European retailers could soon sell off excess inventory built up as a buffer during the pandemic as economic stress rises, according to the world’s largest operator of pallets.
Brambles, the Australian logistics company, said global retailers had built up large amounts of stock to shield against supply chain problems during Covid-19. In the UK, retailers had also created a buffer of inventories to prepare for Brexit, which was due to be unwound in 2023 after the Christmas trading period this year.
Graham Chipchase, chief executive of Brambles which owns the Chep pallet business used by most of the world’s largest retailers and consumer goods companies, said US and Australian economies were resilient but the outlook had changed in Europe and the UK.
“There’s clearly more stress in the system,” he said, pointing to the war in Ukraine, soaring food and energy prices and rising interest rates as reasons for retailers to clear out excess inventory. “I think if anyone is going to realise that they want to unwind a bit quicker, it will be Europe,” he said.
Brambles — which calls itself the “invisible backbone” of the global economy — has an almost unparalleled view of the world’s supply chain. It estimates that 80 per cent of the world’s consumer goods touch one of its 350mn blue-painted pallets at some point in the journey between production and sale.
In the UK, where Chipchase is based, he said it would be “pointless” for retailers to hold on to excess stock if the country slid into recession and consumer demand collapsed. “It feels like there are a number of things driving people back to normal levels of stock rather than elevated ones,” he said of the British market.
Brambles traces its roots to 1875 and takes its name from a young roustabout, or unskilled labourer, called Walter Bramble, who established a butchery business that later expanded into logistics and transport.
The pallet pooling business was created after the second world war when the Australian government set up the Commonwealth Handling Equipment Pool, or Chep, using equipment left behind by the US army. Brambles acquired that business in the 1950s.
Brambles has raised its outlook three times this year but has historically struggled to manage a consistent financial performance. It was derided two decades ago when its chair Don Argus told an annual shareholder meeting that the company had not lost 15mn pallets — they were merely “missing”.
The company still “loses” 10 per cent of its stock, or 35mn crates, a year, each costing $20. It has started testing QR code-based tracking systems and is rewarding customers that return them quickly.
It is also using more sophisticated techniques to find lost pallets. In one example, it found that thousands were disappearing in the “middle of nowhere” in the southern US. It used a drone to discover that a recycling company was hiding a huge mound of Chep crates behind walls of cheaper white models.
The Australian company is also developing algorithms using digital information from pallets that will be able to identify bottlenecks in trade. Chipchase said that removing half a day of transit could add several days of shelf life for a food product, reducing wastage.
Brambles was the subject of a A$20bn ($13.5bn) takeover approach this year from CVC, the private equity company, but they did not agree to a deal.
Chipchase said Brambles was not a utility but was resilient during a recession. “People eat and drink the same amount and still require toilet paper,” he said.
The energy crisis, however, had raised some concern within the company that people might steal its wooden pallets for fuel.
“I hope they’ll go for other things to burn,” he said, noting that the blue paint would produce unpleasant fumes if used as kindling.
