Real world example:
Chep pallets are sold to warehouses or distributors. That pallet is then shipped, exchanged, and traded all over the world. Possibly being used by a hundred different companies. But should Chep ever feel the need to, they could come into your business and take every Chep pallet you have.
I’m not sure if, or when, or even why Chep would do this, but…how is this possible?
My understanding is that CHEP doesn’t actually sell its pallets. Instead it rents them.
Here’s another article about the business.
That sounds even crazier than what i assumed was going on.
What exactly did you assume was going on? Companies rent equipment to each other all the time.
In the case of CHEP pallets being rented, I guess the advantages for them would be:
ACME Pallet Co cannot simply scavenge used CHEP pallets from behind warehouses, re-brand them and set up in competition - so its strategic denial of a resource a competitor could use to their advantage [think Coca Cola bottles].
A well-cared for pallet has a long use life - multiple rentals to multiple users should provide a much more sustainable revenue stream than a one-off sale, and theoretically a rented pallet is going to be looked after more than a bought one by a user [hahaha].
You’ve got a warehouse full of CHEP pallets. You want to do something different, change your trucking or warehousing - who do you have to engage with to make it work, and buy their customised systems?
The risks are:
Continuous bleed of your pallets that do disappear into the dump pile behind the factory rather than being recycled. You might get the rental until their loss is acquitted, but its a lost asset and costs to replace.
You own and you ultimately have to invest in controlling them as stock and users as clients, which all costs money. Easy if Amazon takes a million, but harder to track when its Fred and his shed with 2 pallets that are moving around the landscape, becoming de facto part of whatever item is being transferred on them.
Unsustainable resources - good pallets are made from hardwood. Expensive to create, wasteful if mistreated, easy to misuse / destroy.
It’s similar to milk cartons and other similar containers. Those aren’t rented and they’re also not sold with the goods that are in them. The stores leave them somewhere for their suppliers to pick up. The suppliers purchase those containers but they’d probably welcome a similar service where they could rent them and not have to bother getting them back or to maintain a supply of replacements for the ones that wear out or get taken. The difference between pallets and milk cartons is the number of uses they get, pallets often are used only once.
We call them milk crates - an Australian invention it seems.
The pallet rental model only works with a high rate of reuse. This article breaks down the logistical complexities pretty well.
Was there ever a share house in existence that didn’t have at least one milk-crate coffee-table?
I don’t see as many milk crates about on the street as I used to - but maybe that’s mostly down to the demise of the corner milk-bar. I feel like now I should scour the streets and snag one quick in case they ever die out entirely!
As part of my time time job during my university days, I would perform a pallet survey every day for the freight company I worked for. We were a company that took bulk freight then couriered it out piecemeal as parcels to customers. Very few of our deliveries were on pallets. So we had a strange pallet dynamic.
When a linehaul/shipping company brought a load of whatever in to us, they’d have to submit a docket with the quantity of CHEP pallets (and also Loscam pallets - a local CHEP competitor) they were leaving us with. I’d compile all these dockets and then sum the pallet count. We should therefore have all those pallets in the yard. We would then pass this number onto CHEP, and they would come past in a truck and expect to take that many away. Due to mishandling and calculation errors and all that crap, there would often be a shortfall. Every pallet that we didn’t give CHEP they would bill us $90AUD - not cheap! So it was worth collecting them all. I’d drive around the yard picking the forgotten ones up. well worth my $20/hour pay rate.
We also had our own pallets we hired from CHEP and these were accounted for differently. I assume when we delivered goods to customers/competitors we did a similar docket type arrangement.
anyway it worked easily and well. CHEP is the big winner in all of this of course.
It is a really clever system. It saves large freight movers like supermarkets a great deal of money and damage. In the UK, most supermarkets will not accept goods on any other kind of pallet. Some industries are happy with cheap semi-disposable pallets but in the high bulk/fast turn time world of the supermarket distribution centre, pallets need to be standard and tough. If Tesco bought enough pallets to cater for their needs, I guess it would run into tens of thousands. Then they would have the problem of controlling them to stop people from suing them on other contracts. I think the rate of attrition would be pretty high. Tesco’s suppliers (and their suppliers) always want more pallets.
If you are supplying Tesco with cheese, they want it all on Chep pallets. This can work two ways; either you rent enough pallets from Chep to service the contract, or Tesco exchange them on a one-for-one basis. The rental cost of a single pallet is tiny. The business model only works with huge volumes. There is also the big problem of controlling inventory.
