Wednesday 22nd Nov 2017 - Logistics Manager

New players set to disrupt market

The old certainties are under threat in the pallets market with changes of ownership and new entrants. Malory Davies analyses developments.
The pallet delivery market is going through a period of rapid change with new owners coming in and new networks being launched. A market that was, until recently, seen as maturing quietly is facing disruption with new challenges and new opportunities.

This article first appeared in Logistics Manager, September 2016

This article first appeared in Logistics Manager, September 2016

And, as the market has matured, the focus on customer service has become more intense with an increasing focus on sophisticated IT systems. David Brown, managing director of UPN, highlights this: “The overriding development is an on-going focus on service quality development as a USP. A critical component of this service quality enhancement is an on-going commitment to Continuous Professional Development in cutting edge and unique bespoke IT systems both to enhance internal operations and also to optimise the customer experience.”
In June South African group Imperial Holdings reached an agreement to buy Palletways from Phoenix Equity Partners for £163 million. Palletways delivers 8 million pallets annually across Europe. The Palletways Group had a turnover of £237.1m in the year to 31st May 2015, while operating profit was £7m. The plan is that it will continue to be run as a standalone business within Imperial.
Mark Lamberti, chief executive officer at Imperial, said: “Palletways’ business model and geographic reach will be complementary to our existing services and networks in the logistics sector. We admire the past achievements of the management team and look forward to working with them to enhance Palletways’ presence and service in the United Kingdom and Europe.”
Palletways CEO James Wilson says:  “Our Group profit has more than trebled over the last three years and we’ve grown from a UK-focused network to one that stretches across twenty countries over a decade. But an enterprise like Imperial are unlikely to be attracted to a business which is merely satisfied with current performance.
“Imperial have a very strong track record for acquiring and growing businesses by providing them with the resources and support necessary to deliver in the longer-term. New business opportunities and the potential to reduce costs through the buying power of such a large organisation involved in different market sectors are huge pluses.
“We want to start the next chapter of our success story. And I believe that our relationship with Imperial will turn out to be game changing for the industry.”
Imperial has been working on extending its geographical reach beyond South Africa. Palletways is its first acquisition in the UK, its other businesses being commercial vehicle dealerships, but on the continent it has operations in contract logistics, warehousing, inland waterway shipping and container port management. Its turnover in the European market is some €1.4 billion with an operating profit of €70 million.
Since then Palletways has been positioning itself for further growth, notably with the move of Luis Zubialde, formerly UK managing director, to the new role of chief operating office for the Palletways Group where he is charged with driving growth across the whole European network which operates 14 hubs covering 20 countries.
“There is a great opportunity to support business growth across Europe through geographic expansion and new products and services,” Zubialde says. “Each territory can work together to share experiences and expertise to achieve great results on service excellence and pallet volumes, for our members in every network. We have a strong track record on breaking new ground with innovation, and I believe we can continue to enhance our reputation in the field of technology.”
Zubialde has been replaced as UK managing director by Dave Walmsley, the company’s former member and network development director.
But Palletways is not the only company that has new ownership. Palletforce last year was taken over in a £30 million deal by EmergeVest, the private equity firm that also owns NFT Distribution as well as a holding in Allport Cargo Services.
Before the takeover Palletforce had been membership-owned, and some of the shareholders had been looking for an exit opportunity.
In the offer document, Palletforce explained: “While in recent years the board has received a number of approaches and has opened discussions with certain other networks to study consolidation opportunities that might improve efficiency and shareholder returns, none of these initiatives proved to be of sufficient interest and value or got to a sufficiently advanced stage to cause the board to make a recommendation to shareholders.
“When the company was first approached by EmergeVest, the directors considered its experience and intentions were of sufficient interest to pursue detailed discussions which have culminated in the agreed terms for this acquisition.”
Michael Conroy, chief executive officer of Palletforce, said of the deal: “I believe we have the ideal partner to help us open up exciting new market and commercial opportunities, especially across Asia. Our vision is for Palletforce to become the world’s leading pallet network and today’s news takes us one step closer to that goal.”
Since the deal, Palletforce has started work on expanding its Burton-on-Trent hub in a £20m project to create a 620,000 sq ft facility capable of handling 30,000 pallets per night. The expanded hub is due to open next year. The impact of a change of ownership can be more far reaching than might be apparent at first. Most of the pallet operators rely on a network of small to medium hauliers to provide the service.
One of the ways that a pallet network can expand the volume of traffic it handles is to recruit new members that have traffic that they can put into the system. Should a network choose to adopt a more aggressive strategy, there impact could ripple out across the industry.
From the individual members’ perspective, the main reason for joining a particular network is because it aligns with their own business ambitions. So, if a change of ownership results in a change of business strategy, for a particular network, that could unsettle some member companies.
UPN’s David Brown says: “It will influence members as to the type of network that they want to be involved within. A rigid structure versus a flexible network for example. New owners as always looking to optimise their Return on Investment. This will put extra pressure on organisations that have been acquired and members within those networks.”
Not only have two of the major networks changed ownership, the market is to see its first new network for ten years. It will be called Principle, and it is due to start trading in the new year focusing on vertical markets which demand high levels of service, security and information. Principle is the brainchild of two former Fortec directors, Neil Hodgson and Marcus Fisher, who have raised a seven-figure investment with both private equity and corporate bank lending. It plans to operate a purpose-built site in the Midlands and has an ambitious five year growth plan.
CEO Neil Hodgson says: “Despite this being a mature market there is a proven opportunity for a new pallet network to enter the market with a firm focus on identified vertical markets which demand high levels of service, security and information”.
Fischer, who is chief operating officer of the business adds: “While based on the traditional pallet network model our intention is to develop Principle into a unique network within the sector. We are looking to attract like-minded partners from the transport sector, who share our passion for service excellence and vision for profitable growth.”
Geodis, which operates the Fortec network, has been developing a two pronged strategy for the pallets market. Fortec, which now has 80 members, offering a range of services that are competitive with the other networks.
At the same time Geodis also offers pallet services through its own network handling traffic that is not suitable for Fortec such as hazardous goods. Geodis, of course, is part of French rail operator SNCF. Last year SNCF Logistics turned over more than £7 billion.
Jamie Cuthbert, managing director of Geodis in the UK, points out that Fortec saw 17 per cent growth last year and it is continuing to grow rapidly this year. “We have invested heavily in technology,” he says, pointing out that, historically, one of the weaknesses of the pallet networks has been lack of visibility. “We have done a lot of work on that.”
It has been rolling out three IT developments Map:IT, Report:IT and Track:IT. Map: IT allows members to plan their drivers’ routes on a computerised map by dragging icons called ‘pins’ across the screen. The information is then automatically sent to drivers via their mobile phones. Report: IT is an instant message board embedded into the Fortrack transport management system that allows members to communicate with each other, and for Fortec to contact members. The Track: IT portal allows members to track their vehicles whenever there is a live and operating Fortec Connect app running in the cab, enabling them to see where all their vehicles are at any one time.
Cuthbert points out that Fortec is starting to give customers access to TrackIT  to enable them to follow the progress of their pallets.
The importance of service is highlighted by David Brown who points out that there are networks that are volume driven, and there are networks that are quality driven. “As a differentiator all networks claim superior service, but in practice its clear to users which networks deliver quality performance KPI’s and those that are volume driven. It’s the networks that deliver on their promises that will succeed and move forward.”
UPN has been  refining IT systems with a new advanced shipping notification which is now available by SMS as well as email. It has also developed a hub efficiency app to help improve night-time turnaround performance. And it has launched SmartPOD, its third generation live signature capture app that enables proof of delivery to be available within seconds of the delivery being made.
In the last year Palletways has introduced sign-on screen technology which is now available for member vehicles and provides customers with instant full delivery point information.
Collection vehicles now have in-cab printers to produce shipping labels.
Dave Walmsley, Palletways newly appointed managing director said: “We have really focused on the quality of our member network to provide the best service possible for our customers.”

