United States retail giant Wal-Mart is reviewing its distribution strategies, sparking speculation Australian-based Brambles could lose its pallets supply contracts. Shares
United States retail giant Wal-Mart is reviewing its distribution strategies, sparking speculation Australian-based Brambles could lose its pallets supply contracts.
Shares in Brambles, parent company of the world’s largest pallets supplier CHEP, have plunged after the company announced Wal-Mart is “modifying its management of pallet flows throughout its internal network in the USA, including its Total Pallet Management (“TPM”) arrangements with CHEP and other pallet pooling companies”.
CHEP currently manages TPM services at many Wal-Mart facilities in the US, including the management, retrieval and sorting of pallets and providing other reverse logistics services for the Wal-Mart supply chain network.
Brambles says TPM delivers supply chain cost savings through the more efficient use of pallets and reduced transportation costs.
Wal-Mart has told Brambles it may contract directly with third-party pallet management service providers to retrieve and sort pallets at its own facilities in the US or provide such services itself.
“CHEP and Wal-Mart are working together to identify ways in which CHEP can continue to deliver lowest cost solutions to Wal-Mart and the broader supply chain,” a statement from the company reads.
“Wal-Mart recognises the value of pooled pallets within the supply chain. Brambles and CHEP strongly value the relationship with Wal-Mart and will continue to work with Wal-Mart to develop the optimal supply chain solution for this important customer.”
Brambles insists the market has overreacted to the decision. Shares in the company have fallen by $1.4 billion.
A subsequent statement from Brambles says CHEP does not generate sales revenue from Wal-Mart itself, but through manufacturers and suppliers in connection with deliveries to retailers like Wal-Mart.
Brambles Chief Executive Officer Mike Ihlein says the TPM service is cost neutral to CHEP.
“The discussions with Wal-Mart have no impact on CHEP’s issue volumes or sales revenue,” he says.
“Brambles will make an appropriate announcement to the market as to the outcome of its discussions with Wal-Mart in due course.”
Analysts suggest CHEP-branded pallets make up 50 percent of deliveries to Wal-Mart.