Standard Pallets

Strategic design + Development
Review of domestic and international pallet standards and ongoing operational and cost
implications to Australian Domestic and International Logistics
Final Report
21 March 2002
Creating new horizons for your value chain
Suite 105, 51 Rawson St, Epping, Australia

P.O. Box 1075 Epping NSW 1710
Telephone +61 (0)2 9868 2590 Facsimile +61 (0)2 9868 3517
ABN 42 362 863 808
Domestic and International pallet standards
Operational and cost implications
TABLE OF CONTENTS
1. INTRODUCTION ........................................................................................................................................................................................................................................6
1.1 Some History .....................................................................................................................................................................................................................................7
2. CONCLUSIONS...........................................................................................................................................................................................................................................8
3. RECOMMENDATIONS ...........................................................................................................................................................................................................................10
4. EXECUTIVE SUMMARY ........................................................................................................................................................................................................................11
5. SYNOPSIS OF PREVIOUS WORK ........................................................................................................................................................................................................16
5.1 GISCC - The Australian Pallet Study ..............................................................................................................................................................................................16
5.2 Efficient Unit Load study by A.T. Kearney.....................................................................................................................................................................................17
5.3 Efficient Consumer Response (ECR) : a survey of the Australian grocery industry .......................................................................................................................18
5.4 ECR Pallet Implementation Project: Apaper provided ECR Asia (Singapore)................................................................................................................................19
5.5 Conclusions......................................................................................................................................................................................................................................19
6. CONCEPTUAL FRAMEWORK .............................................................................................................................................................................................................20
6.1 Preamble ..........................................................................................................................................................................................................................................20
6.2 Supply Chain Typology ...................................................................................................................................................................................................................22
6.3 Changes in market mix ....................................................................................................................................................................................................................24
6.4 Study components............................................................................................................................................................................................................................25
6.5 Conclusions......................................................................................................................................................................................................................................26
7. SYNOPSIS OF SURVEY OUTCOMES ..................................................................................................................................................................................................28
7.1 Respondents.....................................................................................................................................................................................................................................28
7.2 Summary of Interviews....................................................................................................................................................................................................................29
7.3 Conclusions......................................................................................................................................................................................................................................29
8. MARKET CONTEXT ...............................................................................................................................................................................................................................30
8.1 Market Framework ..........................................................................................................................................................................................................................31
8.2 Manufactured Goods........................................................................................................................................................................................................................31
8.3 Agricultural Goods ..........................................................................................................................................................................................................................33
8.4 Retail Markets..................................................................................................................................................................................................................................34
8.5 Export and import trade ...................................................................................................................................................................................................................35
8.6 Value of Market Segments...............................................................................................................................................................................................................39
8.7 Conclusions......................................................................................................................................................................................................................................41
9. AUSTRALIA’S LOGISTICS TASK ........................................................................................................................................................................................................42
9.1 The task in 2001...............................................................................................................................................................................................................................42
9.2 Domestic pallet statistics..................................................................................................................................................................................................................47
In Confidence Page 2 21 March 2002

9.3 Growth forecasts ..............................................................................................................................................................................................................................48
9.4 Transport indicators .........................................................................................................................................................................................................................48
9.5 The market mix of the logistics task ................................................................................................................................................................................................49
9.6 The task in 2020...............................................................................................................................................................................................................................50
9.7 Implication of the future task...........................................................................................................................................................................................................52
9.8 Conclusions......................................................................................................................................................................................................................................53
10. PALLET USAGE AND INTERNATIONAL TRADE............................................................................................................................................................................55
10.1 Import-oriented containers...............................................................................................................................................................................................................56
10.2 Export-oriented containers...............................................................................................................................................................................................................56
10.3 Conclusions......................................................................................................................................................................................................................................57
11. OPERATIONAL IMPLICATIONS .........................................................................................................................................................................................................58
11.1 Arguments to retain 11652 pallet .....................................................................................................................................................................................................58
11.2 Argument to adopt ISO pallet ..........................................................................................................................................................................................................59
11.3 Storage issues...................................................................................................................................................................................................................................59
11.4 Pallet and order make-up .................................................................................................................................................................................................................60
11.5 Vehicle interface ..............................................................................................................................................................................................................................61
11.6 Container loading.............................................................................................................................................................................................................................63
11.7 Conclusions......................................................................................................................................................................................................................................65
12. FINANCIAL ANALYSIS ..........................................................................................................................................................................................................................66
12.1 Framework.......................................................................................................................................................................................................................................66
12.2 Cost Elements ..................................................................................................................................................................................................................................66
12.3 Discounted cash flow and NPV assessments ...................................................................................................................................................................................68
12.4 Conclusions......................................................................................................................................................................................................................................69
13. APPENDICES ............................................................................................................................................................................................................................................70
14. PUBLICATIONS AND RELATED ARTICLES ....................................................................................................................................................................................76
14.1 ECR Standard Pallet Implementation Project ..................................................................................................................................................................................77
14.2 Efficient Unit Loads by A.T. Kearney .............................................................................................................................................................................................85
14.3 Efficient consumer response (ECR): a survey of the Australian grocery industry ..........................................................................................................................88

SUMMARY OF FIGURES
Figure 5-1 Composition of capital cost elements identified within the GISCC report ...........................................................................................................................................17
Figure 6-1 Conceptual framework linking the purpose of the pallet to the prevailing market demands and product attributes.............................................................................20
Figure 6-2 A Supply Chain Typology outlining influences on Australia's logistics processes...............................................................................................................................22
Figure 6-3 Transport and storage output and gross domestic product index ...........................................................................................................................................................24
Figure 6-4 Key components of logic within the study............................................................................................................................................................................................25
Figure 8-1 Market structure delineating key segments within supply and demand cycles ......................................................................................................................................31
Figure 8-2 Subdivision (by value) of Australian manufacturing (including imports and exports) by unitisation class...........................................................................................32
Figure 8-3 Subdivision of Retail market within Australia ......................................................................................................................................................................................34
Figure 8-4 Value of the major Market Segments for unitised goods within the Australian market .......................................................................................................................39
Figure 9-1 Apportionment of container flows as full and empty imports and exports in 2000 ..............................................................................................................................44
Figure 9-2 5 Ports volume of container flows in 2000 ...........................................................................................................................................................................................44
Figure 9-3 Supply chain configuration incorporating road, rail and sea freight movements on unitised non-bulk products .................................................................................46
Figure 9-4 Transport and Storage output and Gross Domestic Product .................................................................................................................................................................48
Figure 9-5 Trend analysis for container throughput for the five major ports..........................................................................................................................................................48
Figure 9-6 Consumer (Grocery and food) - Market value estimates based on growth forecasts ............................................................................................................................51
Figure 9-7 Consumer (Non-Grocery and household) - Market value estimates based on growth forecasts...........................................................................................................51
Figure 9-8 Industrial/Other - Market value estimates based on growth forecasts...................................................................................................................................................51
Figure 9-9 Totals (All market segments) - Market value estimates based on growth forecasts..............................................................................................................................51
Figure 9-10 Forecast trade and consumption comparisons by market sector and total...........................................................................................................................................52
Figure 11-1 Various combinations for trailer length and pallet size........................................................................................................................................................................61
Figure 11-2 Trailer utilisation, showing under-utilised capacity .............................................................................................................................................................................63
Figure 11-3 Demonstrates the difference in loading/unloading techniques.............................................................................................................................................................64

SUMMARY OF TABLES
Table 4-1 Growth rates and value by market segment forecast for 2010 and 2020................................................................................................................................................14
Table 4-2 Container movements by pallet standard.................................................................................................................................................................................................14
Table 4-3 Matrix for operational decision criteria ..................................................................................................................................................................................................15
Table 6-1 Assessment of growth scenarios based on alternative task apportionment and predicted growth forecasts...........................................................................................24
Table 7-1 Summary of key survey participants ......................................................................................................................................................................................................28
Table 8-1 Australian Market for Manufactured Goods ..........................................................................................................................................................................................31
Table 8-2 Summary of Agricultural production and export activity.......................................................................................................................................................................34
Table 8-3 Subdivision of the Retail market within Australia .................................................................................................................................................................................34
Table 8-4 Summary for import trade, segmented into the unitised classification...................................................................................................................................................37
Table 8-5 Summary for export trade, segmented into the unitised classification ....................................................................................................................................................38
Table 9-1 Logistics volumes for relevant market segments (unitised/containerised) .............................................................................................................................................42
Table 9-2 Inter-capital road freight matrix 1998-99 ('000 tonnes) .........................................................................................................................................................................43
Table 9-3 Use of domestic and ISO containers within long distant freight movements.........................................................................................................................................43
Table 9-4 Summary of container activity for 1998-9 .............................................................................................................................................................................................44
Table 9-5 Summary of Coastal Shipping of Containerised freight.........................................................................................................................................................................45
Table 9-6 Estimated volume for pallet issues per annum .......................................................................................................................................................................................47
Table 9-7 Summary of key market indicators.........................................................................................................................................................................................................48
Table 9-8 Summary of the current and modelled growth by market sector............................................................................................................................................................50
Table 9-9 Growth rates and value by market segment forecast for 2010 and 2020................................................................................................................................................53
Table 10-1 Geographic distribution of pallet standards..........................................................................................................................................................................................55
Table 10-2 Import containers by market segment and pack type ...........................................................................................................................................................................56
Table 10-3 Import containers by pack type and pallet standard at origin ...............................................................................................................................................................56
Table 10-4 Export containers by market segment and pack type ...........................................................................................................................................................................56
Table 10-5 Export containers by pack type and pallet standard at destination .......................................................................................................................................................56
Table 10-6 Container movements by pallet standard..............................................................................................................................................................................................57
Table 11-1 Matrix for operational decision criteria ................................................................................................................................................................................................65
Table 12-1 Summary of cost elements within financial summary..........................................................................................................................................................................67
Table 12-2 Project inventory and other costs and benefits .....................................................................................................................................................................................68
Table 13-1 Scenarios "A" - "C" indicating growth in indices in the intervening years ..........................................................................................................................................70
Table 13-2 Value of market segments and determination of task size by segment ................................................................................................................................................71
Table 13-3 Forward projections of production, export, import and consumption estimates based on derived growth indices, by market sector..................................................73
Table 13-4 Summary of Import Containers by Origin port for 1995 and 2000 ......................................................................................................................................................74
Table 13-5 Summary of Export Containers by Destination port for 1995 and 2000 ..............................................................................................................................................75

variations in standards and systems generate direct and indirect non
1. INTRODUCTION conformance costs.
This study into the operational and cost implications of the Australian Taking a 20 year view, and understanding that import and export trade
Pallet in Domestic and International Logistics has been commissioned have substantially higher growth rates than domestic production and
by the consumption, the “markets” served by Australia’s domestic and
Integrated Logistics Network (ILN) international fields, will fundamentally change.
Australian Marine Group (AMG) International trade as a percentage of domestic consumption will
increase
Debate regarding the suitability and implications arising from the Multi-national firms are consolidating their manufacturing platforms
Australian pallet standard has been ongoing since the mid 1990’s. and economising on product range
Despite several recent studies and the dual recognition of both the The Asia region is emerging as a substantial market with
Australian and ISO pallet criteria the Australian Standards regime countervailing power to set standards
(AS4762-2000 “General-purpose flat pallets), the issue remained
unresolved in a number of forums. This study incorporates a market perspective and models forecasts the
changing market mix. Over 40 organisations were interviewed to
Globally, there are four (4) dominant pallet sizes utilised. These are: determine their direction in manufacturing and marketing strategy and to
relate these issues to pallet standards.
1200 x 1000mm pallet, cited as the ISO standard and most
common across Asia, Americas, Europe and New Zealand The pallet remains one of the most pervasive items of logistics
1200 x 800mm pallet, known as the Euro-pallet equipment, yet this issue is largely dismissed as trivial by many logistics
1100 x 1100mm pallet used in Japan and Korea practitioners within Australia.
1165 x 1165mm pallet used exclusively in Australia
However there is a strong correlation between the views of the multi-
2
Contemporary argument seeking to retain the 1165 pallet have been national organisations for the need to align Australia’s pallet and
based on the cost to alter the pallet pool (around 15 million pallets), container standards with those of its dominant trading partners.
adjust racking and associated equipment, and increased warehousing
costs. Multi-nationals will make decisions as to where they base their
production platforms and/or source materials and products based on the
Conversely, previous studies have failed to identify and assess the overall cost of supply.
implications of an increasingly global logistics network, where

Australia’s inability to adopt standards which are aligned with its
trading partners will substantially disadvantage its Soon after, the Australian Government took over the responsibility for
Effectiveness to attract investment the pool of pallets under the Commonwealth Handling Equipment Pool,
Ability to supply export products to current and new markets more commonly known as CHEP.
Ability to import value added products in a cost effective manner
In 1958, CHEP was sold to Brambles and the pool had grown to around
Recently a FMCG multinational manufacturer made a decision to 90,000 pallets, yet usage was still limited to the waterfront.
relocate a major production facility to SE Asia and to consolidate
production. In this instance, Australia will become a net importer of By the late 1960’s the pool of pallets had grown to around 600,000
the finished product rather than being a net exporter. Those products pallets based on the original standards. Today the number of pallets is
will be distributed from SE Asia in cartons that conform to ISO around 15 million with Brambles, TNT and Loscam offering products
standards and configured to fit ISO pallets. based on the 1165*1165 mm footprint.
Considering the supply chain cost implications of this and other Given the relative isolated nature of Australia’s land transport system,
examples, Australia will be best served by commencing a process to the 11652 pallet has provided an effective means of moving goods.
align its pallet and carton standards towards the ISO standards used by Freight forwarders and transport operators have invested in equipment
its trading partners. based on the 11652 pallet. Similarly racking and conveyor systems have
been developed that accommodate the pallet standard.
To not undertake this process is like the decision by the USA to
maintain the imperial standard of measurement, as the rest of the
globe embraced metric measurements.
One interviewee surveyed the issue akin to dental surgery, saying “it
will hurt to get the tooth out, but it will only get worse if we don’t”.
1.1 Some History

At the end of the Second World War, the US forces abandoned around
60,000 pallets which had been used for materials handling purposes.
These measured 46 inches by 46 inches and fitted the vehicle tray
standards at the time.

(ii) Previous assessments to migrate to the ISO standard have
2. CONCLUSIONS been influenced by short-term assessments and a
disproportionate level of control by a few firms within the
1. Australia is part of a global economic and logistics system. If supply chains.
ignored the corollary is that Australia will be relegated as player (iii) Recognising the differential growth rates, it is highly feasible
within the development of supply strategies and processes that the sum of international export and import trade
servicing the burgeoning Asian market. movements will reach 70% of domestic trade (and
consumption) by 2020.
2. Global manufacturing and brand managers are seeking scales of
economy and standardisation of inventory, supported by least cost 5. Whilst transitional processes may require more than 5 years, a strong
supply channels, necessitating an alignment of pallet standards economic case exists for Australia migrate towards the ISO standard
and efficient unit load strategies between Australia and its trading for pallets, linked to a similar adoption of cartons sizing standards.
partners. The issue must be seen in the context of value foregone in the
medium to long term, rather than the cost of transition in the near
3. Decisions regarding investment and establishment of future.
manufacturing platforms within Asia1 will depend on the potential
and capacity for host countries to provide and integrate the 6. Australia operates two container pools each servicing discrete
requisite and supporting capabilities and standards. Australia must segments of the market (namely international trade and domestic
address its lack of readiness in this regard. trade) arising as a consequence of the Australian pallet size.
(i) Substantial inefficiency exists at the container loading and
4. Efficient Consumer Response (ECR) strategies have emerged as a unloading interface, requiring the need to universally develop
critical enabler of supply chain efficiency within grocery supply and implement unitised loading based on the optimal pallet
and demand channels at a global level. Such strategies explicitly footprint, however without the need to use a pallet in the
reinforce the need for efficient unit load (EUL) concepts and process. This represents an integral element of the EUL
harmonisation of standards at a global and regional level, rather concept applied to the international freight task.
than historic and expedient activities at the domestic level. (ii) Freight imbalances cause the movement of empty ISO
(i) 65% of Australia’s trading partners (by volume) utilise the containers in parallel with loaded domestic containers, and
ISO pallet footprint as a key driver for dimensioning the return of the empty domestic container, yielding a cost of
logistics standards. $20 million marginal cost and $40 million opportunity cost.
These costs would be expected to triple over time concurrent
with the growth in international and domestic trade.
1
Asia incorporates ASEAN, Middle East, North Asia, South Asia

7. Implementing the ISO standard requires conformance costs of

$600 million over ten years however the NPV benefits are over
$2.5 billion exist for the period to 2020 (assuming 30% pre tax
discount rate).
(i) The primary benefits are the ECR and EUL strategies and
the secondary benefits are efficient container loading
utilising unitised handling processes.
(ii) The NPV benefits increase to $5.1 billion if the pre-tax
discount rate is decreased to 20%.
8. Many industry representatives understand the strategic benefit of

standardising on pallet size, however express the need to address
the transitional arrangements
(i) Past assessment and treatments of the transitional costs
have inhibited commencement and/or progress towards the
new ISO standards
(ii) A review of depreciation and write-off arrangements is
necessary
(iii) Strategies such as double depreciation on investment in
compliant equipment should be considered.
9. A clear need exists for government to facilitate the process.

Comparisons can be made with the adoption of metric standards,
taxation reform, the introduction of new currency, trade reform
and assistance, and the like.

