When CHEP Sneezes…

Up north there is an old saying that when the U.S. sneezes, Canada catches a cold. The market for reusable transport packaging and pallets isn’t all that different. When new competitors or substitute goods (i.e., innovative products or systems) enter the marketplace, there is predictably a ripple effect.

For example, when CHEP U.S.A. rolled out in the 1990s, there was a significant shift in the distribution of 48×40″ pallet production. Companies that won CHEP contracts were busy, while other companies that traditionally relied on 48×40″ business changed their focus to other pallet sizes and niche markets, inevitably challenging smaller companies which were already serving those sectors. (For a wonderful retrospective by Chaille Brindley of Industrial Reporting on CHEP’s U.S. experience and how it continues to impact the U.S. pallet industry, visit www.materialshandling.net. )

When I participated in writing rental pallet company PECO’s first business plan back in the mid-1990s, the original creators and financial supporters of that venture were pallet companies that wished to regain better access to 48×40″ pallet orders that were disrupted by CHEP’s successful entry into the market.

Fast forward to 2010, and the iGPS plastic pallet rental offering has continued to put pressure on the grocery rental pallet market.  Once again, displacement and ripple effect are at work, likely influencing the CHEP announcement that it will seek new pooling opportunities. See last week’s coverage about CHEP’s perception of a $12 billion U.S. pooling potential.

While CHEP indicates that actual pooling competitors only occupy a fraction of this space, the reality is that this market is already being served by other providers and users themselves in any number of different ways, including self-owned pools, 3rd party retrieval services, and other approaches.

Chaille noted in his piece about CHEP, the growth of the rental company in the U.S. coincided with an increased level of service and innovative services seen across the pallet industry more generally. No doubt that increasing competitive pressures across the reusables pooling market will likewise translate into great opportunities for users of these services in the years to come.

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