The cold storage industry has good news to report. The visibility and need for the cold chain is increasing significantly, as it did throughout the pandemic. The public realizes it is dependent on a global cold chain, and the world pays more attention to how food moves through the system. Consequently, the cold chain industry continues to grow domestically and globally with a nearly 35% increase from 2021 to 2022, based on GCCA member capacity.
This growth, however, is juxtaposed against a cold storage industry dealing with multiple disruptions. “An ongoing shortage of labor, the rising cost of energy, continuing natural disasters and the threat of more regular events due to climate change, geo-political tensions and general global economic instability have brought a focus on the nation’s food supply chain and its risks and vulnerabilities,” says Graham Harvey, Global Vice President Quality, Safety and Sustainability, NewCold. “Cost and supply pressures are mounting from several fronts for all participants in the cold chain.” And the number one disruptor depends on where in the world you operate. However, GCCA members are meeting these challenges and adapting to changing conditions with creativity and collaboration with customers and other stakeholders across the supply chain.
Disruption Snapshots
United States
In the United States, as in many parts of the world, ongoing challenges resulting from strained global supply chains is the number one disruption impacting the cold storage industry, according to Lowell Randel, Senior Vice President, Government and Legal Affairs, GCCA. Another significant disruptor in the U.S. cold chain industry is access to consistent and reliable labor. “Shortages of truck drivers along with warehouse talent continue to be critical,” says Randel. “Added to that, in the United States the most pressing labor issue of the moment is uncertainty over whether rail workers will strike or not. Plus, ongoing challenges with port labor on the U.S. West Coast might be mirrored in East Coast ports in the future.” A third disruptor is the impact of skyrocketing costs and inflation, says Randel.
“Labor and energy are the top two expenditures for the cold storage industry and these expenditures, along with the cost of materials, equipment, energy, containers, chassis, pallets – all the things that make the supply chain go – are rising steeply,” Randel notes. “In many cases, equipment and materials are also harder to find and acquire.” He adds that new equipment, particularly energy equipment, has increasingly long lead times bringing uncertainty and difficulty to planning and operations.
Australia
Labor pricing and availability is a key disruptor to the Australian cold storage industry, says Harvey. “More than 80% of businesses are reported as suffering from skilled labor shortages and the cold chain is no exception,” Harvey points out. “Attracting and retaining key talent is a problem in the skilled areas, and an acute shortage exists now. Australia’s extended restrictions on immigration and seasonal workers over the two years of COVID lockdowns have dramatically slowed a key source of labor.” As in the United States, it is not just in warehousing that labor shortages are emerging. “There is a significant shortage of truck drivers across Australia’s transport industry. In specialist areas such as certified tradespeople, it is extremely difficult to recruit and retain talent,” Harvey says. “For many operators, the hours for a long – haul truck driver or seven-day coverage for shift work at warehouses make these positions less attractive compared to other industries.
Pay rates of specialist personnel are increasing at alarming rates.” Harvey says Australia has also seen a significant increase in electricity costs in the past couple of years. “This is due to a number of factors including global conflicts impacting global commodity pricing as well as local factors of reduction of thermal power generation and unplanned outages at multiple power generators.”
For transport companies operating in the cold chain, the cost of fuel is a major component not only for the vehicle, but also for the refrigeration unit. “Although Australia is a producer of oil, the parity pricing of this commodity in Australia is seeing a significant cost increase in vehicle fuel costs as well as increased volatility in pricing,” Harvey explains.
Another key disruptor in the Australian market is the effect of supply chain imbalances and the flow of containers through ports. “This has not recovered since COVID and is impacting import and export of goods as well as import of spare parts, key ingredients, and packaging for frozen food production,” Harvey notes. “Empty containers to fill for export have also been in a tight supply.” Harvey adds the returnable pallet market in Australia has also been disrupted over the past year as inventory imbalances have resulted in a national shortage. This impacts not only producers, but also warehouses requiring pallets for picking and outbound distribution.
The ongoing tension in the Ukraine is another major factor causing disruption to the cold supply chain, says Harvey. “All indications are that it is not expected to ease in the short term, and this will continue to hold commodity prices elevated for some time. Even when the conflict does end, the lessons learned for the reliance on a single or major source of energy or other commodity will continue to reshape future global supply chains and commodity sourcing.”
