Standard Pallets

Strategic design + Development

Review of domestic and international pallet standards and ongoing operational and cost implications to Australian Domestic and International Logistics

Final Report 21 March 2002

Creating new horizons for your value chain

Suite 105, 51 Rawson St, Epping, Australia P.O. Box 1075 1075 Epping NSW 1710 Telephone +61 (0)2 9868 2590  Facsimile +61 (0)2 9868 3517 ABN 42 362 863 808

Domestic and International pallet standards Operational and cost implications


Australia’s inability to adopt standards which are aligned with its trading partners will substantially disadvantage its  Effectiveness to attract investment  Ability to supply export products to current and new markets  Ability to import value added products in a cost effective manner Recently a FMCG multinational manufacturer made a decision to relocate a major production facility to SE Asia and to consolidate production. In this instance, Australia will become a net importer of the finished product rather than being a net exporter. Those products will be distributed from SE Asia in cartons that conform to ISO standards and configured to fit ISO pallets. Considering the supply chain cost implications of this and other examples, Australia will be best served by commencing a process to align its pallet and carton standards towards the ISO standards used by its trading partners.

Soon after, the Australian Government took over the responsibility for the pool of pallets under the Commonwealth Handling Equipment Pool, more commonly known as CHEP. In 1958, CHEP was sold to Brambles and the pool had grown to around 90,000 pallets, yet usage was still limited to the waterfront. By the late 1960’s the pool of pallets had grown to around 600,000 pallets based on the original standards. Today the number of pallets is around 15 million with Brambles, TNT and Loscam offering products based on the 1165*1165 mm footprint. Given the relative isolated nature of Australia’s land transport system, the 11652 pallet has provided an effective means of moving goods. Freight forwarders and transport operators have invested in equipment based on the 11652 pallet. Similarly racking and conveyor systems have been developed that accommodate the pallet standard.

To not undertake this process is like the decision by the USA to maintain the imperial standard of measurement, as the rest of the globe embraced metric measurements. One interviewee surveyed the issue akin to dental surgery, saying “it will hurt to get the tooth out, but it will only get worse if we don’t”.

1.1

Some History

At the end of the Second World War, the US forces abandoned around 60,000 pallets which had been used for materials handling purposes. These measured 46 inches by 46 inches and fitted the vehicle tray standards at the time.

In Confidence

Page 7

21 March 2002



7. Implementing the ISO standard requires conformance costs of $600 million over ten years however the NPV benefits are over $2.5 billion exist for the period to 2020 (assuming 30% pre tax discount rate). (i) The primary benefits are the ECR and EUL strategies and the secondary benefits are efficient container loading utilising unitised handling processes. (ii) The NPV benefits increase to $5.1 billion if the pre-tax discount rate is decreased to 20%. 8. Many industry representatives understand the strategic benefit of standardising on pallet size, however express the need to address the transitional arrangements (i) Past assessment and treatments of the transitional costs have inhibited commencement and/or progress towards the new ISO standards (ii) A review of depreciation and write-off arrangements is necessary (iii) Strategies such as double depreciation on investment in compliant equipment should be considered. 9. A clear need exists for government to facilitate the process. Comparisons can be made with the adoption of metric standards, taxation reform, the introduction of new currency, trade reform and assistance, and the like.

In Confidence

Page 9

21 March 2002



3.

RECOMMENDATIONS

1. This study recommends the progressive adoption of the ISO pallet standard for Australia with full implementation by 2010. 2. It is recommended that government provides leadership in the implementation of the ISO standard and recognises that (i) there is a predisposition towards the status quo by industry based on short-term planning horizons, and (ii) the misalignment of standards should be seen in the context of a “market failure” that government has a legitimate right to address. 3. It is recommended that the outcomes of the study be presented to Australian Transport Council (ATC) via the Integrated Logistics Network, with the view of achieving support towards the ISO standard by ATC. 4. It is recommended that the ILN design and promote an implementation strategy through the Transport and Logistics Working Group for industry awareness, consultation and delivery of the new ISO standard.

(ii) (iii)

as a demonstration of Australia’s long term commitment toward the Asia markets in support of market development programs such as Supermarkets to Asia

6. It is recommended that depreciation and write-off costs relating to compliant transitional and/or capital expenditures be structured within a range of taxation incentives designed to foster timely implementation of the standard. This recognises that (i) strategic and operational factors identified within the study yield a positive economic and financial outcome concurrent with the adoption of the ISO standard, particularly within an ECR/EUL context (ii) supply chain standards have long term implications for trade, and government must remove short-term impediments for industry  recognise the transitional cost burdens  acknowledge the extent of sunk cost treatments for  distribution infrastructure

5. It is recommended that a review be undertaken of the process and adequacy of implementing Efficient Consumer Response and Efficient Unit load strategies by Australia (i) as part of Australia’s contribution towards the implementation of efficiency within international supply chains

In Confidence

Page 10

21 March 2002



From Section 11 (Operations Implications)

The decision and supporting logic can be summarised in the following matrix. Table 4-3 Matrix for operational decision criteria

Current carton sizes

Cartons based on 580 * 387 module


1165 * 1165 mm pallet 1200 * 1000 pallet Current situation Given certain % of case identified as yielding sizes are based on the ISO 10% inefficiency in standard, this option may utilisation. absorb under-utilised EUL analysis identifies capacity (and “slack”) 1.2-1.6% cost to sales of such inefficiencies Recommended in Not considered as a viable GISCC report to be of option significant benefit, if harmonised however ignores global trend towards ISO carton standards Increasing trend in this Potential to off set near direction will proliferate term adjustment costs for current inefficiencies infrastructure further 60-70% global activity based on ISO standard for cartons and pallets

In Confidence

From Section 12 (Financial) The financial analysis allows for  A capital expenditure of $600 million for adjustments to the pallet pool, racking and ancillary equipment over the 10 years  The incremental increase in operating costs by $100 million is assumed over the same period  The benefits of ECR/EUL are applied to 75% of the market segment for consumer grocery and non grocery products and 50% for industrial products  Unitised loading of containers is a substantial benefit

The analysis yields a positive NPV of $2.5 billion, assuming an inflation rate of 3% and a discount rate of 30% (pre-tax). This NPV increases to over $5.1 billion of the discount rate is decreased to 20%. Prime-facie, there appears to be a substantial cost impact if the current standard is maintained, leading to non conformance costs arising from the “disconnect” between standards.

Page 15

21 March 2002



Figure 5-1 Composition of capital cost elements identified within the GISCC report

1,400 1,200 1,000 800 600 400 200 Estimated capital cost



Modification to existing pool

Additional pallet requirement

Modification to pallet machinery

Modification to existing rack / MHE

Storage facility for additional pallets

Modification to transport fleet

The Symonds Henderson report ( commissioned by the Grocery industry) recommended the retention of the Australian pallet standard, however based as much as 80% of the financial justification on increased warehouse expansion costs, a finding which is not generally accepted from the survey conducted within this study.

5.1.1 Key issues addressed The report is comprehensive in its analysis of equipment interface and operating costs, dealing with pallet and ancillary equipment modification costs.

In Confidence

The major thrust of the report is based on the 12.5% reduction in the footprint area for the pallet from 1165 mm square to 1200 mm * 1000 mm. As a result, it is inferred that handling costs increase by 12.5%, trailer efficiency is reduced, labour costs increase, warehouse-racking utilisation reduces and there is a need to increase warehousing area and provision of racking locations by the same proportion. Over 80% of the overall capital cost is captured by two key elements relating to racking adjustments and increased warehousing requirements.  5 million racking locations to be adjusted at $45 per location, assuming no overhang is tolerated, leading to a one off cost of $225 million  Whilst a four percent reduction in storage floor area is available with compression of racking, it is essential that an additional 1.3 million rack locations required at $600 each, totalling $777.6 million The analysis assumes that the migration to the new pallet standard will not absorb the under-utilisation inherent within the chain, evident due to the proliferation of carton sizes, particularly ISO carton standards.

5.2

Efficient Unit Load study by A.T. Kearney

In 1997, global consulting firm AT Kearney undertook a seminal study regarding supply chain efficiency and the relevance of harmonisation of standards. The context of the study is generally limited to grocery manufacturers and distributors. The study assessed the implication of co-ordination within supply chains in a concept labelled “Efficient Consumer Response”. Within the study,

Page 17

21 March 2002



5.4

ECR Pallet Implementation Project: Apaper provided ECR Asia (Singapore)

A full copy of the report is provided in Appendix 14.1 on page 72

justification on increased warehouse expansion costs, a finding which is not generally accepted from the survey conducted within this study. 

