Moving the “Cold Chain”
A look at the highly specialized and lucrative business of refrigerated cargo.
Walk into any grocery store in the United States and you may find bananas from Central America or the Philippines, pineapples from Brazil, blueberries from Argentina, grapes from Chile, and lamb from Australia. Nearly $6 billion of refrigerated cargo, which includes perishables and computers, is transported every single day to supply the world that consumes it.
Such transportation is highly specialized, time-sensitive, and on the increase. Drewry Maritime Equity Research estimates that refrigerated cargo will grow by 4.5 percent annually through 2016. That’s up from 3.3 percent annually over the last 10 years. Exotic fruits such as kiwi, pineapples and avocados as well as meats like poultry, pork, beef, veal, offal and lamb offer the greatest growth potential. A refrigerated container may cost nearly six times as much as a dry container to fabricate and maintain, but freight rates for refrigerated cargo are nearly 3.5 times that for ordinary dry cargo. For the maritime industry, refrigerated cargo can be lucrative.
“The demand for fresh fruits and vegetables is driven by growing population, income and consumer awareness about diet,” says Maria Pilco, Marketing Analyst with the Port of Houston Authority. She says the U.S. market for refrigerated storage is robust and points to a survey by the International Association of Refrigerated Warehouses indicating that operators in the U.S. and Canada expect revenue to grow more than four percent in 2013 alone.
Refrigerated cargo handled at the port includes frozen and chilled commodities shipped in reefer containers. “The challenge in moving reefer cargo is to offer a competitive and fast-moving supply chain – the ‘cold chain’ – to ensure the shelf life of fresh produce, seafood, frozen food, and other products that require temperature-controlled transportation,” Pilco explains. “For a port, the most important advantages to have are competitive, all-water transit times, efficient intermodal connectivity, and temperature-controlled transloading facilities. Having all of these components will facilitate the fast movement of cargo from shipper to consumer. Time is crucial and can make all the difference between having a successful shipment or a tremendous loss.”
Shipments have increased as new markets develop and sophisticated consumers expect year-round fresh fruits and vegetables. “There is growing demand for more exciting cargo that requires refrigeration,” explains John Donahue, a director in PwC’s U.S. Transportation & Logistics practice. “This tectonic shift in variety will coincide with booming new markets and allow new commodities to prosper and become available, and perhaps cheaper, than they are today. Some industry experts say there will be double-digit growth in shipments annually over the next five years.”
A port’s ability to handle refrigerated cargo depends on several factors including its geographic location relative to both inbound points of origin and outbound destinations and its logistical infrastructure.
“The challenges that ocean carriers encounter in handling these commodities vary by product,” explains Larry Kvidera, International Trade & Marketing Manager for the Port of Tacoma, Washington. “Frozen products require good-running equipment that will keep the product in a temperature range between zero and negative twenty degrees. Sensitive chill products require newer equipment that is no more than four years old and will maintain a temperature within a very narrow range. The challenge for the port is working with marine terminal operators to ensure a good flow in and out of the terminals because seasonal spikes in refrigerated volume can cause significant congestion and slow terminal turn times can cause trucker frustration.”
Kvidera adds that the port’s prospects for retaining and growing the local refrigerated market are good and Pacific Northwest commodities should continue to thrive as purchasing power and a desire for a healthier diet improve in countries like China. He also expects Alaskan seafood to continue to move through the Pacific Northwest, given the domestic shipping services available to Alaska. “Tacoma has a clear advantage in handling significant volumes of seafood since a large percentage of the commodity already moves through the port,” he explains.
Pacific Northwest agricultural products also move through the port due to its strategic location, ease of doing business, and speed to global markets. There are four temperature-controlled storage facilities located near port terminals that support local distribution and provide transload and warehousing services for products destined for overseas markets. “We anticipate continued growth in the refrigerated market and especially in the next three to five years,” Kvidera states.
