The constant noise about rising pallet exchange network volumes hides issues that should disturb any persons running such networks, a concept spawned in Britain back in the early 1990s based on the hub and spoke principle that has done so much to lower small pallet consignment haulage costs (up to 6 pallets) and sharply improve road transport’s ‘green’ credentials.

Charles-New-Grey“The pallet networks concept is without doubt currently one of the fastest growing transport and logistics sectors in the UK,” opined David Brown, MD of United Pallet Network (UPN). That may be so but what has it meant for profits?

These hidden issues are partly of the industry’s own making and partly external, with the Government playing a significant role in the latter. Internally, the networks have been suffering from chronically low margins which, according to Nigel Parkes, director of Pallet-Track, has led to a “race to the bottom,” in terms of the cost of moving a pallet. Not long ago he said the industry could get around £50 per pallet delivered, yielding a 20-30% profit margin. Today that margin is at the low end of single digits. “As we come out of the recession,” he said, “we have never been busier, but we have also never been poorer or more put upon.”

His solution is that the industry should all turn down talk of volumes and focus upon the margins by filtering out the profitable from the non-profitable clients and walking away from tenders that do not deliver a reasonable enough return to warrant the investment in people, technology and trucks.

The people investment is certainly a burning issue because, as UPN’s David Brown remarked:

“The biggest issue in our sector is driver shortages,” in which the average age is 53. The Government’s driver certificate of professional competence (CPC) and the cost of training and insurance have made being a driver a prohibitive career for younger people. He recognises that continued investment in personnel is key to the success of any business and so the company is continuing to invest across the board in staff training. Its IT department members have been Degree- educated through UPN.

David also says that there is a lack of ways of attracting the younger generation to a career as a driver.

Another Government-related issue is fuel and its cost unpredictability, a key financial variable that can make budgeting planning difficult. The Government has also made no headway in creating a level playing field on Britain’s roads in relation to Continental drivers whose fuel taxes are often much lower. Kevin Buchanan, MD of Pall-Ex, says: “We are over-taxed and receive a lack of appropriate legislation from the Government; investment in the sector is non-existent…” That may be true of transport overall but to their credit the exchange networks have continued to invest heavily in people, IT systems and infrastructure, and break into European markets.

A pioneer of the pallet exchange networks, Palletways has been particularly busy abroad over the last 20 months, during which it set up a regional hub in Milan, a new, larger hub in Nijmegen and extended hubs in Madrid and Bologna. New hubs in central Germany, southern France and Eastern Europe are also well advanced. Europe-wide, some 400 members handled an average of 33,000 pallets a day in 2014, using 12 hubs across 20 countries, so that now 40% of the turnover is outside the UK. This and the other European expansions by the likes of Pall-Ex is a remarkable achievement for an industry so put upon. But there are limits to what more the industry can do if rates do not rise, typically 10-15%, soon and the industry receives a more accommodating view from Government.

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