Unsettled times. The economic landscape from Beijing to New York City, Helsinki to Adelaide, and back again is unsettled. No place is immune. On one hand, it is inflation and rising fuel costs and on the other, the geo-political uncertainties that come with the Russia-Ukraine War and the ongoing tension between China, the United States, and the West. Add in the lingering impacts of the COVID-19 pandemic – i.e., will another hard lockdown in China slam the doors shut at the Port of Shanghai? And if that isn’t enough, as the COP27 meeting in Sharm el-Sheikh, Egypt reminded the world, climate change is here.
This is the backdrop to all discussions about trade. A great deal of that international trade [including perishables] moves in ocean containers – around 849 million TEUs in port throughput in 2021. And like all things related to international trade and ocean shipping, it begins with China.
Although the U.S. de-linkage from China with near-shoring and friend-shoring initiatives is underway, del-linkage can work in both directions. As Tuthill points out, “China used to move a lot of pork from the US, and now China’s trying to be more self-sustaining, and that’s a whole change and shift and rotation from what it was. Pork is down from an [U.S.] export standpoint, especially to China, but I don’t know if that’s going to change the total movement of perishable trade type of volume. But it’s one area that certainly bears watching.”
North-South Trades and the Markets
The North-South trades are a large contributor to the global perishables marketplace. When asked by AJOT about these impacts on North-South markets, Tuthill said, “It’s interesting, because I think some of these markets are certainly under duress because some of the cost structures aren’t aligned with what they’re getting for some of the products. Therefore, you’re seeing some decline, especially in the Chile market, in the North-South trades. South African citrus market I think has some pressure…is it going to be just more of a rotational shift where you see sourcing coming from hot regions, or are you going to see an overall declining consumption in the perishable market because there have been inflationary pressures that are going to turn into less consumption? I don’t think that’s going to happen, and I think it’s still probably uncertain as to how things are going to unfold. The reefer market itself is changing only because we’re seeing some flattening of demand from some of these areas. And that could be because, again, the unit economics don’t work for some reason or other, or there’s shifting going on.”
The stress on the North-South trades is complex and while one market might suffer another emerges as an opportunity. As Tuthill explains, “Climate change, the regional pressure on the growers, that’s all changing the sourcing patterns for perishable outsourcing. But also, the markets are shifting. And that is proving to be a benefit for us [SeaCube] because people need more reefers to transport from further distances with better technology. So, I think that’s worth mentioning, and I think we have seen that unfolding as this time moves on.”
Technology & Perishables
The application of technology to movements of commodities, especially perishables, is altering what’s available both in terms of sourcing and markets. Telematics, the use of sensors to acquire and distribute cargo data, is being deployed at an exponential rate, and temperature-controlled logistics is a major beneficiary of the technology. “I think the biggest development around telematics is the data availability and the ability to have predictive analytics. So, you can see something from an exception management perspective before you see a failure. So, in other words, there are preventive measures you can take, whether that’s the temperature, humidity, airflow, machinery, whether it’s a compressor, or the evaporator. So, there’s predictive analytics that is tied to data feeds that at least allow for early warning diagnostics, if I can use that term,” Tuthill says of telematics.
In some respects, technology is basically reinventing the “reefer” container and in turn, opening up new avenues for temperature-controlled logistics. Tuthill notes, “The technology’s getting better with the ability to go ahead and move perishable products for further distances with better outcomes, fewer failure rates, and more visibility, more transparency, the ability to control the machinery remotely.” Adding that the “technology with the controllers that are integrated into these telematic devices has really, really advanced. I think that’s getting to the point where we have a lot more confidence in outsourcing, again, from areas that are further away with longer transits required to get from origin to destination.”
Another application of game-changing reefer technology is controlled-atmosphere. Tuthill says, “controlled atmosphere where that slows down the ripening process for fruit, vegetables, and other commodities such as avocados. And that technology has advanced as well with more active type controlled-atmosphere technology that’s really assisted in making sure that those commodity moves are certainly protected a lot better than they were in the past.”
And the long transits for perishable or “chilled market” [as opposed to frozen] commodities would be “anywhere over 20 days,” according to Tuthill. This reach is important as Tuthill notes, “Some of the East Coast transits from either the South, North-South to East Coast, or from Southeast Asia to the East Coast would require a service structure that has 25, 28, maybe 29-day transits.”
Reefernomics
During the pandemic, the reefer business was one of the few industry segments that were largely unaffected. While it wasn’t “business as usual” as the hospitality industry all but evaporated with COVID-19 lockdowns, perishable deliveries to homes soared, and are still running strong in the post-pandemic milieu.
Tuthill says, “Reefer rates have been stable, and they probably will continue to be stable. They never saw the upturn that the dry rates did. And there was some theory that reefer rates might start to follow the dry rates because the slots vessels were such a high-priced type of proposition, but it never happened before the downturn. So, for the most part, the reefer rates have been stable, and the volume patterns have been stable. It’s a much more resilient sector than the dry market, and I think that’s pretty obvious, just because food consumption doesn’t change based on economics... It can, but for the most part, it doesn’t change as much from an economic downturn as consumable retail-type foods would.”
However, while the reefer rates themselves have been stable the need for additional “cold chain” space has increased. As Tuthill said of the situation, “I think one that might be changing is the cold chain. Demand has been so high for cold chain services. There have been more temporary storage with reefer containers. And what I mean by that is people are moving product to the final destination and running the reefers until a product gets used.”
Often this means people are using reefers as portable cold storage adjacent to a retail store as storage. And as Tuthill explains this is largely seasonal and happens around the holidays for overflow but is now becoming more common and employing international marine reefer containers.
