Pallet Rental: What Does CHEP Do?

CHEP pallets dominate the pallet rental market for fast-moving consumer goods.

CHEP, a Brambles company, is the world’s leading provider of pallet and container rental or hire services. As of June 2021, the company was serving 500,000 customer locations in more than 60 countries, through a workforce of over 12,000 people. With an inventory of more than 345 million pallets and containers, the basis of the company’s business model is to supply pallets and containers to customers on a rental basis that they use to palletize goods for shipment. They are returned to a CHEP depot or service center after they are emptied. There, they are inspected, cleaned, and refurbished as necessary before being reissued to other customers.

There are variations in the CHEP model, geographically. In Australia, for example, CHEP pallets may also be exchanged between trading partners and returned when broken or no longer needed. CHEP’s pallet rental model remains a successful, early example of the circular or sharing economy.

Why Does CHEP Use Blue Pallets?

If you are wondering why there are so many blue pallets, the answer is that CHEP paints its pallets blue. CHEP uses blue as a pallet color coding aid as well as a marketing advantage. The blue color makes pallet identification easier. It helps facilitate inventory audits in customer warehouses, for example, or in spotting its pallets from a distance at processing plants or distribution centers. The distinctive blue color also stands out, and hence, has been a marketing advantage for the company.

How Does CHEP Work?

The CHEP pallet system works through a rental or hire model. Pallet rental, a service pioneered and now dominated by CHEP, offers many attractive benefits to pallet users. Because of CHEP’s extensive network, it can often reissue pallets in the region from which they are recovered, thus helping to avoid the expense and negative environmental impact of repositioning them great distances, as might be required in a long-distance “point to point” pallet retrieval system, where pallets would be shipped from the point of unloading back to the original shipper, even if at a considerable distance, versus another shipper nearby also utilizing the CHEP program.

Additionally, as a “pay per use” or sharing economy model, it allows pallet users to pay only for the pallet or container trip rather than the entire price of purchasing a pallet or container. This model enables shippers and their customers to enjoy the benefits of a higher quality pallet than would typically be possible when pallets are purchased by the shipper. A well-managed reusable pallet program such as that offered by CHEP provides financial, operational and environmental benefits versus single-use or expendable options.

Benefits to the Shipper

• Order pallets only as needed, avoiding the necessity to carry extra pallets during slow periods
• Easier to budget, less susceptible to lumber pricing volatility
• Consistently high-quality pallets
• Reduced product damage
• Widely accepted by customers
• Cheaper freight rates because pallet exchange and backhaul are not required.

Benefits to the Receiver (Distributor, Retailer, OEM)

• Predictable inbound quality supports more efficient unloading and loading
• Reduced product damage
• Reduced or eliminated pallet purchase or repair
• Reduced solid waste generation
• Improved racking safety

Benefits to the Transport Provider

• Eliminates pallet exchange or acceptance disputes at the receiver location
• Eliminates carrier accountability for pallet management
• Faster turnaround times during loading and unloading

What Do CHEP Pallets Cost?

The price of a new CHEP pallet is comparable to that of a similar quality wood pallet. Typically, CHEP and other rental pool pallets are premium-priced units, designed for durability and long service life. As a CHEP customer, you pay for the rental or hire, unless you are unable to account for missing pallets, in which case you could be charged for the missing equipment.

What Is the Standard Size of a CHEP Pallet?

CHEP pallets typically match the standard pallet size of the country or economic market being served. So, for example, the primary pallet size if 48×40-inch in the Americas. In the UK, the standard CHEP pallet size is 1200×1000 mm, while in continental Europe it is 1200×800 mm. In Australia, it is 1165×1165 mm. In newer pallet markets, the trend is towards the 1200×1000 mm pallet footprint. CHEP has also developed fractional-sized platforms such as half pallets and quarter pallets, which can help optimize retail display while reducing stocking labor.

History of CHEP

CHEP, originally the Commonwealth Handling Equipment Pool, was formed after World War 2 by the Australian government to manage millions of pallets as well as forklifts left behind by the U.S. military. In 1958 CHEP was sold to Brambles. CHEP expanded to the UK in 1974,  and continental Europe in 1978.  It entered Canada in 1979 and the U.S. in 1990.  In countries that it entered early in the course of grocery industry palletization, it quickly came to dominate those markets, such as in the case of the UK and Spain. In countries where pallet systems were already established, market share growth generally came more slowly, depending upon the health of the pre-existing system.