An ECR study conducted in 1999 outlined the strategic relevance of ECR within the Australian Grocery industry, and questioned the motives being pursued and the inherent balance of power therein. It found that deficiencies may cause the strategic benefits to be lost.



ECR Asia has undertaken extensive research and development on this issue, recommending implementation of the 1200 * 1000 mm pallet, which will have significant implications for Australia’s future import and export trade and supporting logistics systems.

The results of the study identified substantial benefits and savings by adopting the ISO standard through South East Asia. The outcome of the study provides a stark contrast to the results of the GISCC report referred in section 5.1 on page 16. However it must be recognised that whilst the principles are consistent, the relative immaturity of the Asian situation would yield significant benefit, which may not follow with a more mature environment such as Australia, having already established substantial infrastructure costs.

5.5

Conclusions



The pallets standards issue has been an integral part of the global debate of the benefits of ECR (Efficient Consumer Response) and EUL (Efficient Unit Loads) strategy.



Global consulting firm AT Kearney undertook a seminal study in 1997 and identified that substantial benefits can be realised by harmonising the carton size to the pallet standards, and by developing processes that maintain load (and unit) integrity as far along the supply chain as possible. Such benefits are between 1.21.6% of sales values.



The Symonds Henderson report ( commissioned by the Grocery industry) recommended the retention of the Australian pallet standard, however based as much as 80% of the financial

In Confidence

Page 19

21 March 2002



6. 6.1

CONCEPTUAL FRAMEWORK

Figure 6-1 Conceptual framework linking the purpose of the pallet to the prevailing market demands and product attributes

Preamble

The conceptual notion of a supply chain and its composite elements exists within the notion, “why do goods move?” Whilst the obvious subject of the study is the pallet and its prevailing standard, the underlying argument extends to the purpose and fit of the pallet within the supply chain. It therefore begs the question as to the need and existence of the pallet in the first instance, and if its purpose and use has been found to be “wanting”, then what item and/or process will replace the pallet. Most supply chain practitioners will share anecdotes and experiences of pallets as an item of logistics equipment. Some of those same practitioners are searching for alternatives such as slip-sheets, intermediate bulk containers/crates, and alternate materials such a plastics and compressed paper. A study into pallet standards requires a number of considerations such as:  A long range view of the served market  A holistic view of the supply chain  The relevance of unitisation and efficiency  The relationship between product (SKU), pallet and container or truck A conceptual model of the inter-relationship between markets and pallets is provided in the following diagram.

In Confidence

Page 20

21 March 2002



Production Production

Product attributes • Bulk Bulk,, pac packk typ typee • Pres Presen enta tati tion on • Valu Valuee-ad adde ded d

Flow Flowof ofgoods goods(a)(a)

Market Market

Supply processes • Sources

Demand characteristics characteristics (b) • Locati Location on of mark markets ets

– regionalisation of manufacture – centralisation of supply and inventory

• Cha Channel nnelss • Methods – integratio integrationn – connectivity – unitisat unitisation ion

–existing –future, emerging

• Frequenc Frequencyy and expectati expectation on • Growth T h h T e e r e ee a p r al r rr el o o o u t t p l a i o oi d r at n s od t i cc s i o d u d c h c c on t t hh i o oo o t ns s n n n , p ts s t h p s a a i b b nt t n a aa , p ia n i ni t a e e l l l p l t tt w ee e l s i n ww e r r r s n e er t le l l e ss ss a e / / / e we t t v v v s / a n nn i s en n e d d e vee n d e h ci c h c le e l c l le e s s

(a) Goods may be raw materials, intermediate and finished products (b) Where demand characteristics change, then supply processes will equally need to change

Within the conceptual framework outlined in Figure 6-1 above, there is a direct relationship between the pallet (role and standard) and the served market. The issue has been treated tactically to date as pallet costs are the domain of the “firm”, and in the context of a firm’s individual potential to influence the pallet standard, the outcome for practitioners has been to move onto “the next big issue”. Yet collectively (at a national level) the pallet issue is an important element that influences the overall efficiency of the “system” servicing our market requirements.

In Confidence

Page 21

21 March 2002



6.3

Changes in market mix

There is a temporal dimension to the issue, which will impact supply chains, techniques and equipment. The land transport task linking the domestic production domestic production and consumption clusters will progressively migrate from being domestic to becoming more focused on international supply chains. Whilst this aspect is dealt with empirically in Section 9 the following paragraphs illustrate the point. The Transport and Storage Index has approximated GDP since the early 1990’s. Given that conceptual notion that transport provides a link between markets (consumption) and production, this is accepted intuitively. Figure 6-3 Transport and storage output and gross domestic product index

Table 6-1 provides a theoretical example of three scenarios experiencing different growth rates for international and domestic trade. Further explanation is provided overpage. Table 6-1 Assessment of growth scenarios cenarios based on alternative task apportionment and predicted growth forecasts Error! Not a valid link.

Refer also to the Appendix Table 13-1 Scenarios "A" - "C" indicating growth in indices in the intervening years on page 65 From Table 6-1 the task mix in Scenario “A” is consistent with the relativity between domestic and international flows identified in the GISCC report of 1998.4 Scenarios “B” and “C” provide for alternate mixes in the task split as 80:20 and 70:30 respectively. For all scenarios, the total growth is limited to 3.5% (compound) over the twenty years to 2020. The growth in the international task is assumed to be 8% consistent with various forecasts and references. Under these criteria, the growth in the domestic task will vary to meet the overall consumption index. Scenario “A” yields a growth in the domestic task of 2.7% and yields a % task mix of 78%, against an international task of 22%. 4

The Grocery Industry Supply Chain Committee report titled “The Australian Pallet Study” for the Grocery Manufacturers’ Association ad the Australian Supermarkets Institute undertaken by Symonds Henderson

In Confidence

Page 24

21 March 2002





For scenario “B”, the domestic growth required reduces to 1.5%, with an outcome of 55% in the overall mix. For scenario “C”, a negative growth in the task is necessary with an initial task split of 70:30, yielding an a domestic outcome of 33% in the total task.

6.4

Study components

Whilst pallet standards are the subject of the study, using pallets in supply chains is only relevant to the extent that  Pallets provide a fundamental and efficient means for transporting cartons  Technology relating to crates, returnable boxes, and “shelf ready” packaging is being assessed as part of EUL and ECR strategies, particularly within the grocery industry. This will change the nature of the pallet, however issues relating to the “foot print standard remain critical and in need of resolution  Containers move products and cartons as international trade. It does not automatically follow that pallet use within containers is any more or less efficient. The pallet is a component of transport and storage that interfaces with the container for the land transport component.  Emerging opportunities for using pallets within ISO containers for coastal shipping is a secondary issue and needs to be treated as a marginal benefit.



Multi-national firms are implementing regional and global strategies seeking production scales of economy and proximity to substantial markets Growth rates in market segments are expected to yield outcomes consistent with the threshold of 70% identified within the GISCC study referred in section 5.1 on page 5.

The following diagram summarises the key components of logic within the study.

Figure 6-4 Key components of logic within the study

Moreover, exogenous factors such as markets and growth are relevant to the extent that  Key market segments need to be assessed separately, as each has different growth rates and vary with respect to the mix of domestic and international trade

In Confidence

Page 25

21 March 2002



s d r a d n a t s g n i g a k c a p

O S I s d r a w o T

s d r a d n a t s

Compliance with ISO standards s d r a d n a t s

t e l l a p

O S I s d r a w o T

ISO packaging standards and domestic pallet standards

2 t e o N

g n i l i a v e r P

Closed systems and domestic standards; may be efficient in a steady state

Domestic standards

The “status quo” will lead to substantial inefficiency currently estimated to be 10-15% suboptimal utilisation

N o t te e 1

Marketing and manufacturing strategy Domest mestiic foc focus

Mutually exclusive decision points

Current situation within Australia, due to increasing imports by multi-national firms

Alignment and efficiency of pallet standards with packaging and container standards

0%

25%

Hybr Hybriid/trans ransiition ional phase

Globalisation and increasing connectivity

50%

75%

Export and import trade as a percentage of domestic consumption

Note 1 – denotes a strategy that seeks to maintain the status quo Note 2 – proposes that decisions regarding cartons ad pallets are mutually inclusive

6.5

In Confidence

Conclusions

Page 26

21 March 2002





The logic and rationale for a prevailing pallet standard is derived from the conceptual notion of a supply chain and its composite elements, which exist within the notion of “why do goods move?”



