Episode 545: The Blue Pallet : Planet Money People have moved stuff on pallets for a long time. And for basically 50 years, no one in the U.S. really improved on it. Until they did.
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Episode 545: The Blue Pallet

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Episode 545: The Blue Pallet

Episode 545: The Blue Pallet

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JACOB GOLDSTEIN, HOST:

Robert, a couple days ago, you and I went to the grocery store in Brooklyn to do that thing reporters do.

ROBERT SMITH, HOST:

Yeah.

Here we have a giant pile of watermelons. This is a classic scene in any grocery store. Join...

GOLDSTEIN: I don't. I'm sorry.

SMITH: What are you looking for, the chickens?

UNIDENTIFIED WOMAN #1: Chickens.

SMITH: Yeah, we don't know.

GOLDSTEIN: Sorry.

UNIDENTIFIED WOMAN #2: Attention associates, line pick up on line, line one zero one, please (ph).

GOLDSTEIN: All right. One more time.

So we got a cardboard box full of watermelons.

SMITH: This is a classic summer scene, right? The watermelons come in. They wheel them in to the middle of the store.

GOLDSTEIN: I don't give a [expletive] about the watermelon, Robert. What I'm excited about is the pallet that they're sitting on.

Pallets, those big wooden things that just about everything in the world gets shipped on, including watermelons, including everything else you buy at the grocery store.

SMITH: Certain things in this world are hard to improve on. You know the classic example, the mouse trap, but we were talking about it and we were talking about, like, the paperclip. I mean, the paper clip is one wire bent into a paperclip shape. It's so perfect, the shape is named after the object. And the supersized version of this perfect object, the pallet.

GOLDSTEIN: It's 15 or so pieces of cheap lumber nailed together. There's not an extra piece of wood or an extra nail in the whole thing. Keeps stuff a few inches off the floor, works with a forklift - amazing.

SMITH: This perfect, perfect system of moving stuff around on pallets has been around for a long time. And basically for 50 years, no one improved on it, until - until they did.

(SOUNDBITE OF MUSIC)

SMITH: Hello, and welcome to PLANET MONEY. I'm Robert Smith.

GOLDSTEIN: And I'm Jacob Goldstein. Today on the show - yes, you can build a better pallet.

SMITH: It's not high tech. It's not computerized, but someone came up with a way to completely rethink an object that no one even knew needed to be fixed.

(SOUNDBITE OF MUSIC)

SMITH: This is not going to come as a surprise to you, but we are going to bring you deep inside the pallet world because of course there's a pallet world, right? It's just invisible to most of us. We only see the piles of old pallets out behind our local supermarket, under the occasional watermelon, but there are billions of pallets moving around the world.

GOLDSTEIN: And there's a whole magazine devoted to those pallets. It's called Modern Materials Handling. Unfortunately, they changed the original name, which was the palletizer.

SMITH: The palletizer - I love it. It sounds like some sort of logistic superhero.

GOLDSTEIN: I talked to the editor of this magazine, Bob Trebilcock, who worked in his family's pallet business when he was just out of college.

BOB TREBILCOCK: My - I guess my most notable achievement was nailing a runner to my hand accidentally.

GOLDSTEIN: Ouch.

TREBILCOCK: Yes.

SMITH: Pallets are cheap and easy to make. Anyone could do it. You could probably build a pallet. It's the kind of classic thing that, you know, some factory somewhere would put out a million of them a day. But pallets are actually a unique object in that they are both cheap - but they are big. And they are bulky, and they're heavy. And it just doesn't make economic sense to make a pallet in some central location and ship empty pallets all around the country. So Trebilcock says the pallet industry grew up as all these tiny little pallet shops.

TREBILCOCK: But you had a lot of two men and a dog, you know, guys who made pallets in their garage after work. So, you know, Joe at the plant bought pallets from his buddy Bill and his buddy Dave who built them in their garage.

GOLDSTEIN: There are still a lot of shops like this.

STEVE MAZZA: My name is Steve Mazza. We're at S&B Pallet, which is a local pallet recycling facility.

GOLDSTEIN: And you're the S in S&B Pallets?

MAZZA: I am the S in S&B Pallet, yes.

GOLDSTEIN: OK.

