Companies are losing millions of dollars' worth of pallets each year to pilferage or simple lack of accountability. Here are some tips on stemming the losses.
Susan Lacefield has been working for supply chain publications since 1999. Before joining DC VELOCITY, she was an associate editor for Supply Chain Management Review and wrote for Logistics Management magazine. She holds a master's degree in English.
It is far too easy for pallets to "leak" out of a supply chain. A pallet misplaced in the distribution center here. One never returned from a customer there. Another used for an in-store display. Yet another stuck "temporarily" in an offsite warehouse and then forgotten. A few more picked up by thieves in back of a retail store.
Taken individually, these losses might seem minor, but the problem of a few missing pallets can quickly add up to considerable cost. In fact, according to Mark Baum, chief collaboration officer and senior vice president of industry relations for the Food Marketing Institute, lost reusable packaging assets (which include not just pallets but also such things as dairy crates, beverage containers, rolling carts, and bread trays) end up costing American business $750 million to $1 billion each year.
And it's not just the pallet owners that feel the financial pain—inevitably those costs will be spread throughout the entire supply chain, according to Dan Gormley, vice president of asset control and retail services at CHEP, the largest rental pallet pooler in North America.
THE PALLET BLACK MARKET
A not insignificant source of that pallet loss is theft. While numbers are not definitive, Jerry Welcome, president of the Reusable Packaging Association, estimates that tens of millions of dollars' worth of reusable packaging and containers are stolen every year.
CHEP estimates that each year, about 1 million pallets travel through the black market. This includes pallets that are being stolen along with the product loaded on them, pallets being stolen alone, and pallets that are being "misused" (such as being made into furniture or fencing), says Gormley.
Most of the pallet theft is perpetrated by an individual thief picking up unattended pallets behind a store, according to Welcome. But there have been cases of organized crime rings stealing pallets and containers. These groups tend to target plastic pallets, milk crates, and bread trays, which they grind down into plastic pellets that are then sold to plastic manufacturers, typically overseas. Although the extent of the practice is unknown, the following statistics might shed some light on the situation: From 2011 until it ran out of funding in 2013, a Plastic Industrial Theft Taskforce run by the Los Angeles County Sheriff's Department recovered $7.4 million in stolen plastic pallets and containers, made 74 arrests, and shut down 30 illegal grinding operations.
While the rising cost of resin makes plastic pallets particularly vulnerable to theft, pallets made from wood and other materials are not immune. For example, in 2013, Upper Arlington, Ohio, near Columbus, experienced a rash of wooden pallet thefts from behind grocery stores. Indeed, the problem of wooden pallet theft is serious enough in CHEP's eyes that the company has an asset recovery team in the field that focuses on recovering lost and stolen pallets, and a separate asset protection team that educates pallet users and recyclers on CHEP's ownership rights for its products.
LOST IN THE SUPPLY CHAIN
Although theft clearly factors into the equation, Welcome and others believe that the majority of pallet losses stem from less nefarious causes. They happen simply because companies lack visibility of their assets' whereabouts in the supply chain, according to Norm Kukuk, vice president of marketing for Orbis Corp., a manufacturer of plastic pallets and other reusable packaging. "We really find that for most of our customers, 80 percent of what they thought was lost is actually somewhere in their own warehouse or their partners' warehouses," he says.
The main reason for loss is the sheer complexity of most supply chains. It might seem fairly simple—product is shipped on a reusable pallet (or container or other shipping platform) from company A to company B, and then empty pallets are shipped back from company B to company A. But the reality can be a lot more complicated. The product on the pallet could get damaged and the whole pallet could be diverted elsewhere with the damaged goods. The pallets could be sent to an offsite warehouse because of lack of storage space or end up being stored in a third-party logistics service provider's (3PL) warehouse.
Furthermore, in most cases, the pallets get returned at a slower pace than they are shipped out. Suppliers, customers, or 3PLs might be collecting the items until they have enough for a full truckload. While this reduces transportation costs, it also slows the return process. Or if a driver is supposed to pick up pallets or containers from a previous trip, he or she might not be given enough time on the route to track down and return the items. A "lost" asset may just be sitting idle, waiting to be returned.
Indeed, a certain amount of asset loss is inevitable, and it's unrealistic to expect 100 percent of your assets to be returned to you, says Welcome. But if your rate of loss creeps up above 10 percent, he adds, it might be time to take a closer look at your system.
