Temperature-controlled shipping: Stay Cool
A convergence of international issues is making a profound impact on the direction “controlled atmosphere” transport will be taking in the coming years. Here is the current state of the cold chain through the eyes of some of its most active members.
By Patrick Burnson, Executive Editor -- Logistics Management, 9/1/2008
Given all the attention paid to world hunger, global warming, and energy shortages, it's little wonder that the focus on improving best practices in controlled atmosphere shipping is being sharpened. Mega and medium-sized shippers alike are telling us that a seamless controlled atmosphere network is an absolute must if their businesses are to thrive in the coming years. And by all indications, the carrier community is beginning to measure up.
“Because there's a growing demand for perishables, this is by far the most exciting time in the history of our nation to be involved in refrigeration,” says Bill Hudson, president of the International Refrigerated Transportation Association (IRTA). “But a lot depends on how well we work with our global partners to ensure long term success with this kind of shipping.”
Indeed, a convergence of international issues is making a profound impact on the direction controlled atmosphere transport will be taking in the coming years. According to Hudson, IRTA and the three logistics associations comprising the Global Cold Chain Alliance (GCCA) (the International Association of Refrigerated Warehouses, the World Food Logistics Organization, and the International Association for Cold Storage Construction) are confronting challenges associated with much broader environmental and economic concerns beyond the movement of goods.
“We realized a few years ago that a greater level of cooperation was necessary in the supply chain,” Hudson said. “As a consequence, our members are now sharing intelligence and research that helps us stay on top of accelerated demands.”
Launched as an umbrella organization in April, 2007, the GCCA has identified three strong influences changing the cold chain industry. Chief among them is the fact that refrigerated warehouse operators have invested in trucking assets, and continue to explore various arrangements and structures with their customers both domestically and overseas. “One of the most notable examples of this has been Wal-Mart's recent move in Mumbai, India, with a huge capital outlay,” says Hudson.
The second trend comes as an immediate consequence, he adds, noting that Wal-Mart and other “mega” retailers operate all aspects from food production to food delivery, and have even created 3PLs to expedite the process.
“The third thing we discovered was the need for carriers to concentrate on core competencies—maintaining proper temperatures and instilling best practices. The cold chain had to take on the development of all links from post-harvest handling, to processing, to retail,” says Hudson.
Moving goods to market
In his most recent “Shipping Trends” report, Hudson points to figures gathered by the U.S. Department of Agriculture indicating exports will reach a record $101 billion for fiscal year 2008. This is up $10 billion from November's forecast, and represents an unprecedented hike of $19 billion above 2007.
“With U.S. agricultural imports forecast at $76.5 billion, we expect a $24.5 billion trade surplus,” he says. “Furthermore, the Ag department says change in consumption patterns means the nation's trade picture will brighten in the coming years.”
Meanwhile, the world's ocean container fleets continue to employ new strategies to grow with this business. According to Hudson, there's been an ongoing conversion of breakbulk cargo to containers, and port terminal operators are ramping up efforts to provide efficient container plug-in and storage systems. And while some major intermodal players are coming on aggressively here, the railroads are lagging behind, he adds.
Hudson also points with some optimism to the pending expansion of the Panama Canal in 2014, which should allow vessels currently “trapped” in the Pacific to access East and Gulf Coast ports with perishable cargoes. At the same time, though, agricultural shippers are complaining that not enough capacity is being provided by carriers and container leasing companies during peak shipping seasons.
“When are the carriers going to realize that the balance of trade has shifted, and exporters are the new revenue drivers for this industry,” asks Peter Friedmann, chief counsel for the Agriculture Transportation Coalition (AgTC). “There's a shortage of space in every area of shipping, including reefer. And this is not a temporary blip on the window of world trade…it's an ongoing and long term phenomenon.”
The major paradox is that U.S. agricultural commodities are in tremendous demand, and these shippers are poised for the first time in many years to profit by this surge. Much to their dismay, however, is the fact that ocean carriers are making fewer inbound calls.
Shipping analyst, Philip Damas, concurs, noting that Drewry Supply Chain Advisers' most recent findings indicated that shippers were blindsided by the sudden shift in carrier deployment from the transpacific to the Asia-Europe trade lanes.