3. RECOMMENDATIONS
(ii) as a demonstration of Australia’s long term commitment
1. This study recommends the progressive adoption of the ISO pallet
toward the Asia markets
standard for Australia with full implementation by 2010.
(iii) in support of market development programs such as
Supermarkets to Asia
2. It is recommended that government provides leadership in the
implementation of the ISO standard and recognises that
6. It is recommended that depreciation and write-off costs relating to
(i) there is a predisposition towards the status quo by industry
compliant transitional and/or capital expenditures be structured
based on short-term planning horizons, and
within a range of taxation incentives designed to foster timely
(ii) the misalignment of standards should be seen in the
implementation of the standard. This recognises that
context of a “market failure” that government has a
(i) strategic and operational factors identified within the study
legitimate right to address.
yield a positive economic and financial outcome concurrent
with the adoption of the ISO standard, particularly within an
3. It is recommended that the outcomes of the study be presented to
ECR/EUL context
Australian Transport Council (ATC) via the Integrated Logistics
(ii) supply chain standards have long term implications for trade,
Network, with the view of achieving support towards the ISO
and government must
standard by ATC.
remove short-term impediments for industry
recognise the transitional cost burdens
4. It is recommended that the ILN design and promote an
acknowledge the extent of sunk cost treatments for
implementation strategy through the Transport and Logistics
distribution infrastructure
Working Group for industry awareness, consultation and delivery
of the new ISO standard.
5. It is recommended that a review be undertaken of the process and

adequacy of implementing Efficient Consumer Response and
Efficient Unit load strategies by Australia
(i) as part of Australia’s contribution towards the
implementation of efficiency within international supply
chains

increased warehouse expansion costs, a finding which is not
4. EXECUTIVE SUMMARY generally accepted from the survey conducted within this study.
The following points are drawn from the summary of each chapter of An ECR study conducted in 1999 outlined the strategic relevance of
this report and can be read in context with the Conclusions in section ECR within the Australian Grocery industry, and questioned the
motives being pursued and the inherent imbalance of power therein.
From Section 5 (Previous work) It found that evident deficiencies may cause the strategic benefits to
The pallet standards issue has been an integral part of the global be lost. A copy of the paper is provided in section 14.3 and is titled
debate of the benefits of ECR (Efficient Consumer Response) and “Efficient consumer response (ECR): a survey of the Australian
EUL (Efficient Unit Loads) strategy. grocery industry”.
Global consulting firm AT Kearney undertook a seminal study in From Section 6 (Framework)
1997 and identified that substantial benefits can be realised by The logic and rationale for a prevailing pallet standard is derived
harmonising the carton size to the pallet standards, and by from the conceptual notion of a supply chain and its composite
developing processes that maintain load (and unit) integrity as far elements, which exist within the notion of “why do goods move?”
along the supply chain as possible. Such benefits are between 1.2-
1.6% of sales values. A summary of the AT Kearney findings is A study into pallets standards requires a number of considerations
provided in the appendix in 14.2 titled “Efficient Unit Loads by such as
A.T. Kearney”. o A long range view of the served market
o A holistic view of the supply chain
ECR Asia has undertaken extensive research and development on o The relevance of unitisation and efficiency
this issue, identifying substantial financial benefits and o The relationship between products (SKU’s), pallets,
recommending implementation of the 1200 * 1000 mm pallet. containers and/or trucks
This outcome will have significant implications for Australia’s
future import and export trade and supporting logistics systems. A Differential growth rates exist for domestic production, export trade,
summary of the ECR findings is provided in the appendix in import trade and domestic consumption, which will lead to a change
section 14.1 titled “ECR Standard Pallet Implementation Project”. in the market mix served by Australia’s logistics systems (and
standards)
The Symonds Henderson report (commissioned by the Grocery
industry) recommended the retention of the Australian pallet
standard however based 80% of the financial justification on

It is very conceivable that within the next 20 years Australia’s The need for single organisations to tolerate multiple pallet standards
international trade and logistics task will reach 70% of its within a regional (sub-global) manufacturing or supply strategy.
domestic consumption2. That is Changes in the market mix serviced by supply chain processes.
$import + $export
% international trade = ----------------------------
$ domestic consumption From Section 7 (Survey)
A number of consistent messages emerged from the interview process
where domestic consumption is a “proxy” for domestic land transport
conducted within the scope of the study
Supply chain philosophy in 2001 has progressed significantly since
Logistics processes and standards are increasingly global in the GISCC report of 1997.
context and application, with marketing and manufacturing Supply chain management has emerged as a critical differentiation
strategies being executed at a global/regional level by large for firms in 2001 to 2010
multinationals with substantial countervailing power Manufacturing is consolidating to pursue scales of economy
Supply chain processes are fundamentally changing with concepts of
It does not automatically follow that harmonisation between “shelf ready packaging” and “reverse crate flows”, emerging. This is
Australia and its customers/suppliers on pallet standards leads to being facilitated by strategies such as Efficient Consumer Responses
such efficiency if considered in isolation. Nor do such alignments and Efficient Unit Load, and supported by great collaboration than
justify an increase of pallet usage within containers to facilitate has existed in the past.
efficient loading and unloading.
Stockholders are seeing more sophisticated products (crates, trolleys,
The issue is the degree to which retention or dissolution of the current slip sheeting) and alternate materials such as plastic
standard impact higher order issues such as The future of the wooden pallet is limited; the study and review
Carton sizing, consistent with the global ECR (Efficient Consumer process was seen to be more about the standardisation process of
Response) strategy how individual cartons aggregate into “blocks” or “units” that
Customer expectation relating to product presentation in overseas comply with a universal footprint standard for international
markets distribution.
There is a clear awareness by multi-nationals that the carton and
pallet size is standardizing on the ISO footprint of 1200 x 1000mm
2
The GISCC report by Symonds Henderson identified that there is financial
justification to introduce the ISO pallet where international trade reached 70% of
domestic grocery consumption

From Section 8 (Markets) integrated with international supply and demand markets and delivery
Pallets are not used in all supply chains. Generically, three types channels
of supply chains exist for the purpose of categorisation herein, Products manufactured in Australia for export markets will need to
which are: meet customer expectations for packaging storage and
o Bulk shipments transportability. Secondly these products must not also conform to
o Semi bulk shipments, typically in containers or as customer systems, without transferring non-conformance costs along
“break bulk” consignments the chain. To fail to appreciate this dynamic will cause
o Containerised movements of unitised freight (pallets, o Customers to source products from alternate sources
cartons, bags, etc.) o Manufacturers to nominate alternate economies for their
o It is the third group relevant to the study production platforms
Markets considered by this study are manufactured and primary Global manufacturing and brand managers are consolidating with a
products, retail markets, and export/import international trade focus on Asia. Where Australia’s standards and systems do not
Australia’s international trade is around $210 billion, however comply with the systems developed by these firms, the total landed
trade in unitised product represents around 35%, with the majority and distributed cost of goods will increase for Australia’s consumers
of the balance relating to shipment of bulk commodities (coal, Trade in products which are unitised / containerised will substantial
grain, minerals, natural gas, etc.) increase as a percentage of domestic consumption.
The market value of Australia’s*/packaged products is around
$150 billion, comprising domestic production retained and
imported product, for domestic consumption. This can be
subdivided into consumer grocery ($54 billion), consumer non
grocery/household ($47 billion) and industrial ($53 billion). Each
sub-element has differential growth rates and trade imbalances,
further influencing the composition of the market mix.
The growth rate for international trade is between 8-10%
(compound), whereas domestic production and consumption is
around 3-4%.
From Section 9 (Logistics)

Whilst substantial reform has focussed on domestic transport
within Australia across road, rail and coastal shipping segments, it
will become more critical that Australia’s transport systems are

Table 4-1 Growth rates and value by market segment forecast for 2010 and 2020 million per annum and also represents an opportunity cost of $40
million recognising that parallel freight movements by rail and road
Product, consum ption Current
and trade values for Growth
Modelled
Growth (b)
2001
$B
2010
$B
2020
$B
are undertaken. It is considered that harmonisation between ISO
containerised products (a)
containers and the product footprint (pallet) would address this cost,
Comsumer (Food/grocery) Dom. Production 4.2% 61 85 134
Export 11.6% 10.0% 10 24 63 whether considered in a marginal or opportunity cost treatment.
Import 9.2% 9.0% 3 7 16
Dom. Consumption 2.6% 2.6% 54 68 88
Consumer (Household) Dom. Production 4.3% 39 56 86

Australia’s pallet pool system is valued at $200 million per annum,
Export 13.5% 9.0% 4 8 19 and generates around 40 million pallet issues. There are around 15
Import 14.2% 7.0% 12 22 43
Dom. Consumption 4.6% 4.6% 47 70 110 million pallets in circulation
Industrial/Other Dom. Production 0.9% 29 33 34
Export
Import
5.5%
8.4%
4.0%
5.0%
8
32
11
50
17
81
From Section 10 (Pallet usage)
Dom. Consumption 3.3% 3.3% 53 71 98 Trade to/from containers that use ISO pallets account for 60-70% by
Total Dom. Production 3.7% 129 175 255 volume, with imports growing at 5% and exports at 10%
Export 8.2% 22 44 99
Import 5.9% 47 79 141
Dom. Consumption 3.5% 154 209 297
The following table summarises the key results.
Ratio international trade to consumption
Comsumer (Food/grocery) 25% 46% 90% Table 4-2 Container movements by pallet standard
Consumer (Household) 33% 43% 57%
Industrial/Other 75% 86% 99% Pallet size Imports Exports
Total 45% 58% 81%
(a) Based on ABS Economic indicators against market values 1100 x 1100 ‘000 TEU’s 35 62
(b) Composite forecasts derived from ABS Economic indictaors and adjusted to reflect volume growth
in contaier 1995-2000 % total 10 16
% growth 9 3
1200 x 1000 ‘000 TEU’s 230 275
Container movements and volumes relevant to the pallet standards
% total 62 69
issue are % growth 5 10
o Imports – 375,000 TEU’s 1200 x 800 ‘000 TEU’s 90 40
o Exports – 400,000 TEU’s % total 24 10
o Coastal shipping % growth 10 18
Tasmania - 190,000 TEU’s Non Standard ‘000 TEU’s 15 23
Other - 35,000 TEU’s % total 4 5
% growth 6 10
TOTAL ‘000 TEU’s 370 400
The movement of empty ISO containers to WA and empty
domestic containers from WA yields a marginal cost around $20

From Section 11 (Operations Implications) From Section 12 (Financial)

The financial analysis allows for
The decision and supporting logic can be summarised in the following A capital expenditure of $600 million for adjustments to the pallet
matrix. pool, racking and ancillary equipment over the 10 years
Table 4-3 Matrix for operational decision criteria The incremental increase in operating costs by $100 million is
assumed over the same period
1165 * 1165 mm pallet 1200 * 1000 pallet
The benefits of ECR/EUL are applied to 75% of the market segment
Current situation Given certain % of case
Current carton
identified as yielding sizes are based on the ISO for consumer grocery and non grocery products and 50% for
sizes industrial products
10% inefficiency in standard, this option may
utilisation. absorb under-utilised Unitised loading of containers is a substantial benefit
EUL analysis identifies capacity (and “slack”)
1.2-1.6% cost to sales of The analysis yields a positive NPV of $2.5 billion, assuming an inflation
such inefficiencies
Cartons based on Recommended in Not considered as a viable rate of 3% and a discount rate of 30% (pre-tax).
580 * 387 module GISCC report to be of option
significant benefit, if This NPV increases to over $5.1 billion of the discount rate is decreased
harmonised however to 20%.
ignores global trend
towards ISO carton
standards Prime-facie, there appears to be a substantial cost impact if the current
Cartons based on Increasing trend in this Potential to off set near standard is maintained, leading to non conformance costs arising from
600 * 400 module direction will proliferate term adjustment costs for the “disconnect” between standards.
current inefficiencies infrastructure
further 60-70% global activity
based on ISO standard for
cartons and pallets

costs of $A62.8 million per annum”. This is based on avoiding any
5. SYNOPSIS OF PREVIOUS WORK overhang on the pallet.
If an overhang is tolerated, the capital cost is reduced to $A980
A review of the previous work in this area has identified the following million.
references relevant to this study. These are referred to within this Saving would be limited to $25.3 million for container loading and
report. unloading efficiencies
NPV was calculated to be negative $376 million
The Grocery Industry Supply Chain Committee (The Australian “Only when palletised international trade grows to over 70 percent of
Pallet Study) undertaken by Symonds Henderson for the Grocery the total Australian domestic and foreign grocery and produce sales
Manufacturers Association and the Australian Supermarkets or there is a significant change to pallet technology, unavailable on
Institute (1997) the 1165 square, would the NPV become positive”
Efficient Unit Loads study by A.T. Kearney (1997) The research identified the potential for significant savings applicable
Efficient Consumer Response: a survey of the Australian grocery under Efficient Unit Loads (EUL) initiative proposed by ECR Europe
industry – Harris, Swatman and Kurnia (1999) and A.T. Kearney
Recommended Pallet Standard for Asia, a brochure issued by GISCC recommended not changing the Australian pallet standard,
ECR Asia recommending the adoption of the 1200 mm * 1000 mm but did recommend the further development for “optimising the pallet
ISO pallet fit” and investigating the EUL methods.
Whilst the NPV was negative, it was acknowledged that the EUL
benefits would offset the capital and recurring costs, however implied
5.1 GISCC - The Australian Pallet Study that these benefits should be internalised for the grocery industry
Recognition of the ISO pallet subject to the development of future
This report provides a comprehensive overview of the critical pallet technology or a potential change in the task mix within a higher
elements impacted by a change in the pallet standard within Australia proportion of international trade evident.
from the perspective of the grocery industry, and presents a number of Asserted that “in no circumstances should the industry use both sizes
case studies for manufacturers and distributors. The following in one open system”
conclusions are summarised from the study. The composition of the requisite capital costs is shown on the
“The cost of pallet size conversion would be borne by the following graph.
domestic grocery manufacturers, retailers and service providers
with virtually the only saving benefits being derived from
international trade”
“The estimated capital cost of a pallet change to the grocery
industry is $A1195 million, with perpetual additional operating

Figure 5-1 Composition of capital cost elements identified within the GISCC report The major thrust of the report is based on the 12.5% reduction in the
footprint area for the pallet from 1165 mm square to 1200 mm * 1000 mm.
As a result, it is inferred that handling costs increase by 12.5%, trailer
1,400 efficiency is reduced, labour costs increase, warehouse-racking
1,200 utilisation reduces and there is a need to increase warehousing area and
provision of racking locations by the same proportion.
1,000
800 Over 80% of the overall capital cost is captured by two key elements
600
relating to racking adjustments and increased warehousing requirements.
5 million racking locations to be adjusted at $45 per location,
400
assuming no overhang is tolerated, leading to a one off cost of $225
200 million
-
Whilst a four percent reduction in storage floor area is available with
Estimated Modification Additional Modification Modification Storage Modification compression of racking, it is essential that an additional 1.3 million
capital cost to existing pallet to pallet to existing facility for to transport
pool requirement machinery rack / MHE additional fleet rack locations required at $600 each, totalling $777.6 million
pallets
The Symonds Henderson report ( commissioned by the Grocery The analysis assumes that the migration to the new pallet standard will
industry) recommended the retention of the Australian pallet not absorb the under-utilisation inherent within the chain, evident due to
standard, however based as much as 80% of the financial the proliferation of carton sizes, particularly ISO carton standards.
justification on increased warehouse expansion costs, a finding
which is not generally accepted from the survey conducted within
this study. 5.2 Efficient Unit Load study by A.T. Kearney
In 1997, global consulting firm AT Kearney undertook a seminal study
5.1.1 Key issues addressed regarding supply chain efficiency and the relevance of harmonisation of
standards. The context of the study is generally limited to grocery
The report is comprehensive in its analysis of equipment interface and manufacturers and distributors.
operating costs, dealing with pallet and ancillary equipment
modification costs. The study assessed the implication of co-ordination within supply chains
in a concept labelled “Efficient Consumer Response”. Within the study,

analysis was given to the importance of Efficient Unit Loads (EUL), 5.3 Efficient Consumer Response (ECR) : a
and this study importantly draws on the findings of AT Kearney. survey of the Australian grocery industry
For a more detailed explanation on EUL in the Appendix under This study and report was co-authored by John Harris, Paula M.C.
Section 14.2 Swatman and Sherah Kurnia and was published in the journal “Supply
Chain Management: An International Journal” (1999), Volume 4,
A summary of the key findings is available at http://www.ecrnet.org Number 1, pp35-42.
and key findings include
Efficient unit loads impact 12-15% of retail sales price. Savings The paper presents the results of an Australian study which was designed
opportunities represent 1.2% of retail sales price in the European to assess the applicability of ECR within the Australian grocery industry.
context. A copy of the full text is provided in the Appendix 14.3 on page 83.
Unit load harmonisation is key to supply chain integration and
break through results Whilst ECR represents a broader, contextual issue surrounding pallet and
Projected savings are not evenly spread among manufacturers and carton standards, the report made a number of substantive statements
retailers, with the latter group expected to gain three quarters of worth incorporating herein.
the benefit “The goal of ECR is to take out of the supply chain costs which do not add
consumer value (Robins, 1994). ECR is about producing efficiencies in the grocery
The GISCC report which is summarised in the previous section supply chain within the four core business process areas of efficient store
identified the importance and value of the EUL principle and assortment, efficient replenishment, efficient promotions and efficient product
introductions (Kurt Salmon Associates, 1993).”
identified that a saving of 1.64% of retail sales is possible. “There is considerable interest in ECR in Australia, with 61 per cent of
respondents being aware of ECR and 40 per cent of respondents actively pursuing
Based on the estimate of $54 Billion for Consumer–grocery/food an ECR strategy). Despite this interest in ECR, we believe that there is no real
products, the implications of ECR/EUL equate to $850 million commitment to its implementation.”
reduction in chain costs. If non grocery and household products “One of the main reasons given for adopting ECR is pressure from trading
partners. These results, which differ significantly from the (comparatively limited)
are added to this group, totalling $101 Billion, benefits arising evidence available from the USA, suggest that the Australian motive for engaging
from EUL would yield $1.6 Billion in chain savings. in ECR may well be quite different. Indeed, the likelihood is that Australian grocery
industry members appear to be "encouraged" to engage in ECR by large and
powerful customers (supermarkets) - a situation which is reminiscent of the
Australian experience with EDI. There is thus a real danger that, as with EDI,
organisations may become involved only to the extent required by their larger and
more powerful trading partners, so that the full benefits of a strategic approach
may be lost.”

