Rising pallet-supply costs led two innovative suppliers to throw out the old playbook and design a new solution for their clients. The result: a “hybrid” pallet-supply model that slashed one customer’s costs by 31%.
Gary Frantz is a contributing editor for DC Velocity and its sister publication CSCMP's Supply Chain Quarterly, and a veteran communications executive with more than 30 years of experience in the transportation and logistics industries. He's served as communications director and strategic media relations counselor for companies including XPO Logistics, Con-way, Menlo Logistics, GT Nexus, Circle International Group, and Consolidated Freightways. Gary is currently principal of GNF Communications LLC, a consultancy providing freelance writing, editorial and media strategy services. He's a proud graduate of the Journalism program at California State University–Chico.
The pallet pool business has long been the behind-the-scenes grease that lubricates the movement of literally billions of pounds of goods through the world’s supply chains. This underappreciated workhorse is the key to efficiently moving large lots of carton-based goods and other packaged and unpackaged products in and out of trucks, between production plants and distributors, within warehouses, and out to retail stores.
It is a market of two universes. In one universe is the traditional “white wood” pallet, typically purchased by a manufacturer, long relied upon by large beverage producers and consumer goods companies, and supported by third-party pallet recapture services. Manufacturers often build pallet inventories in advance so they can be deployed on demand to production lines as goods are produced.
While the manufacturer technically owns the pallets, once they get loaded and shipped out, it’s anybody’s guess when—or if—the owner will see those assets again. A pallet might sit in a retailer’s or distributor’s warehouse for several weeks or more. Or it might move “downstream” to a retail store or smaller end-user, from which it doesn’t return. “It’s a cost of doing business that is built into the price of the product. Once it’s out of [the manufacturer’s] orbit, they forget about it,” says John Vaccaro, president of South Plainfield, New Jersey-based Bettaway Pallet Systems Inc., of white wood pallets.
Practically speaking, white wood pallets often are treated much like disposable dunnage, cardboard, or packing material. Yet, at an average cost of $7 for a refurbished pallet or $14 for a new one, expenses add up quickly when you’re talking about hundreds of thousands of pallets, notes Vaccaro, whose company operates a nationwide network of pallet-supply “partner depots,” over 475 of them in North America, where white wood pallets are returned, repaired, refurbished, and staged for redeployment. Its clients include such household names as Arizona Beverage Co., maker of Arizona Iced Tea, for whom Bettaway has managed transportation and pallet logistics for nearly 30 years.
A GROWING MARKET FOR RENTALS
In the other universe is the rental market. Rather than purchase the pallet, a manufacturer or distributor rents the unit. The rental pallet provider builds and maintains a fleet of reusable pallets, tracks them through the supply chain, and then, once the pallets are unloaded at the destination distributor or warehouse, picks them up and returns them to a staging facility, where they are inspected, repaired, repainted, and put back into circulation.
Under this model, the renting entity (such as a manufacturer, big-box retailer, or distributor) pays an “issue” fee and a rent-per-day fee plus other associated costs, such as a fuel surcharge. The manufacturer also has an obligation to report to the rental pallet provider when the pallet is transferred or released to a retailer’s location and is available for return.
Demand for rental pallets grew as the retail market evolved and distributors, beverage makers, and manufacturers of other consumer goods and consumables began selling more product directly to mega-retailers like Walmart and club stores like Costco. Owning white wood pallets no longer fully met the need.
Shippers also wanted the option of a more robust and standard pallet, or “block” pallet, and a national supply and management network for those rental pallets. Enter PECO Pallet.
PECO (the name is an acronym for “Pallet Exchange Co.”) operates a closed-loop pallet pool. It builds and maintains a fleet of reusable nine-block, four-way-entry, edge-rackable pallets that can carry up to 2,800 pounds apiece.
Within its network, PECO has some 2,100 pallet-recovery locations, including 42 full-service depots and 44 sort facilities strategically located throughout the U.S. and Canada. The company maintains a rolling inventory of roughly 21 million pallets. PECO counts among its customers major food and consumer goods producers like TreeHouse Foods, Hershey’s, Dole Fresh Vegetables, The Kraft Heinz Company, and Mars.
“The manufacturer or distributor gets a high-quality pallet at the lowest landed cost,” says Joe Dagnese, PECO’s president. “The customer benefits from a highly engineered pallet, ideally suited for high-velocity automated material handling systems, providing superior efficiency as well as improved safety, utility, operational consistency, and production-line optimization.”
ENTER THE HYBRID MODEL
Convention has held that the pallet business was divided into two models: One set of customers was on the purchased white wood model, and another on the block-pallet rental model. There was little incentive to mix. Most companies don’t want to deal with both owned and rental pallets. The logistics challenges are too complex, the savings inconsistent or unverifiable.