KEEP YOUR EYE ON THE PALLET
Regardless of whether your pallets are disappearing due to loss or theft, improving the visibility of units within your supply chain is a good first step, says Kukuk. "You need to step back and look at all the different ship-to points and touch points," he says. "Just have a simple discussion around all the different alternatives for where a product could have gone next, whether it's a 3PL warehouse, your own warehouse, or back to your primary shipping point. From there, you can narrow down those spots where your product could be leaking out of your system."
The best way to track shipping assets is to maintain a simple pallet-out, pallet-back accounting system. Kukuk says that some of Orbis' customers have been successful using a credit and debt process. "They debit pallets out when they ship them to a supplier and don't credit them back in until they receive them back," he says.
While it is possible to manage this credit-debit process with paper and pencil, technology can certainly boost accuracy and efficiency. Some larger companies, such as plastic pallet pooler iGPS, have taken the step of tagging their pallets with RFID chips, while others have found success using bar codes. "We have many customers that do a good job controlling visibility just with simple bar coding, scanning ins and outs," says Kukuk.
Hand in hand with a tracking program comes the necessity of getting suppliers and other stakeholders, such as carriers and 3PLs, involved in reporting where the asset went and who they shipped it to, says Kukuk. Companies need to talk to their partners about how and when pallets and shipping containers will be returned to them. "For example, do you want them back in a full truckload like you sent them out, or do you want them back in smaller quantities? And if so, are you able to monitor and control that?" he says.
To get that buy-in, Kukuk says, it's important to remind outside partners "what's in it for them." For example, if there are cost savings associated with using reusable pallets or containers, Kukuk recommends finding a way to share those savings with your partners.
If the carrot doesn't work, there's always the stick, according to Kukuk. He reports that some shippers go so far as to charge their suppliers a deposit for the pallet or container, which is refunded to the supplier upon the asset's return.
While you may have less pull with customers that are receiving your pallets and containers, Welcome says suppliers need to work with their retailer customers to remind them that reusable pallets and containers belong to them and that if these assets are lost, it raises costs throughout the entire supply chain.
A NEED FOR MORE SOLUTIONS
Although the problem of pallet and reusable container loss has been around for a while, there seems to be increasing recognition that the industry needs better solutions for stopping the leakage.
Last year, CHEP formed a team to look for opportunities across the supply chain to maintain better control of its pallets. The team is starting to look at such things as how often pallets are being shipped to or from points other than the distribution center or retail store, and what role those points play in their customers' supply chains, says Gormley.
While company-specific programs are good, Welcome emphasizes the necessity of developing industrywide best practices. "There's a growing need for industry to coalesce around a solution, to identify good practices, and to share them with people," he says.
There are signs that's beginning to happen. The Food Marketing Institute, for one, is starting a joint industry effort with food manufacturers, reusable asset manufacturers, and service providers to establish best practices for tracking and retaining assets, evaluate possible technology solutions, and stem theft through both regulatory and legislative efforts as well as educating law enforcement agencies about the problem.
This story first appeared in the September/October issue of Supply Chain Xchange, a journal of thought leadership for the supply chain management profession and a sister publication to AGiLE Business Media & Events’' DC Velocity.
For the trucking industry, operational costs have become the most urgent issue of 2024, even more so than issues around driver shortages and driver retention. That’s because while demand has dropped and rates have plummeted, costs have risen significantly since 2022.
As reported by the American Transportation Research Institute (ATRI), every cost element has increased over the past two years, including diesel prices, insurance premiums, driver rates, and trailer and truck payments. Operating costs increased beyond $2.00 per mile for the first time ever in 2022. This trend continued in 2023, with the total marginal cost of operating a truck rising to $2.27 per mile, marking a new record-high cost. At the same time, the average spot rate for a dry van was $2.02 per mile, meaning that trucking companies would lose $0.25 per mile to haul a dry van load at spot rates.
These high costs have placed a significant burden on the operations of trucking companies, challenging their financial sustainability over the last two years. As a result, 2023 saw approximately 8,000 brokers and 88,000 trucking companies cease operations, including some marquee names, such as Yellow Corp. and Convoy, and decades-long businesses, such as Matheson Trucking and Arnold Transportation Services.
