By George Lauriat, AJOT

Bill Duggan, Maersk vice president of refrigerated services North America, has been in liner shipping for over thirty years and has seen a few changes. But as he explained in an AJOT interview, the current global reefer business is vastly different than the one of just a decade ago and is on the cusp and even a more dramatic shift.

Bill Duggan

Simply put there will be a great deal more temperature-controlled freight heading to emerging markets than is the case right now. The future trend is being driven by the rise of the middle class in emerging markets like China, India, Russia, Africa and South America. Duggan attended a seminar hosted by Coco Cola, (Maersk is a prime transportation vendor for Coco Cola) which forecasted the middle class would add a billion people over what it is today by 2025.

“The middle class in emerging markets is going to want to feed their families like the middle class around the world… they will want their standards to be the standards they see in other parts of the world,” Duggan noted.

Yes we have some bananas

Duggan says there’s been a “paradigm shift” in the way perishables have been handled and points to bananas as the example. Less than a decade ago 80% of the bananas shipped, were transported break bulk and only 20% by container. There were some inherent disadvantages to the system. The shipper had to assemble the freight for a very specific ship on a timetable that offered little flexibility. On the other end the bananas had to moved rapidly to storage to prevent damage before being loaded on trucks for final destination. If the shipper missed the cutoff date for the break bulk ship, it was a major disaster.

Now 75%-80% of the shipments are by reefer container, which offers the advantage of flexibility both on the export and receiving side of the supply chain. Multiple destinations are not an issue with the reefer box and this simplifies distribution. The speed and range of the shipments also increased with the switch to reefer boxes.

In the 1970s and well into the 1980s, the reefer box was often a twenty-footer but now forties are the norm and in the case of Maersk, high cube forties.

There was no doubt that reefer shipments are more expensive than break bulk and currency – US dollar versus other currencies – has played a role in the shift in transportation and destinations. But the advantages on point-to-point basis through the entire length of the supply chain give reefers a huge edge over conventional reefer ships. Containerships now run upwards 1,700 reefer boxes (3,400 teus), which was a reasonable sized boxship only a decade ago.

In 2011, Maersk launched a service between Ecuador and the Mediterranean and Black Sea that had the reefer space for some 600,000 cartons of bananas or around the same as three refrigerated ships.

Generally, the freight rates for reefer containers have held up better than those of dry boxes, although the return at the moment isn’t very good.

Maersk Line ceo Soren Skou in a speech on Sept. 25th at the Cool Logistics conference in Antwerp said the Danish-carrier would raise freight rates by $1500 per forty on January 1st 2013. Skou said that rates had not kept up with inflation or rising bunker fuel costs.

Earlier in the year, Maersk announced the decision not to buy any new refer containers until 2013. A reefer box costs nearly four times that of a dry container and with the low returns and uneven economic global outlook Maersk decided against adding to the current reefer box fleet of 250,000 in the current year.

Apple of your IPhone

In many respects the advances in reefer technology are driving reefer strategy for ocean carriers. It takes only a cursory spin around terminals in Newark, Savannah, Charleston and just about any place else to see new reefer racks. Tracking technology has also improved, as has reefer monitoring.

But the boxes themselves are “getting more sophisticated” according to Duggan. “By controlling the atmosphere…adding nitrogen, the shelf life of the products is much longer.” “Longer shelf life means a shipper can move products into regions that before were out of reach,” Duggan added. Poultry shipments to the middle of Russia, China or in the heart of Africa are now feasible. The extended reach of the supply chain open up new opportunities for the shippers.

There are some innovations that really stretch the traditional reefer business model. Maersk has a container designed for live seafood that has twenty separate 55-gallon drums, each of which contains its own aqua-eco system. What makes this box so unique is that it enables a shipper to use ocean carriage for freight it would normally designate to air cargo.

There are other new innovations like super freeze containers for freight that needs to be kept at minus 85 c.

The freight in reefer boxes can be very high-end, blood plasma and pharmaceuticals bring a box value into the millions. But there is another side to the reefer business that is rarely thought of – electronics.

Right now, Maersk is moving Apple’s I-Phone 5s in reefer boxes, as they offer the best environmental protection for the product and like aqua boxes can compete with airfreight.

Vertical

Traditionally, the reefer business within an ocean carrier has been more like a service attached to the general operations.

But as the reefer business has grown the management approach has also changed. In the case of Maersk, the reefer staff act like the a vertical with their pricing team and support staff that has equipment info other information at their finger tips. Reefers “are a whole different animal, often with a lot more money at stake,” according to Duggan. “These cargoes and need special attention.” “It might be shipping wines in the winter, to keep them from freezing or leather goods that are sensitive to heat.”

The special know how a reefer team puts together also helps track seasonal trends for commodities in “feast or famine” environment.

What is clear about the reefer market is technology is enabling a real shift in products, range and even competition that wasn’t even imagined a short time ago.