A study into pallets standards requires a number of considerations such as A long range view of the served market o A holistic view of the supply chain o The relevance of unitisation and efficiency o The relationship between products (SKU’s), pallets, o containers and/or trucks

It does not automatically follow that harmonisation between Australia and its customers/suppliers on pallet standards leads to such efficiency if considered in isolation. Nor do such alignments justify an increase of pallet usage within containers to facilitate efficient loading and unloading. The issue is the degree to which retention or dissolution of the current standard impact higher order issues such as  Carton sizing, consistent with the global ECR (Efficient Consumer Response) strategy  Customer expectation relating to product presentation in overseas markets  The need for single organisations to tolerate multiple pallet standards within a regional (sub-global) manufacturing or supply strategy.  Changes in the market mix serviced by supply chain processes. 

Differential growth rates exist for domestic production, export trade, import trade and domestic consumption, which will lead to a

In Confidence

change in the market mix served by Australia’s logistics systems (and standards)



It is very conceivable that within the next 20 years Australia’s international trade and logistics task will reach 70% of its domestic consumption5. That is

$import + $export % international trade = ------------------------------------------------------ $ domestic consumption where domestic consumption is a “proxy” for domestic land transport

Logistics processes and standards are increasingly global in context and application, with marketing and manufacturing strategies being executed at a global/regional level by large multinationals with substantial countervailing power

5

The GISCC report by Symonds Henderson identified that there is financial justification to introduce the ISO pallet where international trade reached 70% of domestic grocery consumption

Page 27

21 March 2002



Table 7-1 Summary of key survey participants

7.

SYNOPSIS OF SURVEY OUTCOMES

More than 50 individuals representing 40 organisations were interviewed to provide views and input into the study. These include: Manufacturers/Importers/Exporters Equipment providers Retailers Policy Advisers

7.1

Respondents

The table adjacent provides a summary of the key participants assessed in terms of financial size, geographic focus, logistics scope and perceived positive or neutral support or the issueof issue of pallet standard standardisation. isation. A comprehensive contact list is provided under separate cover.

r o n o i t l a s a u i d n i a i v g r d n O i

e p y T

Bachell

Equipment

Baxter

Manufacturer

BBC Chep Coles CRT CUB/Fosters DFAT Dexion FCL Heinz

Retailer Equipment Retailer Services Manufacturer Policy Equipment Services Manufacturer

Holden

Manufacturer

IKEA

Retailer

JJP K&S

l a b o l G e u n e v e R

c i t s e m o D e u n e v e R

$8000m

$285m

n/a

$4200m -

s c i t s i g o l c i t s e m o D 

s c i t s i g o l t r o p m I

s c i t s i g o l t r o p x E  



Global







As Asia Global Domestic Domestic Global Asia Domestic Domestic Asia



Asia

Not stated Global

  

  











Global







Manufacturer

$230m

Global







Services

$130m

Domestic





Kelloggs

Manufacturer

Not stated Domestic





Loscam

Equipment

Not stated Asia







$1500m Asia $2200m Global >$1000m Global











SCT Simplot

Services Manufacturer

$3500m

$100m $500m

Sonneveld

Policy

-

n/a

TDG TNT Materials Toll Logistics Toll SPD UBA Uncle Toby's Unilever

Services Equipment Services Services Manufacturer Manufacturer Manufacturer

-

Not stated Not stated Not stated $265m $1000m $350m $1300m

Woolworths

Retailer

-

Page 28

g n i t e e h s p i l S

$110m

$7000m

Murray Goulburn Manufacturer Nestle Manufacturer P&G Manufacturer

In Confidence

Not stated ~$140m Not stated $50m n/a $100m $500m

s u c o f c i h p a r g o e G

Domestic Global













 

Global 

Domestic Domestic Asia Domestic Asia Asia Global



$15000m Domestic





  

21 March 2002









 





7.2

Summary of Interviews

Efficient Consumer Responses and Efficient Unit Load, and supported by great collaboration than has existed in the past.

A summary of interviews is provided in the part two of the report under separate cover. The interview process provided an exhaustive range of perspectives with the “multinationals” providing the most strategic outlook. Service providers expressed concern regarding the impact and cost of change, whereas equipment providers expressed a degree of “neutrality”, indicating a preparedness to follow customer directions. Early within the survey process, discussion tended to pursue operational and technical perspectives, however later discussions identified the links between manufacturing, marketing, marketing policy, carton standards and pallets. This line of research led to the development of the Conceptual framework shown in Figure 6-1 on Page 20.

7.3



Stockholders are seeing more sophisticated products (crates, trolleys, slip sheeting) and alternate materials such as plastic  The future of the wooden pallet is limited; the study and review process was seen to be more about the standardisation process of how individual cartons aggregate into “blocks” or “units” that comply with a universal footprint standard for international distribution.  There is a clear awareness by multi-nationals that the carton and pallet size is standardizing on the ISO footprint of 1200 x 1000mm

Conclusions

A number of consistent messages emerged from the interview process conducted within the scope of the study  Supply chain philosophy in 2001 has progressed significantly since the GISCC report of 1997.  Supply chain management has emerged as a critical differentiation for firms in 2001 to 2010  Manufacturing is consolidating to pursue scales of economy  Supply chain processes are fundamentally changing with concepts of “shelf ready packaging” and “reverse crate flows”, emerging. This is being facilitated by strategies such as

In Confidence

Page 29

21 March 2002



8.

MARKET CONTEXT



The application of a particular item of handling or transport equipment such as pallets and containers must be seen within the context of its market, and an assessment of the “served market” is considered worthwhile. Not all supply chains are serviced by pallets and/or containers, rather are limited to supply chains servicing specific manufactured and/or value added products. Conclusive data regarding the physical movements of these goods within supply chains is not available, however judgements can be made from an assessment of the value of the goods within specific markets. The following analysis based on the degree of unitisation6 employed will determine the relative market sizes for three (arbitrary) classifications, which are 



Goods that are never unitised, palletised, or containerised, and are generally bulk commodities and refined products, or automotive vehicles. Goods that are not typically palletised, and but may be containerised, and may generally be handled and break-bulk

cargoes. Such products include steel and lumber, however may be unitised dependent on destination, consignment size and so on. Goods that are al almost always unitised and containerised, such and grocery and other consumer items. Products are always transported domestically on pallets, however import/export movements may employ pallets, slip-sheeting (or similar) or are hand-stacked within the container.

The classification used herein will also show this in graphical form as follows. Classification

Unitised

Palletised

Containerised (international)

A



(never)



B



(never)

? (not usually)



(typically)

C







(always)

(always)

(never)

(domestic) ? (subject to product type)



(never)

The following sections develop a composite model for market segmentation, based on data from a number of sources.  Manufactured goods  Agricultural goods  Retail markets  Export and import trade Recognising the limitations and scarcity on volume data, product and trade values has been used as a proxy.

6

For the purpose of efficient definition, “unitisation” will refer to the generic practice of value adding through packaging and/or used of pallets and containers for the transport and storage of the goods

In Confidence

Page 30

21 March 2002



Figure 8-2 Subdivision (by value) of Australian manufacturing (including imports and exports) by unitisation class

In Confidence

Page 32

21 March 2002



Subdivision Subdivision by value of Australian Manufacturing totalling $260 B Never unitised 22% Not usually unitised 49%

8.3

In Confidence

Almost always unitised and palletised 29%

Agricultural Goods

Page 33

21 March 2002



Retail Trade within Australia estimated to be worth around $130 B

Pharmaceutical and other 13% Recreational goods 6%

Supermarkets 36%

Appliances 6% Hardware 4% Furniture and coverings 4% Clothing and soft Department stores goods 10% 8%

8.5

Other food retailing 13%

Export and import trade

The total value of international trade for the 1999-2000 financial years was  Imports - $110 Billion  Exports - $97 Billion Whilst an analysis of imports was partially covered under 8.2 Manufactured Goods, a more complete summary is provided below, using the same classification method previously described. The analysis in Table 8-4 and Table 8-5 shows the proportion of containerised freight as a proportion of the total trade.

