Pallet networks – picking up from the parcels market

Whether you think of pallet deliveries as big parcels or small freight consignments, the networks are becoming stronger by the year, and are learning more than a few tricks from their parcels industry cousins. Marcia MacLeod reports.

When Palletline opened its doors as the first pallet network in 1992, the logistics industry looked on with interest. Here was a way to deliver less than full loads without having to drive the length of the country and without worrying about return loads. But, some asked, would it catch on? Any doubters must be eating their words, for today Palletline and nearly all of its competitors are enjoying double-digit growth in volumes handled.

Palletways claims a 12 per cent growth in the first quarter of 2006з, while United Pallet Network (UPN) has seen its business jump by an average 21 per cent month on month. Pall-Ex is recording annual growth of 24 per cent and The Pallet Network (TPN) says volumes are up a whopping 32.8 per cent over last year.

Even that is overshadowed by Pallet-Track, which claims its business has grown by an incredible 84 per cent. Only Palletline grew more slowly – 5 per cent over the past year, 10 per cent in the last six months – but this is probably because it transferred its dangerous goods business to Hazchem Network, of which it is part-owner.

To cope with increased volumes, most pallet networks are also increasing the size of their member networks and/or their hubs. Pall-Ex, which celebrates its tenth anniversary this year, has added six depot locations to make a total of 100. UPN has brought in ten new members since April, making 65, with plans to recruit another 15 over the next six to eight months. UK Pallets welcomed seven new members, Palletways three and TPN six.

Pallet-Track attributes a lot of its growth to the extension of its hub at Wednesbury, in the West Midlands, by 30,000 sq ft to total 120,000. TPN more than doubled its available warehousing from 100,000 to 224,000 sq ft, while PalletForce bought a new warehouse in Lichfield, doubling capacity to 240,000 sq ft. This gives it the capacity to handle 12,000 pallets per night instead of just 6,000.

UK Pallets also increased capacity at its 24,000 sq ft Lichfield hub, but by changing working practices and employing six more forklift drivers, rather than by adding space. "We can handle 10,000 pallets a night instead of 7,000," says commercial development director Graham Wilson. It also split some postcode areas into smaller zones to facilitate distribution and help improve service.

In addition to the expanded networks, there is, for the first time in four or five years, a new one being launched next year. Mike Chamberlain, founder of the now closed Chamberlain Distribution, which was a TPN member, is setting up Global Pallet Systems because he thinks pallet networks are the "way of the future".

Although GPS doesn't formally open for business until February 2007, it already has 26 members covering 40 per cent of the country's post codes, and a 3.5-acre site outside Stourbridge on the M5 with 77,500 sq ft of covered space. Chamberlain has even received calls from potential customers, which he has passed on to the nearest member.

"Traditional haulage is finished," he says. "Shippers who move freight realise that they can put a pallet on a network for £40 to £65, compared with the several hundred pounds it costs to hire a lorry. Small hauliers are struggling. There is too much competition; fuel goes up every month; and there is always a guy with one van or lorry willing to undercut the market. If you're in a pallet network, you can deliver freight more easily without driving long distances, and get business you wouldn't otherwise get.

"The future lies in pallet networks. Far from being a saturated market, I think there is room for several new entrants."

What is a pallet network?
Existing pallet network operators may or may not agree. But the way in which some are diversifying does raise the question: What is a pallet network? For a start, several are now moving pallets into Europe. Pall-Ex, the only privately-owned network (as opposed to being owned by its members or another company), carries containerised freight throughout Europe on a daily basis. Containers are stripped at destination and cargo palletised for final distribution.

"Germany, France, Spain, Italy and Scandinavia are the big markets for us," says marketing director Chris Martin. "The business is growing."

Fortec International covers 23 European countries, compared with the six served by Fortexport, Fortec's first foray into Europe. It plans to extend its coverage to air and sea freight later this year on the back of the forwarder Geodis, its parent company.

"Fortec's licensees will be able to accept pallets for the Geodis network," explains Mike Dewhurst, regional business relationship manager for the Midlands and North West and responsible for overall marketing.

Palletways has been developing its European network for 18 months. It now has domestic services in what it calls Central Europe (Benelux, Germany, Switzerland and Denmark), plus Spain, which launched in May, and Italy. Portugal and France will be added by the end of the year, with France being the only network run by an as yet unnamed partner, rather than by Palletways itself. At the start of this year, IT links were established between the UK and the Central European Network operators, making possible daily cross-channel services between the two networks.

PalletForce offers European coverage to existing customers and wants to expand this part of its business. A new member, Sytematic, has been recruited from Holland. Two other networks, TPN and UK Pallets, provide European coverage through partnerships. TPN uses ABX Logistics, as its Basildon office is a TPN member. "We provide it as an extra to existing customers," says chairman Richard Eldred.

UK Pallets also sees its European expansion as an extra service for existing customers. "It is a small part of our business," insists Wilson, "a natural extension to what we do." The only difference is that UK Pallets' partner is Dachser, the large German-headquartered third-party logistics group, which offers a variety of logistics services throughout Europe.

Pick and pack
Along with expanded geographical coverage, many of the pallet networks are introducing new logistics services. Palletways uses its subsidiary, Stargate Logistics, to provide warehousing and pick and pack. It has a facility next to the UK hub and plans to have a Stargate Logistics facility alongside every hub operation in mainland Europe. The attraction is that clients storing goods there can order them up late into the evening, and still have deliveries next day.