5.4 ECR Pallet Implementation Project: Apaper justification on increased warehouse expansion costs, a finding which
provided ECR Asia (Singapore) is not generally accepted from the survey conducted within this study.
A full copy of the report is provided in Appendix 14.1 on page 72 An ECR study conducted in 1999 outlined the strategic relevance of
ECR within the Australian Grocery industry, and questioned the
The results of the study identified substantial benefits and savings by motives being pursued and the inherent balance of power therein. It
adopting the ISO standard through South East Asia. found that deficiencies may cause the strategic benefits to be lost.
The outcome of the study provides a stark contrast to the results of the ECR Asia has undertaken extensive research and development on
GISCC report referred in section 5.1 on page 16. However it must be this issue, recommending implementation of the 1200 * 1000 mm
recognised that whilst the principles are consistent, the relative pallet, which will have significant implications for Australia’s future
immaturity of the Asian situation would yield significant benefit, import and export trade and supporting logistics systems.
which may not follow with a more mature environment such as
Australia, having already established substantial infrastructure costs.
5.5 Conclusions
The pallets standards issue has been an integral part of the global
debate of the benefits of ECR (Efficient Consumer Response) and
EUL (Efficient Unit Loads) strategy.
Global consulting firm AT Kearney undertook a seminal study in

1997 and identified that substantial benefits can be realised by
harmonising the carton size to the pallet standards, and by
developing processes that maintain load (and unit) integrity as far
along the supply chain as possible. Such benefits are between 1.2-
1.6% of sales values.
The Symonds Henderson report ( commissioned by the Grocery

industry) recommended the retention of the Australian pallet
standard, however based as much as 80% of the financial

6. CONCEPTUAL FRAMEWORK Figure 6-1 Conceptual framework linking the purpose of the pallet to the prevailing
market demands and product attributes
6.1 Preamble
The conceptual notion of a supply chain and its composite elements
exists within the notion, “why do goods move?”
Whilst the obvious subject of the study is the pallet and its prevailing
standard, the underlying argument extends to the purpose and fit of
the pallet within the supply chain. It therefore begs the question as to
the need and existence of the pallet in the first instance, and if its
purpose and use has been found to be “wanting”, then what item
and/or process will replace the pallet.
Most supply chain practitioners will share anecdotes and experiences

of pallets as an item of logistics equipment. Some of those same
practitioners are searching for alternatives such as slip-sheets,
intermediate bulk containers/crates, and alternate materials such a
plastics and compressed paper.
A study into pallet standards requires a number of considerations such

as:
A long range view of the served market
A holistic view of the supply chain
The relevance of unitisation and efficiency
The relationship between product (SKU), pallet and container or
truck
A conceptual model of the inter-relationship between markets and

pallets is provided in the following diagram.

Production
Production Flow
Flowof
ofgoods
(a)
goods (a) Market
Market
Product attributes Supply processes Demand characteristics (b)

• Bulk, pack type • Sources • Location of markets
• Presentation – regionalisation of –existing
• Value-added manufacture –future, emerging
– centralisation of supply • Frequency and expectation
and inventory • Growth
• Channels
• Methods TThe
– integration
pproherreelat
d l i
cconroduuccts,atoionnsship
– connectivity
– unitisation onttain ts,pal hipbe
aineers pallel ts bettwe
rs//ve etsand weeen
vehhicl and n
iceles
s
(a) Goods may be raw materials, intermediate and finished products
(b) Where demand characteristics change, then supply processes will equally need to change
Within the conceptual framework outlined in Figure 6-1 above, there is a

direct relationship between the pallet (role and standard) and the served
market.
The issue has been treated tactically to date as pallet costs are the domain
of the “firm”, and in the context of a firm’s individual potential to
influence the pallet standard, the outcome for practitioners has been to
move onto “the next big issue”.
Yet collectively (at a national level) the pallet issue is an important

element that influences the overall efficiency of the “system” servicing
our market requirements.

There are three direct and one indirect supply chains relevant to
It does not automatically follow that harmonisation between Australia Australia. These can be represented within the following diagram.
and its customers/suppliers on pallet standards leads to such efficiency
if considered in isolation. Nor does such alignments justify an Figure 6-2 A Supply Chain Typology outlining influences on Australia's logistics
increase of pallet usage within containers to facilitate efficient loading processes
and unloading.
MARKET (Destination)
The issue is the degree to which retention or dissolution of the current
standard impact higher order issues such as Local Overseas
Carton sizing, consistent with the global ECR (Efficient Consumer
Response) strategy Domestic logistics Export logistics
operating essentially servicing the demands
Customer expectation relating to product presentation in overseas
as a closed loop and of overseas customers,
Local
markets not linked to global with substantial
The need for single organisations to tolerate multiple pallet
PRODUCTION (Origin)
markets or chains growth expected in
standards within a regional (sub-global) manufacturing or supply next 10 years
strategy.
Changes in the market mix serviced by supply chain processes.
Import logistics Global logistics with

influenced by the increasing dominance to
countervailing power of set trends in logistics
Overseas
increasingly large techniques, which
suppliers and Australia’s influence supply chain
“appetite” for value and market decisions ·
added products “follow the leader”
Direct Indirect
6.2 Supply Chain Typology

6.2.1 Domestic Logistics 6.2.3 Import Logistics
Australia’s domestic logistics have been benchmarked to be efficient, For non-bulk freight, Australia remains a net importer of goods, sourcing
particularly road transport processes. It has seen the emergence of over $67B trade annually from USA, Asia and Europe. With the planned
dominant transport operators seeking opportunities to vertically consolidation of manufacturing within the Asia region, the trend to move
integrate from “wharf to door”. Industry consolidation of the players manufacturing off-shore from Australia will see the strong import freight
is the current trend. continue, tempered periodically by currency exchange rates and policy
intervention to address trade imbalances.
Most transport initiatives have been founded on the east-west
corridor, where cubic utilisation within the “structure gauge” for road
and rail has been a strong focus. 6.2.4 Global Logistics
Recognising that “no country is an island”, Australia’s domestic, import
Australia’s domestic market is small and lacks density and scale and export logistics processes will increasingly align with global trends
economy. influencing inventory policy, technology applications, customer service
expectations, product performance and presentation and transport
methodologies and economics.
6.2.2 Export Logistics
The development of export markets has been seen as critical by Supply and demand choices will occur at a global level, which will
government and industry alike, with initiative such as Supermarkets to influence the degree of integration of Australia’s supply chains within
Asia and the Habitat Alliance identifying the need to substantially regional and global chains.
increase the export of value added products or unique and quality
primary products.3 The degree to which global inventory processes continue to align within
the ISO standard, will provide a countervailing influence of the same
Food quality attributes have continued to provide Australia with choices that Australia’s supply chain practitioner’s may make.
ongoing global opportunities.
Alternately, Australia may not have a choice, where economics of
production and inventory pre-determine such outcomes.
3
Exports of Food products to Asia have increased from $4.8B in 1991-92 to around
$13B in 2000-01 – source Supermarkets to Asia database

6.3 Changes in market mix Table 6-1 provides a theoretical example of three scenarios experiencing
different growth rates for international and domestic trade. Further
There is a temporal dimension to the issue, which will impact supply explanation is provided overpage.
chains, techniques and equipment.
Table 6-1 Assessment of growth scenarios based on alternative task apportionment and
The land transport task linking the domestic production and predicted growth forecasts
consumption clusters will progressively migrate from being domestic Error! Not a valid link.
to becoming more focused on international supply chains. Whilst this
aspect is dealt with empirically in Section 9 the following paragraphs Refer also to the Appendix Table 13-1 Scenarios "A" - "C" indicating
illustrate the point. growth in indices in the intervening years on page 65
The Transport and Storage Index has approximated GDP since the From Table 6-1 the task mix in Scenario “A” is consistent with the
early 1990’s. Given that conceptual notion that transport provides a relativity between domestic and international flows identified in the
link between markets (consumption) and production, this is accepted GISCC report of 1998.4
intuitively.
Scenarios “B” and “C” provide for alternate mixes in the task split as
Figure 6-3 Transport and storage output and gross domestic product index 80:20 and 70:30 respectively.
For all scenarios, the total growth is limited to 3.5% (compound) over
the twenty years to 2020. The growth in the international task is assumed
to be 8% consistent with various forecasts and references.
Under these criteria, the growth in the domestic task will vary to meet the
overall consumption index.
Scenario “A” yields a growth in the domestic task of 2.7% and yields a
% task mix of 78%, against an international task of 22%.
4
The Grocery Industry Supply Chain Committee report titled “The Australian Pallet
Study” for the Grocery Manufacturers’ Association ad the Australian Supermarkets
Institute undertaken by Symonds Henderson

Multi-national firms are implementing regional and global strategies
For scenario “B”, the domestic growth required reduces to 1.5%, with seeking production scales of economy and proximity to substantial
an outcome of 55% in the overall mix. For scenario “C”, a negative markets
growth in the task is necessary with an initial task split of 70:30, Growth rates in market segments are expected to yield outcomes
yielding an a domestic outcome of 33% in the total task. consistent with the threshold of 70% identified within the GISCC
study referred in section 5.1 on page 5.
6.4 Study components
The following diagram summarises the key components of logic within
Whilst pallet standards are the subject of the study, using pallets in the study.
supply chains is only relevant to the extent that
Pallets provide a fundamental and efficient means for transporting
cartons
Technology relating to crates, returnable boxes, and “shelf ready”
packaging is being assessed as part of EUL and ECR strategies,
particularly within the grocery industry. This will change the
Figure 6-4 Key components of logic within the study
nature of the pallet, however issues relating to the “foot print
standard remain critical and in need of resolution
Containers move products and cartons as international trade. It
does not automatically follow that pallet use within containers is
any more or less efficient. The pallet is a component of transport
and storage that interfaces with the container for the land transport
component.
Emerging opportunities for using pallets within ISO containers for
coastal shipping is a secondary issue and needs to be treated as a
marginal benefit.
Moreover, exogenous factors such as markets and growth are relevant

to the extent that
Key market segments need to be assessed separately, as each has
different growth rates and vary with respect to the mix of domestic
and international trade

Prevailing standards
Compliance Alignment and efficiency
with ISO of pallet standards with
standards packaging and container
Towards ISO packaging standards

standards
2
Towards ISO pallet standards
te
No
ISO
packaging Current
situation within
standards Australia, due
The “status
and domestic No quo” will lead to
to increasing te
pallet imports by 1 substantial
inefficiency
standards multi-national
currently
firms
Closed systems estimated to
and domestic be 10-15% sub-
standards; may optimal
Domestic utilisation
be efficient in
standards a steady state
Marketing and manufacturing strategy

Domestic focus Hybrid/transitional Globalisation and
phase increasing connectivity
Mutually exclusive
decision points
0% 25% 50% 75%
Export and import trade as a

percentage of domestic consumption
Note 1 – denotes a strategy that seeks to maintain the status quo
Note 2 – proposes that decisions regarding cartons ad pallets are
mutually inclusive
6.5 Conclusions

The logic and rationale for a prevailing pallet standard is derived change in the market mix served by Australia’s logistics systems (and
from the conceptual notion of a supply chain and its composite standards)
elements, which exist within the notion of “why do goods move?”
A study into pallets standards requires a number of considerations

such as It is very conceivable that within the next 20 years Australia’s
o A long range view of the served market international trade and logistics task will reach 70% of its domestic
o A holistic view of the supply chain consumption5. That is
o The relevance of unitisation and efficiency $import + $export
o The relationship between products (SKU’s), pallets, % international trade = ----------------------------
containers and/or trucks $ domestic consumption
where domestic consumption is a “proxy” for domestic land transport

It does not automatically follow that harmonisation between Australia
and its customers/suppliers on pallet standards leads to such efficiency
if considered in isolation. Nor do such alignments justify an increase Logistics processes and standards are increasingly global in context and
of pallet usage within containers to facilitate efficient loading and application, with marketing and manufacturing strategies being executed
unloading. at a global/regional level by large multinationals with substantial
countervailing power
The issue is the degree to which retention or dissolution of the current
standard impact higher order issues such as
Carton sizing, consistent with the global ECR (Efficient Consumer
Response) strategy
Customer expectation relating to product presentation in overseas
markets
The need for single organisations to tolerate multiple pallet
standards within a regional (sub-global) manufacturing or supply
strategy.
Changes in the market mix serviced by supply chain processes. 5
The GISCC report by Symonds Henderson identified that there is financial
justification to introduce the ISO pallet where international trade reached 70% of
Differential growth rates exist for domestic production, export domestic grocery consumption
trade, import trade and domestic consumption, which will lead to a

Table 7-1 Summary of key survey participants
7. SYNOPSIS OF SURVEY OUTCOMES
Revenue Domestic
Domestic logistics
Geographic focus
Revenue Global
Organisation or
Export logistics
Import logistics
Slip sheeting
More than 50 individuals representing 40 organisations were
individual
interviewed to provide views and input into the study. These include:
Type
Manufacturers/Importers/Exporters
Equipment providers Bachell Equipment n/a Asia
Baxter Manufacturer $8000m $285m Global
Retailers
BBC Retailer Not stated Asia
Policy Advisers Chep Equipment ~$140m Global
Coles Retailer Not stated Domestic
CRT Services $50m Domestic
7.1 Respondents CUB/Fosters Manufacturer $4200m - Global
DFAT Policy - n/a Asia
Dexion Equipment - - Domestic
The table adjacent provides a summary of the key participants FCL Services - $100m Domestic
assessed in terms of financial size, geographic focus, logistics scope Heinz Manufacturer $500m Asia
and perceived positive or neutral support or the issue of pallet Holden Manufacturer Not stated Global
IKEA Retailer $7000m $110m Global
standardisation. JJP Manufacturer $230m Global
K&S Services $130m Domestic
A comprehensive contact list is provided under separate cover. Kelloggs Manufacturer Not stated Domestic
Loscam Equipment Not stated Asia
Murray Goulburn Manufacturer $1500m Asia
Nestle Manufacturer $2200m Global
P&G Manufacturer >$1000m Global
SCT Services - $100m Domestic
Simplot Manufacturer $3500m $500m Global
Sonneveld Policy - n/a Global
TDG Services - Not stated Domestic
TNT Materials Equipment - Not stated Domestic
Toll Logistics Services - Not stated Asia
Toll SPD Services - $265m Domestic
UBA Manufacturer - $1000m Asia
Uncle Toby's Manufacturer $350m Asia
Unilever Manufacturer $1300m Global
Woolworths Retailer - $15000m Domestic

7.2 Summary of Interviews Efficient Consumer Responses and Efficient Unit Load, and
supported by great collaboration than has existed in the past.
A summary of interviews is provided in the part two of the report
under separate cover. The interview process provided an exhaustive Stockholders are seeing more sophisticated products (crates,
range of perspectives with the “multinationals” providing the most trolleys, slip sheeting) and alternate materials such as plastic
strategic outlook. The future of the wooden pallet is limited; the study and review
process was seen to be more about the standardisation process of
Service providers expressed concern regarding the impact and cost of how individual cartons aggregate into “blocks” or “units” that
change, whereas equipment providers expressed a degree of comply with a universal footprint standard for international
“neutrality”, indicating a preparedness to follow customer directions. distribution.
There is a clear awareness by multi-nationals that the carton and
Early within the survey process, discussion tended to pursue pallet size is standardizing on the ISO footprint of 1200 x
operational and technical perspectives, however later discussions 1000mm
identified the links between manufacturing, marketing, marketing
policy, carton standards and pallets. This line of research led to the
development of the Conceptual framework shown in Figure 6-1 on
Page 20.
7.3 Conclusions
A number of consistent messages emerged from the interview process
conducted within the scope of the study
Supply chain philosophy in 2001 has progressed significantly
since the GISCC report of 1997.
Supply chain management has emerged as a critical
differentiation for firms in 2001 to 2010
Manufacturing is consolidating to pursue scales of economy
Supply chain processes are fundamentally changing with
concepts of “shelf ready packaging” and “reverse crate flows”,
emerging. This is being facilitated by strategies such as

cargoes. Such products include steel and lumber, however may be
8. MARKET CONTEXT unitised dependent on destination, consignment size and so on.
Goods that are almost always unitised and containerised, such and
The application of a particular item of handling or transport grocery and other consumer items. Products are always transported
equipment such as pallets and containers must be seen within the domestically on pallets, however import/export movements may
context of its market, and an assessment of the “served market” is employ pallets, slip-sheeting (or similar) or are hand-stacked within
considered worthwhile. the container.
Not all supply chains are serviced by pallets and/or containers, rather The classification used herein will also show this in graphical form as
are limited to supply chains servicing specific manufactured and/or follows.
value added products.
Classification Unitised Palletised Containerised
(international)
Conclusive data regarding the physical movements of these goods
A (never) (never) (never)
within supply chains is not available, however judgements can be
made from an assessment of the value of the goods within specific B (never) ? (not usually) (typically)
markets.
C (always) (domestic) (always)
The following analysis based on the degree of unitisation6 employed ? (subject to
will determine the relative market sizes for three (arbitrary) product type)
classifications, which are
The following sections develop a composite model for market
Goods that are never unitised, palletised, or containerised, and are segmentation, based on data from a number of sources.
generally bulk commodities and refined products, or automotive Manufactured goods
vehicles. Agricultural goods
Goods that are not typically palletised, and but may be Retail markets
containerised, and may generally be handled and break-bulk Export and import trade
Recognising the limitations and scarcity on volume data, product and

trade values has been used as a proxy.
6
For the purpose of efficient definition, “unitisation” will refer to the generic
practice of value adding through packaging and/or used of pallets and containers for
the transport and storage of the goods

8.1 Market Framework 8.2 Manufactured Goods
The total value of Australian market for manufactured goods totals
The following table provides a market segmentation model in order around $260 billion7. An assessment of these manufactured products
that the “pallet issue” is placed within an overall context for provides the following observations.
Australia’s trade and supply chain activity. Food, beverage and tobacco is the largest category of manufactured
Figure 8-1 Market structure delineating key segments within supply and demand goods, representing almost 20% by value
cycles Around 25% of the manufacturer’s sales is exported, with one quarter
of exports being food, beverage, tobacco, textile, clothing, footwear
Exports - bulk Domestic bulk
Agricultural - (fuel, coal, markets
and leather goods
non processed etc) Almost 40% of the market value is served via imported goods, of
Agricultural - which 75% are not unitised on pallets and/or containers
processed(a)
Table 8-1 Australian Market for Manufactured Goods
Manufactured
Industrial
goods Sales incl. Exports Imports Total Aust. Likely
markets Exports Market unitisation
class
$B $B $B $B
Consumer - Food, beverage and tobacco mfg. 49.9 13.2 4.5 41.2 C
grocery Textile, clothing, footwear and
C
Intermediate leather mfg. 8.4 2.6 6.9 12.7
manufactured Wood and paper product mfg. 16.3 1.4 3.5 18.4 B
Prinitng, publishing and recorded
goods Consumer - B
media 12.2 0.5 2.0 13.7
non grocery Petroleum, coal, chemical and
associated product mfg 35.7 6.9 16.8 45.6
A
Imports Exports - Non-metallic mineral products mfg. A
10.4 0.3 1.4 11.5
containers Metal products mfg. 32.2 18.3 7.9 21.8 B
Machinery and equipment 42.0 13.9 56.1 84.2 B
Other mfg. 6.4 0.8 3.1 8.7 B
(a) ABS data for Manufactured goods includes processed agricultural inputs
Total mfg.
denotes segment dimensioned and relevant to study 213.5 57.9 102.2 257.8
(a) Imports by industry of origin

