2009-04-02 CHEP puts $60M into upgrades
Pallet leasing firm’s number of employees to remain flat
Pallet leasing company CHEP USA will invest $60 million this year on quality improvements to enhance its service relationship with customers such as Kraft and Publix.
The new investment comes on top of $100 million the Orlando-based firm spent last year to accomplish much the same agenda, which included buying new equipment, repairing and upgrading the roughly 100 million pallets it owns in the Americas, and improving its information technology equipment. Most of the money will upgrade pallets to meet the higher specifications customers require as they move into more automated logistics systems.
Group President Kevin Shuba, who is responsible for North and South American operations, said CHEP won’t borrow money to carry out its improvements. Instead, it will use money from parent company Brambles Ltd.’s normal business operations.
CHEP USA is a $1.6 billion business in pallet leasing alone. In Orlando, CHEP also oversees other lines of business, including Atlanta’s Recall, a $750 million business document and information management services company, and LeanLogistics, a small Michigan-based transport management software and services firm.
Even with its multimillion-dollar investment, CHEP’s plans don’t include adding to its more than 500 employees in Orlando this year — or its 300 other U.S. employees. However, neither does the company anticipate any layoffs, Shuba said.
“The economy is our biggest challenge and how to navigate it over the next couple of years — consumer package goods firms are our primary customers, but people aren’t stocking their pantries as much as they once did.”
In fact, Shuba said sales have been stagnant. They grew at a 6 percent clip last fiscal year and are running 2-3 percent ahead this year, but those increases are due to adding new customers. The company’s core business is flat to negative, he said.
Bob Morrissey, executive of director of the 2,500-member National Watermelon Association in Lakeland, thinks “it’s prudent” of CHEP to try to improve its service, even though he said the company’s pallets and reclaim/repair system already is top-notch.
“I applaud their efforts to invest in the future — if a business stays complacent, they’ll go out of business,” said Morrissey, who noted that CHEP supplies more than 20 percent of the pallets used for watermelons nationwide — a number the reaches into the millions.
It’s somewhat unusual for a company to make such a large investment in quality improvement during a recession, mostly because few firms have that much capital available without borrowing it, said Bill Seyfried, professor of economics at Rollins College. “Being able to self-finance is a big benefit.”
And it’s a benefit he thinks could pay off in the future when the economy revives. “Customer service is important when things are down because it will help keep the customers happy and loyal,” Seyfried said. “The customer is king — or queen.”