But that didn’t stop Bettaway’s Vaccaro from pursuing just such a scheme a few years back. Despite the conventional wisdom, he believed that several of his white wood pallet pool customers could benefit financially from some type of mixed service. As their markets shifted and business grew, some of those clients were seeing steep hikes in pallet costs. Vaccaro felt that by strategically carving out specific segments of Bettaway’s business and redeploying them in a rental network, Bettaway could deliver an overall lower landed cost to serve.
One of the clients he had in mind was Arizona Beverages. Arizona’s business, already utilizing some 2 million pallets annually, was growing and requiring an increasing number of new white wood pallets, Vaccaro recalls. “Brand-new pallets come at a premium cost. When you are refreshing the pool with 10% new and 90% refurbished, you can justify it,” he explains. “But when you get up to 30% or 35% new, the math doesn’t work.”
Bettaway also had manufacturer and distributor customers with remote locations, inconsistent production, or minimal, short-term pallet needs. Those “one offs” can be costly to serve with an all-white wood solution but were ideal for a tailored rental program. And customer footprints change; some sites drop out while others are added, requiring adjustments to pallet pools. “We had to think in other terms, alternatives we had perhaps rejected in the past,” Vaccaro says. Those alternatives included partnering with an outside party to provide rental pallets for some segments of Bettaway’s business.
That led to a meeting with PECO’s Dagnese.
“It was an exercise in collaboration, innovation, and material handling engineering,” Vaccaro says of their initial talks. “We looked at the size of the prize, if we could be flexible and nimble enough, where we could potentially work together … and what it would mean for the client. We could not afford any degradation in service, quality, or reliability,” he emphasized.
Bettaway and PECO assembled a team to tackle the project. Their mission: design a system that struck a balance between the faster-moving, quick-turn products and “one-off” locations served by PECO’s rental network; and the slower-moving, often higher-volume products going to distributors or larger retailers and held for longer periods, on white wood. “Where was the point at which we got the balance just right, so we did not have a slow-moving SKU (stock-keeping unit) on a rental pallet or weren’t shipping to a non-participating distributor, where the pallet would likely get lost or not returned?” asked Vaccaro.
“The manufacturer just wants the right number of high-quality pallets at the best cost delivered on time to its facilities,” says Dagnese. “And the retailers want the pallets retrieved from their facility without delay, so they are not taking up valuable warehouse space.”
The two companies launched a pilot of a new “hybrid” or blended pallet-supply model for Arizona Beverages in August 2018, focused on high-velocity product.
The pilot proved out the concept. The hybrid model maintained high quality standards and actually improved service for some lanes and markets. On a net basis, the blended model helped Bettaway reduce overall pallet landed cost to serve, across Arizona Beverages’ network of plants and distributors, by 31%.
Another advantage was the precision fit of PECO’s highly engineered and durable pallets with Bettaway’s material handling systems. Sophisticated robot-like machines automate the loading of packaged iced-tea product onto pallets, which then move through the plant on automated conveyors, eventually arriving at the loading dock for staging onto trucks. “The pallets fit like a glove, and we had zero pallet integrity failures,” says Dagnese.
A CONCEPT PROVEN; A MARKET CREATED
Dagnese and Vaccaro are excited about the opportunity to expand the hybrid model to more shippers. “We think there are numerous co-selling opportunities with existing customers of both PECO and Bettaway,” Dagnese says.
Vaccaro agrees. “I hate the term ‘think outside the box,’ but this is really an instance where two companies came together, threw out the old playbook, and started with a clean sheet of paper to design a solution that would bring together the best of what often were considered competing services,” he says. “And in the end, the customer saved money and got a better solution.”
Supply chain planning (SCP) leaders working on transformation efforts are focused on two major high-impact technology trends, including composite AI and supply chain data governance, according to a study from Gartner, Inc.
"SCP leaders are in the process of developing transformation roadmaps that will prioritize delivering on advanced decision intelligence and automated decision making," Eva Dawkins, Director Analyst in Gartner’s Supply Chain practice, said in a release. "Composite AI, which is the combined application of different AI techniques to improve learning efficiency, will drive the optimization and automation of many planning activities at scale, while supply chain data governance is the foundational key for digital transformation.”
Their pursuit of those roadmaps is often complicated by frequent disruptions and the rapid pace of technological innovation. But Gartner says those leaders can accelerate the realized value of technology investments by facilitating a shift from IT-led to business-led digital leadership, with SCP leaders taking ownership of multidisciplinary teams to advance business operations, channels and products.
“A sound data governance strategy supports advanced technologies, such as composite AI, while also facilitating collaboration throughout the supply chain technology ecosystem,” said Dawkins. “Without attention to data governance, SCP leaders will likely struggle to achieve their expected ROI on key technology investments.”
