Pallet networks are looking to new markets as pressure mounts both to expand internationally and move from a purely B2B business model and embrace B2C services. Malory Davies investigates.
The pallet distribution market is changing faster than at any time since the market first took off some 25 years ago. There have been a series of takeovers and new initiatives including moves into home delivery and the development of more international services. Eddie Stobart acquired TPN (The Pallet Network) for some £53 million in June – a move which chief executive Alex Laffey said “significantly enhances the skills and capabilities of Eddie Stobart in a space that we currently do not operate in”. For TPN, the deal enabled a “smooth exit” for its previous investors, and said managing director Mark Duggan: “We have ambitious plans and this new partnership will help us achieve and deliver long-term sustainable growth.” The deal came just a few months after TPN opened a £15m hub at Brackmills Industrial Estate in Northampton to complement the operations of the central Midlands hub at Sutton Coldfield and the northern regional hub near Preston. The Stobart takeover is the latest in a series of acquisitions in the sector: Palletways was taken over by South African group Imperial Holdings in 2016, while Palletforce became part of EmergeVest the year before than. Since then Palletforce has used the EmergeVest connection to launch a global distribution service. The company is focusing specifically on Asia working with Allport Cargo Services. Palletforce Asia Services provides the network’s 100 members with fast and competitive access to new opportunities around the world. With an emphasis on growing Chinese and Asian markets, the move is the company’s first step in developing Palletforce in China. And the market is expecting more such developments. Kevin Buchanan, group managing director at Pall-Ex says: “There have been a number of acquisitions recently and we predict this trend will continue as the pallet network model is a proven success for investors. Currently, Association of Pallet Networks (APN) statistics show that pallet networks as a whole are growing by seven per cent every year and this is because it’s a successful model that thrives in all economic conditions. “As the market continues to grow it will become more competitive to improve market pricing. Consolidation is inevitable, as we don’t have enough quality hauliers available to help support network growth. Inevitably, we’ll see some firms drop out of the market, but we don’t foresee that happening imminently. “In terms of mergers, these are more unlikely and difficult to achieve. Pallet networks all share the same difficulties; we all have the same geographic struggles and member hotspots, so merging wouldn’t necessarily make them stronger. Combining volumes could also lead to destabilising depots and interfere with their other service offerings. For a successful merger of pallet networks, the brands would need to run parallel to keep their share of the market,” says Buchanan. Nigel Parks, managing director of Pallet-Track, points out that pallet networks, which have been around since the early nineties, today operate in an increasingly maturing market where no business can afford to rely on the status quo. “Everyone is looking for competitive advantage and innovation in a price-sensitive market. Consequently, there is natural movement among players in the space, as well as the inevitable consolidation we have all witnessed.” And Rob Gittins, UK managing director of Palletways points out that the market is tough with uncertainty around the economy and Brexit. “It makes sense for some networks who have strengths in some areas and weaknesses in others to acquire or merge. The trend sometimes occurs when individual companies find it difficult to challenge a market leader. “As Europe’s number one pallet network, we have the fundamentals in place of a stable customer base, members who perform beyond expectations, unrivalled technological innovation and a geographical spread across most of continental Europe. It is an inevitability of the marketplace that competitors will act to overtake the strengths of a rival. This is a positive for us; as a result, Palletways is never complacent about our position as number one in Europe and strives to continuously improve our service offer for both existing and potential customers,” says Gittins. Historically, there has been a lot of churn in the market as hauliers have switched networks and, says Pall-Ex’s Kevin Buchanan, there are some significant drivers: “If members perceive a better commercial offering, better postcode area or trunk balance then they will look to move to another network. As margins in the sector are squeezed, it is important for SMEs to align their business with the network that meets their commercial needs. “At Pall-Ex, we strive to add value to our network. Retaining the best hauliers is due to the support we offer our members; we build relationships and develop solutions that support their operations and their growth, whether that’s through professional marketing, our sales academy, integrated telemarketing agency or other business support that bring added value to hauliers within our network. It’s the extras that make our network unique and why we’ve seen quality member hauliers re-join Pall-Ex recently,” says Buchanan. Rob Gittins of Palletways points out that over the past 12 months the company has welcomed 11 new members to its UK network in addition to 25 new members joining across its other European networks. “Being the largest palletised freight network in Europe, our members benefit from the scale that provides. With more depots closer to our customers than any other network, along with five hubs strategically situated throughout the UK we can provide more efficient service to our customers and savings for our members,” says Gittins. Craig Johnson, Fortec business unit director, argues that: “Essentially it’s about delivering the right quality of service and ensuring that the right service levels are offered – the objective has to be for a network to become their customers’ network of choice. It is also crucial to ensure that hauliers match the ethos of the network and that their own business model fits. It is vital that this be borne in mind as part of the recruitment process. “It’s a partnership and needs to operate as such. As a network Fortec operates a robust recruitment process to ensure that we have that our members have the right business model to meet the needs of the network and our members’ customers – it’s an essential part of the process. Fundamentally we need to ensure our members can deliver customers’ expectations. Further it is equally important that we as a network have a strong reputation for quality and service to attract the right members.” As markets become more mature, driving growth become more challenging. The low hanging fruit has all been picked and networks need to find new routes to growth. Pallet-Track’s Nigel Parks reckons that demand can be stimulated by extensions in the offers – cost effective home delivery services, for example.