More so than ever before, trucking companies need to get better at efficiently using their assets and reducing operational costs. So, what is a trucking company to do? Technology is the answer! Given the nature of the problem, technology-led innovation will be critical to ensure companies can balance rising costs through efficient operations.
One technology that could be the answer to many of the trucking industry’s issues is the concept of digital twins. A digital twin is a virtual model of a real system and simulates the physical state and behavior of the real system. As the physical system changes state, the digital twin keeps up with the real-world changes and provides predictive and decision-making capabilities built on top of the digital model.
DHL, in a 2023 white paper, suggests that—due to the maturation of technologies such as the internet of things (IoT), cloud computing, artificial intelligence (AI), advanced software engineering paradigms, and virtual reality—digital twins have “come of age” and are now viable across multiple sectors, including transportation. We agree with this assessment and believe that digital twins are essential to radically improving the processes of fleet planning and dispatch.
THE NEED TO AUTOMATE
Outside of attaining procurement efficiencies, trucking companies can achieve lower costs by focusing on critical operational levers such as minimizing deadheads, reducing driver dwell time, and maximizing driver and asset utilization.
However, manual methods of planning and dispatch cannot optimally balance these levers to achieve efficiency and cost control. Even when planners work very hard and owners strive to improve processes, optimizing fleet planning is not a problem humans can solve routinely. Planning is a computationally intensive activity. To achieve fleet-level efficiencies, the planner has to consider all possible truck-to-load combinations in real time and solve for many operational constraints such as drivers’ hours of service, customer windows, and driver home time, to name just a few. These computations become even more complex when you add in the dynamic nature of real-world conditions such as trucks getting stuck in traffic or breaking down or orders getting delayed. This is not a task humans do best! For these sorts of tasks, technology has the upper hand.
When a company creates a digital twin of its trucking network, it has a real-time model that factors in truck locations, drivers’ hours of service, and loads being executed and planned. Planners can then use this digital model to assess possible decisions and select ones that increase asset utilization, improve customer and driver satisfaction, and lower costs.
For example, a digital twin of the network can offer significant insights and analysis on the state of the network, including exceptions such as delayed pickups and deliveries, unassigned loads, and trucks needing assignments. Backed by AI that takes business rules into account, digital twins can allow companies to optimize their fleet performance by finding the most efficient load assignments and dynamically adjusting in real time to changes in traffic patterns and weather, customer delays, truck issues, and so on.
With a digital twin, carriers can optimize the matching of assets, drivers, and freight. Typically, an investment in this innovative technology results in a 20%+ increase in productive miles per truck, while also improving driver pay and significantly decreasing driver churn. Drivers get paid by the miles they run, so when they run more, they are able to make more money, resulting in less need to chase the next job in search of better pay.
ADDITIONAL BENEFITS
Digital twins also combat deadheading, another source of driver dissatisfaction and cost inefficiencies. On average, over-the-road drivers spend 17%–20% of road miles driving empty. Using a digital twin, a company can search across several freight sources to find a load that perfectly matches the deadhead leg without impacting downstream commitments. These additional revenue miles will help drivers to maximize their earnings on the road and carriers to maximize their asset utilization and profitability.
The traditional manual dispatch planning model is becoming increasingly outdated—each planner and fleet manager tasked with overseeing 30 to 40 vehicles. Carriers try to manage this problem by dividing the fleet into manageable chunks, which results in cross-fleet inefficiencies. Such a system isn’t scalable. A digital twin acts as an equalizer for small and mid-sized fleets. It enables carriers to expand by venturing beyond the fixed routes and network they were forced to run out of fear of additional logistical complexity.
A digital twin can also give an organization the transparency and visibility it needs to find and fix inefficiencies. A successful carrier will leverage the technology to learn from the hitches in its operations. While this visibility is beneficial in its own right, it also provides the first step toward a seamless, digitized operation. “Digital revolution” is a buzzword frequently heard at transportation conferences. Yet not too many organizations are dedicated to digitizing their operations past the visibility stage. The end goal should be using decision-support systems to automate key elements of the system, thus freeing up planners from their daily rote tasks to focus on problems that only humans can solve.
Finally incorporating a digital twin can also help trucking companies work toward the broader trend of creating greener supply chains. Because they have lower deadhead and dwell times, trucking companies that have adopted a digital twin can be more attractive to shippers that are looking for more efficient operations that meet their environmental, social, and governance (ESG) goals.