UPN rolls out its fulfilment facility next year, offering B2B importers a one-stop shop of container de-vanning, storage and pick and pack and redistribution within 24 or 48 hours. And Dewhurst points out that some of Fortec's members offer warehousing, pick and pack and other services. Fortec is also about to launch centralised telesales for licensees who do not have the resources to do it themselves.

Pall-Ex carries out two-man furniture delivery within a three-hour time window over a large part of the UK. It is considering offering a similar service for white and brown goods. Fortec is considering offering two-man delivery, too.

A number of pallet networks, including Pallet Force, TPN, Pallet-Track, Pall-Ex and Palletways, now carry half- and quarter-pallets averaging, respectively, 500 and 250 kilos. But Palletline's managing director Glyn Jones insists his company "won't get into this game as there is no margin in it for our members".

Instead, it launched Pallet Plus for consignments comprising four or more pallets. "Members can use Palletline vehicles for the large consignments," says Jones. "It's not a big part of our business, but it has been well received."

Just another 3PL?
But if a pallet network is taking smaller or larger consignments, offering container stripping, storage and pick and pack, and using its own or partners' resources to carry full or part loads or what is, in effect, groupage cargo throughout Europe, can it still be called a pallet network? Isn't it becoming just another 3PL?

And if it provides two-man delivery, along with the pick and pack operation, does it encroach on the parcel industry's territory? Dewhurst emphasises it would not take Fortec into bulk home parcel delivery, even if it does launch a two-man service. But what if its two-man delivery customers ask it to take smaller items?

The relationship between pallet networks and parcels carriers is an edgy one. UK Pallets is, after all, part of the Business Post Group, which comprises Business Post Express, UK Mail and UK Today, a same-day courier service. "The networks work independently but share customers," says Wilson.

Lynx was a member of Pallet-Track before it was bought by UPS. Palletline handles all of Parcelforce's pallet distribution. Palletways carries palletised volumes for some parcel carrier customers, and both Fortec and TPN admit some of their members are also franchisees of parcel companies.

But, Martin points out, in many cases, the pallet network competes with the parcel carrier. "We've been approached by a number of parcel companies to form an alliance," he says, "but we carry quarter-pallets and handle two-man home delivery. That puts us in competition with parcel carriers."

Nigel Parkes, managing director of Pallet-Track, believes the pallet industry will make more inroads into the parcel market. "Say a company moves a high volume of parcels – two to three thousand per night – with multiple parcels going to the same consignee," he suggests. "The parcel market charges per parcel. There will come a break point when the shipper needs to see how many multiple parcel consignments are going to the same delivery point and determine if they can be condensed into one pallet. If they have one pallet, why not use a pallet network instead of a parcel company?"

But Parkes also points out the potential conflict of interest should a pallet network and parcel company wish to merge or otherwise work together. "A parcel company sells itself on the way it does its distribution," he says. "Why work with a partner that could take its brand identification – or its revenue generation – away?"

"Parcel carriers and pallet networks work in different ways," adds Mick Scarlett, chief executive at Pallet Force. "Although pallet, parcel and postal companies work with the same hub and spoke system, they require different hub processes, different delivery processes and different-sized vehicles."

Appointing a parcel franchisee as a member of a pallet network could be risky, agrees Simon Hazelgrove, national sales director of UPN and formerly with TPN. "A parcel franchise might not have the right resources to fulfil pallet requirements. They run vans and 7.5 tonne vehicles, which aren't suitable for pallets."

They don't have the same IT resources, either, although some pallet networks are fast catching up with the parcel industry (see panel on page 30). Indeed, if pallet networks continue to extend their remits to become not parcel carriers, but full-service 3PLs, they may end up having to call themselves something other than pallet networks.

Pallet networks embrace information technology
These days the IT capabilities of the pallet networks are getting quite sophisticated. In their early days, IT was perhaps not given such a high priority, but all that has changed.

In particular, track and trace is fast becoming the norm for the market – although approaches can vary from one network to another.

Pallet-Track, which claims to be an early adopter of track and trace, captures data through handheld scanners at depot and hub. POD signatures are captured manually, scanned in at the depot and made available online by 10.00am the next day.

Pall-Ex works with Road Tech Computer Systems in a relationship described by managing director Hilary Deevey as "extremely fruitful", offering full online track and trace, including electronic POD capture. Barcode scanners are fixed on to forklift trucks at the hub, so pallets can be scanned as soon as they come off the lorry. Every pallet is scanned four times on its way through the supply chain.

Palletways scans pallets before they are loaded on to the trunking vehicle destined for the hub, then again on arrival and on the outbound leg from the hub. All scans include driver's name, vehicle registration and time of loading. POD information is available by 10.00am the day after delivery, and an image of the POD is put online by noon.

Those pallet networks not already offering full track and trace are working on it. UK Pallets is trialling a new scanning system now. Fortec is "investing a lot" in technology, introducing online POD imaging by the end of the year and installing new servers to guarantee a more robust service.

Pallet Force is also implementing a new system, to include full track and trace for the first time. Forklift-mounted scanners will facilitate data capture at the hubs and will be linked to a weighing system to check the weight of every pallet. Depots will either have forklift-mounted or handheld scanners, as well as PDAs for signature capture. The system should be fully rolled out by early next year.

UPN recently expanded its bespoke system to provide members with the information necessary to plan and prepare collections and deliveries the day before. Electronic signature capture is currently on trial and should be in place throughout the network by the end of October.

Only TPN bucks the trend. It is moving towards wireless scanning in the hub, but not at its depots, which means it does not have full track and trace. "We could do it," says Eldred, "but our members haven't asked for it and neither have their customers."

Not yet, anyway; but demand could come, and the company will no doubt be ready as and when it does.