When news broke in June that Pall-Ex was about to take over the Fortec Distribution Network, many saw the move as a major consolidation of the pallet sector.
But as the dust settles on the deal, which comes only nine months after the management buyout which saw Pall-Ex founder Hilary Devey step down from the day-to-day running of the business, group chief executive Kevin Buchanan takes a different view: “We regard it as a major partnership rather than a consolidation,” he says. “Words like consolidation or acquisition suggest more that you’re getting rid of somebody. But our hand is a hand of friendship. We’re working in partnership with the Fortec management and members to do things they can’t do individually. It’s much more of a partnership than taking it over.”
That’s not to say Pall-Ex isn’t using the deal to emphasise its strengthened position in the market, of course. The two firms, both founded in Leicestershire in 1996, now have a combined total of 168 members. But while the increased size of the group has given Pall-Ex something to shout about, Buchanan stresses that the two operations will run “entirely separately” – albeit with shared back room facilities and infrastructure.
He also confirms that this is a “goodwill and assets” purchase, leaving Pall-Ex free from any historic liabilities that the old entity, owned by Geodis, might have had. “You can draw your own conclusions from that,” he says.
“Geodis was shutting its UK division and a lot of support in HR, finance and IT was supported by them. That was going to make it difficult for Fortec to exist on its own so it was a good fit. We retained the expertise of the Foretc management team and staff but we can provide support services because we already have them in place.”
Also key to the deal was giving each of Fortec’s member network companies the same opportunity as Pall-Ex members to buy shares in the top holding company, Pall-Ex Investments.
“Membership was important, it’s all about us working together in a collaborative way,” he says. “That was a big win for them and they’re keen to invest.”
Describing the terms of the deal in more detail, Buchanan explains that allowing Fortec members to operate in both networks on one IT platform gives them “a great operational advantage”.
“They’re in good shape now and the mood of the staff is ebullient. It’s a very informed, positive group of people who are very passionate about working together.
“For Pall-Ex it’s the last piece of the jigsaw. It’s a win-win scenario. Both organisations are stronger together – sharing in ownership, technology, hub capacity, management know-how and IT. As a group we’ll be moving over 35,000 pallets a day which makes us a very sizeable organisation.
“We at Pall-Ex get vacant hub capacity from Fortec which we’ll operate a south Midlands depot from. That will take pressure off our central hub at Ellistown."
The Fortec deal follows the purchase of Surrey-based member Cranleigh Freight Services in February. Again, all staff including the management team were retained.
But Buchanan laughs when I ask if more acquisitions are planned: “If other pallet networks feel they need our help we would do it again,” he says. “But the consensus from the management and board at Pall-Ex is, ‘can Kevin stop having more ideas for a while!’
“If we can work together and support each other and it’s mutually beneficial of course we would make more acquisitions. But you can only do so much at once and we’ve got a very busy schedule. This is too logical and mutually beneficial not to proceed with.”
Nexus
A big talking point for Pall-Ex at the moment is the Nexus IT project – “a colossal investment”, which the company has been working on for the last two years. The customer portal MyNexus went live about 18 months ago while the new core operating system for the entire network, called simply Nexus, launches on 7 September. Buchanan insists it will “revolutionise the business” and has been one of the big reasons volumes have held up.
The software is ideally suited to e-commerce, helping Pall-Ex to begin competing with the big parcel carriers: “Nexus is very much geared to an online purchase and B-to-C solutions. So we’ve had customers who’ve switched their whole operation to online and we’ve had customers who say we’ve saved their business because we’ve been able to react quickly.
“The likes of DPD have been doing it for a long time and the pallet networks are a bit behind that. There are complexities to doing it with a pallet rather than a parcel but we’ve solved those and the Nexus software very much gives us that area to own.
“There are genuinely people who thought their businesses were going to wall and are astounded at what we’ve done and have changed their business model as a result. The subtlety has been missed until you use it and then people said, ‘my God how did we manage without this?’ So it’s very much part of our journey in the UK and increasingly in Europe. And as we move into North America it will be very much a revelation in some of these new markets.”
Nexus will also help Pall-Ex deal with new health and safety guidelines which Buchanan sees as a step forward: “They’ve taken the view that it’s more than about pallet weights, it’s about safe working practices and putting responsibility on the end haulier. So some of the things in the new Nexus software will protect both the customer and the end user haulier. We have our new app with dynamic risk – a steep drive, unloading on a bend, whatever it might be. The app forces a process for the driver.
