Printer Friendly

Hot time in cold storage industry as value of outsourcing looms large.

First half of '90s decade charts continued expansion of PRWs in so-called 'mature' markets, and even in regions where government surplus stocks have been greatly curtailed. Meanwhile, pace picks up in developing countries.

"Downsizing" and "outsourcing" are the management twins that have probably taken hold with the greatest ferocity over the past decade. Along with another set of twins - quality control and customer service - downsizing and outsourcing have been the not-so-secret weapons that have enabled some companies to flourish and other companies to hang on as the marketplace adjusts to post-Cold War politics and new world-wide economic realities. Fortunately, one man's outsourcing is another man's core mission, and the public refrigerated warehouse (PRW) industry and its dry warehouse antecedent is one of the world's oldest and most sophisticated providers of outsourcing services.

Thus, in the food industry, as manufacturers and retailers struggle to maintain profitability in an increasingly competitive environment, they necessarily rely more on other companies, such as public refrigerated warehouses, to provide specialized services - and to make the necessary investments which enable them to provide those services.

With the construction cost of a refrigerated warehouse in North America currently running at about $60-$90 per square foot, and enormous pressure to maintain high occupancy of these high-priced facilities, the PRW industry is well positioned to relieve customers of the burden of building and operating their own refrigerated warehouses. Indeed, sophisticated state-of-the-art logistics, communications, transportation and distribution systems which link PRWs with their customers are in place at nearly 500 locations from Maine to Florida to Alaska to Hawaii, and another established network of some 500 strategically situated refrigerated facilities is in place on four other continents. This international network of nearly 1,000 PRW operators stands ready and able to serve food processors or food sellers who don't wish to invest their own precious capital in bricks and mortar. The result is a seamless, cost-effective distribution system in which processors pay only for those services that are necessary to meet their particular requirements - and aren't charged for unnecessary services or unused space.

Apart from growing recognition of the economic benefits of outsourcing, by almost any other measure it's a hot time to be in the cold air business. Frozen meats and vegetables continue to gain acceptance from consumers and foodservice providers as healthy, high-quality, cost-effective alternatives to their fresh food counterparts; popular frozen products such as ice cream and pizza are enjoying greater popularity than ever before; and new products are being introduced daily.

PRW customers increasingly understand and appreciate that recently developed computer programs enable refrigerated warehouses to track products and monitor safety with near perfect reliability, and that new environmental worker and safety rules and regulations are prompting even the most reluctant cold storage operators to invest tens, and sometimes hundreds of thousands of dollars in professionalizing their staffs and operations.

The International Association of Refrigerated Warehouses (IARW) is in a unique position to observe the impact of these trends and other developments.

* In the United States (where IARW membership has traditionally represented 95% of the nation's PRW capacity), cubic footage of members has jumped from 1.1 billion in 1990 to 1.4 billion in 1995 - an increase of more than 25% from what was already considered a "mature" industry five years ago.

* Outside the US, where many cold storage facilities have been hurt badly by diminished storage of government surplus, cubic footage of member companies rose by almost 15 million during the same period.

* The average size of a US PRW went up 27% between 1990 and 1995, to 2.7 million cubic feet, while the average size of a PRW outside the US increased 14% to 1.6 million cubic feet.

* Even huge warehouse stores like Sam's Club and Price-Costco, and such giants as Fleming Companies - the number one food wholesaler and number two food retailer in the US - have all turned increasingly to outsourcing the refrigerated warehouse function.

As if those changes were not enough:

* Reduced trade barriers (Japan, Central Europe, Russia) and expanding growth (China, Malaysia, South Africa, Brazil, the European Union) are likely to boost demand for frozen products.

* The passage of NAFTA, with its likely expansion to Chile and other Latin American nations, is all but certain to pump more frozen and refrigerated food into the marketplaces of both North and South America.

Sure, one could argue that some of these achievements are behind us, or that there is no way to accurately predict how increased trade will affect the PRW industry; but keep in mind that we are functioning in an era of cost control and cost reduction, and that the service provided by the PRW is the least costly part of the food chain. The PRW might charge, for example, only three or four cents for storing a pound of frozen shrimp - a product that sells for $5-6 a pound or more. Even for low-cost produce, say carrots at just 19 cents a pound, the cost of refrigerated storage is apt to run only about a penny a pound.

When one considers the enormous investment required in land, building, energy and temperature control, the regulatory compliance required to store shrimp or carrots, and the fact that today's technology makes it possible for customers to have full, real-time information on their products - just as if they were being handled in private facilities - it is sometimes difficult to understand why all manufacturers and retailers do not outsource the cold storage function. Indeed, with today's customer-oriented computer systems, PRWs can provide monitoring, tracking and communications to customers whether they are across town or separated by thousands of miles.

What's wrong with this picture? Not much. It may be true that some PRWs aren't as far along the technology road or the information highway as others. It may be true that some PRWs must wait until their customers are ready to make the info-leap into the 21st Century. And it may be true that some PRWs are searching for innovative ways to cope with declining local markets. But the bottom line is that the IARW is 104 years old, that this is a strong and growing industry, and that most cold storage operators are sophisticated, service-oriented business people who understand that they can best help their own bottom line by helping customers save money. That bodes well for the warehousing industry - and that's why it's a hot time to be in the cold storage industry.
COPYRIGHT 1995 E.W. Williams Publications, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1995 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Monahan, John J.
Publication:Quick Frozen Foods International
Article Type:Industry Overview
Date:Apr 1, 1995
Previous Article:Business up construction down for world cold storage industry.
Next Article:Confederation greenspans generations, with state of the art warehouse service.

Related Articles
Faced with cold storage overcapacity, British PRWs gear up for big changes.
Spanish frozen food growth tops in EEC, but cold store occupancy falls to 70-75%.
Surprise! European cold store scene overflowing with intervention stocks.
Setting a fast pace in a fast moving industry.
Rochelle Cold Storage expands, offers integrated distribution services.
REITs and warehousing consolidation hot topic of discussion in the desert.
Commercial Cold Storage To Acquire The Nordic Group.
Commercial Cold Storage To Acquire The Nordic Group.
The Public Refrigerated Warehouse Industry: Strong and Growing.
Shipping food gets cheaper thanks largely to Wal-Mart. (Warehousing World).

Terms of use | Privacy policy | Copyright © 2020 Farlex, Inc. | Feedback | For webmasters