An exploration of the importance of collaboration in pallet systems past and present, and how today’s whitewood system minimizes the pallet free-rider problem that still plagues North American pallet rental systems.
Pallets work best through partnerships. It is through trusted relationships that pallet systems thrive. This article digs into why partnerships are essential and how pallet systems can underperform in their absence.
At First Alliance Logistics Management (FALM), we are steeped in the power of partnering. We were formed through an allegiance of visionary regional North American pallet companies back in 1995, a time when the highly competitive pallet industry was extremely fragmented with negligible national reach.
Our FALM founders came together with a vision of creating a national pallet management entity that could meet the emerging need for a national supply base. Fast forward over a quarter of a century, we still work closely with our founders and a network of over 225 pallet suppliers across the country – sharing best practices and laser-focused on delivering solid, reliable value for our customers nationwide.
When partnerships flounder, however, pallet systems can fail. One needs to look no further than the wild ride of 2021 when pallet prices catastrophically soared. Price-sensitive pallet buyers who dropped their suppliers in search of better options sometimes found themselves out of luck and out of pallets. Pallet buyers with trusted vendor relationships could better maintain transparency and supply through open dialogue as the market gyrated.
The Importance of Partnership in Pooling
Collaboration has always played a role in the success or failure of pallet systems. Some local pallet companies have partnered to service dispersed multi-site accounts and facilitate pallet retrieval systems since at least the 1980s. That spirit lives on to this day, through non-asset based pallet management providers such as FALM. We provide national service to supply chains through our broad network and logistical expertise.
Partnering has also been a key ingredient in pooling systems. In the case of the GMA system, grocery industry cooperation led to the development of a national industry exchange program. Unfortunately, a lack of cooperative behavior also led to its downfall. The GMA (Grocery Manufacturers of America) specification was launched in the 1960s, strongly influenced by the General Foods pallet. It was the basis of a national pallet exchange system that was used successfully by the consumer products industry. Oversight was transferred to the GPC (Grocery Pallet Council) in 1974. However, as has been widely told, the program lacked teeth.
Many pallet buyers wanted to pay less, and were willing to take a slightly lesser pallet. The GMA spec gave way to the modified GMA spec, as quality continued to spiral downward. In use, pallet repair was generally inadequate to maintain overall pool quality and broken pallets increasingly became a topic of conversation for grocery industry leaders in the latter 1980s. This failure opened the door for the introduction and expansion of pallet rental.
Collaborative Behavior and Pallet Rental
Pallet rental solved many but not all of the Free Rider problems associated with pallet exchange. With responsibility for procurement and repair outsourced to the rental provider, it took pressure off of supply chain participants to buy and repair their pallets, and quality could be more generally stabilized.
However, pallet rental programs are not immune to the perils of free-rider issues, as we currently witness. When end users fail to return rental pallets in a timely manner or ensure proper handling to minimize damage, they can increase system costs and hinder availability to other customers. When rental providers struggle to fill customer requirements, as was experienced in 2021, they exasperate supply chain challenges for customers.
How the Modern GMA Whitewood System Minimizes the Free Rider Problem
The GMA system, as it has evolved, helps minimize the free-rider problem that plagued the original GMA exchange system, and to a lesser extent, continues to hamper pallet rental programs. It achieves this end in that when a customer receives a pallet, it is typically purchased under load.
The customer owns the pallet. It gives them the flexibility to use the pallet internally or for outbound shipment as required. If not needed, accumulated pallets can be sold to a local pallet recycler, with the price based on pallet condition. As such, the customer feels the financial impact of its pallet handling and management decisions and is motivated to act accordingly. Additionally, GMA pallets are typically widely available, so shippers are not vulnerable to a single rental pallet provider in the face of any availability concerns.
To this day, FALM continues to succeed based on collaboration. We meet regularly with our 225-company pallet supply chain as well as investor partners to share current market information, software and logistics opportunities, as well as other emerging technologies. Whatever your pallet needs, partnering with FALM and our network can help ensure that pallets are one less thing to worry about for your supply chain. Contact us today to find out how we can help.