Tuesday, November 18, 2008

Why Buy Plastic Pallets and Not Hire?

Many companies in Australia use hired pallets to move their products. However, recently there has been some big news related to a large pallet hire company, which seem to raise the question: is hiring pallets the best way to go?

To answer this question, we interviewed an expert in the materials handling and pallet field, Plastic2go managing director Mr. Avi Meirovitz. Mr. Meirovitz has extensive experience in many industries and has agreed to share some of it with us.

Q: Mr. Meirovitz, thank you for talking to us. Do you think that pallet hire is a smart decision for Australian companies?

A: In some cases, it is, but not in every case. You see, pallet hiring is based on a daily rate. This rate appears to be very low - just a few cents per pallet - so companies consider it a small expense and go for it.

Q: Are you saying this is not really the case?

A: Well, that depends on how long you need the hired pallets for. If you need them for a year or two, hiring makes sense, but if you have a regular fleet of pallets, which you use over and over, after 3 years (and sometimes less), you have paid the full cost of the pallet, plus financing, and now it is starting to cost you more.

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Nestable plastic pallets are an ideal replacement for hired pallets

Q: What about pallet maintenance? Don't you get some benefit out of that by hiring your pallets?

A: No. Actually, it is quite the opposite. When a pallet is damaged and needs to be replaced, the hiring company will charge you for the pallet, because it belongs to THEM. So, in addition to paying the hiring charges, you incur the costs of any breakages.

Q: So what might be a better way for companies using many pallets on a regular basis?

A: A much better way would be to use plastic pallets, especially nestable plastic pallets. This is because they last a lot longer than the hired timber pallets, they are much lighter and can be handled manually in some cases, they are smooth and pose none of the risks of timber pallets, such as splinters and nails, and they save up to 80% of the storage space when they are not loaded by nesting.
For some applications, such as beverages and pharmaceuticals, where it is important to keep the pallets clean, plastic pallets are the only solution, because they can be steam cleaned.
In essence, plastic pallets are ideal for "closed-loop" systems.

Q: What about the risks associated with an upfront purchase and the accounting benefits of expensing the hire costs?

A: Well, asset purchases can be converted into an operating lease, which effectively turns the purchase into a type of hire. Now, if you have read any of the recent news related to hiring companies, surely you would see that hiring pallets (or crates or bulk containers, for that matter) from another company is risky business. I think that buying your own plastic pallets is by far more economical, safer and smarter than hiring.

Q: Thank you so much for your input, Mr. Meirovitz. I think this gives a really clear picture of hiring vs. buying of pallets.

A: My pleasure. I believe Australia is moving in the right direction with respect to pallets, and I can already see the smart companies out there buying plastic pallets, which is great.

Plastic2go is an Australian supplier of plastic pallets.

1 comment:

kristin said...

Thanks for the Q and A post, anytime your dealing with transporting bulk items it can be hard to decide what to use. This helps.