(b) Manufacturers' sales less exports plus imports
(C) Plastics polymers are distributed either as bulk, semi bulk or packaged
(d) Includes $2b for production of soaps and powders, and cosmetics
Source ABS – Manufacturing – 8225.0 - 2000
7
ABS publication: Manufacturing (Cat. no. 8225.0) 2000

Figure 8-2 Subdivision (by value) of Australian manufacturing (including imports
and exports) by unitisation class

Subdivision by value of Australian Manufacturing

totalling $260 B
Never unitised
22%
Not usually
unitised Almost always
49% unitised and
palletised
29%
8.3 Agricultural Goods

Australia continues to develop and grow its agricultural export sector, The retail trade market within Australia is valued at around $130 billion
particularly given the perceived value and quality of Australian per annum8 (excluding Hospitality and Services), with grocery retail
produce within the Asia markets. valued at $45 billion.
Table 8-2 Summary of Agricultural production and export activity Except for distribution of goods relating to hardware and appliance
transport and distribution, most retail good are unitised on pallets and
Agricultural products 1998-99 Production Export
transported on vehicles or within containers.
'000 tonnes Value $m '000 Value $m
Livestock products (a)
Beef 1,973 4,476 (b) Table 8-3 Subdivision of the Retail market within Australia
Chicken 564 1,018 (b)
Retail category Sales$B Average Gross Costs (b) Product
Other 1,022 1,753 (b)
Margin (a) value (C)
Total 3,559 7,247 (b)
$B $B $B
Wool 688 2,140 377 1430 Supermarkets 45.0 20.0 9.0 36.0
Rice 1,362 290 655 408 Other food retailing 17.0 20.0 3.4 13.6
Milk 10,102 2,900 240 67 Department stores 13.4 - 13.4
Grapes 1,265 1,191 113 104 Clothing and soft goods 10.3 40.0 4.1 6.2
Fruit 1,650 1,426 170 300 Furniture and coverings 4.9 - 4.9
Vegetable 3,077 1,497 45 22 Hardware 5.3 30.0 1.6 3.7
Appliances 8.0 15.0 1.2 6.8
25,262 23,938 1,600 2,331 Recreational goods 7.3 35.0 2.6 4.7
(a) Excludes sales of live animals Pharmaceutical and other 17.3 30.0 5.2 12.1
(b) Processed as manufactured goods
Total retail market 128.5 27.1 101.4
(a) Average gross margins ABS data 8624.0 1998-00

(b) Assumes 20% operational and other sales costs
(C) Value of goods net of operating costs
Source – Retail trade – 8501.0 – July 2001
Figure 8-3 Subdivision of Retail market within Australia

8.4 Retail Markets
8
ABS publication: Retail Trade (Cat. No. 8501.0) July 2001

Retail Trade within Australia

estimated to be worth around $130 B
Pharmaceutical and
other
13%
Recreational goods
6% Supermarkets
Appliances 36%
6%
Hardware
4%
Furniture and
coverings Other food retailing
4% 13%
Clothing and soft
Department stores
goods
10%
8%
8.5 Export and import trade

The total value of international trade for the 1999-2000 financial years
was
Imports - $110 Billion
Exports - $97 Billion
Whilst an analysis of imports was partially covered under 8.2

Manufactured Goods, a more complete summary is provided below,
using the same classification method previously described.
The analysis in Table 8-4 and Table 8-5 shows the proportion of
containerised freight as a proportion of the total trade.

For imports, trade in containers totals around $67 Billion, whereas
Bulk shipments total almost $43 Billion. Containerised trade needs
further dissection, to eliminate products that are not unitised and
therefore not stored and handled on pallets.
For export, Bulk shipments are the dominant movement type,
comprising coal, grain, minerals and similar products. Container
movements on unitised products total around $48 Billion, with a
further $18 Billion of products which are containerised, however
not unitised and therefore would not employ pallets for handling
and storage.
Expressed in value terms, containerised movements of unitised

product have grown around 8% per annum (compounded) since 1995,
and consistent with other key trade statistics.
The total value of international trade for unitised product moved in

containers is around $70 Billion, and represents 33% of total
international trade.
Consumer grocery and foods products totals around $13.5 Billion,
and predominantly an export movement
Consumer non grocery and household items total $15.7 Billion,
and is predominantly an import movement
Industrial products total $41.5 Billion, with $33 Billion in the
import direction.
Within the context of pallet standards, grocery and food products have
demonstrated the most significant requirement for pallet usage, with
household and industrial products allocating lower priority to the
issue.

Table 8-4 Summary for import trade, segmented into the unitised classification
Flow Import $B trade $B trade
Sum of Value Year Annual growth rate

Market segment Category 1995-6 1999-00
a) Consumer (grocery) Not containerised 166 266 12.5%
Containerised, semi bulk 687 891 6.7%
Unitised, in containers 2,357 3,226 8.2%
a) Consumer (grocery) Total 3,210 4,383 8.1%
b) Consumer (non Grocery) Not containerised 2,359 2,633 2.8%
Containerised, semi bulk - - -
b) Consumer (non Grocery) Total 9,979 14,580 9.9%
c) Industrial Not containerised 5,977 7,109 4.4%
Containerised, semi bulk 11,564 14,107 5.1%
c) Industrial Total 42,613 54,673 6.4%
d) Excluded Not containerised 19,239 32,894 14.3%
Unitised, in containers - - -
d) Excluded Total 21,990 36,450 13.5%
Grand Total 77,792 110,086 9.1%
Totals from above c Not containerised 27,741 42,902 11.5%
z Unitised, in containers 35,049 48,630 8.5%
Source: Derived from ABS 30.28 Merchandise Exports And Imports, By Commodity

Table 8-5 Summary for export trade, segmented into the unitised classification
Flow Export $B trade $B trade
Sum of Value Year Annual growth rate

Market segment Category 1995-6 1999-00
a) Consumer (grocery) Not containerised 4,929 4,939 0.1%
Containerised, semi bulk 2,824 1,709 -11.8%
a) Consumer (grocery) Total 14,802 16,962 3.5%
b) Consumer (non Grocery) Not containerised 553 598 2.0%
Containerised, semi bulk - - -
b) Consumer (non Grocery) Total 2,965 4,313 9.8%
c) Industrial Not containerised 2,692 3,716 8.4%
c) Industrial Total 23,160 27,945 4.8%
d) Excluded Not containerised 33,813 47,451 8.8%
Containerised, semi bulk 452 581 6.5%
Unitised, in containers - - -
d) Excluded Total 34,265 48,032 8.8%
Grand Total 75,192 97,252 6.6%
Totals from above c Not containerised 41,987 56,704 7.8%
z Unitised, in containers 16,053 22,073 8.3%
Source: Derived from ABS 30.28 Merchandise Exports And Imports, By Commodity

8.6 Value of Market Segments Figure 8-4 Value of the major Market Segments for unitised goods within the Australian market
A composite model for unitised product

developed from the previous summaries is
provided in Figure 8-4 opposite.
This figure shows the overall value of unitised

product from all sources and used within the
Australian market to be around $154 B.
This can be compared with the value if

international trade in unitised products, which
is estimated to be around $70 billion (refer to
page 32).
Exports and Imports for unitised product are

later compared to the domestic market value.

In Confidence
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Industrial and
8.7 Conclusions The growth rate for international trade is between 8-10%
(compound), whereas domestic production and consumption is
Pallets are not used in all supply chains. Generically, three types around 3-4%
of supply chains exist for the purpose of categorisation herein,
which are:
o Bulk shipments
o Semi bulk shipments, typically in containers or as
“break bulk” consignments
o Containerised movements of unitised freight (pallets,
cartons, bags, etc.)
o It is the third group relevant to the study
Markets considered by this study are manufactured and primary

products, retail markets, and export/import international trade
Australia’s international trade is around $210 billion, however

trade in unitised product represents around 35%, with the majority
of the balance relating to shipment of bulk commodities (coal,
grain, minerals, natural gas, etc.)
The market value of Australia’s unitised/packaged products is

around $150 billion, comprising domestic production retained and
imported product, for domestic consumption. This can be
subdivided into consumer grocery ($54 billion), consumer non
grocery/household ($47 billion) and industrial ($53 billion). Each
sub-element has differential growth rates and trade imbalances,
further influencing the composition of the market mix.

Table 9-1 Logistics volumes for relevant market segments (unitised/containerised)
9. AUSTRALIA’S LOGISTICS TASK Corridor Mode Volume of non bulk
movements
Local and short Road More than 1BT9
9.1 The task in 2001 haul intrastate
Inter-capital city Road 40 MT10
9.1.1 Limits of the definition and analysis movements Rail 10 MT
Coastal shipping 3.3 MT
Defining the Australian Logistics task has always been a complex
International Sea freight as
process limited by the quality of the source data and the frequency of Import full containers 17 MT
the survey process. Import empty containers 0 MT
Export full containers 13 MT
This analysis will be limited to Export empty containers 0 MT
Non bulk freight movements
Source: Various BTE and BIZ Shrapnel reports
Inter-city movements by road, rail and sea
Import and export movements by sea using containers
9.1.2 Volumes relevant to the analysis (2000)

Within the context of this study, Australia’s supply chains are
dominated by
Local and short distance interstate distribution by road
Long distance distribution by rail and coastal shipping
International container shipments (export and import)
The volumes associated with each of these elements are shown in the
following table.
A conceptual model relating to the freight movements is provided in

Figure 9-3 on page 42.
9
BT = billion tonnes
10
MT = millions tonnes

9.1.3 Road freight movements 9.1.4 Rail freight movements
Road freight dominates the movement of product between Sydney, Rail freight movements of unitised product, is undertaken within
Melbourne, Brisbane and Adelaide. Typically, product travels domestic and ISO containers.
between origin and destination on domestic pallets as
22 pallets per 13.7 metre trainer load (45 foot) Domestic container sizes and configuration has been based on the
30 pallets per B-Double load domestic pallet being accommodated two wide and therefore is wider
than the ISO standards pallet.
Table 9-2 Inter-capital road freight matrix 1998-99 ('000 tonnes)
There is not a consistent approach to the operation of container loading
Destination
for long distance transport.
MT Sydney Melbourne Brisbane Adelaide
(1998-9) +NSW +VIC only +SA Other Total
Table 9-3 Use of domestic and ISO containers within long distant freight movements
Sydney
+NSW 8.0 2.8 1.5 1.6 13.9 Application Loading method
Melbourne
+VIC 9.6 3.2 1.9 1.0 15.7
Brisbane Domestic Intercity stock transfers Hand stacking to
only 1.9 1.3 0.3 0.2 3.7
Origin
Adelaide
containers maximise cubic capacity
+SA 1.6 1.7 0.1 0.2 3.6 Direct delivery on Product on pallets
Other 1.5 1.1 0.1 0.2 2.9 pallets
ISO Intercity stock transfers Hand stacking to
Total 14.6 12.1 6.2 3.9 3.0 39.8
containers maximise cubic capacity
Source: BIZ Shrapnel11
Rail movements of non-bulk unitised product totals around 10 million
tonne per annum.
9.1.5 Sea freight movements

Sea freight movements relevant to the study involve international
maritime freight and coastal shipping freight.
11
BIS Shrapnel – Freight in Australia 3rd edition 1999-2004

Figure 9-1 Apportionment of container flows as full and empty imports and exports in
9.1.5.1 International shipping 2000
Australia’s maritime shipping task has been growing at around 8% per
annum and currently totalled 3.1 million TEU’s in 1999-200012. % Split of 5 major port volumes
as at 2000, totalling 3.1m TEU's
Whilst fluctuations in the balance between imports and exports occurs Export Empty
from time to time, the long term average between full and empty TEU's
13% Import Full
import/export containers is shown in Figure 9-1 following. TEU's
43%
Note that these volumes include the costal shipping volumes shown in
the next section, as relevant to port activity.
Export Full
TEU's Import Empty
The following table is a composite derived from various sources to 37% TEU's
Graph and % split assumes
balance of import ad export flows
7%
provide a view of containerised freight as at 1998-9, totalling 31 over the long term
million tonnes.
Figure 9-2 5 Ports volume of container flows in 2000
Table 9-4 Summary of container activity for 1998-9
'000 TEU's Container balances - 12 months to June 2000
1998-9 Volume Value 700
Qty Unit $B
600 Full TEU's Empty TEU's
Total shipments by sea
Export (1998-9) 432 mt 90 500
Import (1998-9) 57 mt 101
400
% containers 300
Export 3 % 40
200
Import 30 % 66
100
Container shipments
Export 13 mt 36 0
Imports Exports Imports Exports Imports Exports Imports Exports Imports Exports
Import 17 mt 67 SYD SYD MLB MLB BRS BRS ADL ADL FRE FRE
Note that marginal imbalances between imports and exports led to build up in
container storage through 2000, however has been resolved.
12
BTE Waterline Report September 2000 – Table 9 – TEU Throughput at the Five
Major Australia Ports (1995-2000)

The percentage of 12 metre containers has been steadily growing
since March 1999 from 28% to 34%13.
Table 9-5 Summary of Coastal Shipping of Containerised freight
Note that the national average is 1.33 TEU’s per container moved, and
Tonnes (MT) Equivalent ‘000 TEU’s
is a function of the mix to 6 and 12 metre containers.
To Tasmania 1.5 100
From Tasmania 1.4 90
9.1.5.2 Coastal shipping To WA 0.4 55
From WA - 10
Total 3.3 255
Coastal shipping volumes around Australia have maintained a gross
volume of around 48 million tonnes since 1995, however, has seen a The movement of empty containers to WA by sea arises out of the need
strong growth in containerised freight and general freight, particularly for container balancing between Australian ports. Annually, around
with the advent of single and continuing voyage permits. 20,000 empty TEU’s are moved from the east coast to Perth.
Containerised freight moved by all coastal shipping totalled around Recognising that WA is a “net receiver” of domestic freight, most
3.04 million tonnes in 1998-914. Today the volume is estimated to be domestic containers sent to WA are returned empty to the east cost
around 3.3 million tonnes and equivalent to more than 250,000
TEU’s. This can be seen as a subset of the total 3.1 million TEU’s This movement can be assessed in two different ways
identified within the previous section.
a) The marginal cost of moving an empty container for balancing
Coastal shipping relevant to this study relates to movements’ to/from purposes is around $500 per movement, and at 20,000 TEU’s per
Tasmania and Western Australia, with the balance of relating to North annum, this represents a total cost of $10 million per annum. The
Queensland and Gulf shipments. marginal cost of returning the empty domestic container is
therefore around $10 million per annum.
For the purposes of the model developed in this study, the following b) The movement of an empty container represents a lost
volumes are identified. opportunity, where a parallel movement exists; such movements
included road and rail movements of goods to Perth. In this
context, a freight cost of $1500 per journey can be used,
representing a total annual opportunity cost of $30 million.
13
BTE Waterline report Issue 27 – June 2001 – Table 1 (page 3)
14
BTE Information Paper 46 – Coastal Freight in Australia (1998-99)

Figure 9-3 Supply chain configuration incorporating road, rail and sea freight movements on unitised non-bulk products
77-8
SStotock
ckhhooldlding Freight LCL cargo
-8tuturn
rnssppeer aning
r annnuum
m
Station
Import/export
Cargo Node FCL cargo Sea movements
Domestic
(stock port
production
holding) 1100MT
MT
7700MT
MT Interstate freight
Local freight movement
movement road, rail, sea
Empty container
Local Interstate repositioning
customer customer
3355% 6655%
% %
2255MT 5500MT
MT MT
33MMT
(22255,0,000 TT
(2
00 TEEU’s
U’s
Coastal shipping as
Sea single voyage
permits
port

9.2 Domestic pallet Table 9-6 Estimated volume for pallet issues per annum
statistics Market Grouping Primary
Estimated pallet issues by market sector '000
Manu- Whole- Retail Distri- Totals
facturing sale bution
% %
The pallet pooling industry within Food (Other) Consumer
Issues
100
Issues
11,200
Issues
300
Issues
100
Issues
300
Issues
12,000 30%
Issues
Australia is valued at around $200 Softdrinks Consumer - 5,000 - - - 5,000 13%

Fruit and Vegetable Consumer 400 600 500 - 1,300 2,800 7%
million revenue per annum, and issues Consumer Goods (General) Consumer - 1,000 800 - - 1,800 5%
approximately 40 million pallets and Beer, Wine and Spirits Consumer - 1,300 400 - 100 1,800 5%
Petfood Consumer 100 1,300 - - - 1,400 4%
related equipment per annum. A Meat Consumer - 600 200 - - 800 2%
segmentation by market sector is Pharmaceutical Consumer - 700 100 - - 800 2%
Confectionery Consumer - 200 - - - 200 1%
provided below. Cold Storage Consumer - - - - 200 200 1%
Seafood Consumer - - - - - - 0%
Dairy Consumer - - - - - - 0% 26,800 67%
Two-thirds of the issues are utilised by
the consumer marker sector, with the Wood and Paper Products Industrial - 3,700 300 - 200 4,200 11%
Miscellaneous Industrial 100 300 200 - 3,200 3,800 10%
predominant user being the Chemical/Mining Industrial 100 2,600 100 - - 2,800 7%
manufacturing base, despite the fact that Plastic Products Industrial 200 1,200 - - - 1,400 4%
Automotive Industrial 500 - - - - 500 1%
it is the retailers that specify pallet Metal Products Industrial - 300 - - - 300 1%
standards within the chain. Building and Construction Industrial - 100 - - - 100 0%
Industrial Equipment Industrial - 100 - - - 100 0% 13,200
Totals 1,500 30,200 2,900 100 5,300 40,000 100% 40,000 100%
% 4% 76% 7% 0% 13% 100%
Source: Industry data based on 2000-1 full year

9.3 Growth forecasts 9.4 Transport indicators
The following table summarises a set of key market indicators to be Growth within international and domestic supply chains demonstrates
used in subsequent analyses, particularly relating to the growth in task the fact that while the overall task has been growing at around 3-4% per
and change in the task mix over the next 15 – 20 years. annum (compound) consistent with GDP, the mix of the task has seen
contrasting growth.
Table 9-7 Summary of key market indicators Figure 9-4 Transport and Storage output and Gross Domestic Product15
Key Market indicators
% annual growth rate
1992-3 2000-1 Years (compounded)
Retail turnover (sales+profit) $B $B
Consumer - grocery/food 49.3 58.7 8.0 2.2%
Non grocery/other 64.7 88.3 8.0 4.0%
Total 114.0 147.0 8.0 3.2%

