Competition for customers heats up, as business costs rise in soft economy: North American and European operators engage in straight talk about important issues facing the public refrigerated warehousing industry during IARW/WFLO meeting in Washington, D.C.

Fierce rivalry in some parts of the United States, rising operating costs in both the USA and Canada, and a generally universal shortage of skilled labor are seriously impacting the public refrigerated warehousing industry in North America. In Europe, inland cold storage construction is relatively slow while port warehouses with veterinary inspection facilities are enjoying brisk business. These were among major trends in the industry spot-lighted during a recent meeting of the IARW/WFLO's Assembly of Committees in Washington, D.C.

"With the economy being down, PRWs are competing for the same customer. It is starting to get ugly," commented Los Angeles-based Vinny Perricone of U.S. Growers Cold Storage.

Speaking on behalf of the trade association's South Pacific Chapter [California, Hawaii, Nevada, Utah, Arizona ,and Baja, Mexico], he added: "Occupancy levels in all warehouses in our area have gone down due to the current status of the economy."

While Perricone predicted that competitive pressure will likely intensify in the next 12 months, he was optimistic that the need for PRW services will rise over the next two or three years--especially in California. "The high demand will be due to both parents having to go to work, rather than just one. This will lead to an increase in frozen food purchases," he reasoned.

Occupancy has been low in the Southwestern region [Texas, New Mexico, Oklahoma, Arkansas and all of Mexico except Baja]," reported Gary Jones of Dallas-based P&O Cold Logistics. "Port areas are flat, due in part to restrictions on imports and exports. The impact of consolidation within customer bases, i.e. Pilgrims/ConAgra, Schwan's/Mrs. Smiths, etc., has yet to be determined ... Most markets will remain flat, with incremental increases in capacities primarily from seasonal business during the third and fourth quarters."

For now, it seems that operators in much of the region remain in a holding pattern. "Most companies are holding tight on expansion until economic trends are more positive," noted Jones.

Warehouses in the Southeastern region of the United States (plus Bermuda and the Caribbean islands) are filled at levels averaging 50% to 55% of capacity, according to John Ryan of Claxton Cold Storage, Claxton, Georgia. "Occupancy now is lower than at this time last year, but low occupancy rates does not mean that money is not being made. The third quarter seems to be showing some improvement."

A decrease in poultry exports to Russia and the effect of a relatively lower valued US dollar on import traffic has been felt by warehouse operators in the Southeast. "We are affected by world politics," stated Ryan, who expressed hope for resumption of normal levels of trade with Russia

On the domestic front, he pointed out: "There seems to be a trend of customers looking more towards independent warehouses and away from the REIT-owned (Real Estate Investment Trust) facilities."

A fair amount of warehouse construction has taken place during the past year. Among PRWs, New Orleans Cold Storage has added 200,000 square feet of space to its system (see story on page 99). Both ICS and Millard have heightened their presence in Mobile, Alabama, while Interstate Warehousing has added 80,000 square feet in Newport News, Virginia.

In October, VPA Cold Storage is scheduled to break ground to build a 264,000 square foot refrigerated warehouse in Jacksonville, Florida. Completion is slated for next September.

As for non-public warehouses, Wal-Mart has been involved in construction in Virginia. Elsewhere, an additional 80,000 square feet of private space have come on line in Florida, along with 60,000 square feet in Tennessee.

Low interest rates seem to be stimulating the new construction, noted Ryan, who added: "General business conditions in the Southeast appear to be only fair."

Square footage construction costs vary throughout North America, with the highest regional rate reportedly in the South Pacific where it takes between $120 and $140 to build new space [inclusive of racking and refrigeration, but exclusive of land].

IARW trends survey results showed costs in other regions to be as follows: Southeast, $60 to $100; Southwest, $93; Great Lakes, $85; Missouri Valley, $85 to $90; North Pacific, $70; Europe, 75 to 100 euros (approximately $82 to $110).

While little construction is going on in the North Pacific, expansion was reported in the Great Lakes region, where Interstate Warehousing completed a 60,000 square foot addition at its Joliet, Illinois site in July.

"It looks like business will stay strong in the Midwest for the near future," said John Tippman of Fort Wayne, Indiana-headquartered Interstate.

Labor Trends

As for the staffing of warehouse operations, he commented: "We can still get quality people, but it's tougher to do so."

Filling slots is a lot more difficult in California, it would seem.

"Even with the rate of unemployment going up, we find it hard to find decent people to work in our warehouse," said Los Angeles-based Vinny Perricone.

Another big issue for operators is the escalating cost of medical, dental and other insurance premiums.

"With workers compensation [insurance] skyrocketing in California--up between 200% and 300%!--businesses will be less inclined to start new businesses," remarked Perricone. "This may lead frozen food manufacturers, seafood companies and other processors to stay where they are outside of California, and store their products elsewhere. Also, with the population rising, especially in southern California, there may not be enough space to keep up with demand."

In the last year, however, some 175,000 square feet of additional space has come on line within the industrial city of Vernon, in Los Angeles County. On the negative side of the equation, Americold recently closed a small facility in Burbank.

In the southeastern United States "labor is definitely more expensive," according to John Ryan. "In Georgia workers are getting $7.50 to $8 an hour, compared to $5.50 five years ago."

Joel Dougherty of Sodus Cold Storage, Sodus, New York, made this observation about conditions in the North Atlantic: "It's hard to get good people to stay after they have been trained. Health care costs, up from 15% to 18% annually, are a problem."

Similar comments were made by IARW representatives from elsewhere in the USA and Canada, with Andrew Greenberg of Minnesota's Newport-St. Paul Cold Storage describing the Missouri Valley situation as follows: "Same as everywhere else, wages are up and quality of available employees is down. Unions are very active in the upper Midwest, where proposed raises of 5% to 6% are turned down."

On the other side of the Atlantic Ocean, at least in the Netherlands, the availability of labor has improved as jobs have become harder to find. "You can get good people at the moment in Holland, where the number of unemployed people has tripled in recent times," said Dirk J.B. van Mackelenbergh of Eurofrigo B.V.

Furthermore, business is quite good for operators of coldstores situated at ports stretching from Antwerp to Hamburg, where veterinary inspections of imported seafood, poultry and other products from Asia and Latin America have been stepped up to detect and block distribution of foodstuffs containing banned substances.

While Van Mackelenbergh's own coldstore and that of a colleague at the thriving Port of Rotterdam have expanded recently [Eurofrigo added 100,000 pallet positions to handle rising demand], construction throughout most of the Continent has been subdued.

As one of Europe's leading gateways for imports and exports, Rotterdam is always busy. Imports of poultry products are especially strong now, following the slaughter of hundreds of thousands of chickens in the Netherlands, Belgium and Germany following an outbreak of highly contagious avian influenza (AI) earlier this year.