The Case of the Pilfered Pallets

The U.S. Postal Service (USPS) is running low on pallets. An unprecedented shortage of plastic pallets used by bulk mailers has led Paul Vogel, v.p., network operations management, to find new ways to resolve this ongoing challenge. User awareness of the

In fiscal year 2004, USPS (www.usps.com) purchased 2,244,672 pallets for $25,506,006. As it turns out, those were bargain-priced pallets at $11.36 each. In 2005 it purchased another 670,000 pallets for a bit less than $10 million, or $14.23 each. This year, through March, it purchased an additional 299,700 pallets for $6,818,175, or $22.75 a piece, "Normally in March most of the pallets [used during heavy mailing periods] have returned to our warehouses and we assess what our needs for the coming fall mailing season will be," says Vogel. "Our national 'comfort level' is around 500,000 to 700,000 pallets."

Things are not comfortable at USPS headquarters these days. In March the national reserve inventory was hovering at around 100,000 pallets, with 60,000 typical on any day. To plug the gap, late in March Vogel allocated $30 million for an emergency purchase of more pallets. He also initiated a national pallet roundup program.

Follow the moving pallet
USPS provides pallets to bulk mailing firms such as magazine printers, producers of inserts for newspapers and catalog publishers. These firms ship loads of printed product to bulk mail facilities where labels are supplied. Sometimes companies apply labels themselves before sending the loads to USPS facilities.

These unit loads are all coded for mailing, thus the benefit to USPS in return for supplying the pallets is that it can get the mail to public faster than by doing all the sorting itself. In theory, the pallets should work their way back to USPS mailing facilities. That does not always happen. Pallets are sometimes diverted in a number of places along the way.

Mailing pieces and inserts for newspapers, for example, are often comingled. The use of postal pallets to move these is within the defined use of the pallets. But sometimes the pallets are diverted to newspaper printing plants, for example, thus escaping from the closed-loop system they were intended to stay within. Rather than get back into the loop—a few pallets here and there—end up on various shipping docks. These numbers add up.

The twin-sheet thermoformed pallets are a distinctive bright orange and black. Secondary uses for the pallets are limited only by vision and creativity. The USPS pallets have been used—or misused—for secondary shipping of goods like produce, international shipments to comply with phytosanitary regulations, and reground into plastic resin. They've even been used as barriers in paintball competition arenas.

Vogel says if the postal system erred in its strategic thinking in the mid-1990s, it was in developing and adopting a pallet that was too good. He cautions that at this point most of the information he has about missing pallets is anecdotal. That could, however, change soon.

"The problem of pallets 'leaking' from the system is so serious," he says, "we've called in the U.S. Postal Inspection Service to investigate. The pallets are clearly marked 'Property of USPS' so it's clearly a federal offense to abuse these assets."

Where are the pallets?
Because of on-going investigations, and a lack of solid evidence, Vogel's recitation of where the pallets go is a rapid-fire series of short stories.

"In my duties I travel overseas and tour other country's posts [postal facilities] and airport facilities," he says. " Recently I was in Europe and I saw a stack of our pallets in a warehouse that should not have been there because we don't dispatch these pallets out of the country."

Vogel says he's traveled with postal inspectors to freight houses and watched goods being loaded onto postal pallets that would be sent to international locations. With the cooperation of the shipper they learned the name of the company that sold the postal pallets.

Shippers using USPS pallets are often ignorant about the pallets' ownership. There seems to be an assumption on the part of the pallet user that if it was purchased from a pallet re-seller, it must be legal for use. Not true.

Another driver that makes theft of these pallets worth the risk of imprisonment is the escalating price of plastic resin.

"Rising resin prices, coupled with phytosanitary issues [ISPM-15 the international ruling on shipping wood products] have generated a lot of demand for plastic pallets," says Vogel.

The demand for plastic resin has driven the price of reground material to as high as 60 cents per pound. A trailer load can fetch as much as $10,000.

"I was recently contacted by a postmaster in a small, rural town in Oklahoma," says Vogel. "He had found hundreds of our pallets in a company's yard, waiting to be shredded. By making all of our employees aware of this problem we've been able to put a lot more 'eyes' out there to help us recover the pallets."

Outright theft of pallets happens. It's not uncommon for postal installations to stack empty pallets on a dock platform for pick up by carriers, or postal service trucks, who then return them to the warehouse. The problem is, these pick-ups are made after normal working hours, when building exteriors are unguarded. The pallets can't be stored inside because it would require additional personnel be on duty for the pick up.

Pallets disappearing from the docks of USPS installations are not the only way they are stolen. Thefts occur when pallet resellers contract with large distribution centers to remove used pallets from a company's dock area. The employee picking up the pallets is not likely to sort through stacks of wood pallets to remove a few plastic pallets. At the pallet yard, where the plastic does get separated from the wood, the postal pallets are stacked to one side. At this point, the pallet yard should notify USPS that it has these pallets and they can be picked up. Sometimes this happens. And sometimes the pallets are sold to users under the guise of having been "reallocated from the USPS system."