“And we can now correct the weight into the core system if it’s wrong. They will now know early enough that the pallet going to that address is more than the customer has declared it as. And if it changes the commercial rate then they get the right revenues and it makes them more sustainable.
“We’ve put a lot of emphasis on answering these kind of sector problems – safety on tail lift deliveries, pallet weights… the customer may have mis-weighed it or not understood the legislation. They are responsible for mis-manifested freight and could be liable for action should that delivery cause injury or worse. So correcting that is of huge commercial advantage to them and makes sure their organisation is safer.”
Pandemic
As the conversation turns inevitably to the impact of Covid-19, Buchanan insists Pall-Ex hasn’t been as badly affected as the rest of the sector, trading 10% ahead of the market in terms of volumes.
The company saw an 18% dip in April when the wider sector was down about 30% but is now “stronger, wiser and cautiously optimistic”.
“June was actually a record month for us,” he reveals, “and our volumes are about 15% up on the same month last year. The indications are that this will continue. Pallet networks do well in times of recession and financial uncertainty. The only exception to that was the Brexit disruption of not knowing which made things erratic. Whereas if there’s a financial slowdown people use pallet networks more and invest less in their own vehicles.”
Pall-Ex furloughed about 100 staff across the group as the pandemic unfolded but everyone is now back at work. “The crisis left everyone with a feeling of, ‘my God, if we can come through this together and still be successful and profitable and grow there isn’t anything we can't achieve,” Buchanan says, hinting that the MBO helped get Pall-Ex back on track: “It’s a very different, vibrant culture since the buyout. Everyone understands what they’re doing and where we’re going and there’s huge optimism and self-belief. It’s been a transformation from where we were.
“We forbid negativity – there’s always a solution for every challenge. We’ve got a really vibrant team who just love finding solutions to things and making ourselves better than we were before.”
At the time of the MBO, Pall-Ex announced that Hilary Devey would continue to work with the new owners in an ambassadorial role to help develop international services and European partner development. However, that situation now seems to have changed.
“She’s trapped in Marrakesh at the moment,” Buchanan says. “She’s not able to get out. She hasn’t had any role in the business since the completion. This organisation as it is now is about all of us, not about one person. So yes, we wish her well. We hope she enjoys her retirement but it’s about us not her.”
Recession resilient?
Ultimately, Buchanan is refreshingly optimistic on the longer-term prospects for the wider sector, rejecting claims that many more companies will be forced to close or cut jobs.
“If you’re in a general field like ours you’re recession resilient,” he insists. “And people have moved more into that and they’ll be fine. Some of the niches have been affected and it becomes harder and harder unless they diversify into something else. That will be a feature of the sector as well; servicing goods being bought and sold on the internet will be desirable to a lot of haulage sectors that maybe weren’t in that game before.
“Hauliers work on incredibly small margins, they’re massively under-appreciated and misunderstood by successive governments and there are very few other industries that can survive on the pickings that the transport sector gets. So the vast majority will have reacted quickly, and taken advantage of all the government support.”
He disagrees with those who insist more could have been done to support operators during the crisis: “We commend everything the government has done,” he says. “You can always do more but it’s got to be paid for at the end so there’s a balance. We’ve not lost a single member through the crisis. For six weeks it was dramatically tough but they had the support they needed from us as a partner and from the government. You’ll always find individuals who are set in their ways and haven’t got the tenacity to change but it’s not representative of the whole.”
Turning to his forward strategy, Buchanan refers to “a big plan – a big vision”. Key to that has been recruiting new UK MD Barry Byers and commercial director Michelle Naylor from Palletways. Both have quickly set about developing the domestic side of the business.
But Pall-Ex is also firmly focused on international expansion and has recruited Mark Steel to the newly-created role of European MD. The company has multiple other countries coming on stream in the next 12 months. It has recently formed Pall-Ex Asia and is now looking at North America. Each region will have a Pall-Ex branded parent company that partners can invest into.
“It’s an out-of-the-box franchise or joint venture as the market requires,” Buchanan explains. “In Asia for example a lot of goods are exported into the UK. They can not only provide domestic and cross border services within Asia but export from deep sea and air freight consignments. They can plug into the partner in the UK or mainland Europe, giving the customer experience the complete Pall-Ex solution end to end.”
