Costco Wholesale Corp.'s ultimate transition to exclusively using plastic pallets will have to take place without the help of Brambles Ltd., the Australian logistics giant that had been working on the project.
Brambles, which provides and manages pools of wooden and plastic pallets, crates and containers for customers around the world, ultimately decided the project would be too expensive to meet its financial metrics.
Sydney-based Brambles specifically said the higher costs associated with plastic pallets compared with wooden pallets for Costco would be dilutive to Brambles' return on invested capital.
Plastic pallets are now about four times more expensive than their wooden counterparts. That's up from three times more expensive just last fall, Brambles said.
Trial results showed Brambles that a move to plastic pallets for Costco's supply chain provides unique efficiencies and "sound operational foundations."
"However, in the current economic and market conditions, a conversion to plastic pallets was deemed commercially prohibitive by Costco's suppliers and, without adequate cost recovery, dilutive to Brambles," the company said.
In other words, Brambles could not figure out a way to provide plastic pallets to the retailer and its suppliers while making enough money to make the project worthwhile.
"We are confident that we gave it a very rigorous trial in terms of the sectors we covered and exploring all the potential commercial levers to get us to a return that would have been acceptable to us, our board, and the shareholders," Brambles Chief Financial Officer Nessa O'Sullivan said in a conference call.
"We went into this with a very open mind and willingness to explore our options both with our customers and Costco. I think anybody coming into it is going to have to have to have an open mind and work to the variables because they're challenging," she said. "Plastic pallets and the economics have always been challenging."
It was in 2019 that Costco announced plans to transition completely to plastic pallet use.
Brambles said the decision was made after "an extensive trial and associated analysis of plastic pallet economics."
Work on improving operating efficiencies using plastic pallets was not enough to cover the higher capital cost of plastic pallets, Brambles said. And neither Costco nor the company's suppliers were willing to pay more to allow Brambles to meet its financial targets, the company said.
O'Sullivan said Brambles used its experience in plastic pallets to inform the company's approach with Costco. "We are leaders in plastic pallets globally so we do have a good insight as to what are the key variables that work well," she said.