Some years ago I had to rent some tarpaulin sheets to cover a damaged factory roof. The suppliers rep told me that they never expected to get all the sheets they hired out back. The rental cost was small, but the purchase cost was high, so a company that regularly hired them would often be paying for two or three more than they actually had. This was because the impact on a budget of a few Pounds a month was easier to deal with than a one-off payment of hundreds. managers always live in hope that they will ‘turn up’.
I worked for a haulier who was not part of the Chep system although, since they serviced supermarkets, they handled hundreds of blue pallets every day. Drivers were offered a bonus for bringing more blue pallets back to the yard than they set off with, because the supermarkets would pass on the cost of any shortfall.
I have no idea of the true figure, but I would wager that Chep are collecting £thousands a month for pallets that are gone from the system.
You can rent them from a pallet pool such as CHEP, you can purchase them from a pallet manufacturer such as Pacific Pallet or your local Home Depot, or you can make your own easily enough. There’s nothing crazy about competitive options.
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I guess the “crazy” part is the amount of accounting that needs to take place. Trying to keep track of pallets around the world. My store has probably turned a few thousand Cheps this year, and they get either used by us, broken, or given back to other warehouses. Obviously it must work for CHEP, just glad I don’t have to keep track of them 
They must have some degree of loss built into their business model. Over time, if they are pricing the service right, they’ll dominate the pallet industry. I doubt they keep tight track of how many pallets are returned from one of their renters, they’re getting paid rent on what they provide and if they get a sufficient number of returns they’ll be making money. The tough part may be the reuse of pallets by their customers who pay the fee for a one time use but will take back and reuse the pallets until they are no longer usable. I assume they have different price structures for businesses that make local deliveries and reuse pallets and those that ship long distance.
We do to. Like that thread on ‘not exactly a Mondegreen’ I had ‘crate’ in mind but wrote ‘carton’. They do get called cartons sometimes but it’s confusing with the cardboard milk containers that are also called cartons.
So if the OP is not a CHEP customer, can he turn in their pallets for a reward, sort of like returning soda cans for the deposit?
That might encourage theft.
Another example of this (albeit not involving a private company) is pandas. The Chinese government doesn’t give pandas to zoos - the pandas are loaned. So the zoos that receive them have to pay an ongoing fee, the pandas are subject to being recalled back to China, and any offspring (pandlings? pandettes? panditos?) belong to China not the zoo where they were born.
At first this seemed crazy, and then after thinking on it more it seems crazy to do it any other way.
Palette use is inherently asymmetrical–stuff gets loaded on the palette at the factory or distributor and then unloaded at the store. Hence there’s a constant flow of palettes that needs to be returned back to the top of the system. You could use disposable ones, but wood is durable and it barely costs more to make one that lasts 10 trips than one that lasts a single trip.
If you’re a supermarket, you don’t want to deal with shipping your empty palettes back to the distributor. So at the very least you’re going to call a palette recycler that picks them up, making the rounds to other businesses as well.
But then the recycler has to get rid of the palettes, probably by selling them to a palette distributor closer to where the manufacturing is. So you’d need some kind of network between recyclers and distributors so that the palettes get shipped around efficiently. And even more efficiently, just put all these guys under the same corporate roof so that the network is maintainable.
And that seems to be pretty much what CHEP is, except that they only work with their own palettes so that they can maintain some quality control. It’s not even really a rental; it’s more of a pay-per-use model where you pay a certain amount to get your product from one place to another, and CHEP handles all the details of getting the palette back and to someone else that needs it.
Pallets not palettes - they are two totally different things.
It is really rental. If you join the scheme you rent an agreed number of pallets. To end the contract you must return the exact number you hired - they just don’t have to be the same ones.
Usage is indeed asymmetrical; a manufacturer wants empty ones to load with product for shipping. A retailer ends up with empty pallets after taking the goods into stock. If the business is international, the empties the exporter gets may come from some unrelated importer.
Dammit. Yes. And not palate, either.
But this is a very unusual rental model if that’s what we’re calling it. Usually, the party that rented the item must return it themselves. In this case, it’s some other party. From the Forbes article, it appears that most of the costs are from a one-time upfront fee and from transfer fees. There’s also a daily fee, but it’s small and seems intended to prevent the business from stockpiling too many. It’s not like most equipment rental where the costs are proportional to the time you have it.