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CHEP Pty. Ltd.

CHEP Pty. Ltd.

8517 South Park Circle
Orlando, Florida 32819-9040
U.S.A.
Telephone: (407) 370-2437
Toll Free: (888) 243-7111
Fax: (407) 363-5354
Web site: http://www.chep.com

Division of Brambles Industries Ltd.
Incorporated:
1958 as Commonwealth Handling Equipment Pool Pty. Ltd.
Employees: 7,704
Sales: AUD 3.7 billion ($2.7 billion) (2004/05)
NAIC: 488990 Other Support Activities for Transportation

CHEP Pty. Ltd. is the world's largest pallet and container pooling service. Customers including multinational corporations find it easier to lease from among CHEP's 265 million pallets and containers than to maintain, repair, and track their own handling materials. The company prides itself on its environmentally friendly recycling operation. CHEP is owned by Brambles of Australia. CHEP can trace its origins back to the materials handling efforts of the Allies during World War II. The company also provides waste management, information management, and industrial services. Worldwide, CHEP has more than 300,000 customers and more than 440 service centers. The two major components are CHEP Americas, based in Florida, and CHEP Europe, which is based in Weybridge, England.

ALLIED ORIGINS

CHEP Pty. Ltd. is derived from the Allied Materials Handling Standing Committee (AMHSC), part of the Australian government's military logistics operations in World War II. AMHSC was enriched by equipment the Americans left behind after the war. AMHSC was privatized in 1949 and became known as the Commonwealth Handling Equipment Pool (CHEP). It was acquired on April 24, 1958 by Brambles Industries, a venerable Australian conglomerate with an established materials handling business. It was later incorporated as simply CHEP Pty. Ltd.

Shippers of fresh fruits and vegetables embraced CHEP's pallet solutions. CHEP also became a leader in the fast-moving consumer good (FMCG) market. In all of these applications, speed was an important requirement; the standardization offered by CHEP facilitated reliable and fast turnarounds. The group introduced its distinctive blue pallets to markets all over the world.

CHEP expanded into neighboring New Zealand in 1974. This operation was bought out by Mogul Corporation and others in the 1980s. It was owned by NZ Rail at one point. Brambles eventually reacquired control of CHEP New Zealand from Freightways and Owens Group in 1997.

In 1975, Brambles formed a successful joint venture in the United Kingdom with the British automotive and industrial group GKN plc, which would be its frequent partner. Belgium, Holland, and Ireland were added in 1978. GKN formed CHEP South Africa as a wholly owned subsidiary in 1979; at the time, Australian companies were not permitted to invest there. This unit would serve as the basis for expansion throughout neighboring countries in the 1990s.

NEW TERRITORIES BEGINNING IN 1980

CHEP entered Canada and France in 1980. Brambles' partner in Canada was Canadian Pacific, but it was bought out in 1988. GKN acquired a 50 percent holding in CHEP Canada in 1990. During the decade, Germany (1984) and Spain (1988) were added to CHEP's territory. Several other European countries were added in the 1990s.

By the end of the 1980s, CHEP's operations in Australia, Europe, and Canada had a pool of 25 million pallets. The outfit had two large competitors on its home turf, the Australian logistics companies TNT and Mayne Nickless, each of which had tens of thousands of employees and international reach.

IN THE UNITED STATES IN 1990

In 1989, GKN-Brambles Enterprises was formed to take over HEP Europe as well as the Cleanaway waste management business, another joint enterprise between Brambles and GKN. The formation of the new company was a step toward bringing GKN into the CHEP business in North America, where Brambles already owned CHEP Canada and American Pallet Systems.

The U.S. market was entered in September 1990 as GKN and Brambles launched CHEP USA with an investment of about $140 million (£81 million). According to the Journal of Commerce, the American pallet pooling market was perceived as fragmented and disorganized, being controlled by a number of trucking companies. CHEP USA originally started with regional centers in Atlanta, Chicago, Los Angeles, and New Jersey, plus about 80 smaller depots, staffed by about 170 employees. The venture already had a three-year contract with Procter and Gamble, and was initially focusing on the dry grocery business. It expected to have three million pallets in its U.S. pool by 1992. The company introduced collapsible plastic containers for perishables to the U.S. market in late 1996.