In Confidence

Page 35

21 March 2002







For imports, trade in containers totals around $67 Billion, whereas Bulk shipments total almost $43 Billion. Containerised trade needs further dissection, to eliminate products that are not unitised and therefore not stored and handled on pallets. For export, Bulk shipments are the dominant movement type, comprising comprising coal, gr ain, ain, minerals and similar products. Container movements on unitised products total around $48 Billion, with a further $18 Billion of products which are containerised, however not unitised and therefore would not employ pallets for handling and storage.

Expressed in value terms, containerised movements of unitised product have grown around 8% per annum (compounded) since 1995, and consistent with other key trade statistics. The total value of international trade for unitised product moved in containers is around $70 Billion, and represents 33% of total international trade.  Consumer grocery and foods products totals around $13.5 Billion, and predominantly an export movement  Consumer non grocery and household items total $15.7 Billion, and is predominantly an import movement  Industrial products total $41.5 Billion, with $33 Billion in the import direction. Within the context of pallet standards, grocery and food products have demonstrated the most significant requirement for pallet usage, with household and industrial products allocating lower priority to the issue.

In Confidence

Page 36

21 March 2002



Table 8-4 Summary for import trade, segmented segmented into the unitised classification classification

Flow

Import

Sum of Value Market segment a) Consumer (grocery)

Category Not containerised Containerised, semi bulk Unitised, in containers

$B trade

$B trade

Year 1995-6

Annual growth rate

1999-00

Not containerised Containerised, semi bulk Unitised, in containers b) Consumer (non Grocery) Total c) Industrial Not containerised Containerised, semi bulk Unitised, in containers c) Industrial Total d) Excluded Not containerised Containerised, semi bulk Unitised, in containers d) Excluded Total Grand Total

166 687 2,357 3,210 2,359 7,620 9,979 5,977 11,564 25,072 42,613 19,239 2,751 21,990 77,792

266 891 3,226 4,383 2,633 11,947 14,580 7,109 14,107 33,457 54,673 32,894 3,556 36,450 110,086

12.5% 6.7% 8.2% 8.1% 2.8% 11.9% 9.9% 4.4% 5.1% 7.5% 6.4% 14.3% 6.6% 13.5% 9.1%

Totals from above

a) Consumer (grocery) Total b) Consumer (non Grocery)



Not containerised

27,741

42,902

11.5%



Containerised, semi bulk

15,002

18,554

5.5%



Unitised, in containers

35,049

48,630

8.5%

Source: Derived from ABS 30.28 Merchandise Exports And Imports, By Commodity

In Confidence

Page 37

21 March 2002



Table 8-5 Summary for export trade, segmented into the unitised classification

Flow

Export

Sum of Value Market segment a) Consumer (grocery)

Category Not containerised Containerised, semi bulk Unitised, in containers

$B trade

$B trade

Year 1995-6

Annual growth rate

1999-00

Not containerised Containerised, semi bulk Unitised, in containers b) Consumer (non Grocery) Total c) Industrial Not containerised Containerised, semi bulk Unitised, in containers c) Industrial Total d) Excluded Not containerised Containerised, semi bulk Unitised, in containers d) Excluded Total Grand Total

4,929 2,824 7,049 14,802 553 2,412 2,965 2,692 13,876 6,592 23,160 33,813 452 34,265 75,192

4,939 1,709 10,314 16,962 598 3,715 4,313 3,716 16,185 8,044 27,945 47,451 581 48,032 97,252

0.1% -11.8% 10.0% 3.5% 2.0% 11.4% 9.8% 8.4% 3.9% 5.1% 4.8% 8.8% 6.5% 8.8% 6.6%

Totals from above

a) Consumer (grocery) Total b) Consumer (non Grocery)



Not containerised containerised

41,987

56,704

7.8%



Containerised, semi bulk

17,152

18,475

1.9%

Unitised, in containers

16,053

22,073

8.3%



Source: Derived from ABS 30.28 Merchandise Exports And Imports, By Commodity

In Confidence

Page 38

21 March 2002



8.6

Value of Market Segments

Figure 8-4 Value of the major Market Segments for unitised goods within within the Australian market

A composite model for unitised product developed from the previous summaries is provided in Figure 8-4 opposite. This figure shows the overall value of unitised product from all sources and used within the Australian market to be around $154 B. This can be compared with the value if international trade in unitised products, which is estimated to be around $70 billion (refer to page 32). Exports and Imports for unitised product are later compared to the domestic market value.

In Confidence

Page 39

21 March 2002



$B

Market value segmentation ($B) unitised products

300 250

Consumer grocery

Consumer non grocery

Industrial and "other"

200 150 100 50 0

s s s s s g s d d g t s e r c y u c t s o r t l u d e d u c t d u c t d u c t r i n o r t u c f o o s u m g o o d i s h i n r m a p u p d d t x d o o r o r o r o I m i n c e E f a c o n i e t y u r n P h a a l p r i c p r d p r a l p e d p c e s s o t r n u r c f d f t e i n l a a r e t s u e i o v o t m p r c t u i c u l i e n c t s o t h h e r n i t e h c m t e d d s c l u d u n u f a s t i u s n d n d g r o a a o e o a t t a r A h d m r i c a n T o m a d p e r y f o o d g a n a n d D o f a b o n i c o c i s e i s e d r n t d e i d i r r G n i t a s e l o t h c t a n n u e s U n e r l , , e l e C r d w p a o c N o r a a H p n p t r i c d , N o o o E l e c Market segment W

In Confidence

Page 40

21 March 2002



8.7 

Pallets are not used in all supply chains. Generically, three types of supply chains exist for the purpose of categorisation herein, which are: Bulk shipments o Semi bulk shipments, typically in containers or as o “break bulk” consignments Containerised movements of unitised freight (pallets, o cartons, bags, etc.) o





Conclusions

The growth rate for international trade is between 8-10% (compound), whereas domestic production and consumption is around 3-4%

It is the third group relevant to the study

Markets considered by this study are manufactured and primary products, retail markets, and and export/import international trade



Australia’s international trade is around $210 billion, however trade in unitised product represents around 35%, with the majority of the balance relating to shipment of bulk commodities (coal, grain, minerals, natural gas, etc.)



The market value of Australia’s unitised/packaged products is around $150 billion, comprising domestic production retained and imported product, for domestic consumption. This can be subdivided into consumer grocery ($54 billion), consumer non grocery/household ($47 billion) and industrial ($53 billion). Each sub-element has differential growth rates and trade imbalances, further influencing the composition of the market mix.

In Confidence

Page 41

21 March 2002



Table 9-1 Logistics volumes for relevant market segments (unitised/containerised) (unitised/containerised)

9. 9.1

AUSTRALIA’S LOGISTICS TASK The task in 2001

9.1.1 Limits of the definition and analysis Defining the Australian Logistics task has always been a complex process limited by the quality of the source data and the frequency of the survey process. This analysis will be limited to Non bulk freight movements Inter-city movements by road, rail and sea Import and export movements by sea using containers

  

Corridor

Local and short haul intrastate Inter-capital city movements International

Mode 

Volume of non bulk movements More than 1BT9 

Road

  

Road Rail Coastal shipping Sea freight as Import full containers  Import empty containers  Export full containers  Export empty containers 

  

40 MT10 10 MT 3.3 MT

   

17 MT 0 MT 13 MT 0 MT

Source: Various BTE and BIZ Shrapnel reports

9.1.2 Volumes relevant to the analysis (2000) Within the context of this study, Australia’s supply chains are dominated by  Local and short distance interstate distribution by road  Long distance distribution by rail and coastal shipping  International container shipments (export and import) The volumes associated with each of these elements are shown in the following table. A conceptual model relating to the freight movements is provided in Figure 9-3 on page 42.

9

BT = billion tonnes MT = millions tonnes

10

In Confidence

Page 42

21 March 2002



9.1.3 Road freight movements

9.1.4 Rail freight movements

Road freight dominates the movement of product between Sydney, Melbourne, Brisbane and Adelaide. Typically, product travels between origin and destination on domestic pallets as  22 pallets per 13.7 metre trainer load (45 foot)  30 pallets per B-Double load

Rail freight movements of unitised product, is undertaken within domestic and ISO containers.