Indices of Industrial production Index Index
Manufacturing 82.1 102.8 8.0 2.9%
Food/Beverage 82.2 104.7 8.0 3.1%
Metals 83.1 95.3 8.0 1.7%
Total Industrial 83.0 104.7 8.0 2.9%
Manufacturers Sales and inventory (Chain volume measures)

$B $B Growth in port throughput has been around 8-9% compounded growth
Sales 187.1 233.6 8.0 2.8%
Inventory 26.0 31.8 8.0 2.5% since June 1993, as shown over page.
Source : ABS Australian Economic Indicators 1350.0
Figure 9-5 Trend analysis for container throughput for the five major ports16
15
BTE Transport Indicators sourced from
www.dotrs.gov.au/bte/docs/indicate/transgdp.htm

9.5 The market mix of the logistics task
Assessing the need for “harmonising” pallets and containers, exists
within an assessment of the relative size of key market segments for
international and domestic markets and flows.
Export
Production
markets
JB Were and Macquarie Equities have identified that whilst container

Domestic
growth volumes are expected to be around 5-7 percent in fiscal 2002, consumption
International
the long-term forecasts, estimates of 8 to 8.5 percent are expected17. production (as proxy for
domestic transport)
From the preceding, domestic transport follows the demand in domestic

consumption, whereas, international transport (and the need for ISO
containers) is experiencing growth rates double that of domestic
consumption.
The following table provides a composite summary derived from the

preceding sections, and based on the total $154 Billion, being the value
of the unitised product within the market.
The modelled growth (b) reflects a more conservative forecast than

16
BTE Transport Indicators sourced from reported in the various data references used, and maintains logic within
www.dotrs.gov.au/bte/docs/indicate/totcont.htm the internal relationships of the data when extrapolated 20 years.
17
Australian Financial Review – 20 June 2001 – “Corrigan pushes ahead with Lang
Corp transformation”

Table 9-8 Summary of the current and modelled growth by market sector From the table,
International trade for Consumer/grocery/food is around 25% of the
Product, consumption Current
domestic consumption, and expected to grow significantly, aligned
Modelled
and trade values for Growth
Growth (b)
2001 with growth in export agri-business
Consumer/non-grocery/household products yield around 33%
Comsumer (Food/grocery) Dom. Production 4.2% 61
Export 11.6% 10.0% 10 international trade as a % of domestic consumption
Import 9.2% 9.0% 3 Industrial products yields a significant 75% for the same measure.
Dom. Consumption 2.6% 2.6% 54
Product, consumption Table 13-3 on page 68 titled “Assessment of growth scenarios based on
Current Modelled
and trade values for
Growth Growth
2001 alternative task apportionment and predicted growth forecasts” provides
containerised products
Consumer (Household) Dom. Production 4.3% 39
annual estimates for growth, and indicates the importance of
Export 13.5% 9.0% 4 international supply chains and sources of supply and demand.
Import 14.2% 7.0% 12
Dom. Consumption 4.6% 4.6% 47
Product, consumption
Current Modelled 9.6 The task in 2020
and trade values for 2001
Growth Growth
Industrial/Other Dom. Production 0.9% 29 The following charts indicate the potential market values for each market
Export 5.5% 4.0% 8 segment for years 2010 and 2020, based on the forecasts in Table 9-8 and
Import 8.4% 5.0% 32
Dom. Consumption 3.3% 3.3% 53 Table 13-3
Current Modelled
and trade values for 2001
Growth Growth
Total Dom. Production 3.7% 129
Export 8.2% 22
Import 5.9% 47
Dom. Consumption 3.5% 154

Comsumer (Food/grocery) 25%
Consumer (Household) 33%
Industrial/Other 75%
Total 45%

Figure 9-6 Consumer (Grocery and food) - Market value estimates based on growth Consumer - Non Grocery and Household market growth
forecasts $B value
120
Consumer - Grocery and food market growth
$B value
100
160
80
140
120 60
100
40
80
20
60
40 -
2001 2010 2020
20
- Dom. Production Export Import Dom. Consumption

2001 2010 2020
Dom. Production Export Import Dom. Consumption Figure 9-8 Industrial/Other - Market value estimates based on growth forecasts
Figure 9-7 Consumer (Non-Grocery and household) - Market value estimates based Industrial and "other" market growth
$B value
on growth forecasts
120
100
80
60
40
20
-
2001 2010 2020
Dom. Production Export Import Dom. Consumption
Figure 9-9 Totals (All market segments) - Market value estimates based on growth
forecasts

All markets growth Ratio % of international trade to domestic consumption
$B value
350
120%
300
100%
250
80%
200
60%
150
40%
100
20%
50
- 0%
2001 2010 2020 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Comsumer (Food/grocery) Consumer (Household)

Dom. Production Export Import Dom. Consumption
Industrial/Other Total
9.7 Implication of the future task Overall, for all market sectors, trade for unitised/containerised products
will increase to be around 70-80% of domestic consumption.
International trade and the supporting supply chains will become Australia’s domestic land transport activities will become
increasingly more important over the next 15 – 20 years for increasingly connected to international supply chains and processes
Australia’s logistics processes. For export-oriented products, standards (and processes) will become
Consumer/grocery/food products will see international trade a function of market expectations for product quality, carton size and
increase to be around 70-80% of its domestic consumption value added features
Consumer/non-grocery/household products will increase to around Australia’s capacity to increase its export markets will require
40-60% of its domestic consumption products that fit overseas distribution systems, and provide efficient
Industrial products will yield an outcome where the international means of supply to those markets.
trade will equal its domestic consumption. For import-oriented products, standards (and processes) will become
a function of the prevailing production scales of economy.
The following chart derived from Table 13-3 shows the expected Multi-national producers are economising on product range and
growth and fundamental change in the market mix and logistics task. reducing product heterogeneity. Markets will need to develop and
establish distribution systems that efficiently handle products that
Figure 9-10 Forecast trade and consumption comparisons by market sector and total comply with global standards.

9.8 Conclusions Product, consumption
and trade values for
Current
Growth
Modelled 2001 2010 2020
Growth (b) $B $B $B
Whilst substantial reform has focussed on domestic transport Comsumer (Food/grocery) Dom. Production
Export 11.6%
4.2%
10.0%
61
10
85
24
134
63
within Australia across road, rail and coastal shipping segments, it Import 9.2% 9.0% 3 7 16
will become more critical that Australia’s transport systems are
integrated with international supply and demand markets and Consumer (Household) Dom. Production
Export 13.5%
4.3%
9.0%
39
4
56
8
86
19
delivery channels Import 14.2% 7.0% 12 22 43
Dom. Consumption 4.6% 4.6% 47 70 110
Products manufactured in Australia for export markets will need to Industrial/Other Dom. Production
Export 5.5%
0.9%
4.0%
29
8
33
11
34
17
meet customer expectations for packaging storage and Import 8.4% 5.0% 32 50 81
transportability. Secondly these products must not also conform to
customer systems, without transferring non-conformance costs Total Dom. Production
Export
3.7%
8.2%
129
22
175
44
255
99
along the chain. To fail to appreciate this dynamic will cause Import 5.9% 47 79 141
Dom. Consumption 3.5% 154 209 297
o Customers to source products from alternate sources
o Manufacturers to nominate alternate economies for Ratio international trade to consumption
Comsumer (Food/grocery) 25% 46% 90%
their production platforms Consumer (Household) 33% 43% 57%
Industrial/Other 75% 86% 99%
Global manufacturing and brand managers are consolidating with Total 45% 58% 81%
a focus on Asia. Where Australia’s standards and systems do not (a) Based on ABS Economic indicators against market values
comply with the systems developed by these firms, the total (b) Composite forecasts derived from ABS Economic indictaors and adjusted to reflect volume growth
in contaier 1995-2000
landed and distributed cost of goods will increase for Australia’s
consumers
Container movements and volumes relevant to the pallet standards
Trade in products which are unitised/containerised will substantial
issue are
increase as a percentage of domestic consumption.
o Imports – 375,000 TEU’s
Table 9-9 Growth rates and value by market segment forecast for 2010 and 2020 o Exports – 400,000 TEU’s
o Coastal shipping
Tasmania - 190,000 TEU’s
Other - 35,000 TEU’s
The movement of empty ISO containers to WA and empty domestic

containers from WA yields a marginal cost around $20 million per
annum and also represents an opportunity cost of $40 million

recognising that parallel freight movements by rail and road are
undertaken. It is considered that harmonisation between ISO
containers and the product footprint (pallet) would address this
cost, whether considered in a marginal or opportunity cost
treatment.
Australia’s pallet pool system is valued at $200 million per

annum, and generates around 40 million pallet issues. There are
around 15 million pallets in circulation

Japan and Korea represent around 15% (by volume) of Australia’s export
10. PALLET USAGE AND INTERNATIONAL trade and 10% of the import trade.
TRADE The following sections provide more detailed analysis of import/export
trade volumes as measured by containers
There are for prevailing pallet standards adopted globally. o Growth trends 1995 – 2000
o Distribution of container volumes across unitised and non
Table 10-1 provides a summary of geographical distribution of pallet unitised package types
standards. o Distribution of volumes by pallet standard and growth trend
The dominant regions of most influence to Australian trade are

Table 10-1 Geographic distribution of pallet standards
China/South east Asia/North America, which utilise the ISO pallet of
1200 x 1000mm. Around two thirds of Australian trade is with 1200 * 1000 1200 * 800 1100 * 1100 1165 * 1165
1219 * 1016
countries that utilise the ISO standards. Considerable debate is
underway in Europe to align pallet standards. In that region there is USA Germany Japan Australia
an unwavering belief that the ISO standard provides operational Canada France Korea
Mexico Italy
benefits through reduced handling occurrences. A key advantage us Chile Spain
the carton modularity/standard of 600 x 400mm, which provides for United Kingdom Sweden
harmonisation with wither pallet standard. Netherlands Switzerland
Finland Austria
South Africa
The document pallet standard in Japan and Korea is the 1100 x Singapore
1100mm pallet, however Korea appears to “tolerate” a proliferation of Hong Kong
pallet sizes with the 1200 x 1000mm ISO pallet being the second most Malaysia
Indonesia
popular standard. Thailand
Phillipines
Discussion with a number of sources have indicated a measure of New Zealand
frustration by multinationals and ECR Asia, regarding Japan’s India *

reluctance to embrace the ISO standard. However, it is considered Middle East *
that Japan (like Australia) will not be able to resist the emergence of
* emerging
the ISO standard over the long term.

10.1 Import-oriented containers
10.2 Export-oriented containers
Import orientated containers conservatively around one third of
import containers carry unitised product which is transferred to pallets Around 35-40% of export containers carry product which are regarded as
on arrival. unitised, with almost 70% by volume bound for export markets utilising
ISO containers.
Product imported from countries that use ISO pallets account for
around 60%, growing at 5% per annum. By volume, imports are Growth to markets that utilise the ISO pallet is 10% per annum
growing at 6.5% per annum. compounded, whereas growth to markets using the 1200 x 800 Euro
pallet is 17%. These markets account for 80% of exports.
Table 10-2 Import containers by market segment and pack type Table 10-4 Export containers by market segment and pack type
Error! Not a valid link. Error! Not a valid link.
Table 10-3 Import containers by pack type and pallet standard at origin Table 10-5 Export containers by pack type and pallet standard at destination
Error! Not a valid link. Error! Not a valid link.

10.3 Conclusions
Trade to/from containers that use ISO pallets account for 60-70% by
volume, with imports growing at 5% and exports at 10%
The following table summarises the key results.
Table 10-6 Container movements by pallet standard

Pallet size Imports Exports
1100 x 1100 ‘000 TEU’s 35 62

% total 10 16
% growth 9 3
1200 x 1000 ‘000 TEU’s 230 275
% total 62 69
% growth 5 10
1200 x 800 ‘000 TEU’s 90 40
% total 24 10
% growth 10 18
Non Standard ‘000 TEU’s 15 23
% total 4 5
% growth 6 10
TOTAL ‘000 TEU’s 370 400

11.1 Arguments to retain 11652 pallet
11. OPERATIONAL IMPLICATIONS
Operational arguments supporting the retention of the Australian pallet
The operational elements inherent within the pallet standards debate can be summarised as follows:
can be identified as follows: A change to the ISO pallet will lead to a 12.5% reduction in the pallet
Changes to warehousing and racking requirements resulting from foot print, which in turn increases the number of handling occurrence
pallet sizes changes to move the same volume of freight. Labour costs therefore increase.
Cartons standards and perceived and real costs associated with a The area set aside for racking can be decreased by 4% to
proliferation of carton sizes and additional stock keeping units accommodate the same number of pallet locations, offset by an
(SKU’s) increase in pallet locations by 12.5% to accommodate the same
Cubic utilisation within the pallet envelope (as footprint times the volume of freight.
number of layers L * W * H) Racking costs to dismantle, re-fabricate and reassemble to the new
Pallet loading and configuration onto trucks configuration
Labour impacts resulting from increased number of items to be Road trailer utilisation would decrease by 3%, from 94% to 91%, due
handled/lifted to a change in pallet foot print, which could be offset by wider trailer
Associated ancillary and mechanical handling equipment dimensions (to 2.6 metres) or a greater proliferation towards 14.6
Physical adjustments to the pallet metre trailers (48 foot)
Aligning pallets to ISO containers does not lead to loading product
The debate over the last five years focussed on operational and into containers on pallets, due to a loss of cubic utilisation around 10-
tactical issues and the cost of adjusting infrastructure to accommodate 15%
the ISO pallet standard. Overall cost benefit is negative
The GISCC study summarised in section 5.1 on page 5 of this report

identified substantial benefits of harmonising the carton to the pallet,
which was on the whole sufficient to offset the cost of infrastructure
adjustment; such capital costs were estimated to be $1.1 Billion, of
which 75% related to warehousing expansion and racking adjustment.

11.2 Argument to adopt ISO pallet 11.3 Storage issues
Operational arguments supporting the introduction of the Australian The GISCC Report in 1997 identified
pallet can be summarised as follows: Optimising pallet fit on the 11652 pallet generates the maximum benefit
Global manufacturing and logistics processes are dominated by (average 10% efficiency gain); this assumes optimisation based on 580x
the ISO standard (60-70%), and the ongoing delay for adopting the x 387mm carton, which does not comply with global standard of 600 x
standard will increase the current inefficiencies, where ISO 400mm carton.
cartons are stored on 1165 mm2 pallets.
The inefficiencies are already accommodated within the supply If pallet fit were optimised concurrent with a move to the 1200 x
chain, and harmonising on the ISO pallet will remove the 1000mm pallet, the net (after capital investment) averages 1% savings
inefficiencies with the need for increased capacity and could offset the investment.
infrastructure.
The reduction in footprint can be accommodated by increasing the Given global trends over 15-20 years, it is unlikely that harmonising
number of layers on a pallet, typically providing 15-20% increase around the 580 x 387 mm module would occur.
in volume to footprint.
GISCC report identified “the catalyst needs to revolve around a The following diagram summarises the point.
standard set of carton sizes conforming with the pallet dimension
chosen”.
Adjusting the carton size to fit the Australian pallet contradicts the Pallet integrity maintained Products re-palletised into new
configuration, increasing
countervailing trend towards ISO cartons handling costs
If Australia is to grow, then it needs to become export focussed,

recognising that fact that it must present products that conform to
its customers’ systems and avoid cost transfer. Should this not
occur, then the overseas markets will source product from other
suppliers/countries.
As manufacturers consolidate their manufacturing effort, Australia
needs to concurrently structure its supply chain based on alternate
points of supply and standards.
ISO carton sizes ISO carton sizes and ISO cartons re-configured
Cost benefit assessments justify an adjustment in the short term, harmonised for ISO configuration for Australian pallet leading
pallet transferred to to under-utilisation of foot
rather than ongoing non-conformance costs that escalate into the Australian pallet, print
future causing overhang and
under-utilisation

Where the ISO pallet configuration I s placed on an Australian pallet,
there is overhang by 35mm in one direction and underutilisation by
165mm in the other direction. The net outcome is an under utilisation
of the Australian pallet. This aspect was observed and discussed by
contributors to the study.
Where ISO cartons are re-configured there are handling costs and
similar under utilisation in the footprint, due to “indivisibility” of the
carton unit.
Carton manufacturers based on ISO standards will only head to

optimal utilisation if used in conjunction with ISO pallets.
Pallets separate each layer of

products to facilitate “put away”
11.4 Pallet and order make-up processes at the retail distribution
centre
There is an increasing trend to ordering smaller quantities more
frequently, which provides
Lower inventory Trend towards
ordering SKU’s
High stock through put velocity in smaller
quantities and
the formation
of “rainbow”
This has seen the emergence of the various pallets of multiple pallets
products.
The prevalence of the rainbow pallet provides increased flexibility Homogenous pallet Heterogeneous pallet
when “mixing and matching” for load make up and optimal cubic Single product Multiple products
• know as a “rainbow” pallet
utilisation of truck and container space. • product ordered as layers
This has a direct relationship when considering truck interface issues,

referred to in the next section.

Figure 11-1 Various combinations for trailer length and pallet size
11.5 Vehicle interface
Migration to the ISO pallet is not considered to
yield any significant impacts on vehicle efficiency.
Considering the common 13.7mm (45’ trailer),

which carries 22 x 11652 pallets and provide a total
footprint of 28.8m2, a reduction of only 3.7%
A number of key issues emerge

Unlike container traffic, road trailers
typically “weigh out, before they cube out”.
Refer to Figure on Page
The prevalence of rainbow pallets provides
an opportunity to utilise the 30-40% free
space typical in a trailer load
Migration to a 14.6m (48’ trailer) would
yield an 8% increase in footprint over the
13.7m trailer carrying 24 ISO pallets.
The same trends exist for B double trailer
configuration.

