membership. “If we had hub accounts we would have to pay the members a premium to deliver.”

This, he says, is because hub accounts create an imbalance in freight going into and out of the hub. As a result a member might have to add extra capacity to handle the traffic so it is only right to charge a premium for it.

“As we are membership-owned we are not interested in doing anything detrimental to our members.”

“We have also seen hub fees increasing above the rate of inflation – it is an easy way of increasing revenue centrally. “We have increased our fees by 3.5 per cent but some others have gone up by 10 per cent.

Palletline is also not attracted to the idea of hub accounts, says Glyn Jones. The fact that it is wholly-owned by its members means that its business strategy is also different from its competitors. For example, it will not operate hub accounts – it is the members that have the relationship with the customers.

For Fortec, the issue is slightly different. Alan Cramley says: “We fall in the middle because we have Geodis generated freight but we don’t really look for hub accounts. We tend to talk to the licensee first.

One of the other ways that pallet networks have been seeking to boost traffic is through the use of half and quarter pallets. TPN has seen a growth in half and quarter pallets. Half pallets have always been part of the portfolio, says Eldred, “but we introduced quarter pallets earlier this year in response to demand from the members”. However, he points out that some of the apparent growth is the result of some pallets being reclassified as quarters.

“We charge a flat fee for pallets coming through the hub so there is no effect on hub income,” Eldred points out.

However, Palletline’s Glyn Jones does not find this an attractive market. He accepts that it offers some volume but, he says, the margins are low. “We are extremely anxious to retain the strength in the members’ depots,” he says.

As operators look for new ways to add value, the use of centralised warehousing linked to the hub has grown in popularity. Pall-Ex has been at the forefront of this type of development while Palletways has also been developing its Stargate Logistics business. The Stargate concept is that a small amount of stock is held in a warehouse at the hub so that orders can be placed late into the evening for delivery the next morning. Earlier this year, Palletways brought operation of the warehouse back in house and it has been spreading the concept to the other hubs in the network – Bologna, Nijmegan and Madrid.

However, the member-owned networks are steering clear of it. Glyn Jones points out that there are plenty of Palletline members that can offer that service to customers.

Palletways has been leading the way in continental development. Craig Hibbert points out that four years ago it went to Italy setting up a clone of the UK operation. The operation, based at Bologna now has 52 depots and handles more than 3,000 pallets a night.

It has an operation is Spain and in March this year it launched its central Europe service which is based at Nijmegan in the Netherlands and covers the Benelux countries as well as part of France and Germany. At the moment it has 21 members and it has just announced the appointment of the first member in Denmark as part of the expansion programme.

Esbjerg-based IAT will provide overnight deliveries domestically and a 48 hour distribution service to and from the rest of the region covered by the central European network. The company will distribute quarter, half and full pallets on behalf of Palletways.

Transferable model

Hibbert says it decided to build its own network rather than relying on third parties. “Italy proved that the model is transferable and we have the capability to implement the model.

For Palletline, European developments are being spearheaded by members such as Europa and Roadferry rather than Palletline centrally. It is easy to over-estimate the Continent as a realisable opportunity, says Jones, arguing that it is not an answer to the volume question.

Palletforce offers a number of services to the Continent using members existing services. However, it has not made a decision about whether it wants to roll out is business model across Europe in the way that Palletways is doing. “We might do in the future,” says Mick Scarlett.

While Fortec is one of the smaller networks in the UK it is backed up by the might of the Geodis organisation across Europe. So it is able to offer the Fortexport service. Pallets coming into the Rugby hub are sent on the to the Geodis terminals at either High Wycombe or West Thurrock for onward delivery on the Continent.

Through Geodis, Fortec licensees are able to offer airfreight and seafreight services to customers as well.

Looking ahead, Palletline’s Glyn Jones see little sign of an upturn in the market in the coming year. “Although there has been a small Christmas upturn it is difficult to retailing improving much over the coming year. The same is true of manufacturing, he says. In these conditions, he says, the key to success is the right quality of service at the right price.

That is the reason that Palletline has chosen to go for tightly managed costs along with a substantial investment in IT.

“There are lots of business challenges for the coming year,” says Palletways’ Craig Hibbert, “in particular integrating the service offerings across Europe.”

Within the UK, Palletways is still recruiting members. It has taken on four in the past month taking the total number of depots to 107. Hibbert points out that this is volume driven – as volumes grow you need more members to enable you to reduce the size of the operating areas and enhance customer service. It’s important to look after the individual members, he points out. “We work hard to ensure that members benefit from membership of the network.”

For the coming year, Palletforce’s priority is further consolidation of delivery areas and recruitment of new members. On top of that it has been investing heavily in IT systems – particularly in-cab track and trace facilities, says Mick Scarlett.

Alan Cramley describes the past year a substantially harder than 2004. “Our traffic is up on 2004 though by less than we would have liked. However, he expects the market to continue expanding.

“We are forecasting 15 per cent growth for 2006. Fortec is looking to recruit additional licensees as well as developing additional added-value products and services,” he says.

Craig Hibbert, Palletways marketing directorMick Scarlett, chief executive of Palletforce

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