Table 9-2 Inter-capital road freight matrix 1998-99 ('000 tonnes) Destination MT (1998-9)

Sydney +NSW

Sydney +NSW Melbourne +VIC Brisbane

Melbourne +VIC

8.0 9.6

Brisbane only

Adelaide +SA

2.8

1.5

1.6

13.9

3.2

1.9

1.0

15.7

0.3

0.2

3.7

0.2

3.6

1.9

1.3

+SA

1.6

1.7

0.1

Other

1.5

1.1

0.1

0.2

14.6

12.1

6.2

3.9

n only i g i r Adelaide O

Total

Other

Total

Domestic container sizes and configuration has been based on the domestic pallet being accommodated two wide and therefore is wider than the ISO standards pallet. There is not a consistent approach to the operation of container loading for long distance transport. Table 9-3 Use of domestic and ISO containers within long distant distant freight movements

Application

Domestic containers

2.9 3.0

39.8

ISO containers

Loading method

Intercity stock transfers Direct delivery on pallets Inte Interc rcit ity y sto stock ck tran transf sfer erss

Hand stacking to maximise cubic capacity Product on pallets Hand Hand stac stacki king ng to maximise cubic capacity

Source: BIZ Shrapnel11

Rail movements of non-bulk unitised product totals around 10 million tonne per annum.

9.1.5 Sea freight movements Sea freight movements relevant to the study involve international maritime freight and coastal shipping freight. 11

BIS Shrapnel – Freight in Australia 3 rd edition 1999-2004

In Confidence

Page 43

21 March 2002



9.1.5.1 International shipping Australia’s maritime shipping task has been growing at around 8% per annum and currently totalled 3.1 million TEU’s in 1999-200012.

Figure 9-1 Apportionment of container flows as full and empty imports and exports in 2000 % Split of 5 major port volumes as at 2000, totalling 3.1m TEU's

Whilst fluctuations in the balance between imports and exports occurs from time to time, the long term average between full and empty import/export containers is shown in Figure 9-1 following.

Export Empty TEU's 13%

Import Full TEU's 43%

Note that these volumes include the costal shipping volumes shown in the next section, as relevant to port activity. Export Full TEU's 37%

The following table is a composite derived from various sources to provide a view of containerised freight as at 1998-9, totalling 31 million tonnes.

Import Empty TEU's 7%

Graph and % split assumes balance of import ad export flows over the long term

Figure 9-2 5 Ports volume of container container flows in 2000 Table 9-4 Summary of container activity for 1998-9 '000 TEU's

1998-9 Total shipments by sea Export (1998-9) Import (1998-9) % containers Export Import

Volume

Value

Qty Unit

$B

Container balances - 12 months to June 2000

700

Full TE TEU's

600

432 mt 57 mt

90 101

3 % 30 %

40 66

Empty TEU's

500 400 300 200 100

Container shipments Export Import

13 mt 17 mt

36 67

0 Imports SYD

Exports SYD

Imports MLB

Exports MLB

Imports BRS

Exports BRS

Imports ADL

Exports ADL

Imports FRE

Note that marginal imbalances between imports and exports led to build up in container storage through 2000, however has been resolved.

12

BTE Waterline Report September 2000 – Table 9 – TEU Throughput at the Five Major Australia Ports (1995-2000)

In Confidence

Page 44

21 March 2002

Exports FRE



The percentage of 12 metre containers has been steadily growing since March 1999 from 28% to 34%13. Note that the national average is 1.33 TEU’s per container moved, and is a function of the mix to 6 and 12 metre containers.

9.1.5.2

Coastal shipping

Coastal shipping volumes around Australia have maintained a gross volume of around 48 million tonnes since 1995, however, has seen a strong growth in containerised freight and general freight, particularly with the advent of single and continuing voyage permits. Containerised freight moved by all coastal shipping totalled around 3.04 million tonnes in 1998-914. Today the volume is estimated to be around 3.3 million tonnes and equivalent to more than 250,000 TEU’s. This can be seen as a subset of the total 3.1 million TEU’s identified within the previous section. Coastal shipping relevant to this study relates to movements’ to/from Tasmania and Western Australia, with the balance of relating to North Queensland and Gulf shipments. For the purposes of the model developed in this study, the following volumes are identified.

13 14

Table 9-5 Summary of Coastal Shipping of Containerised Containerised freight To Tasmania From Tasmania T o WA From WA Total

Tonnes (MT) 1.5 1.4 0.4 3.3

Equivalent ‘000 TEU’s 100 90 55 10 255

The movement of empty containers to WA by sea arises out of the need for container balancing between Australian ports. Annually, around 20,000 empty TEU’s are moved from the east coast to Perth. Recognising that WA is a “net receiver” of domestic freight, most domestic containers sent to WA are returned empty to the east cost This movement can be assessed in two different ways a) The marginal cost of moving an empty container for balancing purposes is around $500 per movement, and at 20,000 TEU’s per annum, this represents a total cost of $10 million per annum. The marginal cost of returning the empty domestic container is therefore around $10 million per annum. b) The movement of an empty container represents a lost opportunity, where a parallel movement exists; such movements included road and rail movements of goods to Perth. In this context, a freight cost of $1500 per journey can be used, representing a total annual opportunity cost of $30 million.

BTE Waterline report Issue 27 – June 2001 – Table 1 (page 3) BTE Information Paper 46 – Coastal Freight in Australia (1998-99)

In Confidence

Page 45

21 March 2002



Figure 9-3 Supply chain configuration incorporating road, rail and sea freight movements movements on unitised non-bulk products

S t t o ot cc S k k t o o c k c o oo k h h l d dl 7 i n i n g - - 8 ol 8 g l d i d 7 in g ut u n - -8 t rn r 8 u g n s s u r r n s n p e ee s p r r e r n nn n r a a n u u m nn nu m u m m

Cargo Node (stock holding)

Domestic production 7 0 00 7 T TT 0 M M T

Freight Station

LCL cargo

Sea port

FCL cargo

Import/export movements 110 M T TT 0 M T

Interstate freight movement road, rail, sea

Local freight movement

Local customer

Interstate customer

3 5 55 3 5 % % 2 5 55 2 T TT 5 M M T

Empty container repositioning

6 5 55 % 6 5% 5 0 00 5 0 M M T TT T 3 3 M T TT M T ( ( 2 22 2 2 5 5 22 5 2 0 00 0 5, 0 0 , 0 00 T E EE 0 T U U ’ s ’ s E U U’ ’ s s

Sea port

In Confidence

Coastal shipping as single voyage permits

Page 46

21 March 2002



9.3

Growth forecasts

9.4

Transport indicators

The following table summarises a set of key market indicators to be used in subsequent analyses, particularly relating to the growth in task and change in the task mix over the next 15 – 20 years.

Growth within international and domestic supply chains demonstrates the fact that while the overall task has been growing at around 3-4% per annum (compound) consistent with GDP, the mix of the task has seen contrasting growth.

Table 9-7 Summary of key market indicators

Figure 9-4 Transport and Storage output and Gross Domestic Product15

Key Market indicators 2000-1 $B 58.7 88.3 147.0

Years

Retail turnover (sales+profit) Consumer - grocery/food Non grocery/other Total

1992-3 $B 49.3 64.7 114.0

1999-0 Index 102.8 104.7 95.3 104.7

Years

Indices of Industrial production Manufacturing Food/Beverage Metals Total Industrial

1991-2 Index 82.1 82.2 83.1 83.0

% annual growth rate (compounded)

8.0 8.0 8.0

2.2% 4.0% 3.2% % annual growth rate (compounded)

8.0 8.0 8.0 8.0

2.9% 3.1% 1.7% 2.9%

Manufacturers Sales and inventory (Chain volume measures)

Sales Inventory

1992-3 $B 187.1 26.0

2000-1 $B 233.6 31.8

Years

% annual growth rate (compounded)

8.0 8.0

2.8% 2.5%

Growth in port throughput has been around 8-9% compounded growth since June 1993, as shown over page.

Source : ABS Australian Economic Indicators 1350.0

Figure 9-5 Trend analysis for container container throughput for the five major major ports16 15

BTE Transport Indicators sourced from www.dotrs.gov.au/bte/docs/indicate/transgdp.htm

In Confidence

Page 48

21 March 2002



9.5

The market mix of the logistics task

Assessing the need for “harmonising” pallets and containers, exists within an assessment of the relative size of key market segments for international and domestic markets and flows.

Production

JB Were and Macquarie Equities have identified that whilst container growth volumes are expected to be around 5-7 percent in fiscal 2002, the long-term forecasts, estimates of 8 to 8.5 percent are expected17.

International production

Export markets

Domestic consumption (as proxy for domestic transport)

From the preceding, domestic transport follows the demand in domestic consumption, whereas, international transport (and the need for ISO containers) is experiencing growth rates double that of domestic consumption. The following table provides a composite summary derived from the preceding sections, and based on the total $154 Billion, being the value of the unitised product within the market.