Trailer
Trailer length
length == 45
45 ft
ft or
or 13.7
13.7 m
m
Floor
Floor length,
length, excluding
excluding end
end walls
walls == 13.55
13.55
2.33 m plus tolerance

22 pallets @ 1.36 m2 = 29.9 m2
Australian pallet size
11 x 1.165m plus tolerance = 13.1 m
No
vieNottee t
Trailer
Trailer length
length == 45
45 ft
ft or
or 13.7
13.7 m
m de ieww, a thhaat d
v
Floor
Floor length,
length, excluding
excluding end
end walls
walls == 13.55
13.55 deno , and t dia
noted nd th iagr
te b the gram
d by e tra ams
y tthe traile s aare
24 pallets @ 1.2 m2 = 28.8 m2 he ar ilerr a re in
area arrea in PPLA

ea in ea is L N
in bla is AN
black
ISO pallet size ck
11 x 1.2m plus tolerance (20mm) = 13.4 m
Trailer
Trailer length
length == 48
48 ft
ft or
or 14.6
14.6 m
m
Floor
Floor length,
length, excluding
excluding end
end walls
walls == 14.5
14.5
26 pallets @ 1.2 m2 = 31.2 m2

ISO pallet size
11 x 1.2m + 1 x 1.0m plus tolerance (20mm) = 14.45 m

Figure 11-2 Trailer utilisation, showing under-utilised capacity
Cubic capacity of pantechnicon or tautliner

= 13.55 x 2.4 x 2.3 m
= 75 m3
2.2-2.4 m
height
40% unused capacity
1.2-1.6m
pallet
height
Cubic capacity of product on 11652 pallets

= 22 x 1.165 x 1.65 x 1.5
= 45 m3
11.6 Container loading Low take-up of slip sheeting as a handling method in lieu of
pallets
A considerable proportion of unitised freight is hand stacked into Limited cooperation/coordination between origin and
containers for international or coastal shipments, due to destination handling points, and a resolution to accept the status
Mismatch between the dimensions of Australian pallets, and the quo
internal dimensions of the ISO container
Different pallet sizes and configurations between Australian and A number of organisations interviewed outlined their desire to utilise
overseas supply and demand points the ISO footprint to facilitate efficient container loading techniques.
Inadequate or alternate handling methods

Figure 11-3 Demonstrates the difference in loading/unloading techniques
Typical method
Sea journey
ISO container
1200*1000
1165*1165
ISO pallet
Austn pallet
Handstacking of cases into the Unloading by hand to

container to maximise the cubic Australian pallet
capacity; stacking integrity lost Under-utilisation
of Austn. Pallet footprint
Sea journey
Unitised method
ISO container
1200*1000 1200*1000
ISO pallet ISO pallet
Pallet removed from product base;

stacking integrity maintained
through alternate handling
techniques (eg. Slip sheeting)

11.7 Conclusions
The decision and supporting logic can be summarised in the following
matrix.
Table 11-1 Matrix for operational decision criteria
1165 * 1165 mm pallet 1200 * 1000 pallet
Current situation Given certain % of case
Current carton
identified as yielding sizes are based on the ISO
sizes
10% inefficiency in standard, this option may
utilisation. absorb under-utilised
EUL analysis identifies capacity (and “slack”)
1.2-1.6% cost to sales of
such inefficiencies
Cartons based on Recommended in Not considered as a viable
580 * 387 module GISCC report to be of option
significant benefit, if
harmonised however
ignores global trend
towards ISO carton
standards
Cartons based on Increasing trend in this Potential to off set near
600 * 400 module direction will proliferate term adjustment costs for
current inefficiencies infrastructure
further 60-70% global activity
based on ISO standard for
cartons and pallets

movements which yields benefits of $150 million per annum by year
12. FINANCIAL ANALYSIS 7.
Operating cost provision peaking at $100 million in year 10, to cover

12.1 Framework marginal expenditure for labour, forklift hire and consumables such
as slip sheeting. This is a broad estimate only.
It is beyond the scope of this study to develop industry specific or user
specific financial analyses and justifications for the introduction of the The model assumes growth consistent with the Table 13-3 on page 68
ISO pallet. in the appendix
Rather it is the intention herein to incorporate only the strategic The model accommodates implementation over the first 10 years, and
elements relating to: limits benefits to a maximum of 20 years.
Implementation of EUL based on the ISO standards18. The
benefits associated with EUL are reported to be between 1.2% and Not included within the calculation are operational or opportunity costs
1.6% of sales, and would represent value foregone if Australia arising from to
maintained or expanded its distribution processes based on the balancing and moving empty ISO containers around the nation while
current pallet standards maintaining and operating a domestic container fleet in parallel
maintaining two production standards based on Australian and ISO
Capital costs associated with converting the pallet pool to the ISO carton and pallet configurations
standard; previously estimated to be around $7.00 per pallet. The
model assumes a provision for $150 million, expanded over 10
years. Similar adjustments are assumed for pallet machinery and
12.2 Cost Elements
racking at $50 million and $400 million respectively over 10 years
Table 12-1 over page summarises the key differences that exist between
Operating benefits associated with unitised loading and unloading the GISCC study and this study for ILN. The ILN study provides for a
of containers for international trade and coastal shipping wider scope within the market and incorporates EUL benefits. and the
secondary benefits of container loading/unloading efficiency
18
To harmonise carton and pallet sizes based on the Australian standard ignores the
global trend towards the ISO standard, the expected demands/standards within new
export markets, and the rationalizing and implementation of global manufacturing

Table 12-1 Summary of cost elements within financial summary

Cost Element GISCC report ILN study Notes
$m $m
Market segment
Grocery 30,000 54,000
Non Consumer Grocery - 47,000
Industrial - 53,000
Non unitised products - -
Pallet population (2001) 10.35 20.00

Pallet locations (2001) 5.00 10.00
Block stacked location 5.35 10.00
Product values per pallet ($)

Grocery 1,500 1,500
Non Consumer Grocery 2,500 2,500
Industrial 3,500 3,500
Pallet throughput (millions)

Grocery 20 36
Non Consumer Grocery - 19
Industrial - 15
Capital costs
Modification to existing pool 72.5 150 Increased for wider population
Additional pallet requirement 27.0 0 Additional pallet requirement addressed with organic growth and harmonisatio with carton sizes
Modification to pallet machinery 21.0 50 Marginally increased to allow for inflation
Modification to existing rack/MHE 225.0 400 Indicative cost as pro-rata
Ignored as inventory levels declining, stock turns increasing and harmonisation with carton sizes tack up
Storage facility for additional pallets 777.6 0 available slack in pallet under-utilisation
Ignored as loading is becoming increasingly heterogeneous, allowing for mix ad match of pallets and
Modification to transport fleet 72.0 0 products; footprint less that 5% difference
Operational costs
Labour 45.6 Nominal provision, although not consisdered likely
Allow for increased cosnumerable for slip sheets for 10 million sheets used per annum, at 3 "re-uses" at
MHE equipment 17.2 50 $20 each, plus increased lease costs for equipment
Assumes that product integrity is maintained and product loaded into containers in pallet lots using slip
Operational benefits sheets or similar
Container loading for international 25.3 116 As at 2001, 775,000 TEU's handled which are loaded with unitised freight, @ $150 per TEU
Container loading for coastal 34 As at 2001, 225,000 TEU's handled which are loaded with unitised freight, @ $150 per TEU
150
Inventory and ECR benefits
Assumes harmonisation applicable to part inventory at the benefit applicable to Europe; Australia rate at
Harmonise carton to pallet @1.2% 1.64% for grocery only
Grocery Note 1 - 486 Assumes 75% inventory
Non Consumer Grocery - 282 Assumes 75% inventory
Industrial - 159 Assumes 50% inventory
927
Note 1. GISCC study considered the benefits of ECR/EUL strategies external to the question of pallet standards

12.3 Discounted cash flow and NPV assessments
Table 12-2 Project inventory and other costs and benefits
Markets Inventory benefits Oper- Operating benefits Capital costs Net Inflation Inflated
ating Cash factor cash
Costs flows flow
Racking adjustment
Pallet Pool mods.
Coastal shipping
Pallet machinery
Efficiency rate
International
Export TEUs
Import TEUs
Non grocery
Non grocery
Total TEUs
Industrial
Industrial
shipping
Grocery
Grocery
mods.
Total
Year
Growth Growth Growth Share Share Share Growth Growth @ $175/TEU Growth @ $175/TEU
* Eff. Rate * Eff. Rate
2.6% 4.6% 3.3% 75% 75% 50% 8% 8% $ 175.00 5% $ 175.00 150 50 400 3%
1.2% 1.2% 1.2%
000 000 000 000

$M $M $M $M $M $M $M $M TEUs TEUs TEUs $M TEUs $M $M $M $M $M $M
2001 10% 54,000 47,000 53,000 49 42 32 123 10 375 400 775 14 100 2 15 5 40 68 1.000 68.0125
2002 20% 55,404 49,162 54,749 100 88 66 254 20 405 432 837 29 105 4 15 5 40 207 1.030 213
2003 30% 56,845 51,423 56,556 153 139 102 394 30 437 467 904 47 110 6 15 5 40 357 1.061 379
2004 40% 58,322 53,789 58,422 210 194 140 544 40 472 504 976 68 116 8 15 5 40 520 1.093 568
2005 50% 59,839 56,263 60,350 269 253 181 704 50 510 544 1,054 92 122 11 15 5 40 696 1.126 784
2006 60% 61,395 58,851 62,342 332 318 224 874 60 551 588 1,139 120 128 13 15 5 40 887 1.159 1,028
2007 70% 62,991 61,558 64,399 397 388 270 1,055 70 595 635 1,230 151 134 16 15 5 40 1,092 1.194 1,304
2008 80% 64,629 64,390 66,524 465 464 319 1,248 80 643 686 1,328 186 141 20 15 5 40 1,314 1.230 1,616
2009 90% 66,309 67,352 68,719 537 546 371 1,454 90 694 740 1,434 226 148 23 15 5 40 1,553 1.267 1,967
2010 100% 68,033 70,450 70,987 612 634 426 1,672 100 750 800 1,549 271 155 27 15 5 40 1,811 1.305 2,362
2011 100% 69,802 73,691 73,330 628 663 440 1,731 100 810 864 1,673 293 163 29 1,953 1.344 2,624
2012 100% 71,617 77,081 75,749 645 694 454 1,793 100 874 933 1,807 316 171 30 2,039 1.384 2,822
2013 100% 73,479 80,627 78,249 661 726 469 1,856 100 944 1007 1,952 342 180 31 2,129 1.426 3,036
2014 100% 75,389 84,335 80,831 679 759 485 1,923 100 1020 1088 2,108 369 189 33 2,224 1.469 3,267
2015 100% 77,349 88,215 83,499 696 794 501 1,991 100 1101 1175 2,276 398 198 35 2,324 1.513 3,515
2016 100% 79,360 92,273 86,254 714 830 518 2,062 100 1190 1269 2,458 430 208 36 2,429 1.558 3,784
2017 100% 81,424 96,517 89,101 733 869 535 2,136 100 1285 1370 2,655 465 218 38 2,539 1.605 4,074
2018 100% 83,541 100,957 92,041 752 909 552 2,213 100 1388 1480 2,868 502 229 40 2,655 1.653 4,388
2019 100% 85,713 105,601 95,078 771 950 570 2,292 100 1499 1598 3,097 542 241 42 2,776 1.702 4,727
2020 100% 87,941 110,459 98,216 791 994 589 2,375 100 1618 1726 3,345 585 253 44 2,904 1.754 5,093
Discount rate 30%

NPV 2,458

12.4 Conclusions
The financial analysis allows for
A capital expenditure of $600 million for adjustments to the pallet
pool, packaging & ancillary equipment over the 10 years
The incremental increase in operating costs by $100 million over
the same period
The benefits of ECR/EUL are applied to 75% of the market
segment for consumer grocery and non grocery products and 50%
for industrial products
Unitised loading of containers is a substantial benefit
The analysis yields a positive NPV of $2.5 billion, assuming an

inflation rate of 3% and a discount rate of 30% (pre-tax).
This NPV increases to over $5.1 billion of the discount rate is

decreased to 20%.
Prime-facie, there appears to be a substantial cost impact if the current

standard is maintained, leading to non conformance costs arising from
the “disconnect” between standards.

13. APPENDICES
Table 13-1 Scenarios "A" - "C" indicating growth in indices in the intervening years
Error! Not a valid link.

Table 13-2 Value of market segments and determination of task size by segment
Product
Value Totals Tonnes Pallet issues
Segment Product group value per
$B Value $B (Million) (Million)
tonne
Consumer Grocery Processed food + agricultural products 43 10%

Non processed agric. products 7 7%
"Other" products 4 54 2000 27 45
Consumer Non-Grocery Department/variety store 15
Hardware + furnishings 15
Pharmacy 17 47 3000 16 26
Industrial Wood and paper manufacturing 18 9%
Fabricated metal product manufacturing 8 7%
Photographic and scientific equip mfg. 5
Electronic equipment 8
Electrical equipment and appliance mfg. 7
Miscellaneous mfg. 7 53 4000 13 22
2%
5% 1 56 93
Not included Fuel chemicals 34

Other machinery incl. Transport 30
Mineral products 10
Printing and Publishing 16
Metal 38 128
Totals from above 128.05
Check total Manufacturing, export, imports 258

Agricultural products 24
282

Figure 13-1 Australian manufacturing - production, exports, imports and consumption by market sector
Movements and comparison between the

$B Value Australian manufacturing base and the total market ($B)
56.1
60.0
49.9
45.6
50.0
42.0
41.2
35.7
40.0
32.2
30.0
21.8
18.4
18.3
16.8
16.3
20.0
13.9
13.7
13.2
12.7
12.2
11.5
10.4
8.7
8.4
7.9
6.9
6.9
10.0
6.4
4.5
3.5
3.1
2.6
2.0
1.4
1.4
0.8
0.5
0.3
-
Food, beverage Textile, Wood and Prinitng, Petroleum, Non-metallic Metal products Machinery and Other mfg.
and tobacco clothing, paper product publishing and coal, chemical mineral mfg. equipment
mfg. footwear and mfg. recorded media and associated products mfg.
leather mfg. product mfg
Market Segment
Sales incl. Exports $B Exports $B Imports $B Total Aust. Market $B

Table 13-3 Forward projections of production, export, import and consumption estimates based on derived growth indices, by market sector
Product, consumption Current
Modelled
and trade values for Growth 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Growth (b)
Comsumer (Food/grocery) Dom. Production 4.2% 61 63 66 68 70 73 76 79 82 85 89 93 97 101 106 111 116 122 128
Export 11.6% 10.0% 10 11 12 14 15 17 18 20 22 24 27 29 32 36 39 43 47 52 57
Import 9.2% 9.0% 3 3 4 4 5 5 5 6 6 7 8 8 9 10 11 12 13 14 15
Dom. Consumption 2.6% 2.6% 54 55 57 58 60 61 63 65 66 68 70 72 73 75 77 79 81 84 86
Current Modelled
and trade values for 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Growth Growth
Consumer (Household) Dom. Production 4.3% 39 40 42 44 46 48 50 52 54 56 59 61 64 67 70 73 76 79 82
Export 13.5% 9.0% 4 4 4 5 5 6 6 7 7 8 9 10 10 11 12 13 15 16 17
Import 14.2% 7.0% 12 13 14 15 16 17 18 19 21 22 24 25 27 29 31 33 35 38 41
Dom. Consumption 4.6% 4.6% 47 49 51 54 56 59 62 64 67 70 74 77 81 84 88 92 97 101 106
Current Modelled
Growth Growth
Industrial/Other Dom. Production 0.9% 29 29 30 30 31 31 32 32 32 33 33 33 34 34 34 34 34 34 34
Export 5.5% 4.0% 8 8 9 9 9 10 10 11 11 11 12 12 13 13 14 14 15 16 16
Import 8.4% 5.0% 32 34 35 37 39 41 43 45 47 50 52 55 57 60 63 67 70 73 77
Dom. Consumption 3.3% 3.3% 53 55 57 58 60 62 64 67 69 71 73 76 78 81 83 86 89 92 95
Current Modelled
Growth Growth
Total Dom. Production 3.7% 129 133 138 142 147 152 157 163 169 175 181 187 194 202 209 218 226 235 245
Export 8.2% 22 24 26 27 30 32 35 37 40 44 47 51 56 60 65 71 77 84 91
Import 5.9% 47 50 53 56 59 63 66 70 74 79 83 88 93 99 105 111 118 125 133
Dom. Consumption 3.5% 154 159 165 171 176 183 189 196 202 209 217 224 232 241 249 258 267 277 286

Comsumer (Food/grocery) 25% 27% 29% 31% 33% 35% 37% 40% 43% 46% 49% 53% 56% 60% 64% 69% 74% 79% 84%
Consumer (Household) 33% 34% 35% 36% 37% 38% 39% 40% 42% 43% 44% 45% 46% 48% 49% 50% 52% 53% 55%
Industrial/Other 75% 77% 78% 79% 80% 81% 82% 84% 85% 86% 87% 89% 90% 91% 92% 94% 95% 97% 98%
Total 45% 46% 48% 49% 50% 52% 53% 55% 57% 58% 60% 62% 64% 66% 68% 71% 73% 75% 78%
(a) Based on ABS Economic indicators against market values

(b) Composite forecasts derived from ABS Economic indictaors and adjusted to reflect volume growth in contaier 1995-2000

Table 13-4 Summary of Import Containers by Origin port for 1995 and 2000
Source: Analysis of data provided by TradeData (Victoria University)

Table 13-5 Summary of Export Containers by Destination port for 1995 and 2000
Source: Analysis of data provided by TradeData (Victoria University)

14. PUBLICATIONS AND RELATED

ARTICLES

14.1 ECR Standard Pallet Implementation Project
ECR Asia Council
INTRODUCTION
Amidst the Asia economic crisis, ECR has now been established in
In today's competitive environment, the grocery industry is under Australia, Hong Kong, Philippines, Taiwan, Thailand, Singapore,
intense pressure to provide consumers with better choice through the Malaysia, Korea, India, Indonesia and China. An Asian Joint Industry
anticipation of their needs and at the same time, the elimination of Committee known as ECR Asia Council has been formed in July 1999 to
unnecessary distribution and inventory management costs. facilitate the adoption of ECR or Supply Chain Management (SCM)
practices in a consistent fashion across Asia, and to initiate those
The Efficient Consumer Response (ECR) movement began in the activities where local ECR or SCM boards do not exist currently. The
United States in 1993 in response to the recession to fulfill consumer Committee is made up of members from regional suppliers, retailers,
wishes better, faster and at less cost. manufacturers and representatives from ECR organisations in Asia.
WHAT IS ECR? ECR Singapore
Efficient Consumer Response (ECR) is a strategy to improve ECR Singapore was officially launched on 11 Aug 1998. The ECR
consumer choice, satisfaction and service and at the same time, reduce Board is jointly chaired by Mr Tan Kian Chew, Chief Executive Officer
total costs, inventories and physical assets. ECR requires distributors of NTUC Fairprice Co-operative Ltd and Mr Yap Yoon Kee, General
and suppliers to focus jointly on the efficiency of the total grocery Manager of Colgate-Palmolive (Eastern) Ltd, with the Singapore Article
chain, rather than the efficiency of individual components. Number Council (SANC), a division of the Singapore Confederation of
Industries, providing the secretariat support. This industry-led initiative
It successfully stimulated consumers' expenditure and pulled the retail has the following objectives:
sector of the US and Europe out of recession in the 1990's. Such an To improve consumer choice, satisfaction and service
industry-led initiative is critical and timely given the current Asian To achieve a reduction of total costs, inventories and physical assets
financial crisis. The success of this initiative is dependent upon the To remove unnecessary cost from the distribution system and make it
commitment by all parties in the supply chain to agree on standards more responsive to consumer demand
and work together in a mutually beneficial arrangement. To network with other national and regional ECR organisations
ECR benefits companies in terms of the reduction in supply chain and ECR Singapore focuses on three areas for continuous improvement
inventory costs, and the increase in sales through better response to
customers' needs.