MTC Logistics is an established third-party logistics provider which operates three strategically located, temperature-controlled distribution centers near the ports of Baltimore, Philadelphia and Wilmington, Delaware. Brooks Royster, President of MTC Logistics, says this cargo segment is highly specialized, requires extremely knowledgeable service personnel, and typically is made up of high-value perishable commodities.
“Ports willing to make the investment in reefer plugs and racking to accommodate stacked reefer containers will have a definite advantage over those ports that do not,” he states. “This is a market segment that requires heavy capital investment. The old adage of ‘having to spend money to make money’ is certainly true here. Every component in refrigerated transport is expensive, from land-based infrastructure support to the container itself.”
For many U.S. ports, refrigerated cargo is a lucrative part of their throughput. As such, expansion decisions are driven by anticipated demand for additional capacity, given the strategic location of the port. For example, refrigerated cargo is a valued asset for Florida ports. Approximately 20 percent of the Port of Jacksonville’s tonnage is refrigerated, either breakbulk or containerized.
Farther down the coastline, Port Canaveral is busy investing in new facilities. “Port Canaveral is constructing a 70-acre container terminal capable of handling 600,000 TEUs initially with potential expansion to one million TEUs,” explains CEO John Walsh. The terminal will be state-of-the-art and will have on-dock rail by 2016. It is in addition to the 300,000+ square feet of on-dock refrigerated warehousing already in place at the port. Both facilities offer perishable shippers and carriers the flexibility of both containerized and breakbulk shipments. Port Canaveral expects to see growth in perishables due to our centralized location on Florida’s East Coast and proximity to the large distribution facilities in Florida.”
Farther south, Port Everglades handled over 1.3 million short tons of refrigerated cargo in 2012 and houses a unique Highly Mobile Actionable Pest Refrigerated Chamber, owned by Crowley Maritime, which provides on-site fumigation services for unwanted incoming pests, thereby avoiding having to ship the product back to the country of origin. Port Everglades Cold Storage offers nearly 100,000 square feet of variable temperature refrigerated storage.
Like the Florida ports, many other ports have a geographical advantage that they are exploiting. The Port of Galveston, for example, offers easy access to and from the expanded Panama Canal. The port is nearing completion of a major wharf expansion project at the Del Monte Refrigerated Terminal that was partly funded by the federal government, and Del Monte Fresh Produce is spending a considerable sum to upgrade the terminal itself.
The Port of San Diego has a natural advantage as it is the first West Coast port north of Latin America and is strategically located to take advantage of the perishables’ market in the Southern Hemisphere. “Our anchor tenant is Dole Fresh Fruit, which runs a weekly service from Latin America to San Diego for the distribution of perishable products in the Western U.S. and Canada,” says Joel Valenzuela, Maritime Director for the port. “We have a long-term lease with Dole, which is building new vessels with 30 to 50 percent more capacity. We see this as a positive sign for refrigerated cargo because it indicates that the world’s largest fresh fruit company anticipates growth in this market.”
San Diego has seen a shift in cargo type with shippers moving away from breakbulk and toward containers. “This is an important shift and means that ports – including San Diego – will need to plan for infrastructure and equipment that can serve these vessels with efficient container-handling,” adds Valenzuela. “Offering adequate space for logistics and storage is one challenge. Another is the need to provide effective inland transportation systems that are timely, efficient and reliable because of the perishable nature of this cargo. We expect continued growth in perishables, particularly fresh fruit, from Latin America and have identified Peru as one of our biggest prospects.”
The situation is no different overseas. Arno Dirkzwager, a spokesperson for Netherlands-based Zeeland Seaports, says they expect increased volume from refrigerated containers and have the facilities and staff to handle it.
In the years ahead, expect refrigerated cargo volume to grow through strategic locations geographically positioned to receive, warehouse and transfer such cargo. The demand for perishables is robust, and so are the rewards for those who transport them.
Jim Romeo (www.JimRomeo.net) is a freelance writer in Chesapeake, Virginia.
The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.