Brazil
One of the most critical and potentially disruptive factors for the cold storage industry in Brazil is electricity. In general, it is a regulated but volatile market, dependent on investments, incentives and climate variations, which have a major impact on price and supply, according to Andre Angola, Head of Engineering, Maintenance and Facilities at SuperFrio Logistica Frigorificada.
Angola explains that in Brazil, the market for buying and selling energy through the CCEE (Electric Energy Chamber of Commerce) has increasingly allowed demand and supply to promote win-win relationships between those who produce and those who consume. Public and private investments have transformed the electricity market, notes Angola. “They have a direct effect on the generation matrix, increasingly from sustainable sources, which today represents almost 85% of the Brazilian energy matrix with demand growth of around 3% per year, according to estimates from the Ministry of Mines and Energy,” he says.
Angola notes another important point of impact is the use of electricity by the government as an object of social policies, incentive/fostering and inflationary control in the country. “Within the operational area, there is a need to improve the quality of supply to some regions of Brazil, especially in the north and northeast,” Angola points out. “In these regions there are supply interruptions and voltage instability impacting the operation of storage units, increasing maintenance costs, increasing the risk of loss of customer inventory and consequently affecting business results.” Angola says another important disruption to the cold chain in Brazil is the lack of technical knowledge and trained professionals in the industry.”
In general, the facilities have little embedded technology as a result of the high cost of equipment imports and installations are currently built with technology from the last century,” explains Angola. “This scenario causes ruptures to occur linked to structural problems that could be avoided in the project phase or in the conservation of assets.” Angola notes it is important to highlight that the lack of technical knowledge is not only related to the engineering, but also to warehouse operations. “The complexity of operational demands requires specific knowledge of refrigerated logistics, often not found in the workforce available in some regions of the country.”
Asia, Middle East and Europe
“Over the last two to three years, our industry has become increasingly resilient, or perhaps less surprised and faster reacting, to disruptors,” says Richard Winnall, Chief Operating Officer, International, Americold. “Every day we are living through material disruptions to our industry, some of which play out very quickly – such as cyberattacks or weather events – and others that play out in slow motion – such as competition for talent or spikes in energy prices.” Winnall notes the primary disruptor across the regions he leads is competition for talent. “I do not think many would argue that government stimulus spending through and after COVID-19 disruptions has driven goods and services demand, and with that, wage demand.
Our employees have never had more options to find a new job and, perhaps, better remuneration or conditions,” Winnall points out. “However, there are also many people weighing their work life balance and leaving full-time employment to devote themselves more to their families or other interests.” Winnall says in employee conversations and the exit interview process across Asia Pacific and Europe, family caring responsibilities have become the largest reason for workplace absenteeism and a major reason for leaving a job. “As industry operators start to experience higher employee turnover, they need to immediately respond with higher recruitment volumes and training,” asserts Winnall. “If not already geared to do this with high competency and speed, you will see real service issues and productivity issues across the business as the experienced talent moves to the competition or other industries.”
Winnall says criminal cyberattacks are also a constant threat to the industry. “However, there is a lot we can do to protect ourselves. This effort requires ever increasing and justified investments into our systems and must include employee training, breach testing and then more training.” Winnall says he suspects the industry will never stop running from this threat.
“Weather events that impact the supply chain can have major consequences for our business and our customers,” acknowledges Winnall. “Perhaps weather events can be reduced in the future by our whole industry coming to the carbon reduction agenda with real commitment and integrity. Americold, like many others in the industry, has taken our largest ever steps in the last 24 months towards a carbon neutral future model.”
United Kingdom
“The United Kingdom has navigated a series of crises over the course of the past three years, each of which has disrupted the cold storage industry,” notes Shane Brennan, Chief Executive of the U.K.’s Cold Chain Federation. “While we have largely moved on from the volatility linked to the pandemic, there are three primary disruptors which continue to have a significant impact on the U.K. cold chain industry: soaring energy costs; a challenging recruitment environment; and changes to regulations and trade flows between Great Britain, Northern Ireland and the European Union following the U.K.’s exit from the European Union.”
Brennan says the extreme increase in energy costs is part of the global crisis and could not, realistically, have been completely avoided. “However, had government policy focused on energy resilience and renewables over the past decade rather than an overreliance on imported fossil fuels, our national exposure to this type of global energy shock could have been reduced,” Brennan observes. “The U.K. government and businesses alike must make these shifts now, and the cold storage operators that have been investing in renewable generation and improving the energy efficiency of their operations are going to be better off in both the immediate and longer term.”
