The reefer business has been called “pandemic proof” as demand has continued to grow throughout the Covid-19 crisis. But there are a number of underlying “catalysts” driving the reefer market that grant it some immunity from economic vicissitudes as Greg Tuthill, CCO of SeaCube, explains in an interview.
The reefer business – containers moving perishable freight – has been remarkably resilient during the Covid-19 pandemic. The business has been described as “pandemic proof” as it has continued to grow during the Covid crisis, despite the lockdowns to consumers and disruptions to manufacturers. Of course, this “resilience” isn’t really new . During other periods of economic downturn – like the financial crisis of 2009 – the reefer business also thrived and was dubbed “recession proof”.
There’s no doubt, demand for perishables and in turn, the reefer containers to move them, has been robust over the past pandemic year. Some of the reasons for the sector’s resilience are surprisingly simple while other factors reflect complex and often long term market trends.
But it is a complex business and matching demand with equipment is challenging. Part of the reason is the nature of the business itself – temperature- sensitive commodities are wide in range and include everything from everyday fare like bananas and other fruits and vegetables and meats and fish, to esoteric chemicals and yes, highly important pharmaceuticals like the Covid-19 vaccines.
Greg Tuthill, Senior VP and CCO of SeaCube Container, a Woodcliff, New Jersey based lessor of containers and equipment with a “niche” in the reefer business thinks there are a number of reasons why the demand for reefer equipment has resilience, not only through the current pandemic but during other periods of economic downturns.
Tuthill, remarking of the hardiness of the perishable sector, says, “I think that the reefer market has been very resilient to market pullbacks…The growth has been consistent. I think… [the] key catalysts continue to be drivers for the reefer market, [which include] population growth and the healthier diets, sustainable sourcing, things like that.“
Of course, the pandemic has created its own unique pattern of demand. Tuthill notes, “replenishment cycles may be shifting a little bit because people are staying home and they’re eating healthier and they’re also kind of focused on making sure that, since they are working from home, they’re trying to do the right thing in preparing better foods, which is kind of tied to the perishable market, and that’s across the globe.”
Tuthill explained the changes in dietary habits also plays into a larger trend in global sourcing: “We have witnessed there is more sourcing from more locations than ever before in terms of produce. And one, because what used to be seasonal now is year round, and two, I think the growing regions have expanded.”
And as Tuthill explains there are other related dietary trends pushing reefer expansion, adding “that also ties into sustainable seafood sourcing, because now you’ve gone from fish stocks being natural to more farming, which is also creating more movement in the reefer trades.”
Life Cycle of a Reefer Container
SeaCube with over 200 depots located around the globe has equipment available in most high usage areas. This helps mitigate repositioning, “We have a pretty balanced double management process only because we try to have redeliveries take place where there’s higher demand. It doesn’t work out all the time like that, but that at least mitigates or minimizes repositioning… And that works to our favor, of course. And I think it’s taking place in the lesser market more and more because then we as an industry don’t end up with equipment in the wrong place.”
Most of SeaCube’s customers are the big liner containership shipping companies like MSC, CMA , COSCO, ZIM, Evergreen and ONE (Japan’s integrated containership line composed of MOL/NYK /K-Line). According to Tuthill the lifespan of a reefer container generally is 15 years and a dry container 12 and a half. The production of the container is China centric, although related equipment such as gensets are made in various places.
For SeaCube, the “assets”, the reefer container, have a “life cycle” that corresponds to their usage. As Tuthill explains, “So, just to give some context on how the life cycle of our assets flow. We [SeaCube]have the primary lease, which is the first production lease. So, we buy new equipment that goes on a first lease. And let’s say that goes out for seven to eight years. Then we have a secondary lease that goes out for anywhere from five to four years and that’s out in a secondary lease market. And then the third stage is the disposal or the sell status, which is when we sell the unit.”
And the reefer business is getting bigger each year. “There’s been obviously significant growth in the reefer sector. And if you look at new build vessels now, the plug capacity is much, much higher than it was 10 years ago. If you look at terminal capacity, reefer plug capacity is much, much higher than it was 10 years ago,” Tuthill noted.
And the lines are investing in reefer because the segment is highly profitable and more resilient than the more volatile dry box trades.
The reefer business is also expanding as the refrigerated ships that move cargo in bulk are phased out although this year the reefer ships have received something of a reprieve with the high demand for perishable freight.