Thread: Immigration debate hits forgotten industry

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Tuesday, May 9, 2006 · Last updated 11:21 a.m. PT

Immigration debate hits forgotten industry

By ADAM GELLER
AP BUSINESS WRITER

You could call it a forgotten industry - except most people never knew this sawdust-covered corner of the economy existed in the first place.

At least not until late last month when federal agents focused uninvited scrutiny on the obscure business of wooden cargo pallets, arresting nearly 1,200 employees of supplier IFCO Systems in the single largest immigration bust ever. For a trade used to being overlooked - its workers do the unglamorous but essential job of pounding together the wooden waffles used to forklift everything from mangoes to machines - it was hardly the ideal way to gain the spotlight.

But as the nation wrestles with the quandary of illegal immigration, the raids on more than 40 IFCO plants from southern California to upstate New York, have made it clear to folks in this gritty business that they, too, have a critical and surprisingly difficult-to-hedge stake in the outcome.

In much the same way that the broad immigration debate is defined by conflicting interests and consequences, the IFCO crackdown is proving an unexpectedly double-edged buzzsaw for the thousands of mom-and-pops who fill this gritty niche business. It's immigration economics, just writ small.

"It's a real concern in this industry what's going to happen to the immigrants because they are so widely employed," says Ed Brindley, who runs Pallet Enterprise, a trade magazine. "I know most of the pallet people. And most of them consider labor to be their biggest problem."

In an industry of little guys, IFCO is one of the only big players.

So the government's raids made many much smaller business owners cringe. At the same time, seeing a company widely reviled as an industry bully and brutal competitor taken down a notch has also turned some of them near giddy.

"It couldn't happen to a nicer guy," says Monte Lowe, owner of Preferred Pallets in Cookeville, Tenn., describing his initial reaction to reports of the raids on IFCO. "Everyone I spoke with pretty much said that."

But at some pallet shops, that elation is undermined by serious doubt. That's because the raids look to many like a reversal of several years in which the federal government engaged in minimal worksite enforcement of immigration laws.

In 1999, the federal government notified 417 employers of its intent to impose fines for immigration law violations. But such notices dropped to just 3 in 2004, according to a report on immigration enforcement last year by the Government Accountability Office. Worksite arrests also fell sharply, from 2,849 in fiscal year 1999 to 445 in fiscal year 2003.

More recently worksite arrests climbed to 845 in fiscal year 2004 and 1,045 last year, according to U.S. Immigrations and Customs Enforcement.

It's unclear to what extent the raids point to a sustained increase in enforcement. But immigration officials have hardly put minds at ease, saying they plan more such arrests.

"It certainly does kind of upset the apple cart. It spooks people. It spooks employers," said Marshall Fitz of the American Immigration Lawyers Association. "Everyone is kind of stretching their necks out to see what's around the corner."

A spokesman for U.S. Immigration and Customs Enforcement acknowledged past figures showed declining enforcement. But he said they also point to a change in the agency's strategy, moving away from fines and instead filing criminal charges against employers.

"We are rebuilding the program and they (enforcement actions) are beginning to go back up," said Dean Boyd, the spokesman for the agency, widely known as ICE. "Certainly we've got a lot of work to do, but we're taking a different approach."

Immigration lawyers and businesses, including the pallet companies, say they hope any stepped up enforcement will focus on the most egregious violators. IFCO is accused not just of hiring illegal workers, but of recruiting and harboring them.

But in an industry that leans heavily on immigrant labor, the folks who sell pallets have begun to wonder: Does this mean they could be next under the microscope?

"This business is my life and I'm not going to risk this for anything," said Steve Mazza, owner of S&B Pallet Co. in Plainfield, N.J. "It raises my level of concern. It has made me go out and restate to my employees here, 'Hey, make sure you've got your I-9s. Make sure you've got your social security cards and green cards and make sure we're following the letter of the law.'"