S&B Pallet is in Plainfield, N.J. It is more than two guys and a dog. Steve says they have about 70 employees. It's down the block from Gino's Truck & Tire Maintenance, across the street from this neighborhood with houses and trees. And really it looks like it could be any town because basically there is something like this in almost every town. Pallets are still this very local business. So you pull in here. You park in a dirt parking lot, and suddenly you're in this, like, Grand Canyon where the walls are made of pallets stacked 40 high.

Do you ever even think - I'm constantly thinking what if this mountain of pallets next to us fell on my head. Do you think about that or not anymore?

MAZZA: No, we don't think about it much. These pallets are pretty stable when they're stacked like that, so...

GOLDSTEIN: That noise you hear in the background, it's a bandsaw, and it's coming from a big shop over in the corner of the yard. S&B doesn't do anything fancy with the pallets. A lot of what they do is just buying up used pallets for about $3 each, fixing them up in that shop and then reselling them for about 5 bucks each.

MAZZA: And the pallets come in through this conveyor line.

GOLDSTEIN: And then what happens? Can we see the line?

MAZZA: Yeah. As they go down the conveyor line, guys at work tables - you see the conveyer on the floor - the guys at work tables take each pallet off and they inspect the top and they inspect the bottom for any broken boards or loose boards, if there's debris in there or anything else. That pallet's repaired. If there's a broken board, they put a new board on it.

GOLDSTEIN: This is clearly a low-tech operation. The guys working here are using nail guns and just even regular hammers.

SMITH: I can hear it. I mean, but of course it's low tech. I mean, it's pallets, right? These guys are making basically the same thing that people have been making for decades, since the early part of the 20th century. I mean, you could have made a pallet 5,000 years ago, but the only reason pallets weren't invented even earlier is that they didn't really need them until they had forklifts. They sort of evolved together. And a pallet really just has two jobs - one, hold stuff off the ground, and two, make it easy for forklifts to pick that stuff up.

GOLDSTEIN: And so, you know, decade after decade, things don't change that much. The standard pallet becomes an essential part of world trade. American G.I.'s dragging it around the globe in World War II and Steve Mazzas all over the country are running their little pallet businesses, all making basically the same kind of pallets.

SMITH: Now, over the years, lots of inventors tried to make it better. They tried different configurations, different materials. Oh, the plastic pallet. I mean, right, this is how most products improve, new technology, but this did not work with pallets because think about it. I mean, a better pallet would be a more expensive pallet.

GOLDSTEIN: And companies don't want a more expensive pallet. They want a cheap, disposable thing that'll hold their whatever, cases of toilet paper.

SMITH: Yeah, and we were talking about the pallet world, and a more expensive pallet turns that whole world on its end. I mean, you can't just toss them in the back of the store, right? They're expensive. You have to have people to guard them. You have to make sure no one throws pallets away. You have to make sure that college kids don't steal your pallets to make the world's ugliest coffee table.

GOLDSTEIN: So pallets seemed to stay the same forever until the blue ones started to show up.

SMITH: Yes, the blue ones. Back in the 1990s, in yards and in the back of stores, you would all of a sudden see a bright blue pallet. Now, most of us wouldn't notice this, and if we did notice it, we'd think, oh, they just painted it a different color. But Steve Mazza, the pallet guy from New Jersey, he vividly remembers the first time he saw the blue pallet.

GOLDSTEIN: He was in Memphis for a meeting. It was a meeting of the National Wooden Pallet and Container Association. And he went out to visit a local pallet yard because I guess that is what you do when you're at a pallet convention and you have a few hours off.

MAZZA: So I actually went to a pallet yard and the guy said, hey, that's one of those blue pallets. And I said, well, can I have that? And he said sure. And I took that blue pallet and I - we were having a general session for an association meeting, and I walked into that general session, I put that pallet over my head and I slammed it down on the floor. And I said, do you know what, guys? Everybody, we better understand what that pallet over there is because it's not just a pallet. It's the end of our industry.

SMITH: These blue pallets were all coming from one company, a company called CHEP - C-H-E-P - CHEP. And this company, this company that would change the American pallet market forever, was from Australia.