In 1994, Brambles stepped into Asia with ventures in Malaysia and Singapore. GKN bought a 50 percent holding in these three years later. CHEP Mexico S.A. de C.V. began operations in 1995 with a single client. It soon grew, however, with the expansion of multinationals such as Sam's Club, into Mexico. Local exporters also were using the service. By 1997, CHEP Mexico had about 600 clients, including distributors and manufacturers.

South American ventures were established in Chile in 1995, Brazil in 1998, and Argentina in 1999. By the end of the 1990s, CHEP also was involved in Switzerland, Scandinavia, Hong Kong, Greece, and other markets.

By the mid-1990s, CHEP was managing 63 million pallets in 15 countries on five continents. It had 169 depots in the United States. CHEP relocated the headquarters for it U.S. operation from Park Ridge, New Jersey, to Orlando, Florida, in 1996, enticed by tax incentives from state and local government.

The business had been courted as a source of high-tech jobs, since it relied on sophisticated database management to track pallet movements. CHEP preferred to focus on administering the pallet flow, subcontracting manufacturing, repair, and warehousing to others. In July 1997, CHEP USA announced that it was building a huge repair facility in Illinois in collaboration with PalEx Inc., a joint venture of three U.S. pallet manufacturers.

COMPANY PERSPECTIVES

With an unprecedented combination of supply chain cost reduction, size, scale, superior technology and global reach, CHEP issues, collects, conditions and reissues more than 265 million pallets and containers from a global network of service centers, helping manufacturers and growers transport their products to distributors and retailers. Combining superior technology, decades of experience and an unmatched asset base, CHEP handles pallet and container supply chain logistics for customers in the consumer goods, produce, meat, home improvement, beverage, raw materials, petro-chemical and automotive industries. CHEP services are based on a unique combination of customer-driven operating solutions, quality products, sophisticated control systems and a well-managed global service center infrastructure, which enables its customers to reduce the need for capital expenditures and concentrate their day-to-day operations on their core business competencies.

CHEP was among those studying ways to produce pallets out of plastic. This would, in theory, confer a number of advantages over wood, such as reduced weight and cost and the possibility of more precise manufacturing tolerances. Wood pallets (which cost about £10 each, according to the Financial Times ) remained the standard into the next millennium, however, due to their superior strength and durability, and other qualities. CHEP was overseeing 70 million pallets in two dozen countries by the late 1990s. CHEP accounted for 26 percent of GKN's £3.7 billion in revenues in 1998.

CHEP was managing 150 million pallets by 2000. It had 30 million RTP containers, mainly in the United States and Europe. RTP, or reusable transit packaging, mostly consisted of plastic crates for shipping produce. It was becoming more popular among U.S. retail chains such as Wal-Mart and Kroger. Wal-Mart also was embracing CHEP's pallet pooling system, as was Home Depot. CHEP's annual sales were AUD 2.3 billion, or 32 percent of Brambles' total. CHEP had an operating profit of AUD 563 million, 50 percent of the parent group's total. CHEP had 6,800 employees and operations in more than 30 countries.

CHEP, which had long used bar code scanning to track pallets, was developing a couple of new technologies. RFID (radio frequency identification) chips attached to pallets simplified the process. Another refinement was the CHEP Card system of identification cards and portable readers to monitor movements of customers, drivers, and pallets.

An unusual case involving CHEP USA illustrated some of the perils of the pallet management business. CHEP had to sue a couple of U.S. pallet recycling companies for the return of its pallets. In one case, however, Mock Pallets, one of 700 U.S. recyclers who did business with CHEP, counter sued for the cost of storing the 30,000 CHEP pallets it had accumulated over a dozen years under Georgia's unique "naked depositary" law. A court awarded Mock $586,000, equivalent to the cost of new pallets, but CHEP was sure it would be overturned. Meanwhile, CHEP UK prevailed in a separate case involving pallet return.

