Pallet networks – super-parcels carriers?
If you thought pallets were all about heavy freight, not fulfilment, think again, says Peter Rowlands. This is the era of the pallet networks, and they have a role in fulfilment and home deliveries too
What is a pallet-load of goods? Is it just like a very big parcel (or a bunch of parcels), or should you view it as part of that more amorphous commodity generally known as 'freight'?
To a large extent, the answer depends on how many pallets you're talking about. If there are about twenty of them in your consignment, you've got the makings of a full lorry-load. That makes pallets freight, and fairly easy to deal with.
If you're talking about two or three pallets – or perhaps even less than one full pallet-load – then you could have problems. To be able to transport small numbers of pallets round the country economically, your carrier needs to aggregate them, trunk them in batches, and then separate them out at the other end and deliver them individually: complicated and potentially expensive, especially for smaller hauliers or fulfilment companies with only localised and perhaps limited resources.
Which is why the concept of the pallet network has emerged. After collecting a single pallet from you, your local haulier aggregates it with others, then trunks it overnight to a central point, probably in the UK Midlands. Here it's offloaded in a vast hub, transferred to a trunk vehicle belonging to some other haulier based in the destination area, and finally delivered in that area by the other haulier. Vehicles run in and out, as if on the radial strands of a spider's web, and the more fiddly delivery jobs are dealt with on the periphery.
In theory it's a win-win situation. Independent local hauliers make massive savings by avoiding having to send their own part-loaded vehicles all over the country. Consignors get a fast next-day delivery service at a decent price. And the people who operate the hub make a tidy profit into the bargain.
Historically, a problem has been persuading often independent-minded haulage companies to work cooperatively in this way. But by the turn of the nineties, the inescapable commercial logic of this sort of operation became irresistible, and the concept finally took off.
Initially there were only a few serious contenders, of which the first is considered to have been Palletline. Involvement by Bob Russett, a respected figure from an established haulage background, gave credibility and spirit to the enterprise. The business found an ideal low-cost but covered hub depot in the guise of a former bus garage on the outskirts of Birmingham, and after early setbacks was soon flourishing.
Palletline was owned by its members from the start, and retains that strong sense of shared ownership to this day. 'Our primary objective is the maximisation of returns for our members,' says managing director Glyn Jones. Its early rival, Palletways, took a different line, being centrally controlled, but has been equally successful, and is now reckoned to have edged into the market lead.
Exact market shares are difficult to pin down, though, and Pall-Ex, a third major player, could also lay claim to leadership. Pall-Ex again is centrally owned, having been founded by high-profile industry figure Hilary Sharples (now Hilary Devey). As marketing director Chris Martin comments: 'It can be difficult to get a consensus when members may have different priorities. Managing by committee can be a tricky strategy to pull off.'
However, a more recent contender, Palletforce, is member-owned, and in barely four years is thought to have edged up to the number four position in the market. As marketing and business director Trevor Mudd puts it: 'Members have to purchase shares in order to join, but they like that. It makes them feel they've bought into an asset, rather than just paying a fee.' He adds: 'Licence fees can actually end up costing them more than shares, so there isn't really any financial penalty for working in this way.'
Interestingly, rival The Pallet Network (TPN), another of the more recent contenders, started out in life being owned entirely by its management, but only this year has decided to modify its structure in order to give members the opportunity to become shareholders. Chairman Richard Eldred says the decision was 'as much an emotional as a financial one', being aimed at strengthening members' ties with the organisation (company profile, page 38).
Opinions predictably differ on the kind of facility needed to make up a hub – although the location (the Midlands) is in little doubt. Palletline is still in its original site, but is now expanding this judiciously, and sees plenty of scope for growth. TPN by contrast recently moved into a sparkling new building. And Pall-Ex has built a brand new hub, which is thought to be unique because lorries load and offload at the sides, while the centre is kept free for marshalling goods. Other hubs usually have internal 'lanes' in which fork-trucks mingle with lorries.
The pallet networks tends to measure size by number of pallets handled per night, although there can be disagreement over this, since average and peak figures sometimes get confused. To put some measure on volumes, Palletline currently handles around 8,000 pallets a night, Palletforce about 5,250. Pall-Ex's throughput is growing steadily, and has now reached around 9,000, and Chris Martin says he expects the figure to reach a new five-digit record by Christmas.