Seeking solutions
This is unauthorized use of government property, says Vogel. "We're asking people first, don't abuse the pallets. All they have to do is tell us where the pallets are and we'll collect them."

This sounds like the start of an amnesty program he's advocating. Several years ago USPS had a similar problem when the plastic totes it uses for flat mailing pieces were leaking out of the system. It instituted an amnesty program for the return of the totes that proved successful.

Vogel admits the system—or lack there of—for tracking and tracing postal pallets does not work. Basically it's been an honor system. USPS has processes in place to follow unit loads of mail, but not for tracing returned pallets. "We know how many pallets we provide to the bulk mailers and how many they should be returning," he says.

Tracking pallets via a technology such as RFID is possible, however it's currently impractical. "We're doing studies and working with other government agencies, such as the defense logistics people," says Vogel, "but at this point it [RFID] is not cost effective. Our requirements would be for a scanner array at every dock portal."

RFID would only work when pallets move through a USPS door. Because the pallets are leaking from the system before they're returned, no tracking device can help when the pallet users do not care if they are accountable for the pallets they receive.

There is a business plan in place for the users of large quantities of pallets and numbers to call for pick up for example. In many large mailing houses USPS has an employee on site to handle issues such as revenue protection and oversee some of the pallet exchanges and use of other postal service equipment.

With a laugh, Vogel says that along with considering a formal amnesty program, "I'm even ready to consider a bounty program. We just want to get the pallets back and doing the job they are intended for."

That's the carrot. The stick, and it's a big one, is the simple fact that using, or abusing, one of these postal pallets is violation of federal law. Vogel takes a firm tone when he says, "I would not encourage anyone to buy or use these pallets just because they can buy them cheaply, or because their supplier source says it's okay to use them. It's not."

He has sent letters to all the authorized users of USPS pallets, asking them to review their company use of the pallets. It's not uncommon for mailers to use the pallets for storage in warehouses or to double the pallets under heavy loads. "These are high-quality pallets we use," says Vogel. "They do not require vestigial double-palleting to reinforce heavy loads as did the pallets we used years ago."

The results of his letter campaign have been promising, he says. "Pallet users have started to reflect on how they use our pallets and there have been some favorable behavior changes."

Those changes in behavior include a reduction in hoarding of pallets for fear of a shortage. There are also indications the use of postal pallets for nonpostal use is on the decline, however the problem is far from over.

Creative solutions
As resin prices continue to climb and more companies have to comply with international shipping regulations such as ISPM-15, Vogel sees the problem of missing pallets continuing. Using standard inventory processes, he estimates it loses about 20% of its pallet inventory each year. "USPS is not tax subsidized," he says. "Our rates have to cover our expenses, so eventually these losses are paid for by our customers."

Beyond basic things like alerting employees in the postal facilities to be aware of misuse of these pallets, and alerting users to be more accountable, he says more has to be done. One of the more creative things his office has done to control its costs is enter into the bulk-resin purchase market. It buys resin in quantity at favorable prices, and then provides the resin to pallet makers. The cost of the molds for pallets is the most expensive part, so providing the resin reduces the USPS cost, says Vogel.

USPS is also experimenting with corrugated pallets for international shipments to reduce chances for its pallets to go overseas. That program is still in the early stages and a full assessment has not been made.

According to Denise Backus, national public information officer for the U.S. Postal Inspection Service, investigating missing pallets is being handled on a case-by-case basis. "Obviously," she says, "any disappearance of USPS assets is of great concern. Currently most of our information is coming in from our postal employees in the field."

Backus could not discuss specific cases, however, she says the inspection officer's response can be simple or to the extent the law will allow.

"Last year we had an international case involving the misuse of our assets in which we simply moved in and took the pallets back," she says.

And no matter what the size of the theft, it's of interest. The service does not turn away from the small fish. "We've found that when you start small, it leads to bigger things," she adds.

When it comes to scrap yards regrinding USPS pallets, things get a bit more complicated. Backus says the postal service contracts with a number of vendors to recycle its damaged and nonusable pallets and other transport packaging. "So, as we get the specific information [about the presence of pallets]," she says, "we look into the situation." Determining whether a pallet is or is not usable or damaged can be subjective.

Call it what you will—leakage, misuse, abuse—it's still theft of U.S. government property and it's a federal crime. Asked what the material handling community can do to help get the pallets back, Vogel says he's a bit surprised that pallet makers don't recognize that there's a market for a pallet similar to the one USPS is using.

"Given the pilferage we've experienced," he says, "if I was a pallet manufacturer, I'd be figuring a way to make a pallet that fits the needs of so many people."

His other piece of advice is to decline to buy or use a pallet if it's stamped Property of USPS." Unless you are an authorized user, you will be breaking a federal law.

USPS orange pallets are used by bulk mailers to move pre-sorted loads to mailing centers.

Part of the pallet shortage problem is "capping" or using two pallets where only one is required.

Nesting pallets reduces the space required to return them to the USPS warehouse.


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