The severe people shortage across the U.K. logistics industry in 2021 has eased to a degree, but the recruitment of drivers and warehouse operatives remains challenging, admits Brennan. “A complex mix of factors led to this people crisis including the impacts of the COVID pandemic, a change to the U.K.’s self-employment tax rules that altered the relationship with agencies and strong competition from other sectors,” Brennan suggests. “However, the problem was exacerbated by a long-term trend towards an ageing U.K. logistics workforce.
There are lessons for our industry to learn about putting greater focus on recruitment and retention, and investing in technologies that will help to improve resilience for the future.” “As for the disruption caused by post-Brexit changes to regulations and trade flows, the food supply chain has needed to follow new processes as a result of the agreements made between U.K. and EU leaders and adapt to their impacts on trading relationships,” Brennan notes. “This is a specific inflationary and depressionary factor for the U.K. food industry, and cold chain operators are having to find new solutions to provide affordable and non-disrupted supply chains.”
Regulatory Disruption and Advocacy
The necessity for the cold chain continues to be very strong. That is good news. But the strong demand for cold chain services in turn demands a functional supply chain with the labor, equipment and materials to make it all run. This places more emphasis than ever on the importance of advocacy efforts to mitigate disruptions, points out Randel. He notes in the United States, agencies such as the Environmental Protection Agency (EPA), Occupational Safety and Health Administration (OSHA) and the Food and Drug Administration (FDA) are preparing to take significant regulatory actions that will have a direct impact on the supply chain.
“The EPA is advancing regulations for its Risk Management Program, and many companies using ammonia as a primary refrigerant will have added burdens down the line from EPA and OSHA,” Randel explains. “Now law, the AIM Act directs the EPA to implement an 85% phasedown of the production and consumption of hydrofluorocarbons by 2035, pressuring industries using synthetic refrigerant to move to some alternative in the future.” Randel advises food regulatory changes are also imminent as the FDA foods traceability rule was finalized in November 2022. “Food safety is among those changes, and many products are on the FDA’s food traceability list.”
In Australia, the government has introduced the Climate Change Bill 2022. The bill legislates the nation’s commitment to reduce greenhouse gas emissions by 43% below 2005 levels by 2030, and net zero by 2050. “The impact of this will be significant for the Australian cold chain due to the high input energy usage and will require technological innovation and investment,” explains Harvey. “There is no doubt reporting on climate related activities will increase. As requirements are introduced in other countries, it will rapidly flow to Australian companies.”
Disruption Mitigation
The Refrigerated Warehouse and Transport Association (RWTA) recently joined the National Food Supply Chain Alliance (NFSCA), which represents all facets of Australia’s food supply chain. Harvey notes the Alliance and RWTA executives recently met with Ministers in Canberra. Discussion revolved around the creation of a supply chain strategy in Australia ensuring food security and meaning government and industry will have oversight for major disruptors facing the food supply chain.
“We believe that government and industry must work together to fully understand the complexities of the supply chain and how specific events might impact the various linkages,” explains Harvey. “This approach incorporates the entire ‘living’ food supply chain ecosystem, from paddock to plate, encompassing production, processing, distribution, retail, consumption and disposal. From the perspective of both government and industry, research has shown there are many social and economic benefits from a more efficient, more sustainable and self-sufficient national supply chain.”
Harvey says this government-industry strategy will provide more stability to food-related businesses, boost innovation and technology, enhance the nation’s food processing capacity, create jobs and, most importantly, provide the community with the confidence it needs in the nation’s food security. In Brazil, Angola says efforts have been made to invest in increasing the supply of electricity ensured through long-term contracts with both public and private investors in the electricity sector. “In addition, another important component for the sustainability of operations, and which is present in industry efforts, is the promotion of electricity generation from renewable sources, with emphasis on solar and wind energy,” adds Angola.
He says this renews the commitment of organizations with ESG (Environmental, Social and Governance) practices and culture. “Investments in smart and sustainable buildings should be guidelines to mitigate the short, medium and long-term negative effects.” Winnall says he imagines every company in the industry is working to become a better employer, have stronger cybersecurity controls or better communication protocol with customers in times of disruption. “It is obviously a source of competitive advantage in our industry, but we also compete for these precious resources across many industries,” Winnall acknowledges.
