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MARCH 2024
As supply chains have reduced safety stock after the COVID-era surge, empty pallet returns have increased. According to Brambles, its operating environment in the first half of 2024 was characterized by a significant improvement in market pallet availability and a moderate increase in overall input costs.
During the period, Brambles experienced year-on-year increases in labor inflation, while deflation across global fuel and lumber prices and US third-party freight rates partially offset this increase. Lower lumber prices translated to a reduction in the capital cost of pallets in all regions, albeit these remain well above historical averages.
Industry-wide improvements in pallet availability supported more efficient pallet dynamics across retailer and manufacturer supply chains in all regions. These included improved cycle times in most regions, lower loss rates in CHEP Americas and ~8 million additional pallet returns due to inventory optimization at retailers and manufacturers in North America and Europe.
Inventory Optimization Drives Pallet Returns
Volume from existing customers was impacted by inventory optimization initiatives as manufacturers and retailers used existing pallets to service demand without replenishing orders. At the same time, improved pallet availability across the network allowed Brambles to pursue new business in Europe and North America, with modest contract wins achieved in a more competitive environment.
“This performance reflected our ongoing commercial discipline and more dynamic pricing structures, which better align with our cost-to-serve,” stated Graham Chipchase, Brambles CEO. “Productivity improvements linked to our transformation program, including higher compensations for lost assets, combined with easing inflationary pressures and more efficient pallet flows across retailer and manufacturer supply chains were also key contributors in the half.”
Operationally, increased pallet returns and recoveries resulted in incremental repair, handling and transportation costs in all regions. This included the impact of higher pallet damage rates linked to the longer time spent in customer and retailer supply chains.
The business also temporarily incurred additional storage costs with pallet balances above Brambles’ network requirements in North America and Europe. These stored pallets are expected to be used to service new customer contract wins and replace lost or scrapped pallets over the balance of FY24 and into 1H25.
“We expect volumes to be flat for the year as a return to positive net new business wins, driven by the US and European pallet businesses, is offset by ongoing weakness in like-for-like volumes," Chipchase said. "As anticipated, the rate of price growth will moderate in the second half as we cycle increasingly challenging prior year comparatives, improved supply chain behaviour reduces contributions from asset efficiency linked pricing mechanisms and inflation continues to moderate.” WPM
Additional Pallet Returns Buoy Profit and Cash Flow for Brambles