Supply management covers a number of initiatives designed to
improve the flow of products through the supply chain. Working The Pallet Standardisation Working Group
groups were formed for the following areas:
The working group on "Pallet Standardisation", co-chaired by the
Continuous Replenishment Singapore Productivity and Standards Board (PSB) and NTUC Fairprice,
Products with Short Shelf-Life is the largest working group that looks into the reduction of supply chain
Pallet Standardisation and increase in productivity through standardisation of pallet sizes. Its
Roll Cage (new working group formed in July 2000) implementation will result in labour reduction and minimal handling of
goods.
Demand management focuses on improving the assortment of
products offered to consumers, effectiveness of product promotion, Standardisation of pallet sizes will in turn allow standardisation of
new product introduction and the efficiency of related demand trucks, containers and warehouse design for economy of space. Sub-
management activities. The working group under this area is groups of manufacturers, distributors, equipment suppliers and third-
Category Management. Category Management looks into efficient party logistics providers have also been formed to address issues of
assortment, promotion and product introduction. It is a method for concern and the necessary industry adjustment required for the
managing complex changes that are occurring in consumer needs and implementation of standard pallet size(s) in their sectors.
shopping behaviour.
Enabling technologies are improvements that render support to PALLET SIZE STANDARDISATION
supply and demand management. This includes rapid communication
of accurate and complete information to all trading partners, through The Pallet Standardisation Working Group looked into the reduction of
technologies such as Electronic Data Interchange (EDI). supply chain costs and increase in productivity through standardisation
Computerisation, including the application of automatic identification of pallet sizes. Issues of concern and the necessary industry adjustments
and data capture techniques, will in turn lead to the standardisation of required for the implementation of standard pallet size(s) in their sectors
design and specifications for trucks, containers and warehouses. were addressed by the working group during the third and fourth quarters
Working groups were formed for the following areas: of 1998. Surveys have been conducted among the working group
members to assess the current use of pallets and the impact of pallet size
Data Alignment standardisation to the fast-moving consumer goods (FMCG) industry.
EDI Standards The working group is made up of 35 members with 5 retailers, 15
Bar-coding Standards & Point-of-Sales grocery and FMCG manufacturers, 2 distributors, 3 third-party logistics
Education & Training providers and 7 logistics equipment suppliers.

Benefits of Pallet Size Standard
Currently, there are 16 different pallet sizes in use in the market.

Standardisation of pallets provides the platform for pallet exchange.
In the ideal scenario, goods can be transported from the manufacturer,
through the distributor, to the retail store on the same pallet. By
eliminating the need for manual transfer of goods to another pallet,
productivity and work efficiency are improved. The reduction in both
labour and handling of goods will reduce delivery and transfer costs.
Standardisation of pallet sizes will in turn allow standardisation of
palletisers, racking and warehouse design. This will result in
economy of space and facilitate automation. Other benefits identified
through the survey were:
Fig 1 : Dimensions of the ECR Standard
Reduction of damaged goods losses through minimal manual handling
Why 1000mm x 1200mm pallet?
Reduction in number of transportation trips
Minimisation of the wastage of pallets
Compatible with standard ocean going containers and the majority of
Elimination of the need for sorting of pallets
trucks
Reduction of unloading time for suppliers
Dominant size used in Asia (China, Thailand, Malaysia, Indonesia,
Reduction in warehouse storage cost
Philippines and Singapore)
Endorsed by ECR Asia
Recommended Pallet Size
Conform to International Standard - ISO 6780 'General-purpose flat
pallets for through transit of goods - Principal dimensions and
The 4-way 1000mm x 1200mm pallet is recommended by the Pallet
tolerances'
Standardisation Working Group as the standard for the grocery and
Conform to Singapore Standard - SS 334 'Specification for Timber
fast-moving consumer goods industry in Singapore. The standard
Pallets'
pallet shall have a safe working load of minimum one tonne.
Major retailers in Singapore have already adopted this standard
Sufficiently wide for drive in racking
IMPLEMENTATION

The objectives of the ECR Standard Pallet Implementation Project are
During the initial stages, ECR Singapore has encountered the defined as follows:
following problems in the implementation of this pallet standard in
the FMCG industry: To implement ECR Standard Pallet.
To evaluate the benefits of the pilot ECR Standard Pallet
Though a number of the Working Group members went ahead to Implementation Project.
implement the pallet standard, some expressed the need to see some To publicize the results of the pilot so as to encourage more
real benefits of pallet standardisation before adopting such standard. companies to adopt the usage of the ECR Standard pallet rental to
There is a great deal of different pallet sizes currently being used by secure maximum benefits.
the FMCG industry. There is a high replacement cost.
To implement the recommended Pallet Standard, some members of The length of this project is 12 months, starting from 3 January to 31
the FMCG industry needed to change the sizes of the pallet racks. December 2000. The 4 participating companies in this project are YHS
The changing of the size of the racks would involve the re-surfacing (Singapore) Pte Ltd (YHS), Unilever Singapore Pte Ltd (Unilever),
of the warehouse flooring, as most racks would be cemented to the Grocery Logistics Singapore Pte Ltd (GLS), the logistics arm of NTUC
floor. Fairprice Co-operative Ltd, which is the largest supermarket group with
To implement the ECR Pallet Standard in the manufacturing sector, 78 branches and annual turnover amounting to S$917.6 million in
the automated palletising equipment would in most cases need to be 1998/99 and LHT Holdings Ltd (LHT).
modified to accept a different size pallet and there would also be a
need to adjust the speed and the conveyor belt configurations. Though, a number of large companies in Singapore have implemented
Some of the forklifts currently being used in the FMCG industry are the use of the recommended pallet standard, there is a need to both
designed for a particular size pallet. New forklift blades would need accelerate the pace of and widen the implementation of the standard
to be acquired in these cases to handle the recommended 4-way ECR pallet in the FMCG industry to realise the benefits of interoperability as
Standard Pallet. soon as possible and transform the industry. The take up pace of the
standard pallet is slow and the replacement rate cited by the working
In order to show the benefits of the implementation of the pallet group members has ranged from 2 to 10 years.
standard despite the above-mentioned problems, a pilot project, ECR
Standard Pallet Implementation Project was initiated to demonstrate At present, there is no local data on the benefits of the implementation of
to the fast-moving consumer goods (FMCG) industry that using standard pallets. Hesitancy amongst the various players in the
productivity and cost savings can be achieved through standardisation. FMCG supply chain creates doubts about actual operational benefits that
translate into real cost savings gained from using standard pallets. This
issue of achieving interoperability within the FMCG supply chain in

Singapore by using a common platform cannot be realised and shown conducted during 6 November - 30 December 2000 (another duration of
until a pilot study of the actual operational benefits is carried out. 8 weeks). Thereafter, a complete report with findings and analysis will
be compiled at the end of the project in January / February 2001.
A Project Steering Committee was formed to ensure this project
achieves its objectives and completes according to schedule. This The number of ECR Standard Pallets used in the respective companies as
steering committee will also institute various measurements to gauge of October 2000 is as follows:
the benefits in the implementation of ECR Standard Pallet. To ensure GLS: 11,549
objectivity of the measurement, Singapore Polytechnic would act as YHS: 16,045
an independent body in performing data collection and measurement. Unilever: 800
PricewaterhouseCoopers played the role of an advisor in this project.
Some preliminary findings from the first measurement are as follows:
Findings of Project Reduces time for sorting pallets
Reduces time for loading and unloading goods
To ensure that the benefits are appropriately captured, an external Reduces multiple handling
third party was engaged to measure the productivity gains. The Reduces product damages due to multiple handling
benefits were captured through the use of questionnaire, interviewing Reduces number of vehicle trips
a list appropriate representatives from the participating companies and Reduces number of pallets needed
proper verification of data that were being collected. Reduction in manpower needed
Reduction in number of lost pallets
Each participating company adopted the usage of ECR Standard Pallet Facilitates the concept of shared assets
for their operations under a pallet-pooling scheme since January 2000.
From these initial findings, the pallet standardisation project has an
Singapore Polytechnic (SP) has conducted the first round of internal rate of return of 399%. This translates to a return of 4 times the
measurement during 8 May - 1 July 2000 on the benefits of this money invested in the project, where a significant portion of the benefit
project through data collection and measurement. came from increased productivity of labour and reduced cost of
PriceWaterhouseCoopers (PWC) played the role of an advisor ownership. This figure will be re-confirmed in the final stage of the
throughout this process. project in December 2000.
4 students were attached to each participating company (YHS,

Unilever, GLS and LHT) respectively for a period of 8 weeks during
8 May – 1 July 2000. The second round of measurement will be

Although the ECR Standard Pallet implementation project has not been
Conclusion completed, the preliminary findings (after nine months since
The advantages of ECR Standard Pallet include: commencement in January 2000) have been encouraging. Upon the
Reducing multiple handling of goods completion of the project (scheduled in December 2000), the detailed
Facilitating delivery turnaround time findings on the operational benefits that has been derived through the use
Facilitating regional transport efficiencies of standard pallets, pallet pooling and leasing of pallets would be shared
Streamlining transport services with the industry (and in particular the FMCG players). This would be
Facilitating the concept of shared asset done through ECR Singapore.
Facilitating the use of single material handling systems
Facilitating palletised deliveries
Streamlining packaging design process
The envisaged benefits for implementing ECR Standard Pallets

through the pilot are as follows:
Standardisation: Driven by the need to simplify business processes

Simplification: Removes unnecessary business practices and create
greater efficiency and effectiveness
Efficiency: Result in cost savings
Enhanced business values: Increase in productivity and better
service for consumers
4-way Pallet: Entry points on all four sides enable loading being
done on any side Fig 2 : ECR Standard Pallets in use at Unilever’s warehouse
Fitting: Optimum space utilisation in warehouses as well as for most
lorries and sea freight containers
Racking: To standardise on 1200mm and 1000mm to save space for
warehousing
Deliveries: To facilitate efficient palletised deliveries
Pallet Pooling: Reduces number of pallets used in the supply chain
Streamlining: Streamlining of warehouses and distribution systems

Fig 5 : Palletised goods loaded onto trucks for delivery

Fig 3 : ECR Standard Pallets in use at YHS’s warehouse
Fig 4 : Picking & loading of goods onto ECR Standard Pallets Fig 6 : Stacks of new ECR Standard Pallets
at GLS’s warehouse

Prepared by: Ms Jaslin Lau Wai Ling

ECR Project Manager
Singapore Article Number Council

14.2 Efficient Unit Loads by A.T. Kearney often reassembled more than 10 times, at different stages in the supply
chain.
Efficient Unit Loads are absolutely key in improving transport, ‘The challenge is to break the half chain view, where each participant
storage and handling efficiency across the total supply chain. focuses on his part rather than on a total optimum’
L. Henner Klein, A.T. Kearney, Geneva 1996.
Unit loads play a key role across the supply chain, grouping primary
and transport products to facilitate transport and handling. Used by The problem is compounded by a wide variety of unit load dimensions
manufacturers, retailers and service providers, unit loads are key cost across Europe. There are too many standards and they differ from
drivers. They impact on transport, storage, handling and packaging, country to country. Established international standards are not always
which together, represent 12-15% of retail sales price. Developing used and a widely applied, consistent set of European standards is
more Efficient Unit Loads is critical to the success of ECR and is required to achieve EUL harmonisation. This should be based on the
estimated to save 1.2% of retail sales price. modularity principle as this dramatically improves space utilisation.
Within the European grocery industry the 600 x 400mm master module
Efficient Unit Loads impact 12-15% of retail sales price. Savings is widely accepted and is recommended in this Report as the basis for
opportunities represents 1.2% of retail sales price unit load dimensions. To achieve c=breakthrough results, all variable
constraints must be challenged, although fixed or genuine constraints are
The Efficient Unit Loads (EUL) project is one of three ECR Europe recognised.
supply side projects, whose ultimate objective is supply chain
integration. This can only be achieve by harmonising physical aspects Unit load harmonisation is key to supply chain integration and
of the supply chain. breakthrough results.
EUL Mission: To improve the efficiency and effectiveness of current A wide range of secondary unit load dimensions is currentl;y in use,
and future supply chains by promoting harmonisation and integration driven by primary product size. This proliferation adds complexity and
of transport and storage items. should be rationalised. Since space utilisation is key to EUL, available
spaces across the supply chain should be based on seven modules: five
The traditional approach to supply chain management has been for based on strict modularity with the 600 x 400 and two additional
each player to optimise his part, often to the detriment of ‘total chain’ modules, representing shelf replenishment needs.
efficiency. Thus, manufacturers have typically used pallets to
optimise space ut8ilisation and retailers have improved handling Secondary reusable transport items (RTI), such as boxes and crates, offer
productivity by using roll cages. This disjointed approach has significant potential savings for selected category flows. In order to limit
resulted in unnecessary, non-value added handling, where loads are

burgeoning proliferation and complexity, the EUL team recommends EUL projected savings of 1.2% of retail sales price are not evenly spread
establishing RTI council to develop European standards. among manufacturers and retailers. Retailers expect to gain three
quarters of the savings, mainly through more efficient assortment
Tertiary items are critical to the success of ECR. creation and shelf replenishment. However retailers’ operational gains
are likely to be manufacturers’ investment needs. For example,
More than 30 different pallet sizes and types are in use across Europe. switching to RTI to achieve more efficient retail shelf operations will
These should be rationalised to four recommended plan dimensions. require manufacturers to invest in the production line.
Current pallet heights make poor use of vehicle inner heights, often EUL opportunities are not equally spread between manufacturers
based on previous design. As a result, 15% of additional grocery and retailers.
trucks are required. As vehicle technology develops and extra inner
truck height is made available, pallet height standards need to be Future pricing must incorporate a suitable compensation mechanism to
increased. High cube and double stacking technologies should also be ensure that such investment takes place.
monitored and pallet heights adapted to reflect developments.
A clear vision, leadership and a long-term perspective are required to
Pallet height should be derived from inner truck height. ensure that projected ECR savings become a reality.
The current situation, in which manufacturers typically use pallets and Efficient Unit Load developments require a process and category
retailers favour roll cages, is a barrier to Efficient Replenishment. Ass oriented approach.
cross-docked volume increases, the need for an integrated tertiary
item – used across the total supply chain – becomes critical. In order to make best use of spaces available in the supply chain and to
minimise the overall handling along the chain, the unit load design must
Suppliers of tertiary items need to develop a tertiary item which be very process-oriented, together with the principal replenishment flow
combines the advantages of pallets with those of roll cages to enable modules, allowing category-specific increases in cross docking and break
effective cross-docking. The Dolly is one such item but is only bulk operations.
suitable for those applications using RTI.
EUL make optimal use of spaces available in the supply chain and
Technical developments are required to integrate pallets and roll minimise handling.
cages.
This Report provides guidelines rather than standards. It should be used
by standards bodies, and by manufacturers, retailers and service

providers, working together to design and operate Efficient Unit
Loads supply chains. This will ‘fulfil consumer wishes better, faster
and at less cost’.