GOLDSTEIN: Quick backstory here - when the U.S. Army left Australia after the end of World War II, it left behind a lot of pallets. And the Australian government scooped those pallets up and formed the Commonwealth Handling Equipment Pool - C-H-E-P - CHEP.

SMITH: CHEP (laughter) and CHEP went private. It got bought by an international conglomerate, and they were intent on turning this really local, low-tech pallet business into a worldwide endeavor.

GOLDSTEIN: CHEP's blue pallets, they're still made of wood. They're still held together with nails, but they're put together in a different way.

SMITH: OK, this is going to get a bit nerdy.

GOLDSTEIN: Let's go deep.

SMITH: But you are going to be able to impress your friends the next time you go to a supermarket by knowing the different kinds of pallets. OK, the standard pallet is known as a stringer pallet. This is the kind that Steve Mazza made. You can lift it up from the front or the back, but you can't really lift up a stringer pallet from the side because there's a vertical board along the side. OK, the new pallet is called a block pallet, and it's open on all four sides. And that makes it much easier to move around a warehouse or unload from a truck.

GOLDSTEIN: So it's stronger. It's basically better, but that doesn't mean it was an easy sell. David Lee helped launch CHEP's business in this country, and he told me about shopping this new pallet around to manufacturers.

DAVID LEE: Well, I would say the introduction of the block pallet was a major deal for us. There's a, you know, a skeptical industry saying, well, do I really have to handle multiple specifications of pallet, and you had to persuade them of the benefit. We know you know and love the stringer pallet, but here's, you know, here's a better mousetrap.

GOLDSTEIN: The block pallet had actually been around for a long time, but it wasn't that popular because it's really expensive. It costs about $20 to make one. A normal pallet costs maybe half that. So how did CHEP get customers to buy this luxury pallet? They didn't. This - this was actually CHEP's real innovation. CHEP said we are not going to sell you the pallets. We're going to rent them to you.

SMITH: Here's Bob Trebilcock, pallet expert again.

TREBILCOCK: My first memory of CHEP is hearing people talk about this idea of we're going to rent a pallet. That sounded a little crazy. Why would anybody want to rent a pallet?

GOLDSTEIN: Renting out a pallet seems like renting out a paperclip, renting out an aluminum can.

SMITH: But here's how they sold it. If you're, say, a toothpaste company and you want to get your toothpaste from your factory to the grocery store, you pay CHEP, say, five bucks, and they let you borrow one of their pallets. Then once your toothpaste gets to the grocery store, CHEP comes and picks up its pallet, takes it back to some warehouse somewhere and then rents it out again.

GOLDSTEIN: Eventually, this caught on. In what had been this ultra-local two-guys-and-a-dog pallet world, suddenly there was something much bigger.

LEE: We have something like 78 million circulating in the United States.

GOLDSTEIN: Seventy-eight million pallets.

LEE: Seventy-eight million pallets.

SMITH: But of course now this means that CHEP has to keep track of 78 million pallets. And this is a really hard logistical problem. And David Lee says this is why all the pallets are painted blue, so that you can see them from across the street.

LEE: We have a nice white logo on the side and a big sign that says Property of CHEP on every single pallet. So nobody in the U.S. can say that they don't know who owns that pallet.

SMITH: There is - there is even a phone number stenciled on the side that you can call if you find a blue pallet that has escaped into the wild.

LEE: You know, they escape the fold, they escape the family.

GOLDSTEIN: Does it feel that way when you're trying to keep track of 78 million, you feel like they keep running off?

LEE: I think it's in our DNA that we do feel that way, but we all believe that, you know, we have a personal responsibility to bring them back into the fold.

GOLDSTEIN: The company has contests for workers who find pallets out in the wild. David Lee says he recently found one helping to hold down a bouncy castle at a county fair near his house.

SMITH: And now that we have told you about the blue pallets, I swear you will start to see these things everywhere. I have started to see them everywhere, behind grocery stores, holding up the produce in a supermarket. And there is one place, one place where you are guaranteed to see more pallets than just about any other store on Earth, and that particular store decided to go CHEP.

GOLDSTEIN: We're in Costco. We're in Brooklyn Costco. We're in the diaper aisle. I'm just going to run down the line here and look at these pallets on this row - blue, blue, blue, blue, blue, blue, blue, blue.