THE FUTURE IS HERE
It is important to note that the benefits described here are not dreams for the future; digital twin technology is already here. In fact, choosing a digital twin can seem daunting because there are already a spectrum of options out there. First and foremost, an organization must ensure that the digital twin it selects aligns with both the goals and the scope of its operation.
Additionally, the ideal digital twin should:
Operate in near real time. A digital twin should be able to refresh as often as the network changes.
Be able to factor in specific customer delivery requirements as well as asset- and operator-specific constraints.
Be computationally efficient and comprehensive as it considers thousands of permutations in milliseconds. The digital twin should be able to reoptimize an entire fleet’s schedule of multi-day routes on the fly.
Before implementing a digital twin, carriers need to make sure that they have robust data management processes in place. Electronic logging devices (ELDs), customers’ tenders, billing, shipments, and so on are already inundating carriers with a glut of data. However, the manual nature of operations in many carriers leads to poor data quality. Carriers will need to invest in data management approaches to improve data quality to support the generation and use of high-fidelity digital twins. Otherwise, the digital twin will not be representative of reality and companies will run into an issue of “garbage in, garbage out.”
REINVENTION AND TRANSFORMATION
While data management is critical, change management through the ranks of dispatch operations is often a harder task. In fact, the largest roadblock carriers face when undergoing a digital transformation is the lack of willingness to change, not the technology itself. Many carriers cling to outmoded planning methods. Planners, used to operating based on well-worn business rules and tribal knowledge, could be wary of the technology and resistant to change. They may need to be assured that, while it is true that every trucking network is uniquely complex, digital twins can be set up to model the intricacies of their specific dispatch operations and drive value to the network. A significant amount of time and resources will need to be expended on change management. Otherwise even though trucking companies may invest in cutting-edge technology, they won't be able to fully capitalize on the added value it can provide.
As the truckload industry works through the current freight cycle, it is important to realize that change is inevitable. Carriers will need to reinvent their operations and invest in technologies to ride through the busts and booms of future freight cycles. Recent global events point to the many ways that wrenches can be thrown into global transportation networks, and the fact that such volatility is here to stay. Digital twins can provide companies with the visibility to navigate such changes. But above all, an operation that uses the digital twin to drive decisions can make customers and drivers happy, and help the carriers keep their heads above water during times such as now.
Regular online readers of DC Velocity and Supply Chain Xchange have probably noticed something new during the past few weeks. Our team has been working for months to produce shiny new websites that allow you to find the supply chain news and stories you need more easily.
It is always good for a media brand to undergo a refresh every once in a while. We certainly are not alone in retooling our websites; most of you likely go through that rather complex process every few years. But this was more than just your average refresh. We did it to take advantage of the most recent developments in artificial intelligence (AI).
Most of the AI work will take place behind the scenes. We will not, for instance, use AI to generate our stories. Those will still be written by our award-winning editorial team (I realize I’m biased, but I believe them to be the best in the business). Instead, we will be applying AI to things like graphics, search functions, and prioritizing relevant stories to make it easier for you to find the information you need along with related content.
We have also redesigned the websites’ layouts to make it quick and easy to find articles on specific topics. For example, content on DC Velocity’s new site is divided into five categories: material handling, robotics, transportation, technology, and supply chain services. We also offer a robust video section, including case histories, webcasts, and executive interviews, plus our weekly podcasts.
Over on the Supply Chain Xchange site, we have organized articles into categories that align with the traditional five phases of supply chain management: plan, procure, produce, move, and store. Plus, we added a “tech” category just to round it off. You can also find links to our videos, newsletters, podcasts, webcasts, blogs, and much more on the site.
Our mobile-app users will also notice some enhancements. An increasing number of you are receiving your daily supply chain news on your phones and tablets, so we have revamped our sites for optimal performance on those devices. For instance, you’ll find that related stories will appear right after the article you’re reading in case you want to delve further into the topic.
However you view us, you will find snappier headlines, more graphics and illustrations, and sites that are easier to navigate.
I would personally like to thank our management, IT department, and editors for their work in making this transition a reality. In our more than 20 years as a media company, this is our largest expansion into digital yet.
We hope you enjoy the experience.
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In this chart, the red and green bars represent Trucking Conditions Index for 2024. The blue line represents the Trucking Conditions Index for 2023. The index shows that while business conditions for trucking companies improved in August of 2024 versus July of 2024, they are still overall negative.