“Because imports have historically driven the calls to the West Coast, exporters have been given little leverage to influence intermodal networks,” he says. “As a consequence, there are a number of mismatches between import delivery locations and outbound depots. And as we all know, that means a substantial reduction in the availability of empty boxes.”
Ocean versus air?
While air transport continues to play a major role in moving high-value cargo requiring controlled atmosphere, shippers still get the most for their money by moving goods via ocean carriage. Emergency relief notwithstanding, waterborne is the way to go, say experts.
“Transporting by sea has an environmental benefit in that it takes far less energy to move a ton of cargo by container ship than any other mode,” says Jim Taeckens, senior product manager for Carrier Transicold. Taeckens also notes that the amount of carbon dioxide (CO2) emissions to move a ton of cargo by ship is less—12.97 grams of CO2 to carry one ton of cargo a distance of one kilometer, versus 552 grams for air.
Technological innovation is also contributing to this modal shift, he says. “Highly sensitive commodities like asparagus and blueberries that were previously transported mainly by air can now be transported by sea,” he says. “Along with refrigeration, controlled-atmosphere technologies can slow the pace of ripening by reducing respiration of perishables and controlling ethylene build-up. And controlled-atmosphere technology can help protect produce from spoilage due to mold growth.”
While Taeckens observes that demand for perishables is outpacing that of frozen foods, it does not come without a price. “Naturally, rising fuel prices impact global trade, and with bunker fuel over $700 a ton, energy-costs now account for two-thirds of the total cost of ownership of a container refrigeration unit.”
Securing the domestic link
Before shippers who rely on controlled-atmosphere shipping can even think about going global they must make certain that their domestic inland operations are secure and reliable. At the same time, many industry analysts are noting that 3PLs, intermodal providers, and warehousing companies specializing in reefer and controlled-atmosphere movements are better positioned to ride out current economic pressures.
“The theory is that people need to eat no matter how rapidly or slowly the GDP is growing,” says John Larkin, a principal with the investment firm Stifel Nicolaus. “Certainly the American Trucking Associations' index seems to indicate that the refrigerated segment has been one of the more stable industries.”
However, he cautions, the advent of the warehouse retailer—the Costcos and the BJs—may have made it more difficult to deal with this trend owing to their aggressive promotional efforts. “Nonetheless,” says Larkin, “you would probably rather have too much freight to haul at times than not having enough.”
Finally, he says, temperature-controlled carriers are not earning enough on existing rates to reinvest in equipment, observing that the return on capital is always too low. “Yet it's important to realize that controlled transportation offers highly specialized service which requires less equipment utilization since the driver stays with it until it is unloaded.”
For Paul Lomas, vice president of supply chain solutions for Total Logistics Control (TLC), investment in information technologies is even more crucial. He says that for 3PLs like his to help shippers secure their domestic link new warehouse management systems must constantly be upgraded.
“But we don't rush into anything,” he cautions. “Because we want every change to be fully integrated, we take it one step at a time.” TLC, an independent third-party logistics provider, leverages the resources and capabilities of one of the largest companies in the U.S. grocery industry—Supervalue—for implementing distribution, transportation, and contract logistics. As a wholly-owned subsidiary, it can make measured moves as it brings new WMS packages into its North American warehouse network.
| 2002 | 2006 | Growth | 2006 | 2015 | Growth | |
| Source: Refrigerated trades and outlook to 2015, Ocean Shipping Consultants Ltd. 2005 | ||||||
| South and East Asia | 18.7 | 24.3 | 30% | 24.3 | 44.1 | 82% |
| North America | 13.0 | 15.0 | 16% | 15.0 | 21.8 | 45% |
| Transitional economies | 8.9 | 11.7 | 32% | 11.7 | 20.9 | 78% |
| Western Europe | 11.3 | 12.4 | 10% | 12.4 | 15.7 | 26% |
| Caribbean/Latin America | 4.5 | 6.0 | 33% | 6.0 | 11.2 | 88% |
| Middle-East Asia | 3.5 | 4.1 | 18% | 4.1 | 6.4 | 55% |
| Africa | 3.0 | 3.6 | 19% | 3.6 | 5.8 | 62% |
| Oceania/NES | 0.6 | 0.7 | 21% | 0.7 | 1.1 | 59% |
| Total | 63.5 | 77.8 | 23% | 77.8 | 126.9 | 63% |
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