Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe Joe. I am, I'm
Speaker 1: really excited about this episode. Are you always excited about episodes?
Speaker 1: Are we both always really excited? Yes? They are like
Speaker 1: my children, and I love them all, um, But I
Speaker 1: have to say this one we've been trying to set
Speaker 1: up for a while. Uh, and it fits very squarely
Speaker 1: into I made a pun um if it's very squarely
Speaker 1: into our supply chain and logistics episodes from this year.
Speaker 1: We are going to be talking about palettes, so those
Speaker 1: you know, woulden crate like things that you use to
Speaker 1: actually move goods around the world. I'm very excited by
Speaker 1: this one. As you said, Uh, you know, we've been
Speaker 1: talking so much about logistics and supply chains. Obviously everybody
Speaker 1: knows that, but one of the things that sort of
Speaker 1: makes the story fun or interesting is there is an
Speaker 1: infinite amount of depth, and so you know, it's like, Okay,
Speaker 1: you talk about ships, and then you talk about containers,
Speaker 1: and then you talk about warehouses, and then you think
Speaker 1: that like in warehouses there's forklift operators, and forklifts lift
Speaker 1: up wooden things that are on wooden palets, and the
Speaker 1: supply chain for wooden pallets themselves. As we know, it's
Speaker 1: been stressed. There's been a huge surge in the price
Speaker 1: of wooden pallets. Availability is an issue, and as we
Speaker 1: know from many of our episodes, all it takes is
Speaker 1: one little thing to go missing and you can't sell.
Speaker 1: It's like, you know, you like think about a house
Speaker 1: all if you don't have faucets, you can't sell a house.
Speaker 1: You know, if you don't if you have a shortage
Speaker 1: of wooden pellets, that disrupts everything. And that's sort of
Speaker 1: one of the lessons from one thing that you hardly
Speaker 1: ever think about. If there's an issue, it creates problem totally.
Speaker 1: And I don't know about you, but one of the
Speaker 1: great things of doing these episodes is you always sort
Speaker 1: of learn new things. And one thing I learned in
Speaker 1: doing the prep for this episode is that there is
Speaker 1: a sub component of the Producer Price Index for wooden palettes.
Speaker 1: And as you might imagine, given all the anecdotes about
Speaker 1: shortages um and what we saw in the price of
Speaker 1: lumber earlier this year, it's been shooting up. And I
Speaker 1: think our trade correspondent over at Bloomberg Brendan Murray. He
Speaker 1: actually reported that, you know, depending on where you are
Speaker 1: in the world, the usual price tag of a wooden
Speaker 1: palette is something like nine or twelve dollars, and now
Speaker 1: it's it's getting up to fifteen dollars or more. So
Speaker 1: clearly some interesting pricing dynamics going on there, and I
Speaker 1: am very, very pleased to say we we really do
Speaker 1: have the perfect person to discuss this. He has been
Speaker 1: described as the elder statesman of the palette or old
Speaker 1: We're going to be speaking with Marshall White. He's a
Speaker 1: professor emeritus at the Department of Sustainable bio Materials at
Speaker 1: Virginia Tech, which I just learned also has a giant
Speaker 1: statue honoring the pallet industry. So, you know, learning tons
Speaker 1: of new things already. Uh, Marshall, thank you so much
Speaker 1: for coming on my pleasure. So I'm thinking of a
Speaker 1: way to phrase this. But you know, I think a
Speaker 1: lot of people wouldn't necessarily assume there to be a
Speaker 1: specialized palate professor at a university dedicated to technology. So
Speaker 1: why is that, Why, why are you there? What what
Speaker 1: do palates have to do with tech? We have an
Speaker 1: industry and university cooperative that back in nineteen seventy six
Speaker 1: led to the establishment of the Palate and Container Research
Speaker 1: Laboratory at Virginia Tech. And basically the justification when people
Speaker 1: come by this facility and kind of comment you mean
Speaker 1: there is a laboratory dedicated to pallets is that the
Speaker 1: statue indicates the statue reference indicates palates move the world.
Speaker 1: It's the largest consumer of wood, and so it has
Speaker 1: an impact on natural resource and natural resource availability as
Speaker 1: a direct impact on the cost of consumer goods. It is,
Speaker 1: if you will, the critical component in the unit load
Speaker 1: portion of supply chains for product moving around the world.
Speaker 1: It's the interface between all of the handling and shipping
Speaker 1: equipment and the package products. So its performance is critical
Speaker 1: to successive supply chains. So, God, can we go three hours?
Speaker 1: I already have like a billion questions about now. Maybe
Speaker 1: we'll go that long, but I already have tons of
Speaker 1: questions literally based on that first I answer, did you
Speaker 1: say it's the largest consumer of wood. Yes, when you
Speaker 1: look at the total volume of wood, basically the combination
Speaker 1: of corrugated packaging in the wood pallett itself really becomes
Speaker 1: the largest use of wood fiber. Good news is is
Speaker 1: most of its recycled fiber, but it is a huge
Speaker 1: use and it makes an impact on decisions in terms
Speaker 1: of stewardship of our natural resource. You mentioned research and
Speaker 1: development of palettes, and I'm curious what that actually looks like,
Speaker 1: because when I think of palettes, you know, I think
Speaker 1: of some pieces of wood that are stuck together. Um,
Speaker 1: I think I used one of them, like when I
Speaker 1: was ten years old, as the floor of a treehouse
Speaker 1: that I was building. I tend to think of them
Speaker 1: as a very low tech item. But what sort of
Speaker 1: design process or research actually goes into them. It's extensive, obviously,
Speaker 1: that's been the prime mission of this palette and container
Speaker 1: research Laboratory here at Virginia Tech. When you look at
Speaker 1: that palette, you don't recognize, you know, from the ten
Speaker 1: thousand foot view, they all look the same or similar,
Speaker 1: but in fact there are subtle differences in each and
Speaker 1: we custom design palettes to optimize the supply chain for
Speaker 1: which it's intended to be used. For certain products and
Speaker 1: certain packaging systems to move through certain supply chains, we
Speaker 1: custom design them. We specifically select wood species, the moisture
Speaker 1: content of those wood species, the dimension of every part
Speaker 1: that goes into a palette to optimize its performance are
Speaker 1: critical decisions in the design process, and so a lot
Speaker 1: of the research we do at Virginia Tech is just
Speaker 1: studying the relationship between these characteristics of palette design and
Speaker 1: their performance as they move through the supply chain. Now,
Speaker 1: we've done a number of episodes on shipping containers, and
Speaker 1: of course shipping containers, one reason that they're perceived to
Speaker 1: be revel luctionary is there, I guess I would say
Speaker 1: funge ability. And they can you know, stack very nicely
Speaker 1: on a cargo vessel, they can go on a truck,
Speaker 1: they can go on a train, et cetera, and they
Speaker 1: all fit together. Do these do the different types of paletts?
