Contained optimism about the future
Makers of reusable containers see potential in a difficult economy. But if they hope to persuade penny-pinching DC managers to buy, the projected returns had better be good.
It's turning out to be a rough year for much of the material handling industry. But that's not to say spending has dried up entirely. Conversations around the floor of Chicago's McCormick Place during January's ProMat 2009 material handling exhibition suggested that buyers are out there, willing to invest—if that investment offers a quick payback.
Among the industry players seeking to take advantage of that are manufacturers and sellers of returnable containers and related equipment and technology. Their hope is that customers—particularly those shipping within closed-loop and pooling systems—will see the advantages of equipment that combines a quick return on investment with the benefits of sustainability.
Bob Klimko is the chairman of the Returnable Packaging Association (formerly the Reusable Pallet and Container Coalition) and the director of general industrial marketing for Orbis, a manufacturer of plastic reusable packaging, including containers, totes, pallets, divider sheets, and storage products. He expresses confidence that 2009 will be a good year for the industry.
"With all the things going on in the economy, with a lot of layoffs and margin squeeze," he says, "there are a couple of things we can do for customers: help them use their capital better and help them reduce their operating expenses." Customers are looking for faster returns on investment than in the past, he adds, but will spend money for applications that offer returns in the range of 12 to 18 months.
Margot Beesley, director of marketing for Buckhorn, offers a similar assessment. "A lot of people are chugging forward full speed ahead, looking to implement savings and productivity opportunities right away," she says. (Buckhorn is a manufacturer of plastic containers and pallets, as well as dunnage.)
But that's not to suggest this equipment is an easy sell. Steve Letnich, vice president of sales and marketing for Worthington Steelpac, a manufacturer of steel crates and pallets, acknowledges that even with the returnables' many benefits, selling into the current market presents challenges. "Budgets are tight. Customers are spending every dollar as if it were their own," he says. "They are making multiple checks [before buying]."
Lori Pieszala, sales manager for Boston Rack International, a supplier of pallet rack, conveyors, mezzanines, totes, and other equipment, agrees. She reports that she also sees customers focusing on price and fast returns.
Lean and green?
Despite all the selling hurdles, Klimko believes that reusables' day has come. Customers are looking for ways to boost productivity in their facilities, reduce product damage caused by faulty containers, and reduce waste materials, all of which, he says, play to the strengths of reusable containers.
Take productivity, for example. Reusable pallets and containers, which offer the advantage of uniformity in size, dimensions, and weight, allow companies to standardize work processes from one worker to another and from one shift to the next, thereby boosting efficiency. (Beesley calls returnables a natural fit for companies that have adopted lean initiatives for that reason.) Uniform containers, moreover, are less likely than irregularly shaped units to jam a facility's automated equipment, thus reducing the risk of downtime.
Letnich of Worthington Steelpac adds that the strength and durability of reusables—which are designed to withstand multiple trips—give them an advantage over disposable packaging when it comes to product protection. Compared to a wood pallet, he says, steel pallets like the ones his company offers are "less likely to come apart." Their durability, he adds, also reduces the risk that a broken pallet will bring an automated DC operation to a halt. With steel, he says, "it's less likely that fasteners will come loose or that the top deck will come off. You can parlay that into productivity gained through fewer line stops, fewer catastrophic failures, and less debris."
But perhaps the biggest selling point for reusables right now is their reputation for eco-friendliness. That's a relatively recent development, notes Klimko. "We've been selling cost savings for a long time," he says. "Now, customers are looking for sustainable solutions. We are positioned very well to do that."
Adds Beesley, "There's a cost savings for every time a box makes a trip, a savings from keeping corrugated from going to a landfill or recycling. And every box makes hundreds or thousands of trips."
That raises the question of whether these "savings" can be translated into the kinds of hard numbers CFOs like to see. Klimko says both the cost and environmental benefits of reusables can be quantified. For example, he says, shippers who want to compare the costs of one-way corrugated packaging with reusable plastic packaging can use the Reusable Packaging Economic Calculator on his group's Web site, choosereusables.org. Designed to help potential users figure out whether switching to reusables makes economic sense for them, the calculator factors in corrugated costs, dwell time (how long containers are held at various stages of the supply chain), cartons shipped annually, annual interest rate, return miles for reusables, and the expected replacement rate.
Klimko admits that it's difficult to develop a similar calculator on the environmental side of the equation, given the large variety of products that would have to be included. But he does cite a 2004 study conducted by researchers at Franklin Associates for the then-RPCC that compared reusable plastic containers (RPCs) and disposable displayready corrugated containers (DRCs) used for shipping fresh produce. Although the authors warn against using the study as the sole basis for comparing the two systems' environmental attributes, the research showed that "on average across all 10 produce applications [studied], RPCs required 39 percent less total energy, produced 95 percent less total solid waste, and generated 29 percent less total greenhouse gas emissions than did DRCs for corresponding produce applications."
Not for everyone
The benefits notwithstanding, Klimko acknowledges that returnables are not for everyone. "We're not saying one solution is better than another," he says. "You have to understand the drivers."
What are the key drivers, then, that make returnables worth considering? To begin with, there's volume. As Klimko points out, the companies most likely to see a swift return on their investment are those that use large numbers of containers and turn them around quickly. "You have to have some mass," he says. "If you are shipping once a month from Maine to California, it's not so good." Klimko adds that another key driver is consistency in shipments. "[Returnables] work best for shippers that have fairly standardized order quantities or lot sizes."
But even shippers who meet these criteria still have to justify the expense to the keepers of the corporate vault. That's why most of the providers offer to help customers develop cost justification metrics, and some, like Worthington Steelpac, are developing financing options such as leasing to help reduce the initial investment.
In the meantime, vendors can take comfort from the fact that while the economy may have slipped into a deep recession, it has not come to a standstill. "You still have to be able to move and sell products," Pieszala says.
About the Author
Peter Bradley is an award-winning career journalist with more than three decades of experience in both newspapers and national business magazines. His credentials include seven years as the transportation and supply chain editor at Purchasing Magazine and six years as the chief editor of Logistics Management.
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