16

BTE Transport Indicators sourced from www.dotrs.gov.au/bte/docs/indicate/totcont.htm 17 Australian Financial Review – 20 June 2001 – “Corrigan pushes ahead with Lang Corp transformation”

In Confidence

The modelled growth (b) reflects a more conservative forecast than reported in the various data references used, and maintains logic within the internal relationships of the data when extrapolated 20 years.

Page 49

21 March 2002



Table 9-8 Summary of the current and modelled growth by market sector

Product, consumption and trade values for containerised containerised products

Current Growth (a)

Comsumer (Food/grocery) Dom. Production Export Import Dom. Consumption Product, consumption and trade values for containerised containerised products

Consumer (Household)

Current Growth

Dom. Production Export Import Dom. Consumption


Industrial/Other

13.5% 14.2% 4.6%

Current Growth



Total

11.6% 9.2% 2.6%

5.5% 8.4% 3.3%

Current Growth


Modelled Growth (b)

2001

4.2% 10.0% 9.0% 2.6%

61 10 3 54

Modelled Growth

4.3% 9.0% 7.0% 4.6%

Modelled Growth

0.9% 4.0% 5.0% 3.3%

Modelled Growth

3.7% 8.2% 5.9% 3.5%

Ratio international trade to consumption Comsumer (Food/grocery) Consumer (Household) Industrial/Other Total

2001

39 4 12 47

2001

29 8 32 53

From the table,  International trade for Consumer/grocery/food is around 25% of the domestic consumption, and expected to grow significantly, aligned with growth in export agri-business  Consumer/non-grocery/household products yield around 33% international trade as a % of domestic consumption  Industrial products yields a significant 75% for the same measure. Table 13-3 on page 68 titled “Assessment of growth scenarios based on alternative task apportionment and predicted growth forecasts” provides annual estimates for growth, and indicates the importance of international supply chains and sources of supply and demand.

9.6

The task in 2020

The following charts indicate the potential market values for each market segment for years 2010 and 2020, based on the forecasts in Table 9-8 and Table 13-3

2001

129 22 47 154

25% 33% 75% 45%

In Confidence

Page 50

21 March 2002



Figure 9-6 Consumer (Grocery and food) - Market value estimates based on growth forecasts

Consumer - Non Grocery and Household market growth

$B value

120 $B value

Consumer - Grocery and food market growth

100

160

80

140 120

60

100

40

80

20

60 40

2001

20

2010

Dom. Production

2001

Dom. Production

2010

Export

Import

Export

Import

2020

Dom. Consumption

2020

Dom. Consumption

Figure 9-7 Consumer (Non-Grocery and and household) - Market value estimates based on growth forecasts

Figure 9-8 Industrial/Other - Market value estimates based on growth forecasts Industrial and "other" market growth

$B value 120 100 80 60 40 20 2001

Dom. Production

2010

Export

Import

2020

Dom. Consumption

Figure 9-9 Totals (All market segments) - Market value estimates estimates based on growth forecasts

In Confidence

Page 51

21 March 2002



All markets growth

$B value

Ratio % of international trade to do mestic consumption

350

120%

300

100% 250

80% 200

60% 150

40%

100

20%

50

0%

2001

Dom. Production

9.7

2010

Export

2020

Import

Dom. Consumption

Implication of the future task

International trade and the supporting supply chains will become increasingly more important over the next 15 – 20 years for Australia’s logistics processes.  Consumer/grocery/food products will see international trade increase to be around 70-80% of its domestic consumption  Consumer/non-grocery/household products will increase to around 40-60% of its domestic consumption  Industrial products will yield an outcome where the international trade will equal its domestic consumption. The following chart derived from Table 13-3 shows the expected growth and fundamental change in the market mix and logistics task. Figure 9-10 Forecast trade and consumption consumption comparisons by market market sector and total

In Confidence

2001

2003

2005

2007

2009

Comsu omsume merr (Foo (Food d/gro /groce cery ry)) Industrial/Other

2011

2013

2015

2017

2019

Con Consume sumerr (Hou (House seh hold) old) Total

Overall, for all market sectors, trade for unitised/containerised products will increase to be around 70-80% of domestic consumption.  Australia’s domestic land transport activities will become increasingly connected to international supply chains and processes  For export-oriented products, standards (and processes) will become a function of market expectations for product quality, carton size and value added features  Australia’s capacity to increase its export markets will require products that fit overseas distribution systems, and provide efficient means of supply to those markets.  For import-oriented products, standards (and processes) will become a function of the prevailing production scales of economy.  Multi-national producers are economising on product range and reducing product heterogeneity. Markets will need to develop and establish distribution systems that efficiently handle products that comply with global standards.

Page 52

21 March 2002



recognising that parallel freight movements by rail and road are undertaken. It is considered that harmonisation between ISO containers and the product footprint (pallet) would address this cost, whether considered in a marginal or opportunity cost treatment. 

Australia’s pallet pool system is valued at $200 million per annum, and generates around 40 million pallet issues. There are around 15 million pallets in circulation

In Confidence

Page 54

21 March 2002



10. PALLET USAGE AND INTERNATIONAL TRADE There are for prevailing pallet standards adopted globally. Table 10-1 provides a summary of geographical distribution of pallet standards. The dominant regions of most influence to Australian trade are China/South east Asia/North America, which utilise the ISO pallet of 1200 x 1000mm. Around two thirds of Australian trade is with countries that utilise the ISO standards. Considerable debate is underway in Europe to align pallet standards. In that region there is an unwavering belief that the ISO standard provides operational benefits through reduced handling occurrences. A key advantage us the carton modularity/standard of 600 x 400mm, which provides for harmonisation with wither pallet standard. The document pallet standard in Japan and Korea is the 1100 x 1100mm pallet, however Korea appears to “tolerate” a proliferation of pallet sizes with the 1200 x 1000mm ISO pallet being the second most popular standard. Discussion with a number of sources have indicated a measure of frustration by multinationals and ECR Asia, regarding Japan’s reluctance to embrace the ISO standard. However, it is considered that Japan (like Australia) will not be able to resist the emergence of the ISO standard over the long term.

In Confidence

Japan and Korea represent around 15% (by volume) of Australia’s export trade and 10% of the import trade. The following sections provide more detailed analysis of import/export trade volumes as measured by containers Growth trends 1995 – 2000 o Distribution of container volumes across unitised and non o unitised package types Distribution of volumes by pallet standard and growth trend o Table 10-1 Geographic distribution of pallet standards standards 12 0 0 * 1 0 0 0 1219 * 1016

1200 * 800

1100 * 1100

1 16 5 * 1 1 65

USA Canada Mexico Chile United Kingdom Netherlands Finland South Africa Singapore Hong Kong Malaysia Indonesia Thailand Phillipines New Zealand

Germany France Italy Spain Sweden Switzerland Austria

Japan Korea

Australia

India * Middle East * * emerging

Page 55

21 March 2002



10.1

Import-oriented containers

Import orientated containers conservatively around one third of import containers carry unitised product which is transferred to pallets on arrival. Product imported from countries that use ISO pallets account for around 60%, growing at 5% per annum. By volume, imports are growing at 6.5% per annum.

10.2

Export-oriented containers

Around 35-40% of export containers carry product which are regarded as unitised, with almost 70% by volume bound for export markets utilising ISO containers. Growth to markets that utilise the ISO pallet is 10% per annum compounded, whereas growth to markets using the 1200 x 800 Euro pallet is 17%. These markets account for 80% of exports.

Table 10-2 Import containers by market market segment and pack type

Table 10-4 Export containers by market market segment and pack type

Error! Not a valid link.


Table 10-3 Import containers by pack pack type and pallet standard at origin

Table 10-5 Export containers by pack pack type and pallet standard at destination



In Confidence

Page 56

21 March 2002



10.3

Conclusions

Trade to/from containers that use ISO pallets account for 60-70% by volume, with imports growing at 5% and exports at 10% The following table summarises the key results. Table 10-6 Container movements by pallet standard standard

Pallet size

1100 x 1100

‘000 TEU’s % total % growth

1200 x 1000


1200 x 800


Non Standard


TOTAL

‘000 TEU’s

Imports

Exports

35 10 9 2 30 62 5 90 24 10 15 4 6 370

62 16 3 2 75 69 10 40 10 18 23 5 10 400

In Confidence

Page 57

21 March 2002



11. OPERATIONAL IMPLICATIONS The operational elements inherent within the pallet standards debate can be identified as follows:  Changes to warehousing and racking requirements resulting from pallet sizes changes  Cartons standards and perceived and real costs associated with a proliferation of carton sizes and additional stock keeping units (SKU’s)  Cubic utilisation within the pallet envelope (as footprint times the number of layers  L * W * H)  Pallet loading and configuration onto trucks  Labour impacts resulting from increased number of items to be handled/lifted  Associated ancillary and mechanical handling equipment  Physical adjustments to the pallet The debate over the last five years focussed on operational and tactical issues and the cost of adjusting infrastructure to accommodate the ISO pallet standard.