Overall, the market has seen something of a decline in the past year, prompted in part by a fall-off in demand. This is blamed on a variety of factors – a general slowdown in the economy, and the fact that there is now so much competition in this market. Alongside the five networks already mentioned, there are at least as many again, all with significant market shares, and this has inevitably put pressure on rates.
That might be good news for users, but pared-down rates can be a recipe for market instability. Pall-Ex's Chris Martin believes the market cannot continue to sustain so many players in the long term. 'I think you'll see some consolidation in the coming months,' he says.
Not that the sector is necessarily faring too badly; growth is a relative thing. UK Pallets was growing at 40 per cent in the past, but its present growth rate ('a genuine 18 per cent,' says managing director Paul Sanders) is still impressive. Palletforce says it grew by 27 per cent last year – down from the 46 per cent of the year before, but impressive by any objective standards. And Pall-Ex says it is currently growing by 35 per cent – a remarkable figure.
Not to be ignored either are the other players, which include United Pallet Network at Melton Mowbray, Pallet-Track at Wednesbury and Rugby-based Hazchem Network, a specialist operation for chemicals and hazardous goods started by TPN co-founder Jim Scanlan.
Another significant player, also with a hub in Rugby, is Fortec, which unusually is owned by a major logistics group, Geodis. 'It's a real benefit,' says development director Alan Cramley. 'They're very supportive.'
If the debate about central versus distributed ownership is a recurring theme in this market, so is the question of whether business accounts and marketing should be managed centrally or locally. Generally, the original model for these networks was that members would remain responsible for their own marketing and customer invoicing, and would simply pay the network for central handling and service functions.
However, the very existence of a corporate identity and livery (used to some extent by almost all networks) gives some logic to central marketing and corporate accounts. But Palletline, which has run centrally-managed accounts in the past, recently took a policy decision to exit that market. 'There's no margin in it,' Glyn Jones says. He is also uneasy about the idea of injecting traffic into the network from the centre. 'It can lead to an imbalance,' he points out.
He adds: 'If it stimulates members to look for more business to match the extra traffic, some people might consider that a good thing, but it's not if it leads to price-cutting in pursuit of volume.'
Other networks such as TPN take a similar line, working almost entirely on the basis of marketing by their membership. And Fortec says it generally prefers locally-negotiated contracts to central accounts.
However, even Palletline has now taken on board a commercial development manager. Ironically, Glyn Jones says this is partly because, in his view, there is relatively little market differentiation between the networks in terms of branding, and some kind of central thrust is therefore essential.
Others are even more keen on building up central functions. Palletways, for instance, does take on centrally-managed accounts, and has also set up a self-contained logistics subsidiary, Stargate Logistics, complete with storage and handling facilities near its hub base in Lichfield. Pall-Ex is another contender that is happy to take a more centralist view of marketing and operations. It has recently taken on several hundred thousand square feet of warehouse space near its headquarters at Ellistown, Leicester to service centrally-managed accounts.
Some networks adopt a 'halfway house' position on this issue. Palletforce, for instance, has a central sales force who sell direct to the market, and members can 'rent' its services if they want to take advantage of it.
UK Pallets, a subsidiary of parcels carrier Business Post, is also more warmly disposed to central accounts. Managing director Paul Sanders, who joined with acquired company Weaver Pallet Express, emphasises that the company's 72-strong network is made up of independent carriers, just like the other networks; but he adds that there might be instances where clients would use the services of both UK Pallets and the parent parcels company. 'We offer crossover opportunities that few other networks can match,' he says.
Home shopping is one market where you might imagine pallet networks would have only a limited role; but in fact some of them have found significant opportunities here. Pall-Ex, for instance, has taken on work for furniture retailer Ikea, in which its members trunk product from a central warehouse, then handle direct home deliveries on a local basis.
Palletways, too, has embraced the home delivery market, and now handles significant volumes of product for Trade Appliances, a leading UK-based kitchen and white electrical goods supplier. One of its member-companies, Mitchells of Mansfield, collects product destined for remoter areas of the country, and these are fed into the network for delivery direct to consumers by the appropriate member (more details in panel on next page).