Improved Profitability in FY2022

In a year marked by continued supply chain disruption, inflation, and a volatile lumber market, Brambles FY2022 saw improved performance. The company saw sales increase by 9% to $5.56 billion and after-tax profit to $593.3 million.

“This is an outstanding result for Brambles in the context of a challenging, volatile, and uncertain operating environment,” said Graham Chipchase, Brambles CEO. “Despite significant inflationary pressures and pallet availability constraints, we continued playing a critical role in global supply chains and delivered a strong financial result while progressing our Shaping Our Future transformation program.

“This performance is testament to the efficiency and scale of our network and the capabilities of our global teams to respond rapidly in changing market dynamics to support our customers. The result also reflects strong financial discipline and recovery of cost-to-serve increases through improved commercial terms as well as identifying efficiencies across the supply chain.”

The Costco Plastic Pallet Decision

In 2019, Costco informed its U.S. suppliers of its intention to migrate all pallet usage in its supply chain to plastic pallets over time. This decision resulted in CHEP undergoing an extensive trial and associated analysis of plastic pallet economics. This decision was watched carefully by the U.S. pallet industry as well as the FMCG sector more generally. A switch to plastic pallets by Costco might result in other retailers also looking to move in this direction.

Brambles developed an industry-leading plastic pallet that complied with US fire regulations. Together with Costco, a more efficient operating model was also formulated with an eye to improving system cost efficiencies. However, Brambles determined that these efficiencies would not be sufficient to cover the additional capital cost of a plastic pallet, which it stated was approximately four times higher than a wooden pallet. Neither Costco nor its suppliers were willing to agree to the required commercial terms and price premium to enable Brambles to meet its Return on Capital Invested (“ROCI”) targets. As a result of the trial, CHEP decided not to introduce a plastic pallet pool for Costco.

Commenting on the announcement in June 2022, Brambles’ CEO, Graham Chipchase said: “Our decision not to proceed demonstrates our disciplined approach to capital allocation.

“As the market leader, we have leveraged our scale and expertise to exhaust every operational and commercial lever to find a viable solution for Costco’s supply chain in the current environment. The trial results confirmed the efficiencies in Costco’s supply chain and sound operational foundations of a digitally enabled plastic pallet pool. However, in the current economic and market conditions, a conversion to plastic pallets was deemed commercially prohibitive by Costco’s suppliers and, without adequate cost recovery, dilutive to Brambles’ ROCI.”

Brambles net-zero emissions commitment now 2040

In June 2022, Brambles announced its commitment to achieving net-zero greenhouse gas (GHG) emissions by 2040. The company’s pledge to a 1.5°C climate future was an essential driving force behind its five-year sustainability targets published in 2020. By pledging to align with the goals of the Paris Climate Agreement, Brambles was already committed to achieving net-zero greenhouse gas (GHG) emissions by no later than 2050. With this new roadmap to net-zero emissions, the supply chain solutions company is bringing that deadline forward by ten years.

Brambles will focus on three main development areas to achieve the net-zero target: operations (directly owned and subcontracted), logistics and direct procurement. Some of the key levers for these areas include:

• Maximising the recovery and reuse of Brambles’ pallets and containers to enhance the company’s circular model;
• Renewable electricity to power Brambles’ own and subcontracted sites;
• Plant and logistics optimization including reducing empty lanes and maximizing truckloads;
• Enabling the deployment of alternative fuels and zero emissions transport technologies (electric, hydrogen);
• A supplier engagement program to support vendors with carbon accounting and target setting;
• Reducing the volume of waste and diverting it from landfills; and
• Exploring carbon insetting4 opportunities, including natural and technical solutions.

Freight Lane Collaboration and Other Innovation

CHEP is involved in several noteworthy activities. For example, it collaborates with shippers and receivers in its network to identify underutilized or empty freight miles. By working together, companies in CHEP’s network can take advantage of revenue generated by miles that would otherwise be empty, while those tendering the freight can take advantage of attractive rates.  CHEP has published several examples of its customers who have reduced freight cost and greenhouse gas impact as a result of such collaborative efforts in both the Americas as well as in Europe.