Expanding across the continent
Fortec has been expanding its European services making use of Geodis’s large continental network. Earlier this year it introduced ‘simply European’, a service that provides daily and scheduled departures to 24 European countries. The service is intended for frequent low pallet volume loads.
The premium service delivers the ‘quickest possible transit times’ and ‘places freight as priority on the next daily outbound trunk to Europe’. This service is available to 14 countries including, Austria, Belgium, Czech Republic, Denmark, France, Germany, Hungary, Italy,  The Netherlands, and Spain.
James Wilson of Palletways sees greater potential in the expansion of cross border movement of goods within the group:  “Our growth has also been driven by our ever-expanding pan-European service for palletised freight deliveries. Since the start of 2008 we have increased the number of countries we serve from 9 to 20. Today we collect and deliver over 38,000 pallets across Europe every day and we predict that cross border volume growth will grow again this year following our 30 per cent+ growth last year.
Palletways will opens its 15th hub in Poland shortly and it has also invested €10m in the creation of a new hub in Germany, which is operational and will triple the capacity of its nearby existing hub in Homberg. France is likely to see another hub in the next 12 months. Wilson says: “Over the next two years, expansion north and east is on the cards.”
Pall-Ex, which this year celebrated its 20th anniversary, has also be expanding its continental operations – notably with the establishment of an operation in Bulgaria with the signing of a deal with Econt, which operates over 40 per cent of the parcel market in Bulgaria.
The new network will have a central hub in Plovdiv with 18 members covering all territories with next day as standard. Anand Assi, project director at Pall-Ex Group, said: “This new partnership will allow us to offer cost-effective rates throughout the country, based on geographical area. It will also see the introduction of differentiated pallet sizes.”
Pall-Ex has also been developing operations in Belgium, the Netherlands and Luxembourg. Pall-Ex operations now include the UK, Spain, Portugal, Romania, Italy, and France. It is also looking to secure partnerships in Germany, Hungary, Slovakia, Czech Republic and Scandinavia.
However, not everyone is so keen on continental expansion. David Brown of UPN sounds a note of caution: “There are undoubtedly opportunities but it’s a specific business model focus and one than can easily be significantly detrimental to a progressive UK focus. It could also impact financially on the viability of the UK operation by meaningfully deflecting funds.”