Speaker 1: And I want to get into the variations do they
Speaker 1: all are they all like interchangeable from a supply chain perspective,
Speaker 1: such that any given forklift or any given system to
Speaker 1: move materials can move like other basic specs of all
Speaker 1: the different palettes, such that they don't need their own
Speaker 1: uh handling equipment. You know, really, what you're referring to, Joe,
Speaker 1: is is standardization. Yeah, there is this two broad categories
Speaker 1: of pallets in use throughout the world and one of
Speaker 1: those is a general purpose pallet. That is, the pallet
Speaker 1: that's designed to support a wide variety of product and
Speaker 1: packaging systems through a wide variety of supply eye chains.
Speaker 1: Our rental pools such as the CHIP or Paco or
Speaker 1: i GPS in this country reflect that that's a general
Speaker 1: purpose design that's to be used to support many Sorry,
Speaker 1: can you just back up? What were the names of
Speaker 1: the design, the rental the the pallette rental Chip is
Speaker 1: one example, Paco another, I GPS another. Okay, they rent palletts.
Speaker 1: They maintained title to those palets as they're being used.
Speaker 1: But you know, in terms of total shipments, in total
Speaker 1: number of palettes that's less than fift Then we have
Speaker 1: this huge volume of custom design palettes. Those used basically
Speaker 1: in the industrial goods sector and in that regards software
Speaker 1: are used to optimize. Though, does those designs for that
Speaker 1: broader part of the market, which is the industrial sector
Speaker 1: and non standardized sector. So there are those two broad
Speaker 1: categories of palette designs out there. So you mentioned companies
Speaker 1: which produce and rent out palettes. Could you maybe walk
Speaker 1: us through what the typical I guess life cycle of
Speaker 1: a palette would actually be so. If I'm a company
Speaker 1: of some sort or a business and i order my
Speaker 1: palette from one of these rental businesses, could you walk
Speaker 1: us through what what the process looks like from production
Speaker 1: to palette death. I guess the pallet rental organizations will
Speaker 1: often tell you that the life expectancy of the palette
Speaker 1: is infinite, and that is because they continually repair and
Speaker 1: maintain them in the marketplace. UM life cycle would be UM.
Speaker 1: These palettes are aggregated into warehouses either owned or operated
Speaker 1: by the rental organizations or sub contractors. Their sales organizations
Speaker 1: have a contract with their customers to supply pallets. It's
Speaker 1: a supply chain that's very front end loaded for the
Speaker 1: rental industry, and that is that the manufacturer of the product,
Speaker 1: the soap, are or whatever, pays the bulk of the
Speaker 1: rental fee. They basically pay an issue feel fee, they
Speaker 1: pay a paltization fee, and then after a period of time,
Speaker 1: they pay a certain amount of money per day, if
Speaker 1: you will, for using that When that pallet moves through
Speaker 1: the supply chain, after the product is offloaded, then those
Speaker 1: palets are inspected, some have to be repaired and they
Speaker 1: go to a repair facility and then end up back
Speaker 1: in a warehouse ready to be reissued. Some are, of course,
Speaker 1: all not in bad condition and can be reissued right away.
Speaker 1: Some of the big receiver is now such as Walmart,
Speaker 1: receives these pallets. If they're in good shape after inspection,
Speaker 1: they'll be reused immediately within their system, and so that
Speaker 1: repair continues and continues. Now, in reality, there is a
Speaker 1: final once basically treating it as a capital assets. Sorry
Speaker 1: to get technical here now, please, you should retire the
Speaker 1: pallet when it is amortized, right, and and that's the
Speaker 1: point which its average cost per use is a minimum,
Speaker 1: and that includes depreciation and capital asset includes maintenance costs,
Speaker 1: and then it also includes the original price of the
Speaker 1: pallet when it was put into the system. And so
Speaker 1: at the end of the day, yes, even the rental
Speaker 1: palates become fully amortized such that it is better now
Speaker 1: because of its condition, to replace it, okay, and continue
Speaker 1: to maintain the new structure, rather than continuing to maintain
Speaker 1: the old structure. And these rental organizations understand that very well.
Speaker 1: One short question how many years is it or how
Speaker 1: many how long is that? Typically that full amortizations it
Speaker 1: might be a sixty four thous dollar question. You know,
Speaker 1: it varies tremendously. Number one, number two. You're gonna love this.
Speaker 1: It depends, okay, very helpful. You know, seven years, eight years,
Speaker 1: maybe longer, depending on the number of times it is
Speaker 1: reissued and reused. It could be ten years a longer.
Speaker 1: Can you talk a little bit further about why the
Speaker 1: industry emerged with this market structure of a handful of
Speaker 1: rental players as opposed to say, like, why doesn't Walmart
Speaker 1: just own a bunch of pellets? Uh? It takes money
Speaker 1: to get into that business. You have to capitalize it.
Speaker 1: It is not an easy business to get into because
Speaker 1: initially you have to purchase a lot of general purpose poets, which,
Speaker 1: by the way, are expensive. Okay, these palets are expensive.