“There is no one play book for a company to mitigate these disruptions, but there is a lot of research, service companies and consultants ready to support your company if you do not already have the internal competency, experience and track record to deal with your specific challenges.” “The mitigations that have been put in place to cushion the harsh impacts of sky-high energy costs are very significant, both those enacted by the U.K. government and the measures taken by cold chain operators,” Brennan explains. “Government is supporting businesses through its Energy Bill Relief Scheme until Spring 2023, while cold chain operators have been improving energy efficiency wherever possible and there has been heavy investment in solar power generation on cold store sites.” In terms of the challenges of recruitment and retention, Brennan says cold chain businesses have been working to ensure they provide an attractive proposition through improvements to facilities, employee packages and career progression opportunities.
“Across the U.K. logistics sector more widely, the collaborative Generation Logistics campaign was launched this year to help attract, identify and develop a new and diverse generation of talent to fill vacancies and help future-proof the sector.” Brennan adds the U.K. cold chain has become more familiar with post-Brexit systems and has found new ways to work such as increased digitization and greater dialogue with Customs. “The cold chain – and the United Kingdom as a whole – continues to navigate this period of transition while the United Kingdom and the EU settle into a new relationship and as we look to global trading opportunities.”
Disruption Tomorrow
Harvey has no doubt disruptions will continue to arise in the future in the cold chain in Australia. “The effects of the pandemic-led global supply chain disruption will take months to normalize and it is very unlikely to return to pre-pandemic levels of cost and efficiency any time soon,” Harvey contends. “The impacts of global conflicts will always threaten stability, and the tensions in Southeast Asia, particularly with China, are always present.
The impact of any conflict there or elsewhere could be catastrophic for the Australian industry in terms of trade, material supply and cost.” A future challenge for the industry in general are the new demands for services and the demands of consumers, says Angola. “E-commerce, food delivery and same day delivery will require greater energy consumption and a new modality of technological improvement in refrigerated logistics centers.”
“I really see the geopolitical landscape evolving and perhaps a trend back towards trade protectionism,” says Winnall. In the last few years, he is seeing countries protecting their natural resources or putting in place trade barriers to support national agendas. He says this is forcing adjustments in trade flows, sourcing and service offerings. “This is already impacting the cold storage industry with sudden shifts in demand at port located facilities, blast freezing demand or storage demand,” Winnall points out. “The war in Ukraine, and Brexit and COVIDrelated supply chain shortages have been once-in-a-lifetime events all squeezed into the last three years!” Winnall adds he thinks the industry needs to be prepared for further shifts and readiness around change to international trade.
“There is a likelihood of a continuation of the current period of uncertainty for the U.K. cold chain,” Brennan says. “The war in Ukraine is unpredictable, the impact on Ukraine production of wheat and oils in particular.” He points out the inflationary effects of the current cost and price squeeze mean that European farmers are going to produce less in 2023, which will have an impact on volumes moving through the cold chain and increase prices on the shelf. And, he adds, there is no expectation of a swift resolution to the energy crisis, and the global economic environment is challenging.
“However, there are also reasons to be positive,” says Brennan. “Despite the crises and challenges, the past three years have also seen a substantial increase in U.K. cold storage capacity, with new developments making great use of innovations, technologies and energy efficiency measures.”
He adds the U.K. cold storage industry is making good progress on the journey towards net zero, beating the energy efficiency targets set in the cold storage Climate Change Agreement to secure important tax savings. “And there is not only an increased recognition among politicians and the media of the importance of our industry, but also a new appreciation of the hard work, innovation and expertise that kept our food supply chain running through the pandemic,” Brennan says.
“There are certainly many disadvantages related to these disruptions – company profits are hard to protect as we face supply chain, people or process failures in the industry,” says Winnall. “But certainly, one advantage to our industry is that our customers are building new strategies around a future of more frequent or expected disruptions, which in many cases brings new supply chain paths, higher storage inventories or stronger third party logistics operators to support them.
All of this leading to overall stronger demand and investment needs into new or different capacity in our industry.” “Although I anticipate we will continue to see disruptions from labor uncertainties, high inflation and a strained supply chain continue into next year, the resilience and growth of the cold storage industry and increased public awareness of the supply chain gives me optimism,” says Randel. “The agility to anticipate and respond to disruptions – good or bad – continues to be essential to future success.”