11.1

Arguments to retain 11652 pallet

Operational arguments supporting the retention of the Australian pallet can be summarised as follows:  A change to the ISO pallet will lead to a 12.5% reduction in the pallet foot print, which in turn increases the number of handling occurrence to move the same volume of freight. Labour costs therefore increase.  The area set aside for racking can be decreased by 4% to accommodate the same number of pallet locations, offset by an increase in pallet locations by 12.5% to accommodate the same volume of freight.  Racking costs to dismantle, re-fabricate and reassemble to the new configuration  Road trailer utilisation would decrease by 3%, from 94% to 91%, due to a change in pallet foot print, which could be offset by wider trailer dimensions (to 2.6 metres) or a greater proliferation towards 14.6 metre trailers (48 foot)  Aligning pallets to ISO containers does not lead to loading product into containers on pallets, due to a loss of cubic utilisation around 1015%  Overall cost benefit is negative

The GISCC study summarised in section 5.1 on page 5 of this report identified substantial benefits of harmonising the carton to the pallet, which was on the whole sufficient to offset the cost of infrastructure adjustment; such capital costs were estimated to be $1.1 Billion, of which 75% related to warehousing expansion and racking adjustment.

In Confidence

Page 58

21 March 2002



Where the ISO pallet configuration I s placed on an Australian pallet, there is overhang by 35mm in one direction and underutilisation by 165mm in the other direction. The net outcome is an under utilisation of the Australian pallet. This aspect was was observed and discussed by contributors to the study. Where ISO cartons are re-configured there are handling costs and similar under utilisation in the footprint, due to “indivisibility” of the carton unit. Carton manufacturers based on ISO standards will only head to optimal utilisation if used in conjunction with ISO pallets.

11.4

Pallets separate each layer of products to facilitate “put away” processes at the retail distribution centre

Pallet and order make-up

There is an increasing trend to ordering smaller quantities more frequently, which provides Lower inventory  High stock through put velocity 

Trend towards ordering SKU’s in smaller quantities and the formation of “rainbow” pallets

This has seen the emergence of the various pallets of multiple products. The prevalence of the rainbow pallet provides increased flexibility when “mixing and matching” for load make up and optimal cubic utilisation of truck and container space.

Homogenous pallet Single product

Heterogeneous pallet Multiple products • know as a “rai “rainbo nbow” w” palle pallett • produc productt ordere ordered d as laye layers rs

This has a direct relationship when considering truck interface issues, referred to in the next section.

In Confidence

Page 60

21 March 2002



Figure 11-1 Various combinations for trailer length and pallet size

11.5

Vehicle interface

Migration to the ISO pallet is not considered to yield any significant impacts on vehicle efficiency. Considering the common 13.7mm (45’ trailer), which carries 22 x 11652 pallets and provide a total footprint of 28.8m2, a reduction of only 3.7% A number of key issues emerge  Unlike container traffic, road trailers typically “weigh out, before they cube out”. Refer to Figure on Page Page  The prevalence of rainbow pallets provides an opportunity to utilise the 30-40% free space typical in a trailer load  Migration to a 14.6m (48’ trailer) would yield an 8% increase in footprint over the 13.7m trailer carrying 24 ISO pallets.  The same trends exist for B double trailer configuration.

In Confidence

Page 61

21 March 2002



Figure 11-2 Trailer utilisation, showing under-utilised capacity

Cubic capacity capacity of pantechnicon pantechnicon or tautliner tautliner = 13.55 x 2.4 x 2.3 m = 75 m 3

2.2-2.4 m height

40% unused capacity 1.2-1.6m pallet height

Cubic capacity of product on 1165 2 pallets = 22 x 1.165 x 1.65 x 1.5 = 45 m3

11.6



Container loading

A considerable proportion of unitised freight is hand stacked into containers for international or coastal shipments, due to  Mismatch between the dimensions of Australian pallets, and the internal dimensions of the ISO container  Different pallet sizes and configurations between Australian and overseas supply and demand points  Inadequate or alternate handling methods

In Confidence

Low take-up of slip sheeting as a handling method in lieu of pallets  Limited cooperation/coordination between origin and destination handling points, and a resolution to accept the status quo A number of organisations interviewed outlined their desire to utilise the ISO footprint to facilitate efficient container loading techniques.

Page 63

21 March 2002



Figure 11-3 Demonstrates the difference in loading/unloading techniques

Typical method

Sea journey ISO container

1200*1000 ISO pallet

1165*1165 Austn pallet

Handstacking of cases into the container to maximise the cubic capacity; stacking integrity lost

Unitis Unitised ed method method

Unloading by hand to Australian pallet Under-utilisation of Aust n . Pallet footprint

Sea journey ISO container



Pallet removed from product base; stacking integrity maintained through alternate handling techniques (eg. Slip sheeting)

In Confidence

Page 64

21 March 2002



11.7

Conclusions

The decision and supporting logic can be summarised in the following matrix. Table 11-1 Matrix for operational decision criteria

Current carton sizes



1165 * 1165 mm pallet 1200 * 1000 pallet Current situation Given certain % of case identified as yielding sizes are based on the ISO 10% inefficiency in standard, this option may utilisation. absorb under-utilised EUL analysis identifies capacity (and “slack”) 1.2-1.6% cost to sales of such inefficiencies Recommended in Not considered as a viable GISCC report to be of option significant benefit, if harmonised however ignores global trend towards ISO carton standards Increasing trend in this Potential to off set near direction will proliferate term adjustment costs for current inefficiencies infrastructure further 60-70% global activity based on ISO standard for cartons and pallets

In Confidence

Page 65

21 March 2002



movements which yields benefits of $150 million per annum by year 7.

12. FINANCIAL ANALYSIS 12.1

Framework

It is beyond the scope of this study to develop industry specific or user specific financial analyses and justifications for the introduction of the ISO pallet. Rather it is the intention herein to incorporate only the strategic elements relating to: 





Implementation of EUL based on the ISO standards18. The benefits associated with EUL are reported to be between 1.2% and 1.6% of sales, and would represent value foregone if Australia maintained or expanded its distribution processes based on the current pallet standards Capital costs associated with converting the pallet pool to the ISO standard; previously estimated to be around $7.00 per pallet. The model assumes a provision for $150 million, expanded over 10 years. Similar adjustments are assumed for pallet machinery and racking at $50 million and $400 million respectively over 10 years Operating benefits associated with unitised loading and unloading of containers for international trade and coastal shipping



Operating cost provision peaking at $100 million in year 10, to cover marginal expenditure for labour, forklift hire and consumables such as slip sheeting. This is a broad estimate only.



The model assumes growth consistent with the Table 13-3 on page 68 in the appendix



The model accommodates implementation over the first 10 years, and limits benefits to a maximum of 20 years.

Not included within the calculation are operational or opportunity costs arising from to  balancing and moving empty ISO containers around the nation while maintaining and operating a domestic container fleet in parallel  maintaining two production standards based on Australian and ISO carton and pallet configurations

12.2

Cost Elements

Table 12-1 over page summarises the key differences that exist between the GISCC study and this study for ILN. The ILN study provides for a wider scope within the market and incorporates EUL benefits. and the secondary benefits of container loading/unloading efficiency

18

To harmonise carton and pallet sizes based on the Australian standard ignores the global trend towards the ISO standard, the expected demands/standards within new export markets, and the rationalizing and implementation of global manufacturing

In Confidence

Page 66

21 March 2002



12.4

Conclusions

The financial analysis allows for A capital expenditure of $600 million for adjustments to the pallet pool, packaging & ancillary equipment over the 10 years  The incremental increase in operating costs by $100 million over the same period  The benefits of ECR/EUL are applied to 75% of the market segment for consumer grocery and non grocery products and 50% for industrial products  Unitised loading of containers is a substantial benefit 

The analysis yields a positive NPV of $2.5 billion, assuming an inflation rate of 3% and a discount rate of 30% (pre-tax). This NPV increases to over $5.1 billion of the discount rate is decreased to 20%. Prime-facie, there appears to be a substantial cost impact if the current standard is maintained, leading to non conformance costs arising from the “disconnect” between standards.