FTR’s Trucking Conditions Index improved in August to -1.39 from the reading of -5.59 in July. The Bloomington, Indiana-based firm forecasts that its TCI readings will remain mostly negative-to-neutral through the beginning of 2025.
“Trucking is en route to more favorable conditions next year, but the road remains bumpy as both freight volume and capacity utilization are still soft, keeping rates weak. Our forecasts continue to show the truck freight market starting to favor carriers modestly before the second quarter of next year,” Avery Vise, FTR’s vice president of trucking, said in a release.
The TCI tracks the changes representing five major conditions in the U.S. truck market: freight volumes, freight rates, fleet capacity, fuel prices, and financing costs. Combined into a single index, a positive score represents good, optimistic conditions, and a negative score shows the opposite.
A coalition of truckers is applauding the latest round of $30 million in federal funding to address what they call a “national truck parking crisis,” created when drivers face an imperative to pull over and stop when they cap out their hours of service, yet can seldom find a safe spot for their vehicle.
According to the White House, a total of 44 projects were selected in this round of funding, including projects that improve safety, mobility, and economic competitiveness, constructing major bridges, expanding port capacity, and redesigning interchanges. The money is the latest in a series of large infrastructure investments that have included nearly $12.8 billion in funding through the INFRA and Mega programs for 140 projects across 42 states, Washington D.C., and Puerto Rico. The money funds: 35 bridge projects, 18 port projects, 20 rail projects, and 85 highway improvement projects.
In a statement, the Owner-Operator Independent Drivers Association (OOIDA) said the federal funds would make a big difference in driver safety and transportation networks.
"Lack of safe truck parking has been a top concern of truckers for decades and as a truck driver, I can tell you firsthand that when truckers don’t have a safe place to park, we are put in a no-win situation. We must either continue to drive while fatigued or out of legal driving time, or park in an undesignated and unsafe location like the side of the road or abandoned lot,” OOIDA President Todd Spencer said in a release. “It forces truck drivers to make a choice between safety and following federal Hours-of-Service rules. OOIDA and the 150,000 small business truckers we represent thank Secretary Buttigieg and the Department for their increased focus on resolving an issue that has plagued our industry for decades.”
“While there have been some signs of tightening in consumer spending, September’s numbers show consumers are willing to spend where they see value,” NRF Chief Economist Jack Kleinhenz said in a release. “September sales come amid the recent trend of payroll gains and other positive economic signs. Clearly, consumers continue to carry the economy, and conditions for the retail sector remain favorable as we move into the holiday season.”
The Census Bureau said overall retail sales in September were up 0.4% seasonally adjusted month over month and up 1.7% unadjusted year over year. That compared with increases of 0.1% month over month and 2.2% year over year in August.
Likewise, September’s core retail sales as defined by NRF — based on the Census data but excluding automobile dealers, gasoline stations and restaurants — were up 0.7% seasonally adjusted month over month and up 2.4% unadjusted year over year. NRF is now forecasting that 2024 holiday sales will increase between 2.5% and 3.5% over the same time last year.
Despite those upward trends, consumer resilience isn’t a free pass for retailers to underinvest in their stores by overlooking labor, customer experience tech, or digital transformation, several analysts warned.
"The 2024 holiday season offers more ‘normalcy’ for retailers with inflation cooling. Still, there is no doubt that consumers continue to seek value. Promotions in general will play a larger role in the 2024 holiday season. Retailers are dealing with shrinking shopper loyalties, a larger number of competitors across more channels – and, of course, a more dynamic landscape where prices are shifting more frequently to win over consumers who are looking for great deals,” Matt Pavich, senior director of strategy & innovation at pricing optimization solutions provider Revionics, said in an email.
Nikki Baird, VP of strategy & product at retail technology company Aptos, likewise said that retailers need to keep their focus on improving their value proposition and customer experience. “Retailers aren’t just competing with other retailers when it comes to consumers’ discretionary spending. If consumers feel like the shopping experience isn’t worth their time and effort, they are going to spend their money elsewhere. A trip to Italy, a dinner out, catching the latest Blake Lively and Ryan Reynolds films — there is no shortage of ways that consumers can spend their discretionary dollars,” she said.
Editor's note:This article was revised on October 18 to correct the attribution for a quote to Matt Pavich instead of Nikki Baird.