In one case reported in 2019, Mahou San Miguel, a leader in the Spanish brewing sector, has enjoyed considerable benefits since joining the Collaborative Transport Solutions project of CHEP in 2015. In 2018, it managed to reduce the CO2 emissions associated with its road transport by 12.4% compared to 2017. Specifically, both the brewery and Taisa Logistics, its integral logistics operator, reduced the empty run by 300,000 km and saved the emission of 400 tons of CO2 into the atmosphere.

CHEP European Pallet Specification Update

In November 2018 CHEP introduced a new pallet design update to its traditional 1200 x 800 wooden pallet in the European market. The 1200 x 800 is already being used by CHEP customers in 23 countries. As of July 2019,  5.7 million of the new pallets had been introduced (with 3 million of them in Spain).

The new pallet is described as a more robust platform that offers higher quality and safety, as well as higher performance and durability. It maintains the same dimensions and tolerances as the prior pallet model so that operations in the supply chain and automatic warehouses are not affected. This new design increases the area covered with material to 90.6%, resulting in a significant reduction in the potential risk of damage to the packaging.

Pallet Repair Automation

CHEP has increasingly been turning to automation in its depot operations.  In its 2022 annual report, Brambles stated that it continued to invest in high-returning automation initiatives with seven end-to-end automated repair cells implemented during the year across North America and Europe. It noted some delays in the rollout of these systems, however, due to semi-conductor and component shortages.

In March 2018 it announced its intention to invest $240 million in sophisticated repair automation, including digital inspection and robotic repair. In that period it announced several new automated operations, including South Ockendon, as well as facilities near Hamburg, Germany, and Vienna, Austria.

CHEP Circular Economy Initiatives

CHEP has been active in promoting the sharing economy aspect of its pallet rental system, and its benefits regarding its sustainability advantages such as waste reduction. In June 2019. Brambles/CHEP launched its Zero Waste World program in North America. This program, being rolled out globally in the coming months, brings together leading retailers and manufacturers to create smarter and more sustainable supply chains. As businesses strive to please consumers by operating faster, easier and cheaper, they are also tasked with addressing climate change by minimizing the environmental impact of their operations. Through cross-sector collaboration, CHEP seeks to solve the dual challenge of growing consumer demand and global concern for the environment.

Through its extensive supply chain network, CHEP in a unique position to collaborate with companies to help save them time, money and resources, all while creating greater value for society. For example, CHEP’s Transport Collaboration solutions are cutting empty miles, wasted fuel and carbon emissions, while improving the performance of customers’ supply chains.

2021: Impact of COVID-19, Lumber Unavailability and Network Challenges

The COVID-19 pandemic saw dramatic shifts in demand. For example, restaurant restrictions resulted in the foodservice channel slowing markedly, while at the same time, the retail supply chain surged. Retailers began building inventory, which required more pallets. High inventory levels also translated into pallets dwelling longer at retailers, so that enough of them were not becoming emptied for reissue to other customers.  In 2021, unprecedented lumber price increases also shocked unprepared supply chains as pallet prices lept upward.

“Before COVID, we had situations where retailers were asking the manufacturers to absorb a lot of the inventory and hold the buffer stock,” Jason Adlam, Vice President New Business Development at CHEP USA, told Reusable Packaging News in April 2021. “Subsequently, erratic supply chain behaviors have caused unpredictability in stocking and ordering behavior: Some manufacturers are holding buffer stock, some are operating under very short just in time windows, and others are holding inventory much longer than usual.”

“I am very proud of how our teams responded to the challenges we faced in 2021 and our ability to strengthen our global leading position in sustainability while continuing to manage ongoing uncertainty across supply chains due to COVID-19, Brexit, and the unprecedented conditions experienced across global lumber markets,” Brambles CEO Graham Chipchase stated in August 2021.

“Looking forward, we are accelerating our Shaping Our Future program to transform our business to benefit our people, our customers, and our shareholders. This will include a step change in digitization and improved customer experience as well as further developing our culture of innovation and continuous improvement.”

Further Reading

CHEP News Tracker