The U.S. manufacturing sector has become an engine of new job creation over the past four years, thanks to a combination of federal incentives and mega-trends like nearshoring and the clean energy boom, according to the industrial real estate firm Savills.
While those manufacturing announcements have softened slightly from their 2022 high point, they remain historically elevated. And the sector’s growth outlook remains strong, regardless of the results of the November U.S. presidential election, the company said in its September “Savills Manufacturing Report.”
From 2021 to 2024, over 995,000 new U.S. manufacturing jobs were announced, with two thirds in advanced sectors like electric vehicles (EVs) and batteries, semiconductors, clean energy, and biomanufacturing. After peaking at 350,000 news jobs in 2022, the growth pace has slowed, with 2024 expected to see just over half that number.
But the ingredients are in place to sustain the hot temperature of American manufacturing expansion in 2025 and beyond, the company said. According to Savills, that’s because the U.S. manufacturing revival is fueled by $910 billion in federal incentives—including the Inflation Reduction Act, CHIPS and Science Act, and Infrastructure Investment and Jobs Act—much of which has not yet been spent. Domestic production is also expected to be boosted by new tariffs, including a planned rise in semiconductor tariffs to 50% in 2025 and an increase in tariffs on Chinese EVs from 25% to 100%.
Certain geographical regions will see greater manufacturing growth than others, since just eight states account for 47% of new manufacturing jobs and over 6.3 billion square feet of industrial space, with 197 million more square feet under development. They are: Arizona, Georgia, Michigan, Ohio, North Carolina, South Carolina, Texas, and Tennessee.
Across the border, Mexico’s manufacturing sector has also seen “revolutionary” growth driven by nearshoring strategies targeting U.S. markets and offering lower-cost labor, with a workforce that is now even cheaper than in China. Over the past four years, that country has launched 27 new plants, each creating over 500 jobs. Unlike the U.S. focus on tech manufacturing, Mexico focuses on traditional sectors such as automative parts, appliances, and consumer goods.
Looking at the future, the U.S. manufacturing sector’s growth outlook remains strong, regardless of the results of November’s presidential election, Savills said. That’s because both candidates favor protectionist trade policies, and since significant change to federal incentives would require a single party to control both the legislative and executive branches. Rather than relying on changes in political leadership, future growth of U.S. manufacturing now hinges on finding affordable, reliable power amid increasing competition between manufacturing sites and data centers, Savills said.
The British logistics robot vendor Dexory this week said it has raised $80 million in venture funding to support an expansion of its artificial intelligence (AI) powered features, grow its global team, and accelerate the deployment of its autonomous robots.
A “significant focus” continues to be on expanding across the U.S. market, where Dexory is live with customers in seven states and last month opened a U.S. headquarters in Nashville. The Series B will also enhance development and production facilities at its UK headquarters, the firm said.
The “series B” funding round was led by DTCP, with participation from Latitude Ventures, Wave-X and Bootstrap Europe, along with existing investors Atomico, Lakestar, Capnamic, and several angels from the logistics industry. With the close of the round, Dexory has now raised $120 million over the past three years.
Dexory says its product, DexoryView, provides real-time visibility across warehouses of any size through its autonomous mobile robots and AI. The rolling bots use sensor and image data and continuous data collection to perform rapid warehouse scans and create digital twins of warehouse spaces, allowing for optimized performance and future scenario simulations.
Originally announced in September, the move will allow Deutsche Bahn to “fully focus on restructuring the rail infrastructure in Germany and providing climate-friendly passenger and freight transport operations in Germany and Europe,” Werner Gatzer, Chairman of the DB Supervisory Board, said in a release.
For its purchase price, DSV gains an organization with around 72,700 employees at over 1,850 locations. The new owner says it plans to investment around one billion euros in coming years to promote additional growth in German operations. Together, DSV and Schenker will have a combined workforce of approximately 147,000 employees in more than 90 countries, earning pro forma revenue of approximately $43.3 billion (based on 2023 numbers), DSV said.
After removing that unit, Deutsche Bahn retains its core business called the “Systemverbund Bahn,” which includes passenger transport activities in Germany, rail freight activities, operational service units, and railroad infrastructure companies. The DB Group, headquartered in Berlin, employs around 340,000 people.
“We have set clear goals to structurally modernize Deutsche Bahn in the areas of infrastructure, operations and profitability and focus on the core business. The proceeds from the sale will significantly reduce DB’s debt and thus make an important contribution to the financial stability of the DB Group. At the same time, DB Schenker will gain a strong strategic owner in DSV,” Deutsche Bahn CEO Richard Lutz said in a release.
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.