Speaker 1: There have been attempts to set up similar programs where
Speaker 1: people or companies buy in with a certain number of
Speaker 1: pallets and they're the title is not maintained and such,
Speaker 1: the responsibility of repair is not maintained, and those have
Speaker 1: not been successful. So we come back to the companies
Speaker 1: that have been able to find the money to capitalize
Speaker 1: this and who have the expertise, and there are very
Speaker 1: few of them. So this leads into the next question
Speaker 1: quite nicely. But what are the cost inputs that actually
Speaker 1: go into making pallets? So I imagine would would be
Speaker 1: one of them. And then it sounds like, given the
Speaker 1: fact that you're repairing these things continuously, it sounds like
Speaker 1: labor would be the other big one. Well, we have
Speaker 1: to separate rental and reuse from pallets that are owned
Speaker 1: and title changes. You know, there is this whole world
Speaker 1: where you buy a palette generally not standard custom design
Speaker 1: for your product, for the supply chain it moved through,
Speaker 1: and that title gets transferred to the customer essentially, and
Speaker 1: that's one world. And then there's the rental world. But
Speaker 1: you have in the manufacture of palettes, over fifty of
Speaker 1: the cost is raw material, and that's the wood that
Speaker 1: goes into it, probably closer to sixty to seventy percent,
Speaker 1: depending on the design. Okay, you have, of course all
Speaker 1: the direct and indirect labor, which could be on the
Speaker 1: order of and and then finally you have things like fasteners,
Speaker 1: which is really only about five percent of the cost.
Speaker 1: But as I'm telling everybody, the quality of the nail
Speaker 1: you used to assemble a wood palette has as much
Speaker 1: impact on performance as does the wood, but it's only
Speaker 1: five percent of the cost. Don't get me started on
Speaker 1: that subject. What kind of wood goes into it? Everything
Speaker 1: that's generally available, but it's low grade. We do not,
Speaker 1: and this is important. There's a lot of misleading information
Speaker 1: out there in the marketplace that we cut down trees
Speaker 1: to make palletts. You couldn't afford to do that. We
Speaker 1: cut down trees for housing purposes. In the whole softwood sector.
Speaker 1: We cut down hardwood for mill work, We cut down
Speaker 1: hardwood for furniture. This is high grade. You you want
Speaker 1: to extract. A sawmill needs to extract a maximum amount
Speaker 1: of value out of that log, Okay, to justify cutting
Speaker 1: it down and sawing it. You cannot do that by
Speaker 1: selling to the pallet sector. So the pallet sector, every tree,
Speaker 1: every log has quality wood on the outside of that log,
Speaker 1: and then the inside the quality is lower. And so
Speaker 1: after the mills sell off the high grade material, then
Speaker 1: the lower grade ends up going into the palette market.
Speaker 1: And that's important. But in terms of species, it's whatever
Speaker 1: is available. In the Pacific Northwest, it's douglas fur, it's hemlock.
Speaker 1: In the East, it tends to be more hardwood in
Speaker 1: the central US you'll find the aspens uh. It's whatever
Speaker 1: tree grows in that region that is used by the
Speaker 1: pallette sector. Marshall, you mentioned the importance of nail quality
Speaker 1: in addition to the quality of the wood, And I'm
Speaker 1: curious again, going back to the sort of life cycle
Speaker 1: or purpose of a pallette, what are the stresses on
Speaker 1: the actual pallette structure that are most likely to occur?
Speaker 1: Is it stuff like damp storage conditions leading to wood
Speaker 1: rot or you know, just planks basically breaking from the
Speaker 1: load of stuff that they're actually carrying. Like what is
Speaker 1: most likely to happen um to these pallets such that
Speaker 1: they might need to be repaired or replaced. As I
Speaker 1: explained to my students every semester, if we could get
Speaker 1: rid of forkliffs, palettes would last forever. It's the impacts
Speaker 1: primarily of the pallette to handling with devices like forklifts
Speaker 1: that do most of the damage not all of it,
Speaker 1: but most of the damage pallets after they're unloaded, generally
Speaker 1: they can be manually handled and carried around and prepped
Speaker 1: for the next use. They're dropped, and that breaks pallette
Speaker 1: as well. It is not necessarily the load level on
Speaker 1: top of the pallett that breaks the palette. It's the
Speaker 1: rough handling it receives as it moves through the supply
Speaker 1: chains that causes most of the damage. Interestingly enough, though,
Speaker 1: to get back to your point, fast nurse have the
Speaker 1: biggest impact on resistance to damage because why because most
Speaker 1: palettes when they're impacted, fail at those connections between the
Speaker 1: parts of a palette. And so if we use more
Speaker 1: and higher quality fasteners, such as the rental companies do
Speaker 1: write to lower their repair costs and lower their damage,
Speaker 1: it reduces the overall costs significantly of using a palette,
Speaker 1: while the cost of the fasteners only five of the
Speaker 1: cost of the pallet. I want to ask you question, Um,
Speaker 1: you know you talk about at the end, you know
Speaker 1: there's the rental company owns owns the pellet. Sort of
Speaker 1: a two part question, but A how does one know
Speaker 1: who owns it? Is there an identifier on every palette
Speaker 1: that makes it very clear who the rightful legal owner
Speaker 1: is or which rental company is behind it? And B
Speaker 1: I'm not maybe it's kind of related to this, but
Speaker 1: can you talk a little bit about um the role
Speaker 1: or how r F I D and chips that sort
Speaker 1: of you know, could could track an item or a palette.