An I-9 is the employment eligibility verification form companies must complete on all their workers.

To understand the challenge facing pallet shop owners like Mazza, it helps to know a little bit about this arcane business.

Pallets - the most common measure 48 inches by 40 inches and weighing about 40 pounds - were invented around World War II, taking their place in warehouses along with the newly popular forklift.

The essence of a good pallet is that it's cheap, strong and, well, cheap. Most are made out of whatever wood is easily available - often planks of low-grade oak or alder in the eastern part of the country, spruce or fir in the west.

There are about 2 billion pallets circulating at any one time and fact is, they're not much different from the ones that have been used for years. The business, though, has been going through some rapid changes.

The first has been the growth in the past decade or so in the use of recycled pallets. Recyclers buy up old, battered pallets, pull them apart and nail fresh boards in place. They sell them to retail chains, manufacturers and others at a savings over new pallets. It's tough, sweaty work and that has frequently made it difficult to find people to do it.

"No one walks out of a pallet shop clean at the end of the day," says Clarence Leising, a former plant manager sometimes known as "Pallethead," the title of a book he authored on the tricks of the trade. "I should be a termite, I've breathed so much (sawdust)."

While the work itself has not changed much, the dynamics governing it have shifted dramatically. It's expensive to haul pallets around, so this has long been a decidedly local business. But that way of doing business has come under some intense pressure in the last few years. Much of that pressure has come from IFCO.

IFCO, a major supplier of reusable plastic containers common in Europe for moving produce, has been buying small pallet shops in the U.S. for the past few years, setting up a nationwide recycling network. That helped it land customers like The Home Depot.

IFCO has challenged smaller companies both in scale and price. The company routinely pays more for used pallets and sells recycled pallets for less, leaving rivals to wonder how.

Now they think they know the answer.

"IFCO came in and their pricing was extraordinary, predatory, and they picked up a lot of business," Mazza said. "I think now we're seeing some of the reasons they were able to do that."

Other pallet company owners say they would never do the things that IFCO has been accused of. But there is wide agreement that Mexican and Central American workers have become a mainstay of the pallet business, and it's clear that many of those workers are not here legally.

Like other small businesses, pallet suppliers say they are trying to operate within the law. They check the documents the government tells them to check. They also know that many of those documents may be fraudulent, but say the law does not allow them to reject workers who have papers.

The raids, however, have driven home the uncertainty surrounding their work force in a way the debate in Congress failed to do.

"Some of the people in this industry aren't exactly sure that they're doing the right thing," said Steve Geiges of Treen Box & Pallet Corp. in Bensalem, Pa. "It's a very tough thing and it's very tough on people who have a very competitive business environment, who compete on such tight margins."

For many pallet providers, the appeal of immigrant workers is not so much about pay. Many say they pay them the same wages as their American-born workers - often a base of $6 an hour supplemented by per-piece pay. Immigrant workers are valued, though, because they routinely show up on time and are willing to work long hours. The rap on American-born workers in this trade is that it's difficult to count on them.

The pressure builds because the demand for recycled pallets has made this an even more labor-intensive business than it used to be, making wages an increasingly large share of underlying costs. If tighter immigration enforcement threatens the labor pool, it's going to drive worry.

"Customers will drop you for five cents (per pallet)," says Bernie Bartley, president of Robinson Pallet & Equipment Co. in Woodbine, N.J. "There are some people who are looking at their own businesses and saying, gee I hope there's not a ripple effect here."

Those worries are not universal, however. Some pallet providers say they've made a decision on their own to steer clear of immigrant workers. For the most part, that is a business decision. But Lowe says it is also a statement of his values, and concern that U.S. economy has got to wean itself from a dependence on imported labor.

"I wish Congress weren't so chicken," the Tennessee pallet provider says. "I wish they could get out in the real world and see how it is."

Congress has and their action is called House Bill #4437

Give me a break! They know when they are hiring illegals -