RESTRUCTURING IN 2001 AND BEYOND

GKN's support services businesses, including its share of the CHEP ventures, were spun off on the London Stock Exchange as Brambles Industries plc (BIP) in 2001. BIP and the Australian Brambles Industries Ltd. were combined as dual listed companies.

Business in the United States got a big boost when Wal-Mart began recommending that its suppliers use CHEP's standardized pallets. In November 2002, the company reported that it was missing 14 million pallets in Europe. The European side of the business then underwent an £85 million restructuring (allotting £45 for pallet recovery) to make it more efficient. Whereas the global economy was slowing, CHEP was mostly involved with items such as groceries that sold in good times or bad. The number of U.S. depots was reduced from 230 to 74 in 2002 and 2003; in the process, however, 2.5 million pallets turned up missing.

In 2004 CHEP was restructured into two components, CHEP Americas and CHEP Europe, whose heads would report to Brambles CEO David Turner. The group aimed to save AUD 15 million ($11 million) a year through the streamlining, which eliminated the position of CHEP International head Victor Mendes, who had led the group since 2002.

In 2005, CHEP had more than 7,500 employees in 38 countries. Sales were AUD 3.7 billion for the fiscal year ended in June. The U.S. reusable plastic container business was sold to Gait Packaging Ltd. in October 2005. The next month, Brambles announced that it planned to do away with the dual listed companies structure, in favor of a single company made up of CHEP and the records management unit Recall.

PRINCIPAL OPERATING UNITS

CHEP Americas; CHEP Europe.

KEY DATES

1958:
Brambles Industries acquires CHEP from the Australian government.
1981:
CHEP begins operations in France with seven employees.
1990:
CHEP USA is launched.
2000:
Revenues are $2.3 billion; CHEP has 6,800 employees and operations in more than 30 countries.
2001:
GKN's share of CHEP is part of the Brambles Industries plc (BIP) spinoff.
2004:
CHEP is split into CHEP Americas and CHEP Europe.

PRINCIPAL COMPETITORS

Bache Pallets Ltd.; IFCO Systems.

FURTHER READING

Alderton, Roz, "Brambles' CHEP to Appeal Pallet Ruling in the US," AAP Newsfeed (Australia), May 14, 2004.

"Brambles Is Tackling Problems at CHEP Europe: Restructuring to Cost £85 Mln," AFX European Focus, November 5, 2002.

Cobbs, Chris, "Retailers Begin Using Tags That Track Merchandise," Orlando Sentinel, November 29, 2004.

Felsted, Andrea, "Missing Pallets Raise Memories of Previous Fiasco at Brambles," Financial Times (London), February 26, 2004, p. 23.

Haynes, Rhys, "Brambles Sheds US Container Business," AAP Newsfeed (Australia), September 20, 2005.

Johnson, Jim, "PalEx, CHEP to Open Ill. Pallet Plant," Waste News, July 14, 1997, p. 5.

Kaye, Byron, "Brambles Splits CHEP in Two, Division CEO Leaves," AAP Newsfeed (Australia), June 24, 2004.

Leadbeater, Charles, "Expansion in the US for GKN with Joint Venture," Financial Times (London), June 29, 1990, p. 22.

Malkani, Gautam, "US Expansion Holds Back Brambles; Support Services Costs Grow As CHEP Pallet Side Grows After Wal-Mart Success," Financial Times (London), February 28, 2002, p. 26.

Marsh, Peter, "Plastic Surgery for Pallets: Wood May Soon Be Replaced As the Preferred Material for Making Pallets," Financial Times (London), December 18, 1997, p. 14.

Marsh, Virginia, "Brambles Surprises Markets with CHEP Shake-Up," Financial Times (London), June 25, 2004, p. 29.

Sherwell, Chris, "Brambles Forms Unit with GKN," Financial Times (London), February 21, 1989, p. 31.

Stove, Vincent W., "Australia's Brambles Takes Pallet Rental Business to US," Journal of Commerce, August 22, 1990, p. 2B.

"Transport Group Buys Pallet Rental Business," Dominion (Wellington), July 10, 1997, p. 16.

Walton, Dorothy, "Quick and Easy; Standardization Streamlines Freight Handling," Business Mexico, March 1997.

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