Speaker 1: Have changed the palette industry by making it so that
Speaker 1: you can look up on software, were any or is
Speaker 1: it the case that you could look up anywhere and
Speaker 1: know exactly where a palett is. Well. First of all,
Speaker 1: the identifying characteristics on the rental palettes are very clear,
Speaker 1: their color coded so that you know which rental company
Speaker 1: you're dealing with. And there is printing on that palette
Speaker 1: that declares ownership and title of those paletts. And the
Speaker 1: users of those palettes are well aware of this because
Speaker 1: if in the paperwork they lose a palette, the rental
Speaker 1: organizations can issue a reconciliation which means you lost this
Speaker 1: many palettes, this is what you owe me, so they
Speaker 1: will keep track of them. With regard to tracking the asset, okay,
Speaker 1: you've got two issues in the world of I D
Speaker 1: whether they barcodes or whether they be tags passive or active,
Speaker 1: and that is are you tracking the capital asset of
Speaker 1: the palette itself or are you tracking the product on
Speaker 1: it that's being shipped. Right now, that technology as applies
Speaker 1: to palletts is in its infancy. We have a lot
Speaker 1: more tagging going on the packaging and bar coding going
Speaker 1: on the packaging than we do on the pallets. Okay,
Speaker 1: but it is clear that the growth in that sector
Speaker 1: of tracking these assets using electronic technology based on the palette,
Speaker 1: whether it be the product on it or whether it
Speaker 1: be the asset palet itself, is growing and it is
Speaker 1: inevitable that will come, but that is in its infancy
Speaker 1: at this point. Has anyone proposed blockchain for pallets yet?
Speaker 1: I've heard it said, and that's all I know. So
Speaker 1: why don't we get into um what's been happening over
Speaker 1: the past year. I feel like we have a pretty
Speaker 1: decent lay of the palette land, so to speak. So
Speaker 1: we've been hearing these anecdotal reports of a palette shortage.
Speaker 1: I mentioned our Bloomberg colleague Brendan Murray reported a story,
Speaker 1: a good story on this UM a couple of months ago.
Speaker 1: And we do know that prices have been going up
Speaker 1: per the sub component of the ppe I that I mentioned.
Speaker 1: So what exactly is going on here? And in your opinion,
Speaker 1: is there a palette shortage and have prices been going up?
Speaker 1: There is an imbalance between supply and demand and who
Speaker 1: can trace that back to the winter of twenty one
Speaker 1: and the COVID and the shutdown or turned down of
Speaker 1: our supply chains, all components of our supply chains, and
Speaker 1: then the resurgence in the spring, and and the perfect
Speaker 1: storm of Number one, labor shortages. Maybe the unemployment add
Speaker 1: ons were good ideas, but they certainly made it difficult
Speaker 1: for companies to tool back up with labor. Okay, Number
Speaker 1: two climate factors in here. The fires on the West
Speaker 1: coast shut down mills. Uh we We had a lot
Speaker 1: of timber that was unavailable for harvesting out there, and
Speaker 1: that's a huge amount of timber. And that came on.
Speaker 1: Then all of a sudden in the spring. Guess what
Speaker 1: agriculture comes back in the harvest is coming. It was
Speaker 1: a perfect storm of m would all material a lack
Speaker 1: of availability because the mills tooled down over the winter
Speaker 1: because demand was low. The only pallette sector that really
Speaker 1: did well during that critical period of the pandemic was
Speaker 1: the food sector, and of course that happens to be
Speaker 1: the largest user of pallettes, so those folks continued well.
Speaker 1: But all other sectors, construction sector, et cetera phased way
Speaker 1: down and it came on gang busters in the spring,
Speaker 1: and so we had these huge increases in pallette prices,
Speaker 1: which you mentioned earlier, h indices on pallettes doubling in
Speaker 1: the spring and in the summer. It was even more
Speaker 1: critical on the West coast with softwood wood availability and
Speaker 1: the pallettes on the West Coast being made out of softwood.
Speaker 1: Indices more than quadrupled on the lumber sector, and that
Speaker 1: reflected all the way down. Now in the softwood sector,
Speaker 1: they've come back considerably. Pricing has moderated, but in the
Speaker 1: hardwood sector, the pricing at best is stabilized and still
Speaker 1: remains very, very high. And what we're trying to do
Speaker 1: is get back to a balance. Okay, most of the
Speaker 1: prognosticators are fingers crossed sometime in the mid to late
Speaker 1: two thousand twenty two before we get back to the
Speaker 1: balance there. But it was a perfect storm in the
Speaker 1: spring and summer. You have actually noted that previously in
Speaker 1: the writings. I have seen no labor, no wood for
Speaker 1: the pallette sector demand going through the roof. One of
Speaker 1: the reasons softwood came down over the summer and into
Speaker 1: this fall was because housing starts came back up. But
Speaker 1: now you're gonna see the price of even softwood lumber
Speaker 1: and palettes start to come back up gradually into next
Speaker 1: year and over the winter. So it was that perfect storm.
Speaker 1: My crystal ball is no better than anyone else's, I believe.
Speaker 1: So when you say I just want to walk through
Speaker 1: some of these factors. The labor shortage, that means just
Speaker 1: literally the workers at the factories to build pellets, right, yes,
Speaker 1: and also the lumber industry. And again during the turndown,
Speaker 1: mills shut down and people were laid off, and of
Speaker 1: course the government came in and ordered an unemployment stimulus.
Speaker 1: I think that's great, but people were slow to return
Speaker 1: to the workforce. I think that's well documented. So and
Speaker 1: then you mentioned the fires on the West coast, and
Speaker 1: then you said something about agriculture as big a factor,
Speaker 1: but I missed that. What was what's the element of
Speaker 1: agriculture in this story. Agriculture comes back online seasonally in
Speaker 1: this country. You know, over over the winter, we are
Speaker 1: importing from the South South America predominantly, but all of
Speaker 1: a sudden in the deserts of Arizona in the early spring,
Speaker 1: harvest start in the very early spring, and that migration
Speaker 1: occurs from the deserts into southern California and throughout the
Speaker 1: summer moves north up to the Pacific Northwest gradually as
Speaker 1: harvest come in. That was all coming online when all
Speaker 1: the other demands, non food demands for pallets and the
Speaker 1: construction industry was increasing dramatically. That seasonal aspect of agriculture
Speaker 1: further pressured pricing. You you've noted some of the stories
Speaker 1: of the produce industry scrambling to find pallets, check its
Speaker 1: inability to supply pallets to its customers scrambling. It was
Speaker 1: a massive scramble, imbalance between supply and demand that was
Speaker 1: just a little bit crazy. So this is also something
Speaker 1: I wanted to ask you. But you know, when there
Speaker 1: is a shortage of pallets or a scramble for them
Speaker 1: as you just described it, and prices are going up,
Speaker 1: what can companies actually do to cope? And what did
Speaker 1: we see users of pallets actually do over the past year. Yeah,
Speaker 1: First of all, they switch wood supplies, they find they
Speaker 1: import would or lumber that's available to make up for
Speaker 1: the deficits domestically, So it's it's basically the pallet industry
Speaker 1: trying to find raw material, dealing with labor automating as
Speaker 1: best it can to replace labor. But it's that scramble
Speaker 1: for wood now as far as their customers are concerned,
Speaker 1: they also scramble for pallets supplies that they start moving
Speaker 1: between vendor suppliers. You know, they have incumbent vendor suppliers
Speaker 1: and pallets. They have to change around and find it.
