Digital Edition

July 6 2020

Issue link:

Contents of this Issue


Page 30 of 47

July 6 2020 | The Journal of Commerce 31 Cool Cargoes Market Report Cover Story Special Report THE TRANSPORTATION OF refriger- ated perishables via rail is a meager 5 percent of the overall freight mix for North America's Class I railroads, which means there's plenty of market share for logistics providers to cap- ture if they can effectively navigate several deep-rooted obstacles, mostly centered around service. Marc Kostolich, president and CEO of Food By Rail, a new venture launched this year, says the rail freight industry is under increased pressure to meet today's supply chain expectations, including reliability, accuracy, and speed of operations. E-commerce is helping drive improved rail service, and so is the trucking industry — albeit unin- tentionally — due to chronic driver shortages, increased enforcement of hours-of-service regulations via the electronic logging device mandate, and rising insurance costs, among other things. At the same time, the railroads are losing traditional freight, such as coal, "and they need to develop new opportunities," said Kevin McKinney, chief operating officer at Food By Rail. Perishable cargoes represent a new opportunity, but they require "a lot of oversight," noted McKinney, and the "thinning out" of rail management "At the end of the day, they feel more comfortable knowing they have more control, since they can dictate loading and discharge sched - ules," said Posner. Fresh citrus products are in excep- tionally high demand, with consumers concerned about their health looking to increase their Vitamin C intake to boost their immune systems. But even as consumer demand for healthy foods such as fresh fruits and vegetables continues to grow, the long-term prospects for conventional reefer ships remain unclear. "Reefer vessel operators have cautiously invested in newbuilding over the past decade, while the con - tainer industry has continued to grow exponentially. Baltic Reefers added a handful of newbuildings in the past few years; Seatrade went through their heavy reefer container intake Colour-Class vessel build-up over the last five years; and daughter company GreenSea added a number of highly specialized newbuildings. But I don't believe the conventional reefer mar - ket will see a newbuilding spike in the coming years," Posner said. One reason is that "fuel prices will eventually come back and bite everyone," he said. "We're already seeing a rise in fuel prices in recent weeks. And IMO 2020 rules will have a greater impact as well." Conventional reefer vessels cannot compete against container lines when it comes to fuel costs. A larger reefer ship typically holds about 6,000 pallets of refrigerated cargo, the equivalent of about 300 FEU, just a small portion of the total capacity of today's Panamax or larger container ships. "The conventional fleet will continue to handle a segment of the reefer market, particularly for seasonal trades and on niche trades where they're required to move product quickly to and from certain markets or in specialized trades, such as the off-shore fishery operations," said Posner. As for the container industry, the impact of COVID-19 has severely affected demand, resulting in reduced volumes and skipped sailings. Some flag-state carriers are getting govern - ment support now, "but it's uncertain how long that will continue or how long that will allow struggling lines to stay fluid," said Posner. Gravy train Refrigerated rail holds plentiful prospects, but challenges remain By Lara L. Sowinski That could prompt another round of mergers and acquisitions among the major carriers and further invest- ment in reefer containers by smaller lines, he said. "It appears inevitable that the container industry will undergo fur- ther consolidation," Posner said. "The multinational and regional players also realize they need to continue to make more investments in reefer equipment, as the growth in reefer trade will continue post-pandemic. Reefer containers have gotten more sophisticated over the years, which allows carriers to better service cold treatment and controlled-atmosphere trades, where there is potential for even more growth." Indeed, investments in the reefer market and overall cold chain will not be permanently curtailed by COVID-19, said Posner. While Europe's cold storage facilities are cur - rently operating at full capacity due the effective shutdown of the food- service market, there is continued investment in cold storage and consol- idation among large global players. Meanwhile, rising demand from overseas markets, China in particular, continues to bode well for food pro- ducers and their logistics partners. "China remains a huge con- sumer market that US producers need. There are a limited number of alternative buyers who can take that volume of foodstuffs — not just reefer products, but dry products like grains," said Posner. While the pandemic may slow its growth, India is another bright spot with an expanding consumer market and growing middle class, while countries in Africa will also be an important consumer market for decades to come as their populations also continue to grow. Despite the short-term effects of the COVID-19 crisis, the outcome of the US presidential election may end up being a bigger factor in the health of the US perishables sector, said Pos- ner. If President Trump is re-elected in November, it's likely he will take an even tougher stance on trade with China, he said. If not, Posner thinks trade policy may revert back to "where things were prior to the 2016 election, though with some modification." JOC email: "We're entering the marketplace at the right time. We'll succeed."

Articles in this issue

Links on this page

Archives of this issue

view archives of Digital Edition - July 6 2020