New challenges and uncertainties face the UK pallet exchange networks but opportunities also beckon for what is, after all, a robust business model based on the hub and spoke concept of hauliers collecting and delivering down to single pallet loads in allocated postcode areas, exchanging pallets at a central or regional hub.
Among those challenges are the long-standing perennial of driver shortages, worsened by Government practices and still yet to peak, slim margins in a competitive market, and rising cost pressures that are squeezing margins hard. Yet in such a competitive environment it is testimony to the industry’s resilience that only one significant exchange network (UK Pallets) failed in 2015. That said, however, for so long as hauliers operate on thin margins, the network operators must expect to grapple with the problems of individual haulier members collapsing. Networks are trying to counter the problem of slim margins through price rises but possibly working against them is the advent of big investments in some pallet networks by outside investors who want to chase volume growth which, believes David Brown, MD of United Pallet Network (UPN), could be at the expense of service performance. But it could also encourage a race to the bottom on prices.
Perhaps the biggest uncertainty surrounds the implications of Brexit, but on this the networks are cautiously ambivalent. Hilary Devey, chairperson of Pall-Ex, a pioneer of pallet networks, believes that the entire European supply chain will likely be affected, putting jobs, trade and investment under pressure.
That said, however, she says the Brexit uncertainty has not halted Pall-Ex’s progression or success in Europe. “In fact our operations abroad are growing and the European market currently accounts for 50% of our total volumes.” UPN’s David Brown seems a tad more upbeat over Brexit concerns. “At the start of the year we did have initial concerns as to how the impending Brexit vote would impact both on our company and on our industry but as the year moved forward we were pleased to discover that our concerns did not materialise and we actually ended the year in great shape well positioned for a strong 2017,” he said.
Some challenges or uncertainties of the disrupting kind are also opportunities. The internet has changed the way millions shop, where demanding expectations are high for home prompt deliveries. Pall-Ex, says Devey, is well experienced in the home delivery market and see it as an area of growth for pallet networks, “and an area in which we expect to see new players emerge,” she says. Those exchange networks who still deal exclusively in handling pallet loads could be vulnerable to this distribution sea change as more internet providers channel shopping orders directly from manufacturers to consumers’ homes, thus disintermediating the pallet or roll container loads that previously went to high streets and out-of-town superstores.
Nobody can see how disruptive technology will impact the pallet networks precisely but there are other disruptors that the industry must prepare for, namely environmental issues. So far the industry has earned many Brownie points on this because the exchange network concept has eliminated many empty back hauls, a good example being Pall-Ex’s current fill rate of 97.6%. While diesel lorries are subject to more stringent controls over emissions than diesel cars such is the concern over air pollution issues that many cities are preparing for a total diesel vehicle ban by 2025. It would also be perverse if more of the public continue to buy just single items like condoms and toilet paper, popular pastimes in Paris, it seems, for home delivery, thus raising delivery journeys and air pollution. Little wonder, perhaps, why Amazon is considering drones for such small single- item deliveries.