Speaker 1: But there's no magic there there. They're no magic. Are
Speaker 1: you saying, oh, they're going to start using a palateless
Speaker 1: system and their supply chain. No supply chains are designed
Speaker 1: around palletts. You can't all of a sudden switch to
Speaker 1: slip sheets which might be available, which is a so
Speaker 1: called palateless system. You can't do that. You certainly can't
Speaker 1: do that overnight. Could you switch to clamploaders because there
Speaker 1: are no pallets available, very little opportunity to do that
Speaker 1: because your packaging is not designed for clamploaders. So it
Speaker 1: was a fantastic scramble for palletts, going into bone yards,
Speaker 1: salvaging broken palette and repairing paletts that we would not
Speaker 1: have repaired before because it was uneconomical, But now it
Speaker 1: became economical, and so that helped fill some of the
Speaker 1: some of the gap there where we saw this, These
Speaker 1: piles of palettes which historically would never be repaired, we're
Speaker 1: starting to be repaired and put back into the market.
Speaker 1: That's what was going on. You know, when we talk
Speaker 1: about supply chain issues overall, I mean that, and people
Speaker 1: talk about supply chain logistics problems stress. You know, it
Speaker 1: encompasses a few different things. There's maybe high demand for
Speaker 1: goods as you've said, that put stress on the system.
Speaker 1: There's obviously just sort of issues with production as you described,
Speaker 1: with the shortage of labor and the fires and so forth.
Speaker 1: One of the other elements, though, that comes up in
Speaker 1: some other episodes, is the goods the logistics material being
Speaker 1: in the wrong place at the wrong time, and so
Speaker 1: there are stories of you know, the ship's going back
Speaker 1: to China without containers because they didn't want to wait
Speaker 1: around because there weren't many exports, or there might be
Speaker 1: a bunch of truck chassiss that wind up at one
Speaker 1: port outside Chicago, but that's not where they're needed right now.
Speaker 1: Has the palette industry seen some anything similar such that
Speaker 1: because of changing consumption patterns, that there are palettes that
Speaker 1: are idle at the same time, there is extreme demand
Speaker 1: for them somewhere else in the country. I haven't seen that.
Speaker 1: It's interesting. It's an interesting point again for the industrial sector.
Speaker 1: Pallets are generally not where housed and reused. They're they're
Speaker 1: often just one way. Why because those palettes are a
Speaker 1: unique design which cannot be used in any other supply chain.
Speaker 1: The rental folks, sure they had inventory of palettes, but
Speaker 1: those are located strategically around the country. So to the
Speaker 1: extent they had palettes, they were available. I don't note
Speaker 1: that there were any regional issues. Now, one fact you
Speaker 1: need to be aware of. We do not palletize much
Speaker 1: product and freight containers. Freight containers are what we call
Speaker 1: floor loaded predominantly. Why because that pallette takes up space
Speaker 1: and that space is very expensive. In fact, right now
Speaker 1: it's extremely expensive. And so when that container reaches its destination,
Speaker 1: it's at that point it is palletized. And that could
Speaker 1: be east coast, west coast, anywhere in the country, and
Speaker 1: generally there are going to be pallets in those regions
Speaker 1: in order to palletize the floor loaded material upon arrival.
Speaker 1: I didn't realize that previously. In my mind, I was envisioning,
Speaker 1: like say, like a bunch of iPhones or teddy bears
Speaker 1: or whatever is in a container sitting on pallets and
Speaker 1: then being removed from the containers. And I hadn't thought
Speaker 1: about the being floor loaded, So this might be a
Speaker 1: good tup. Can you just actually walk once again, like
Speaker 1: through like the very basics of like where in the
Speaker 1: supply chains the pallets sit and move and so the
Speaker 1: ship comes to the port, and then what happens when
Speaker 1: does the palette enter the picture and where does it
Speaker 1: go and where does it wind up? Well, that's not
Speaker 1: the right place to start. What you do is you
Speaker 1: start at the manufacturing site for the phone. And I
Speaker 1: won't mention names, but let's say a phone, and quite frankly,
Speaker 1: let's face it, it's China. And so we have at
Speaker 1: the manufacturing site. The product is packaged there, it is
Speaker 1: put on pallets and it will be moved to the
Speaker 1: port on pallets preparation for export. But it's at that
Speaker 1: point that the product is floor loaded into the container
Speaker 1: for shipment to whatever the destination country is. And then
Speaker 1: once that container arrives at a port, of course it's
Speaker 1: not going to be unpacked at a port. It then
Speaker 1: has to leave the port on trucks, and we all
Speaker 1: know the availability issue on trucks has had a huge
Speaker 1: impact on our supply chains. Here, that chassis with the
Speaker 1: free container on it goes to a destination. Generally it's
Speaker 1: going to go to a distribution center or a regional
Speaker 1: distribution center of the retailer or the distributor. It's at
Speaker 1: that point that it's at a loading dock. It is
Speaker 1: unloaded and palletized again, and then it is moved into
Speaker 1: storage in that d C or if it's a cross dock,
Speaker 1: on that pallet, it just moves from one side of
Speaker 1: the cross dock to the other and ships to the
Speaker 1: brick and mortar store if you will, or in the
Speaker 1: case of Amazon, to a fulfillment center. And of course
Speaker 1: the last mile typically is store door, and that is
Speaker 1: not palleticized. It's a very typical supply chain. I just
Speaker 1: described real quickly the palleticization process of moving an item
Speaker 1: onto the palet. How manual is that? Is that something
Speaker 1: that like takes a certain number of workers like get
Speaker 1: it right on the pallet or is that fairly is
Speaker 1: that somewhat automated or is there a range of that process? Well,
Speaker 1: obviously it it depends on number one, the country we're
Speaker 1: talking about and the availability of labor. Okay, Historically in
Speaker 1: China they've had huge availability of labor, so there was
Speaker 1: a lot of manual palletization in their supply chains where
Speaker 1: somewhat manual. That's changing very, very rapidly. Even in Asia.