A few years back, Costco looked at these CHEP pallets, and they actually, they did the math. They looked at how long it took them to unload a truck full of CHEP pallets versus how long it took them to unload a truck full of regular pallets, full of the old kind of pallets. And they realized with the CHEP pallets, they saved a little bit of time. And of course, if you're Costco and you can save a little bit of time on every truck you unload, that is a big deal.

So Costco issued this statement. They said to all of their suppliers when you send us stuff, whether it's diapers or peanut butter or whatever, it has to be on a CHEP pallet or at least on a pallet like a CHEP pallet. There are a few exceptions, but if you walk into a Costco today and look up at the pallets, you are going to see a lot of blue.

MAZZA: It is the thing that has put the fear of God into the pallet industry.

SMITH: The pallet industry - all those guys building pallets with hammers somewhere in your town, all the guys who go out and recycle old pallets, guys like Steve Mazza, the S in S&B Pallets in New Jersey.

GOLDSTEIN: Well, Steve Mazza knows this new CHEP pallet is a better pallet. And maybe not surprisingly, Steve Mazza wants to get into the better pallet business, but there is this big barrier. CHEP has turned what used to be a local business into a national business. To compete, Steve Mazza would need lots of pallets.

How many pallets would you have to build to get going?

MAZZA: At minimum - at very minimum 5 million to 10 million pallets. Just for 5 million pallets, you need $100 million.

GOLDSTEIN: One hundred million - do you have $100 million?

MAZZA: I don't have $100 million, surprisingly not (laughter).

GOLDSTEIN: But he is working on it. He's teamed up with a bunch of other pallet companies, and they are launching this new company. It's called 9BLOC because - extra geeky fact - there are nine wood blocks in a block pallet. And 9BLOC basically wants to be CHEP but with more of, like, a local touch.

SMITH: And all they need is $100 million.

GOLDSTEIN: (Laughter) Right, that's it, just $100 million. And in the meantime, Mazza and the other little guys are doing what lots of small companies in lots of industries do to compete against giant global competitors. They're figuring out how to do things that the big guys don't do. For Steve Mazza, that means making specialized pallets for local businesses that, say, ship really heavy things or really big things, things that can't go on the standard blue CHEP pallet.

SMITH: You know, you've got to hand it to CHEP for creating this sort of excitement in the pallet industry after decades. When you change something so basic, so perfect, like, it kind of gives everyone this hope that there are new things to discover. It makes guys in Jersey in a yard an industrial neighborhood dream of $100 million companies. And maybe the blue pallet is just the start. Maybe this is the new age of pallet innovation.

GOLDSTEIN: This is exactly what a guy who left CHEP a few years ago thought. He started a new company, and this was exactly his pitch. He went out and he raised hundreds of millions of dollars based on the promise that he was going to bring the pallet into the 21st century, started a company called iGPS. No more wood. iGPS made plastic pallets with RFID tags in them so you could track it, but it just didn't work. iGPS could not build a profitable business on these fancy, high-tech pallets. And last year, the company filed for bankruptcy.

SMITH: Sometimes you can put too much technology into a mousetrap.

(SOUNDBITE OF QUEEN SONG, "UNDER PRESSURE")

GOLDSTEIN: Thanks to Stewart Richardson. He wrote "Pallets: A North American Perspective," and he talked to me for this story. I also want to mention that I got interested in pallets because I recently read a great article about pallets. It was published at Cabinet magazine, and we'll post a link to that on our blog. The blog is at npr.org/money.

SMITH: We, of course, appreciate you listening to PLANET MONEY. But if you're looking for something else to listen to as you head out on your summer vacations, we'd like to recommend NPR's Pop Culture Happy Hour. You can find it on iTunes under podcasts.

GOLDSTEIN: Our show today was produced by Phia Bennin and Viet Le. I'm Jacob Goldstein

SMITH: And I'm Robert Smith. Thanks for listening.

(SOUNDBITE OF SONG, "UNDER PRESSURE")

QUEEN: (Singing) That brings a building down, splits a family in two, puts people on streets, um ba ba be, um ba ba be, de day da, ee day da (ph) - that's OK. It's the terror of knowing what this world is about, watching some good friends screaming let me out, pray tomorrow gets me higher...

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