In Confidence

Page 69

21 March 2002



13. APPENDICES Table 13-1 Scenarios "A" - "C" indicating growth in indices in the intervening years Error! Not a valid link.

In Confidence

Page 70

21 March 2002



Table 13-2 Value of market segments and determination of task task size by segment

Segment

Consumer Grocery

Consumer Non-Grocery

Industrial

Not included

Product group

Processed food + agricultural products Non processed agric. products "Other" products Department/variety store Hardware + furnishings Pharmacy Wood and paper manufacturing Fabricated metal product manufacturing Photographic and scientific equip mfg. Electronic equipment Electrical equipment and appliance mfg. Miscellaneous mfg.

Fuel chemicals Other machinery incl. Transport Mineral products Printing and Publishing Metal

Value Totals $B Value $B 43 7 4 15 15 17 18 8 5 8 7 7

34 30 10 16 38

Totals from above Check total

10% 7% 54

Product value per tonne

Tonnes (Million)

Pallet issues (Million)

2000

27

45

47 9% 7%

3000

16

26

53 2% 5%

4000

13

22

1

56

93

128 128.05

Manufacturing, export, imports Agricultural products

In Confidence

258 24 282

Page 71

21 March 2002



Figure 13-1 Australian manufacturing - production, exports, imports and consumption by market sector

Movements and comparison between the Australian manufacturing base and the total market ($B)

$B Value

1 . 6 5

60.0 50.0

9 . 9 4

6 . 5 4

2 . 1 4

0 . 2 4

7 . 5 3

40.0

2 . 2 3

30.0 20.0 10.0

2 . 3 1 5 . 4

4 . 8

7 . 2 1

9 . 6 6 . 2

4 . 8 1

3 . 6 1

2 . 2 1

5 . 4 . 3 1

Textile, clothing, footwear and leather mfg.

8 . 6 1

5 . 1 1

4 . 0 1

9 . 6 0 . 5 . 2 0

4 . 3 . 1 0

Wood and Prinitng, Petroleum, paper product publishing and coal, chemical mfg. recorded media and associated product mfg

Non-metallic mineral products mfg.

Food, beverage and tobacco mfg.

7 . 3 1

3 . 8 1

8 . 1 2 9 . 3 1

9 . 7

4 . 6

7 . 8

1 . 8 . 3 0

Metal products Machinery and mfg. equipment

Other mfg.

Market Segment

Sales incl. Exports $B

Exports $B

In Confidence

Imports $B

Page 72

Total Aust. Market $B

21 March 2002



Table 13-4 Summary of Import Containers by Origin port for 1995 and 2000 Error! Not a valid link.

Source: Analysis of data provided by TradeData (Victoria University)

In Confidence

Page 74

21 March 2002



Table 13-5 Summary of Export Containers by Destination port for 1995 and and 2000 Error! Not a valid link.

Source: Analysis of data provided by TradeData (Victoria University)

In Confidence

Page 75

21 March 2002



14. PUBLICATIONS AND RELATED ARTICLES

In Confidence

Page 76

21 March 2002



Benefits of Pallet Size Standard

Currently, there are 16 different pallet sizes in use in the market. Standardisation of pallets provides the platform for pallet exchange. In the ideal scenario, goods can be transported from the manufacturer, through the distributor, to the retail store on the same pallet. By eliminating the need for manual transfer of goods to another pallet, productivity and work efficiency are improved. The reduction in both labour and handling of goods will reduce delivery and transfer costs. Standardisation of pallet sizes will in turn allow standardisation of palletisers, racking and warehouse design. This will result in economy of space and facilitate automation. Other benefits identified through the survey were:

Fig 1 : Dimensions of the ECR Standard

Reduction of damaged goods losses through minimal manual handling Reduction in number of transportation trips Minimisation of the wastage of pallets Elimination of the need for sorting of pallets Reduction of unloading time for suppliers Reduction in warehouse storage cost



Recommended Pallet Size

 

The 4-way 1000mm x 1200mm pallet is recommended by the Pallet Standardisation Working Group as the standard for the grocery and fast-moving consumer goods industry in Singapore. The standard pallet shall have a safe working load of minimum one tonne.

Why 1000mm x 1200mm pallet?



  

Compatible with standard ocean going containers and the majority of trucks Dominant size used in Asia (China, Thailand, Malaysia, Indonesia, Philippines and Singapore) Endorsed by ECR Asia Conform to International Standard - ISO 6780 'General-purpose flat pallets for through transit of goods - Principal dimensions and tolerances' Conform to Singapore Standard - SS 334 'Specification for Timber Pallets' Major retailers in Singapore have already adopted this standard Sufficiently wide for drive in racking

IMPLEMENTATION

In Confidence

Page 79

21 March 2002



Conclusion The advantages of ECR Standard Pallet include:  Reducing multiple handling of goods  Facilitating delivery turnaround time  Facilitating regional transport efficiencies  Streamlining transport services  Facilitating the concept of shared asset  Facilitating the use of single material handling systems  Facilitating palletised deliveries  Streamlining packaging design process

Although the ECR Standard Pallet implementation project has not been completed, the preliminary findings (after nine months since commencement in January 2000) have been encouraging. Upon the completion of the project (scheduled in December 2000), the detailed findings on the operational benefits that has been derived through the use of standard pallets, pallet pooling and leasing of pallets would be shared with the industry (and in particular the FMCG players). This would be done through ECR Singapore.

The envisaged benefits for implementing ECR Standard Pallets through the pilot are as follows: Standardisation: Driven by the need to simplify business processes Simplification: Removes unnecessary business practices and create greater efficiency and effectiveness Efficiency: Result in cost savings Enhanced business values : Increase in productivity and better service for consumers 4-way Pallet: Entry points on all four sides enable loading being done on any side Fitting: Optimum space utilisation in warehouses as well as for most lorries and sea freight containers Racking: To standardise on 1200mm and 1000mm to save space for warehousing Deliveries: To facilitate efficient palletised deliveries Pallet Pooling: Reduces number of pallets used in the supply chain Streamlining: Streamlining of warehouses and distribution systems

In Confidence

Fig 2 : ECR Standard Pallets in use at Unilever’s warehouse

Page 82

21 March 2002



Fig 3 : ECR Standard Pallets in use at YHS’s warehouse

Fig 4 : Picking & loading of goods onto ECR Standard Pallets at GLS’s warehouse

In Confidence

Fig 5 : Palletised goods loaded onto trucks for delivery

Fig 6 : Stacks of new ECR Standard Pallets

Page 83

21 March 2002



providers, working together to design and operate operate Efficient Efficient Unit Loads supply chains. This will ‘fulfil consumer wishes better, faster and at less cost’.

In Confidence

Page 87

21 March 2002



Figure 1 Inefficient business practices within the Australian grocery industry Table II Reasons for actively pursuing an ECR strategy

Figure 3 Opinions as to the likely benefits of ECR in Australia Figure 2 ECR-related business activities within the Australian grocery industry

References Anderson, B., 1996, The Art and Science of Computer Assisted Ordering: Methods for Management, Quorum Books, Westport, CT. Brawn, D., 1989, EDI Developments Abroad and How They Impact Australia, IDC Conference, " EDI - The key to Profitability in the 1990s, IDC Conferences", Sydney.

Table I Respondents' ECR status

In Confidence

Page 93

21 March 2002



Thayer, W., 1991, "Computer-aided ordering is ready ... should you care?", Progressive Grocer, 70, 3, 81-6. Washburn, T., 1995, " Create win-win-win promotions", The Nielsen Solution Partnership, 8-9. Weinstein, S., 1995, "On the cutting edge", Progressive Grocer, 74, 8, 34-40. Wheatley, M., 1996, " IT drives the chain", Management Today, 102-4. White, M., Wiland, E., Craig, E., 1995, The Food Week Industry Yearbook and Directory of Suppliers, 1995, Ian Huntley Pty Ltd, Sydney. Wood, P.K., 1996, " Preparing for ECR at the store level ", ", Chain Store Age, 72, 5, 230.

In Confidence

Page 95

21 March 2002

Standard Pallets

Recommend Documents