Speaker 1: Korea has always been that way, where now instead of
Speaker 1: manual because of the cost of labor, they are automating palletization.
Speaker 1: And in this country it's becoming pervasive and in generally
Speaker 1: we have what's called row strip palletizing, where we push
Speaker 1: layers of package product onto a palette and then we
Speaker 1: change the elevation of the palette, push another a layer on,
Speaker 1: and another layer on, etcetera, etcetera, until we fully palletized.
Speaker 1: Those are highly automatic. We even use robotics. Where you
Speaker 1: want to miss excuse on a palette, you'll use robotic
Speaker 1: picker stations and these are literally robots that we see
Speaker 1: on television all the time. That is in this country
Speaker 1: and most countries rapidly replacing manual palletization. So this relates
Speaker 1: to something else that I wanted to ask you, which
Speaker 1: is what are the economic decisions or factors that go
Speaker 1: into a customer deciding whether or not to actually use palettes,
Speaker 1: and I'm guessing for a lot of them palletts would
Speaker 1: be the de facto way to move things. But you
Speaker 1: did mention that there are paltless systems in the world,
Speaker 1: and I imagine you could probably also go the other way,
Speaker 1: where instead of putting things on palletts, you're putting them
Speaker 1: in full on wooden crates or something like that. So
Speaker 1: how do companies that make and ship goods actually make
Speaker 1: the decision to use pallets or not? Yeah, set aside crates.
Speaker 1: That's going to be unique structure for fairly unique if
Speaker 1: you will package product or product heavy equipment for example, etcetera.
Speaker 1: If we set that aside, the decision is along these lines,
Speaker 1: what is the cost of storing in moving my product
Speaker 1: palletized or not palletized? For example, on slipsheets, the cost
Speaker 1: is the rate at which I can move product from Actually,
Speaker 1: if the customer wants it on a pallette to use
Speaker 1: the slipsheet, to move it to a palette and remove
Speaker 1: the slipsheet or leave it on there. Okay, that's a
Speaker 1: slow process. Number Two, With slipsheets, it's the weight limiting
Speaker 1: you can't put very very heavy loads on a slipsheet
Speaker 1: which is corrugated sheet or sometimes a plastic sheet. So
Speaker 1: you have the slow cost of movement and you have
Speaker 1: limitations on what you can put on slipsheet. Clamploaders another
Speaker 1: non palletized. You have to invest more in your packaging
Speaker 1: system to withstand the compression of clamp loaders, and you
Speaker 1: don't want to use or move fairly fragile products. Although
Speaker 1: a lot of widescreen TVs are moved around with clamploader systems.
Speaker 1: Also you have to retrofit your forklips with slipsheet devices
Speaker 1: or clamp loading devices. And again clamploading is slow. We
Speaker 1: can move product a lot faster on pout. How are
Speaker 1: you storing your product? If you're going to use drive
Speaker 1: in racks or rack storage, you can't use a slipsheet
Speaker 1: and it has to be palletized to withstand the bending
Speaker 1: stresses within a rack of the load on top of it.
Speaker 1: So those are the factors that go into the decisions.
Speaker 1: And so what we find is that by far the
Speaker 1: product being shipped and moved unitized are on pallets very
Speaker 1: small percent, one two percent maybe in the world of
Speaker 1: clamp loading and in the world of slipsheeting, appliances are
Speaker 1: moved with the baseload system that is a non palletized system.
Speaker 1: So there are a few out there, but they're very small.
Speaker 1: Why the cost and the limitations of the capability of
Speaker 1: non palateless systems. Can you say what was the name?
Speaker 1: How we're h how did you say? Appliants are moved
Speaker 1: baseload b A S A L O a D. Basiload
Speaker 1: is a unique, patented process where you lift a corrugated
Speaker 1: crate from the top with a special device on the forklift.
Speaker 1: A lot of appliance companies use that. It's palateless let.
Speaker 1: Some of them use pallets as well. I'm going to
Speaker 1: use their I already know I'm gonna spend the rest
Speaker 1: of the day just look at YouTube videos of these
Speaker 1: different kinds, because these are all new ideas to me,
Speaker 1: and I have to visualize them, and I already see
Speaker 1: on YouTube there's a bunch of they show that they
Speaker 1: show the different versions. Let me just get another question.
Speaker 1: I looked at one of these palet rental places and
Speaker 1: they also offer plastic palets and one of the i
Speaker 1: gps which you mentioned. They have a big thing on
Speaker 1: their website. Plastic palets are strong and durable. What is
Speaker 1: the limitation on there, how big of the market is there,
Speaker 1: and what is the opportunity for going something other than
Speaker 1: would the opportunity is there to justify and and my
Speaker 1: friends at i GPS will be first to tell you
Speaker 1: they can't afford that's a more expensive palt They can
Speaker 1: afford to have it idle and sit in warehouses. So
Speaker 1: if you look at where the the I GPS or
Speaker 1: plastic pallette fits, it's where you have a lot of turns.