To some extent, ability to handle home deliveries relies on the willingness of the networks to deal in less-than-pallet quantities. Palletline recently decided to rule out all freight of less than a whole pallet, but others such as Palletways and Pall-Ex say they welcome goods in these smaller quantities.
Overall, the use of advanced data capture and tracking systems by the pallet networks remains patchy. Among the first to claim comprehensive scanning of goods were Pall-Ex and Fortec, which has introduced a web-based system in the past couple of years. This is gradually being expanded to offer extended track and trace capabilities.
But it can be difficult to persuade groups of independent carriers to adopt a single technology solution, and some networks have questioned the need.
'We recently reached the point of signing up for a comprehensive in-cab system,' says Palletline's Glyn Jones, 'but the cost would have been significant, and we realised that what we're really selling is solutions, not technology.'
In any case, he says Palletline members scan all consignments at the five key points in the delivery cycle (in and out of depots and the hub).
Palletways currently offers next-day web-based access to online PODs on all consignments, and has also introduced some innovative ideas for keeping clients informed of the progress of deliveries, including delivery of information direct to clients' mobile phones.
Pall-Ex is understood to be on the point of rolling out new IT system to replace its current, three-year-old in-house system, including the use of wireless mobile technology. This is believed to offer member-companies the opportunity to integrate at fairly low cost with their existing IT systems, yet also to provide compatibility with a new central system. If the company can pull off this trick, it will arguably have found the ideal compromise for the network market.
One of the questions often raised in the pallet market is how many members make up an ideal network. Palletline now has around sixty members, and Glyn Jones points out that many are founder-members. 'People don't leave Palletline,' he says wryly. UK Pallets has around 70 members, Palletforce has 85, Palletways and Pall-Ex have around 100 each.
Several networks talk about increasing their membership, and Glyn Jones says consultants have indicated that the optimum network should have about 70 members. But that raises the question of where the extra members are supposed to come from. There seems a consensus that most of the suitable regional carriers are probably in one of the networks already; so the inevitable answer is if a network wants to expand its membership, it may have to recruit from other networks.
Chris Martin of Pall-Ex acknowledges this. 'In fact there's currently a two-year waiting list to join out network,' he says. But of course numbers are not everything, and adding more can reduce the potential market for those already in the system; so growth has to be approached with caution and managed sensitively.
Finally, it's worth pointing out that the independent networks are by no means the only companies running trunking operations for part-loads of pallet. A number of the big logistics groups run their own mature networks, including DHL and Exel, and so do some of the larger independent haulage groups. Sometimes these are used for surplus traffic offloaded from dedicated contracts; sometimes they are the sole means of trunking used by what was once called shared-user distribution.
Some parcels companies have also expanded into pallet-based freight, including Lynx (now joining UPS) and Nightfreight.
But that's another story.
Case study: Home delivery – all in a day's work for this pallet network
Home delivery can form a significant part of the portfolio of a pallet network, as leading player Palletways has discovered. Among its current contracts is one to handle home deliveries of kitchens and white goods for a leading supplier, Trade Appliances.
Trade Appliances operates its own dedicated 10-strong vehicle fleet for delivering goods throughout the UK, but decided it needed to find a more cost-effective way to serve remoter areas such as the South West and Scotland.
Interestingly, it is said to have identified pallet networks as the kind of provider likely to be able to help, and researched several of them before picking Palletways. Its point of contact was member-company Mitchells of Mansfield of in Sutton in Ashfield, Nottinghamshire.
Under the new arrangement, product for remoter areas of the country is collected by Mitchells and fed into the Palletways network, through which it is trunked to the destination area. The local member in that area then does the home delivery.
Although in some ways the operation relies on the standard Palletways service, some elements have been specially tailored for it. For instance, the member-companies doing the deliveries have had to 'buy in' to a system in which the Palletways driver telephones the consumer an hour before the delivery is due. This ensures that Trade Appliances' own 'One Hour Delivery Call' system is replicated in the network operation.
Trade Appliances can also make use of Palletways' in-house internet-based track and trace system. Using their own login details, they can access information on the any consignment they have put through the network – from point of input through to final delivery.
According to Tony Fierek, distribution manager at Trade Appliances: 'We are extremely pleased to have found a trustworthy network to help maintain our reputation.'
