How's the Economy?

Ask the Pallet Sector

Makers of pallets, collapsible shipping containers and totes — used to ship all types of goods — have a first-hand view of the improving economy, they said at the NA2010 trade show.

Gat Ramon put it simply. “If people are buying more, you need to move more,” said Ramon, president of Cabka GmbH, a Stuttgart, Germany-based plastic pallet company that also runs North American molding plants in St. Louis and Toronto.

“Why do people need pallets? Because the economy is better. I believe that, in the pallet business, you can tell where the economy is really running well.”

Ramon was among other executives from plastic materials-handling companies exhibiting at the show who report their business has begun to pick up as customers get rid of excess inventory and resume new production on the downhill side of the nearly two-year recession.

Cabka’s pallet business abruptly declined in the fall of 2008 and then bounced along in 2009 until rebounding sharply in the fourth quarter, Ramon said. Business is solid so far this year.

“If it will stay like this, I’m happy,” he said.

Curt Most, national sales manager of pallets for Orbis Corp., said materials handling tracks the general economy. “We’ve been following the trends of what you’ve been reading about in the paper, and when things were down, we were down. We’re seeing things slowly coming back,” he said.

John Petrofsky, owner of Exemplary Foam Inc., reports strong business at his company. “We had the best first quarter ever — best sales, best profit. The economy’s coming back,” he said. “People are buying again. We’re selling more to automotive than we have in awhile.”

Elkhart, Ind.-based Exemplary Foam fabricates polyethylene and cross-linked PE foam using water-jet cutting.

The industry converged on Cleveland for the North American Material Handling & Logistics Show, held April 26-29. Leaders of the trade association that sponsored the show were cautiously optimistic.

The Charlotte, N.C.-based Material Handling Industry of America predicts orders for materials-handling equipment — which had fallen by 37.4 percent in 2009 — will increase between 6 and 8.5 percent in 2010. In addition, the group said shipments of materials-handling equipment — which contracted by 34.4 percent in 2009 — will grow 1-2 percent in 2010.

“It is indicative that we are headed in the right direction. ‘Up’ is up, and even though it’s a long, slow climb, it feels a whole lot different from the precipitous fall we all experienced” in 2009, John Nofsinger, the association’s CEO, said at an April 27 news conference at the trade show.

Hal Vandiver, MHIA’s vice president of business development, said a reboot of the U.S. housing market, plus increased orders for consumer goods, medical products, and automotive parts, as well as public works projects, bode well for the industry.

“We’re looking forward to getting into a growth mode in the latter half of 2010, and 2011 holds the most promise,” he said. Economic growth into 2012 is likely to follow a pattern of slight growth, followed by a leveling-off period, followed by slight growth, he said.

But some plastics-related exhibitors said automakers and their suppliers are being slow to buy new pallets and collapsible containers, since they still have plenty of reusable shipping containers available after a period of sluggish sales. It’s the materials-handling version of excess capacity.

Rich Larson, national accounts manager at Milford, Ohio-based Buckhorn Inc., said automakers used to order a series of new containers for a new model launch. Now, car companies and suppliers are retrofitting existing pallets and containers, he said.

The smaller number of suppliers also hurt auto-related business, said Ron Warner, senior vice president of sales and marketing at Composite Technologies Co. LLC in Dayton, Ohio. “You have more Tier 1s and Tier 2s that are not around anymore, and that will impact the need for pallets,” he said.

Larson said the general market for reusable containers and pallets is “still a little behind, but we see it picking up.”

The food market is doing well, Larson said. At the Cleveland show, Buckhorn was showing the Caliber intermediate bulk container, with a liner bag inside, for handling liquid products. Buckhorn is expanding the IBC beyond its core market of tomato paste, into new segments such as honey, mayonnaise and food flavorings.

“We’re seeing good things happen,” Larson said. “We’ve got some good projects coming this year and if it all comes to fruition, it’ll be a good year.”

Food and retail products are big markets for plastic pallets from Orbis, based in Oconomowoc, Wis., according to Most. “Food companies seem to be doing well — slowly but surely they’re coming back,” he said.

Other exhibitors spoke of a movement within the materials-handling industry to put cost-cutting lessons they learned from the downturn to good use.

Los Angeles-based plastic crate and pallet manufacturer Rehrig Pacific Co. recently stepped up its asset-management efforts for customers including Pepsi Co., Coca-Cola Co., and Sara Lee Corp., said Midwest sales representative Leslie LeMair.

“Different players around the country use our plastics assets. They’re having a problem retrieving them. They’re experiencing loss rates that are too high to make it profitable for them,” she said.

The company has developed methods customers can use to minimize loss and help meet larger sustainability goals, she said.

Composite Technologies offers a single-use export pallet for about $10, using its experience in molding recycled plastics, which it compounds in-house. “People are gravitating more toward the lower-cost pallets for non-returnable applications,” Warner said.