Speaker 1: You're gonna use that palette more often. That then can
Speaker 1: justify the added expense of a plastic palette. It is
Speaker 1: more durable, some are repairable, some are not, okay, and
Speaker 1: your repair costs go way down if you if you
Speaker 1: look at it rental companies on wood palletts UH and
Speaker 1: by the way, I GPS, what's their highest cost. It's
Speaker 1: moving empty pallets around, Okay. The second highest cost on
Speaker 1: the woodside is going to be repaired repair and maintenance costs.
Speaker 1: And in the world of I GPS, there's much less
Speaker 1: of that because the palettes are more resistance to shocks
Speaker 1: and impacts in the field. But it's a significantly more
Speaker 1: expensive pallet. And please understand, you know the price of
Speaker 1: wood went up, well, the price of plastic is high
Speaker 1: as well, so they're dealing with the same raw material
Speaker 1: issues that the wood paladar and that's the majority of
Speaker 1: the cost in these palets. But plastic pallets are growing
Speaker 1: in terms of their use in this country, still a
Speaker 1: small percentage. Quite frankly, there's not enough plastic reson. If
Speaker 1: we wanted to make any wholesale switch, there's just not
Speaker 1: enough reson around to do it. So that's another limitation
Speaker 1: as well. Let me give a plug to uh to
Speaker 1: our blog here because anyone who was reading it, any
Speaker 1: A subscribers would know about the plastic shortage and what's
Speaker 1: been going on in resin prices a couple of months
Speaker 1: ago because I wrote about it. But this also brings
Speaker 1: me to another question, you know, in terms of weighing
Speaker 1: plastic versus would there is this interesting Australian company called
Speaker 1: Brambles that I think is supposed to be partnering with
Speaker 1: Costco to make plastic pallets. And you can imagine that
Speaker 1: Costco would be a very very big customer of pallets
Speaker 1: given their business model. But my understanding is that Brambles
Speaker 1: has yet to make a decision on whether or not
Speaker 1: it's going to do a full conversion from wood to plastic.
Speaker 1: And I'm curious, like why that the hesitancy. I know
Speaker 1: you mentioned the cost, but it kind of feels like
Speaker 1: for a big customer like Costco, it might make sense,
Speaker 1: and yet there seems to be some reluctance to do it. Well,
Speaker 1: they have to prove that in that supply chain the
Speaker 1: pallets will not be lost, and and that's a critical issue.
Speaker 1: This is a very expensive palette and losses which do occur,
Speaker 1: it's just a question of what percent losses occur. Look,
Speaker 1: Costco sees for their supply chain a significant advantage of
Speaker 1: a plastic pallet, and chap is Check, which is a
Speaker 1: division of Brambles. Obviously, you know it's going to respond
Speaker 1: to that because Costco uses a lot of their wood
Speaker 1: rental palets. Okay, they are a big customer. When you
Speaker 1: get into pulling a plastic palette, you have to track those.
Speaker 1: You can't lose them because of the cost of replacing
Speaker 1: that asset. So Costco, which is a significant chunk of
Speaker 1: Chef's business, obviously wants to respond to their customers desire.
Speaker 1: What is it about Costco's business model, per Sam and
Speaker 1: you mentioned that plastic paletts they kind of are only
Speaker 1: economical when there are a lot of turns. Um, what
Speaker 1: is it about Costco, particularly where they might view this
Speaker 1: as their future. I'm gonna say it simply, the the store,
Speaker 1: the Costco entity you go to as a warehouse, that
Speaker 1: supply chain is collapsed, if you will. There are dcs,
Speaker 1: but most of it's direct unitize directly to the store
Speaker 1: from which you buy from the palate and so they
Speaker 1: can turn more quickly. Number one. Number two, it's a
Speaker 1: little more of a closed loop because you have one
Speaker 1: less stop if you will, along the way in their
Speaker 1: supply chain. So it could work. Chep's idea is that
Speaker 1: as the supply of a plastic palette, if it does work,
Speaker 1: the test is successful, exceeds, maybe cost goes demand. They
Speaker 1: could start to filter that outside of Costco. Gets risky though,
Speaker 1: it gets very risky because then the potential for losses increase.
Speaker 1: But the test is ongoing and we'll see the result,
Speaker 1: hopefully in in a few months. So I guess I
Speaker 1: just have one last question. I mean, what's what's exciting
Speaker 1: to you what's the future. I mean you were to
Speaker 1: talking a little bit about plastic palette, but in terms
Speaker 1: of areas of research and one of the things that
Speaker 1: price the prices both of us is that you know
Speaker 1: the idea of like the whole Institute for the Study
Speaker 1: of palettes. The institute goes on what is like the
Speaker 1: hot new thing or the thing that in this space
Speaker 1: are excited about for the next generation the future of palets.
Speaker 1: Don't just focus on the palette that's the future. We
Speaker 1: what we need to do is design the packaging and
Speaker 1: the palette and the equipment used to move unit loads
Speaker 1: together as a system of interacting components. I call that
Speaker 1: systems based design of the global supply chain. It's more
Speaker 1: important to understand how does the palette mechanically interact with
Speaker 1: the package product and mechanically interact with all of the
Speaker 1: unit load handling equipment, including trucks and trailer floors. It's
Speaker 1: understanding those mechanical interactions and using that understanding to go
Speaker 1: from component based design, where where we're just focused on
Speaker 1: reduced seeing the cost of a conveyor in a d
Speaker 1: C without thinking about how it interacts with the palette,
Speaker 1: and we're all focused about reducing the cost of that
Speaker 1: plastic bottle without thinking about how does the palette design
Speaker 1: affect that design. We have three design communities that are
Speaker 1: not interacting enough and and therefore we need to move
Speaker 1: from component based design to systems based design of our
Speaker 1: global supply chains. Yeah, this kind of feels like a
Speaker 1: recurring theme with supply chains where one aspect of it
Speaker 1: is just not talking or efficiently interacting with another aspect
Speaker 1: of it. It's true. Can you just give just to
Speaker 1: help conceptualize this, Can you just give an example of,
Speaker 1: like I mean, it sounds very good how the product
Speaker 1: interacts with the palette, but can you give an example
Speaker 1: of an industry or a product that has sort of
Speaker 1: like there's a unique solution that's different, like just lock us.