14.3 Efficient consumer response (ECR): a the grocery supply chain from a "push system" to a "pull system" - where trading
partners form new alliance relationships and the replenishment of store products is
survey of the Australian grocery industry initiated by the point of sale (PoS) data.
John K. Harris, Paula M.C. Swatman, Sherah Kurnia The concept on which ECR is based actually originated from the quick response (QR)
strategy, already existing in the textile and apparel industries (Cooke, 1994; Fiorito et
The Authors al., 1995). QR, in turn, is based on the manufacturing just-in-time (JIT) concept (Ellram
John K. Harris, John K. Harris is an Analyst at Deakin University, Geelong, et al., 1989; Fiorito et al., 1995; Knill, 1990). The JIT concept was simple: to deliver
Victoria, Australia raw material to production areas in the exact required amount at the precise time it was
Paula M.C. Swatman, Paula M.C. Swatman is the Director of the Interactive needed. The use of raw material pulls new raw material into the production process.
Information Institute, RMIT University, Melbourne, Australia During the mid-1980s the JIT manufacturing concept was applied to the US textile and
Sherah Kurnia, Sherah Kurnia is a PhD candidate at the School of Information apparel industries in an attempt to combat market penetration by overseas
Management and Systems, Monash University, Australia manufacturers. This textile and apparel industries initiative was termed "quick
response" and attempted to reduce the amount of inventory held within the apparel
Abstract supply chain. Quick response required the retailer to share point-of-sale-scanned data
with manufacturers to improve the flow of product through the supply chain. The
Efficient consumer response (ECR) is a supply chain management strategy which grocery industry noted the success of the quick response approach to managing supply
attempts to address the inefficiencies that have led to excessive inventory and chain data and proposed a similar stock replenishment system called ECR (Cooke,
unnecessary costs at all levels within the grocery industry supply chain. Although 1994; Ellram et al., 1989; Fiorito et al., 1995).
originating in the USA, ECR has also attracted attention and interest in many other
countries. This paper presents the results of an Australian study which was designed Although ECR originated in the USA, the concept has attracted many European
to assess the applicability of ECR within the Australian grocery industry. The countries and Australia. Research papers published in the last few years suggest that
results of the study indicate that the inefficient business practices of the US supply there has been an increasing level of interest among European manufacturers and
chain are also prevalent within the Australian grocery industry and that some retailers in the ECR initiative (Coopers & Lybrand, 1997; Coupe, 1995; Kurnia et al.,
Australian companies had already begun to engage in business activities related to 1998; Leggett, 1996; Peck, 1997; Wheatley, 1996). The importance and applicability of
ECR as early as 1996. ECR to the European grocery industry became more noticeable in 1994 with the
establishment of the ECR Europe Executive Board, which promotes and advances the
Introduction ECR initiative in Europe (Davies, 1997; Penman, 1997).
Efficient consumer response (ECR) originated in the USA in 1992 as a direct result
of threats from alternative store "formats" (or types) and their supply chains In Australia, however, very little research has been conducted regarding the
(McKinsey & Co. 1992) which highlighted major inefficiencies within the applicability of the ECR initiative. At the beginning of this study, only one industry
supermarket and its supply chain (Kurt Salmon Associates, 1993). In order to study (conducted by Coopers & Lybrand in 1995) could be found, the results of which
survive, the US grocery industry leaders took an initiative to study how to improve indicated that ECR would be effective in improving the state of the Australian grocery
the performance of the supermarket supply chains in 1992. As a result of their study, industry.
the ECR initiative was established, and the term "efficient consumer response"
(ECR) was first introduced at the US Food Marketing Institute Conference in ECR as a collaborative solution to adversarial trading
January 1993 (Robins, 1994). This ECR initiative is concerned with transforming

ECR calls for the creation of a timely, accurate and paperless flow of information - The use of paper-based coupons as a consumer promotion technique can be replaced
relying heavily on electronic data interchange (EDI) and strategic alliances between with electronic coupons, frequent shopper systems, every day low price (EDLP)
supply chain members (Fiorito et al., 1995; Sansolo, 1993). The goal of ECR is to policies and other efficient incentive programmes. Thus, the efficient promotion
take out of the supply chain costs which do not add consumer value (Robins, 1994). initiative endeavours to remove excessive costs by reengineering promotion practices,
ECR is about producing efficiencies in the grocery supply chain within the four core and is also supported by the "category management" strategy (Kurnia et al., 1998;
business process areas of efficient store assortment, efficient replenishment, Pramataris et al., 1997).
efficient promotions and efficient product introductions (Kurt Salmon Associates,
1993). (c) Efficient product introduction
The objective of the new product introduction initiative is to maximise the effectiveness
ECR Initiatives of new product development and introduction activities in order to reduce costs and
failure rates in introducing new products (Kurt Salmon Associates, 1993). This is
(a) Efficient store assortment achieved by the involvement of wholesalers/distributors, retailers and consumers at an
The objective of this initiative is to optimise the productivity of inventory and shelf early stage of the new product development process. Manufacturers, distributors and
management at the consumer interface - the store level. Optimal allocation of goods retailers must work together as allies to reduce the costs of product development and to
on supermarket shelves (known as "store assortment") maximises consumer produce only products anticipated and demanded by the consumer marketplace
satisfaction by providing the best products and services while, at the same time, (Tripplet, 1994). Once again, the "category management" strategy plays a crucial role in
ensuring the most efficient use of available space to increase manufacturer, achieving this initiative, because of its contribution to an understanding of successful
distributor and retailer profitability. The relationship between manufacturers, existing products (Kurnia et al., 1998; Pramataris et al., 1997).
distributors and retailers is crucial in achieving efficient store assortment (Kurt
Salmon Associates, 1993; Wood, 1996). To streamline business practices in the area (d) Efficient product replenishment
of store assortment, manufacturers, distributors and retailers need to adopt a The efficient product replenishment initiative is the fundamental platform which
"category management" strategy (Kurnia et al., 1998; Pramataris et al., 1997). supports the overall ECR strategy and it represents more than half the total savings
projected from ECR implementation within the US grocery industry (Kurt Salmon
(b) Efficient promotion Associates, 1993). The objective of this initiative is to optimise time and cost in the
The efficient promotion initiative aims at maximising the total system efficiency of replenishment system by the provision of the right product to the right place at the right
trade and consumer promotions. Efficient promotion attempts to eliminate time in the right quantity and in the most efficient manner possible. In order to remove
inefficient trade promotions (forward buying and diverting) by introducing better inefficiencies in product replenishment (for example, high inventory levels and carrying
alternative trade promotions such as "pay for performance" and "forward commit": costs and sporadic manufacturing schedules), a "continuous replenishment program
pay for performance is concerned with rewarding retailers on the basis (CRP)" approach is required (Kurnia et al., 1998; Pramataris et al., 1997).
of how many products they sell to consumers, rather than how many
products they buy from manufacturers (Washburn, 1995); ECR business activities
forward commit relates to spreading the actual shipment of one order To achieve these four efficiencies, ECR requires the following major business activities
over several physical deliveries. This allows retailers to take the pricing or initiatives (De Roulet, 1993):
benefits offered by manufacturers at a particular period in time (just as in category management;
the case of forward buying), without having to carry the inventory. In continuous replenishment programme (CRP);
essence, this technique operates on "virtual inventory" which will be computer assisted ordering (CAO);
transformed into "real inventory" when required (Martin, 1994). flow-through distribution (cross-docking);
integrated electronic data interchange (EDI);

activity-based costing (ABC). (Garry, 1994c). Traditionally, stores have based their orders on the re-order clerk
manually inspecting the store shelves and scanning the shelf-tag barcodes for those
(a) Category management items with limited stock on the shelf (Anderson, 1996). The re-order amount entered by
The term category management first appeared in 1987 (Smith, 1993) when certain the clerk is based on the actual shelf amount and the ideal shelf quantity. The re-order
organisations, such as Procter & Gamble (Mathews, 1995), began moving from clerk is not in a position to take into account PoS data, inventory which has already
"brand" management to management "by category". Category management has been scheduled for delivery, or likely future trends based on forecasting. Integrated
evolved to mean a process that involves managing product categories as business CAO systems are designed to minimise (and even eliminate) these problems.
units and customising them on a store-by-store basis to satisfy consumer demands
(Gnau et al., 1992). A category is a group of products having a common consumer (d) Flow-through distribution (cross-docking)
end use (Hofler, 1996) and includes such things as household cleaners, dairy and According to Garry (1994a) the purpose of flow-through distribution is to hasten the
frozen foods, paper products, health and beauty care products, soft drinks, etc. flow of products from the supplier to the retail store by reducing storage and handling
Category management allows the category manager to operate a category like a of products at the distribution centre or warehouse. It involves the breaking down of
business so as to identify optimal product mix; and to stock each store with specific pallets at the distribution centre, reassembling them for store delivery and then shipping
products that demographic and point-of-sale (PoS) information indicates customers them to the retail store without ever storing the product in the warehouse. This requires
wish to purchase. Category management is supported by EDI and barcode significant investment in technologies such as EDI, barcoding and scanning of pallets
applications (Kurnia et al., 1998). and cases; and warehouse design changes such as lower ceilings and less racking. The
(b) Continuous replenishment programme (CRP) key EDI transaction required for cross-docking is the Advanced Shipping Notice
Continuous replenishment, usually managed by the manufacturer, is a programme (ASN), to inform the distributor of the merchandise that is about to arrive. The
used to control and monitor the movement of goods from the manufacturer to the automation of the warehouse inventory management system using barcodes means that
warehouse/ distributor (Garry, 1994c). CRP involves the manufacturer (rather than inaccuracies can be eliminated.
the retailer's warehouse) taking responsibility for replenishing the warehouse
inventory, with the buyer supplying actual warehouse inventory withdrawal data (e) Integrated electronic data interchange (EDI)
and data on "stock-keeping units" (individual line items) to the manufacturer (Cross, EDI is the computer-application to computer-application communication of structured,
1993). CRP programmes reduce costs in distributors' inventory, but can increase formatted messages based on international standards, using electronic transmission
some costs, such as transportation costs, if the manufacturer ships smaller truck media with no manual intervention (Brawn, 1989; Swatman, 1993). EDI is a technology
loads more frequently (Garry, 1994b). Successful CRP implementation is dependent which allows structured information to be shared among organisations in the supply
on effective trade relations, requiring shared business practices and information chain resulting in significant reductions in transaction costs and enabling the
systems which rely heavily on EDI. organisations to adopt new and more effective and efficient business strategies
(Emmelhainz, 1990; Gilmour, 1993; Klima, 1993; Spence, 1994), such as ECR. EDI is
(c) Computer-assisted ordering (CAO) viewed as the essential effective enabler of the ECR management strategy because it
Computer-assisted ordering, also known as "computer-aided ordering" (Fensholt, focuses on achieving integration across organisational functions and between
1992; Garry, 1992; Thayer, 1991; Weinstein, 1995), covers the second half of the organisations (Swatman, 1993) in the grocery supply chain.
overall inventory supply chain - the movement of goods from the
warehouse/distribution centre to the retail store. The aim of CAO is to generate store (f) Activity-based costing (ABC)
replenishment orders automatically, with minimal management intervention, based Activity-based costing provides the cost and operating information necessary to support
on such things as current and historical PoS scan data, delivery data and sales innovative management improvement initiatives such as ECR. The focus of ABC is on
forecasts. The benefits of CAO have been identified as labour savings and accurate information about the true cost of products, services, processes, activities,
dependability, warehouse and shipping improvements, and inventory reduction distribution channels, customer segments, contracts and projects (Miller, 1996). ABC

supplies information about profits (where the money is being made) rather than identify those organisations that are aware of the ECR strategy to discover whether
about costs. Traditional accounting systems use gross margin calculations that their organisation (and the supply chain as a whole) can benefit from the ECR
spread operating costs across all products based on unit purchase price regardless of strategy;
the actual value chain (Porter, 1985) through which the product passes. ABC determine the reasons for adopting ECR by those organisations which have decided
focuses management's attention on controlling the source of costs, decisions that to pursue such a strategy.
create activities, rather than squeezing budgets. Therefore ABC as part of ECR can
increase the profitability of the supply chain by removing or reducing those cost Inefficient business practices
activities that do not add value. This cannot be done with traditional systems Figure 1 shows that "diverting" is little used within the Australian grocery industry, as
because they do not reflect costs accurately (Weinstein, 1993). just 17 per cent of survey respondents indicated that they use some form of diverting,
Australian ECR survey and only 2 per cent stated that they used this practice the majority of the time. Deal
At the start of this research project, little US and almost no Australian research into selling/buying which results in forward buying, however, is prevalent within Australia
ECR could be discovered. We identified three academic research projects on ECR and, as a result, there are likely to be excessive inventory holdings throughout the
or continuous replenishment (Clark, 1994; Hoban, 1993; Mathews, 1995) in the Australian grocery supply chain. Despite the greater than optimal inventory holdings,
USA and in Australia we found only a single industry report undertaken for the these figures suggest that inefficient promotional activities are used to a much lesser
Grocery Manufacturers of Australia by Coopers & Lybrand in 1995. We therefore extent than in the USA and are therefore far less important as a motivator for ECR in
decided to commence the overall research project (which involves a number of this country.
researchers and is expected to take several years) by investigating Australian
attitudes to ECR and existing practices by members of the grocery industry in this ECR business activities
country - an investigation which we believed was most appropriately addressed by Figure 2 illustrates the various ECR initiatives and shows that category management
means of a mail survey. (59 per cent) and EDI (49 per cent) have the greatest number of respondents committed
to their implementation, while cross-docking (19 per cent) and continuous
Participants were chosen from organisations within the Australian grocery industry replenishment (23 per cent) have the smallest number. Even though category
(members of the grocery supply chain). The questionnaire was posted to the most management is more widely used than the other initiatives, only 10 per cent of
senior executive of 1,500 companies within the Australian grocery industry, whose respondents are committed to the implementation of this business activity as part of
mailing lists were obtained from grocery industry journals (Retail World Pty Ltd, their ECR strategy (indicated as "Committed to Implementation (ECR)" in Figure 2),
1995; White et al., 1995); and an effective response rate of 30 per cent, or 450 while the rest are using category management independently (indicated as "Committed
organisations, was obtained after two mailouts of the questionnaire. The survey was to Implementation" in Figure 2). EDI (17.1 per cent) implementation as part of an ECR
administered between June and October 1996. strategy has by far the greatest commitment in terms of ECR strategy, while activity-
based costing (4 per cent) and cross-docking (5 per cent) have the lowest respondent
The research question under examination was "can Australian grocery industry commitment as part of their ECR strategy. These results suggest that, although
supply chain members benefit from the efficient consumer response supply chain Australian grocery industry members are actively engaged in a number of the ECR
management strategy?" Industry supply chain members were surveyed to: initiatives, they view each activity on its own merit - and have, thus far at least, shown
little interest in integrating their improved supply chain management practices into an
determine the extent of inefficient business practices; holistic ECR approach.
identify the current use of business activities (supply chain initiatives) ECR awareness
necessary for the adoption of the ECR strategy; Table I shows that just over two-thirds (61 per cent) of respondents were previously
aware of the ECR strategy, while another third (34 per cent) were unaware of ECR
before receiving this survey. Two-thirds of the group of "aware" organisations are

actively engaged in pursuing an ECR strategy and, in Table II, we have summarised store formats which were likely to have an adverse effect on the traditional grocery
the reasons why these respondents are actively pursuing this strategy. This list store, the supermarket. Given the findings of this review, we find it somewhat
makes it clear that the "threat from alternative store formats" which motivates so surprising that respondents to our survey did not indicate threats from alternative store
many US supermarkets is of little importance to Australian grocery industry formats as a main reason for adopting ECR, and that there is not a stronger commitment
members. to implement the necessary ECR business activities/initiatives.
Figure 3 summarises respondents' views of the likely benefits of ECR to the
Australian grocery industry and shows that the majority of those respondents who One of the main reasons given for adopting ECR is pressure from trading partners
are aware of ECR believe the Australian grocery supply chain can gain significant (Table II). These results, which differ significantly from the (comparatively limited)
benefit from ECR in terms of improved efficiency (76 per cent) and reduced costs evidence available from the USA, suggest that the Australian motive for engaging in
(61 per cent); and that the respondent's own organisation can benefit (61 per cent) ECR may well be quite different. Indeed, the likelihood is that Australian grocery
from pursuing an ECR strategy. Of the total group of respondents, 47 per cent industry members appear to be "encouraged" to engage in ECR by large and powerful
believe that ECR will improve the efficiency of the grocery supply chain, while 37 customers (supermarkets) - a situation which is reminiscent of the Australian
per cent of all respondents believe that ECR will remove costs from the supply experience with EDI. There is thus a real danger that, as with EDI, organisations may
chain and also benefit their own organisation. become involved only to the extent required by their larger and more powerful trading
partners, so that the full benefits of a strategic approach may be lost.
Discussion and conclusions
Our research into ECR within Australia provides very strong evidence in two areas: The survey reported in this paper provides the first "hard" evidence of Australian ECR
1 that the inefficient business practices of deal selling/buying and forward buying activities and attitudes. One thing which has become clear from the results is that, as
(Figure 1), which push excessive inventory into the supply chain, exist within the with all surveys (which provide a "snapshot" of a respondent group at a point in time)
Australian grocery industry although not necessarily to the same extent as in the we have made some fascinating discoveries, but opened up some even more intriguing
USA. possibilities which the data cannot answer satisfactorily. The next step is clearly to
2 That Australian organisations have begun implementing business activities and engage in case studies of Australian and overseas organisations involved in ECR to
initiatives that are essential for the adoption of the ECR strategy. discover whether our suspicions about the motivations for ECR involvement are
correct. This project is being undertaken by another member of the Monash Electronic
These results suggest that the Australian grocery industry is a "push system", like Commerce Research Group and our serendipitous discovery that the member nations of
the USA, where inventory is continually pushed into the supply chain by supplier the European Union have nominated ECR as a major area of interest for the next few
deals, which in turn lead to forward buying by customers. years encourages us to hope for an enthusiastic response from prospective case study
There is considerable interest in ECR in Australia, with 61 per cent of respondents participants.
being aware of ECR and 40 per cent of respondents actively pursuing an ECR
strategy (Table I). Despite this interest in ECR, we believe that there is no real
commitment to its implementation. This is borne out by the fact that while 40 per
cent of respondents are actively pursuing an ECR strategy (Table I) only 17 per cent
(EDI) and 4 per cent (ABC) respectively of respondents are actually committed to
the implementation of the essential business activities (Figure 2) necessary for the
successful implementation of ECR.
A review of the Australian grocery industry (Commercial Economic Advisory
Service of Australia, 1991) identified inefficiencies within the Australian grocery
industry which ECR seeks to address. This review identified threats from alternative

Figure 1 Inefficient business practices within the Australian grocery industry
Table II Reasons for actively pursuing an ECR strategy
Figure 3 Opinions as to the likely benefits of ECR in Australia
Figure 2 ECR-related business activities within the Australian grocery industry
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Strategic design + Development

Creating new horizons for your value chain

Suite 105, 51 Rawson St, Epping, Australia

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1.1 Some History

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7. Implementing the ISO standard requires conformance costs of

8. Many industry representatives understand the strategic benefit of

9. A clear need exists for government to facilitate the process.

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5. It is recommended that a review be undertaken of the process and

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From Section 9 (Logistics)

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Consumer (Household) Dom. Production 4.3% 39 56 86

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From Section 11 (Operations Implications) From Section 12 (Financial)

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Global consulting firm AT Kearney undertook a seminal study in

The Symonds Henderson report ( commissioned by the Grocery

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Most supply chain practitioners will share anecdotes and experiences

A study into pallet standards requires a number of considerations such

A conceptual model of the inter-relationship between markets and

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Product attributes Supply processes Demand characteristics (b)

Within the conceptual framework outlined in Figure 6-1 above, there is a

Yet collectively (at a national level) the pallet issue is an important

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Import logistics Global logistics with

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Moreover, exogenous factors such as markets and growth are relevant

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Towards ISO packaging standards

Marketing and manufacturing strategy

Export and import trade as a

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A study into pallets standards requires a number of considerations

where domestic consumption is a “proxy” for domestic land transport

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Recognising the limitations and scarcity on volume data, product and

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(a) Imports by industry of origin

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Subdivision by value of Australian Manufacturing

8.3 Agricultural Goods

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(a) Average gross margins ABS data 8624.0 1998-00

Containerised, semi bulk 15,002 18,554 5.5%

Containerised, semi bulk 17,152 18,475 1.9%