A growth of 25% in volumes for the pallet network sector in 2008 has been branded "optimistic" by some of the industry's main players. The forecast, contained in a report by logistics analyst Transport Intelligence (TI), is on the back of the main UK networks reporting annual growth of between 20% to 30%. "These rates have been consistent for the past few years and are expected to remain at this level for the near to mid future," says TI.
It adds: "This annual growth rate is very high compared
with other aspects of the UK transportation sector," noting that its analysis of general haulage in 2005 recorded a growth of 2.4% a year until 2007. The compound annual growth rate is expected to rise to 22% between 2007 and 2011, when the total market is forecast to comprise around 49 million pallets. TI estimates that the sector "represents approximately 21.8 million pallets per annum". But it does predict that growth will slow slightly between 2009 and 2011.
But most of the existing networks agree that a growth in volume of 25% next year is an ambitious target. Simon Hazelgrove, national sales director at United Pallet Network (UPN), says "the only way that would come to fruition is a major escalation of fuel prices", which would cause operators to look for alternative ways of sending small consignments. He predicts that growth across the industry over the next year will hit between 18% and 20%.
The Pallet Network (TPN) managing director
Adam Leonard says: "There can't be many networks doing those sort of numbers. I think they [TI] are being optimistic. We're anticipating double-digit growth and 10% to 20% is not unreasonable, but 25%? I'd be surprised." And Kevin Buchanan, MD at the original network, Palletline, says he would be "very surprised" if any network reports growth at that rate over the next year. Palletline is forecast to grow between 5% and 9%, but Buchanan says their strategy is not to chase volume. "We're trying to operate at the top quality level." Graeme Wilson, commercial development director at UK Pallets, says he considers the 25% figure "a little ambitious". UK Pallets predicts a growth of 10% year on year for the network.
But Nigel Parkes, MD of the newest of the established networks, Pallet-Track, is more optimistic. "The real growth is 20% in the industry." But he points out that this is more achievable for those networks with smaller volumes. "For somebody like Palletways, 20% growth means they would have to move an awful lot. You've got to be very conscious when talking about volume. "The top three won't grow 20% - it does vary depending on network size. But I wouldn't disagree with 25% [for the industry]."
Mixed views arise from TI-assertion that the number of "brands" in the UK pallet network sector could pave the way for consolidation over the coming years. "Economies of scale at hubs indicate that the smaller players will struggle to compete with larger rivals unless they develop their own competitive advantage," it says.
A move into more niche operations is advised by the report, which says that the sector is now maturing, and in any sector, companies facing this change "strive to differentiate in order to continue to compete effectively and ensure that margins do not become eroded". It notes the introduction of the only specialist network in the sector, the Hazchem Network. "The rest of the industry will be watching closely to ascertain the success of the venture before similar moves are undertaken by competitors."
Most are in agreement that it would be very difficult to consolidate two existing networks. "What is the benefit of buying another network? Competitors are only five miles away from each other," says Hazelgrove, while Wilson asks: "How do you consolidate groups of independent businesses?" Parkes is more open to the suggestion. "I wouldn't disagree. It's been forecasted before," he says, while Buchanan thinks that one possibility would be for two of the second-tranche smaller networks to combine forces, rather than one of the bigger players swallowing a smaller operation.
All of those commenting seem to think that alliances between 3PLs could be a development for the future. Buchanan says: "It may be very useful for them [3PLs] to have a network to plug deliveries into without the ownership costs. I could imagine the margins would be very attractive to a 3PL." Leonard says: "You've got to look at the parcel market and the pallet market seems to follow that. Whether we're there [consolidation] yet, is another matter. It's not something I would think is imminent." The report notes that a number of independent transport companies operate pallet express delivery services, but "very few would be in a position to handle volumes of a similar scale to the larger bespoke networks".
Reed Business Information Limited.©2009