Speaker 1: We're gonna apple of what you're thinking about the O
Speaker 1: E M supply chain. And the automotive industry has been
Speaker 1: pretty good to implement systematic design. They have done a
Speaker 1: very excellent job. And I've been involved through ai a G,
Speaker 1: the Automotive Industry Action Group and assisting the industry to
Speaker 1: implement this philosophy. And they've done that by using a
Speaker 1: returnable packaging system as part of the O e M
Speaker 1: distribution supply chain. Many of the returnable packaging systems are plastic,
Speaker 1: and the palette is plastic as well, and they've modified
Speaker 1: how they handle this through the portions of the supply chain.
Speaker 1: That's an example of a pretty significant success of implementing
Speaker 1: this very strategic approach. And it's a closed loop, so
Speaker 1: it's easy to do it, isn't it. Between O e
Speaker 1: M and the assembly plans the beverage industry to some extent,
Speaker 1: and the brewers have the similar capability because um, we're
Speaker 1: not going down to retail. We basically have a shorter
Speaker 1: supply chain where we can just focus on the brewer
Speaker 1: down to distribution centers and the brewer distributor and then
Speaker 1: the packaging components go back. In the case of the palette,
Speaker 1: the automotive industry has expanded that to go towards reusable
Speaker 1: packaging systems as well. You know, unless we've got a
Speaker 1: bottle bill, we don't do much of the brewing sector
Speaker 1: pr So I think that's a great place to leave it.
Speaker 1: Really appreciate you coming on and explaining the palette industry
Speaker 1: in so much depth and detail, but really fascinating conversation.
Speaker 1: Thank you. Yeah, that was fantastic. Thank thank you so
Speaker 1: much as my pleasure. As you can tell, I enjoy
Speaker 1: these forms a teacher at heart, and so don't hesitate
Speaker 1: to call upon me again if it's appropriate. So I'm
Speaker 1: so glad that we finally got to do that episode.
Speaker 1: And it does feel like I don't know, I'm just
Speaker 1: thinking we sort of started with the shipping industry, and
Speaker 1: then we got into containers specifically, and it's only now
Speaker 1: that we're sort of getting into even smaller subcomponents, which
Speaker 1: would be palettes, and I kind of I'm wondering what
Speaker 1: comes next. There must be another thing. I mean, you
Speaker 1: talked about connectors in the metal connectors and of course
Speaker 1: that came up the steel. Trust plates of course came
Speaker 1: up with stincon Dean on lumber. So I don't know
Speaker 1: whether we want to go fasteners or trust plates. But
Speaker 1: I did speak to uh someone in the trust plate
Speaker 1: industry who was like head two, very strong, very strong
Speaker 1: thoughts on the phone, So I think maybe the next
Speaker 1: one is a trust plate one. On the other hand,
Speaker 1: someone on Twitter said there's like some nozzle that they
Speaker 1: can't get for like a gas thing that's like messing
Speaker 1: up like all home gas heating, and it's just like
Speaker 1: one little piece. So there's a million of there's a
Speaker 1: million stories uh still to do on just all the
Speaker 1: little things that we're supposed to that we usually never
Speaker 1: think about. But this year we're all very aware of yeah.
Speaker 1: And I guess the theme that keeps emerging is a yes.
Speaker 1: This is the year that we all suddenly became aware
Speaker 1: of supply chains and how normally they work, and we
Speaker 1: don't really think about it, but this year we are
Speaker 1: thinking and talking about it a lot. But then secondly,
Speaker 1: all of these things are sort of isolated industries unto themselves.
Speaker 1: And again to Marshal's last point, that seems to be
Speaker 1: problematic when there is an issue, it doesn't feel like,
Speaker 1: you know, the guy that's making trustplates is necessarily talking
Speaker 1: to the lumber company or the home builders, and it
Speaker 1: doesn't feel like maybe the palette makers are talking to
Speaker 1: I don't know, like the forklift drivers about how to
Speaker 1: ring better efficiencies out of the entire system. I thought
Speaker 1: that was really interesting. The idea of like the future
Speaker 1: is not necessarily like changing the palette per se, though
Speaker 1: there are is evolution and palette design, but in UH
Speaker 1: communication and that is like the right like as you said,
Speaker 1: and you know, we had that episode with John Parkari
Speaker 1: uh the White House Ports Envoy, and he made the
Speaker 1: case that like communication alone is maybe you know not
Speaker 1: can increase throughput even if you're sort of like physical
Speaker 1: stock of capabilities is fixed and granted you want to
Speaker 1: improve the physical stock of capabilities, but sometimes there's gains
Speaker 1: to be made from communication. So like long term, just
Speaker 1: the idea that like, well, instead of just thinking about
Speaker 1: making a better palette, thinking about how the bottle companies are,
Speaker 1: the TV companies or whatever food companies can think about
Speaker 1: integrating the products with the palette as like the next thing.
Speaker 1: That communication is a very like a very fascinating thing
Speaker 1: to think about. I think, yeah, totally and definitely a
Speaker 1: recurrent theme on these episodes. Um, shall we leave it there.
Speaker 1: Let's leave it there? All right? This has been another
Speaker 1: episode of the Odd Thoughts Podcast. I'm Tracy Alloway. You
Speaker 1: can follow me on Twitter at Tracy Alloway. And I'm
Speaker 1: Joe Wisenthal. You can follow me on Twitter at the Stalwart.
Speaker 1: Follow our producer Laura Carlson. She's at Laura M. Carlson.
Speaker 1: Follow the Bloomberg Head of podcast Francesca Leavi at Francesca
Speaker 1: Today and check out all of our podcasts at Bloomberg
Speaker 1: under the handle at podcasts. Thanks for listening to year
Speaker 1: to