Innovating to stay ahead
All the pallet networks are looking to develop new products and services that can help expand the market. Nigel Parks of Pallet-Track expects to see more service products such as “home delivery and different pallet sizes to match this market requirement”. Dave Dunhill, director of IT at Pall-Ex, points out that it is investing in IT systems over the next two years to introduce features that will “enable us to emulate the systems parcel networks have in place, as they are currently more advanced technologically than any pallet network. “The IT improvements will futureproof the system as we develop into the home delivery market and further into Europe. Customer expectations are higher than ever before, so it is essential that the technology within the pallet network industry is updated to exceed these expectations, with pro-active service alerts, enhanced integration features and complete transparency,” says Dunhill. And Buchanan adds: “Essentially, moving a pallet is the same with any network, so it is important for Pall-Ex to differentiate itself through the customer experience and the added value our stakeholders gain from being part of our network. “For example, we’ve made improvements to ensure Pall-Ex has the lowest damage ratio and the quickest claims process, so we can provide customers with an experience that is stress free and easy on those rare occasions that damages do occur. It gives customers added confidence in our quality service. Updating our operations system will enable us to engineer a specific B2C service that is built for the needs of our customers moving forward,” says Buchanan. Rob Gittins of Palletways highlights the importance of a balance between expanding territories, improving the infrastructure presence in those territories and technical innovation in line with the customer-led solutions that the market wants are the keys to unlock an expanding market. “The expansion of the market will not happen with ‘light bulb’ ideas from within the pallet network industry – expansion will take place in response to networks listening to their members and customers about what will differentiate their service in the marketplace. Of course, every bit as important to introducing new developments are delivering on the basics, like customer service excellence. Recently the UK network has experienced substantial growth in the Home Delivery market. As a result of the growth in e-commerce more people are now ordering larger goods online to have them delivered directly to their homes. Palletways have identified the further potential expansion of this market and developed a number of new services that will help drive this expansion,” says Gittins. With the introduction of our ETA notifications it has meant that our home delivery customers no longer have to wait around all day, or book a full day off work, to receive a delivery. Instead they are informed via text message of a two-hour delivery window in which they will need to be available to receive their delivery freeing them up for the rest of the day,” says Gittins. Craig Johnson, Fortec business unit director, says: “There is always the opportunity to introduce new products and services, particularly in the B2C market as customer demands continue to increase. However as Fortec predominantly operates within the B2B market, we find that the services we provide meet the current needs of the market. That said we are a business which consistently strives to provide a quality service that is best in class and are always looking to refine and enhance the range of services we provide in line with both our members and their customers’ requirements.” Thinking outside the UK
As well as developing new domestic services, the networks have also been expanding their geographical reach. The Palletways Group already has extensive coverage across 20 European countries, with more than 350 network partners and a combined total of over 400 depots. Gittins says: “We have exciting plans for the next few months. For example, there is a clear opportunity to support UK companies to move pallets to their customers in the Nordic territories – the UK exports some £38 billion of goods to Norway alone. This opportunity will become a reality as Palletways will launch services to Norway, Finland, Sweden and Denmark through our network members. Where territories do become successful, the next step is to make the service more resilient to pallet volumes and geographical demand. For instance, Palletways Italia is adding a new hub in Verona adding to hubs in Bologna, Milan and Naples.” Palletways is also looking at the potential expansion into Eastern Europe. Craig Johnson points out that Fortec recently invested £3 million in expanding its hub at Watford Gap to create an additional 70,000 sq ft of warehousing space – and bring International and domestic activity under one roof. “Through our parent company we have a direct route to market with a dedicated team. Plus a European network outside of our own UK network with access to international services on a global scale. We also introduced our Simply European service several years ago to meet a growing need for frequent low volume pallet loads.” Pall-Ex currently operate in seven European territories and is looking to expand into Germany, Czech Republic and Slovakia within the next two years. “Development within the European market relies on using local knowledge and expertise within each individual country,” says Buchanan. “Our success is due to using joint ventures to introduce Pall-Ex to new markets; by partnering with established local businesses we combine their local knowledge with the Pall-Ex brand and pallet network experience. By bringing these strengths together we complement their existing offering and strengthen both businesses for future growth,” says Buchanan. Nigel Parks of Pallet-Track, says: “Most networks already have links with European hauliers or European networks. This will continue to be the case, whatever happens regarding Britain’s relationship with the European Union.”
This feature first appeared in the September issue of Logistics Manager.