The reefer business has been one of the few bright spots in container shipping since the meltdown in 2009. But with bigger ships, more plugs and tepid economies in source countries, reefer is now getting a rethink. At a May 2014 conference on the shipping of perishables, Julian Thomas, CEO for Hamburg Sud’s East Coast South America, talked about the impact of the larger containerships and the “economies of scale” on shipping perishables. It was a notable presentation on several levels. First, Hamburg Sud has been in the South American perishable business for over a century and has witnessed first hand the vagaries of both the South American trades and the perishable industry. The steamship line is also involved in other major perishable trade lanes, notably Australia/New Zealand and South Africa. In short, perishables are something of a specialty for the Hamburg-based privately held steamship line. Nestled among Thomas’s perishable market observations was the huge increase in reefer slots available with the average increase in size of containerships. In Hamburg Sud’s own case the 2004/09 Monte/Rio class of 5,500 teu had 1,365 plugs (large for the time) but the new class of Cap San with 9,600 teu have an amazing 2,100 plugs. While the Cap San class are unusual, the new CMA CGM Danube, first of a series of 28 container ships ranging between 9,400 and 10,900 teu, have 1,458 reefer plugs. Considering the ships at the turn of the decade had only 800 plugs, the increase in plugs has been nothing short of market altering, but is too much too fast? Plugging into the Market Moving perishables has always been a challenging business. Keeping fruits, produce, meats, poultry and fish at the proper temperature and atmospheric conditions over long ocean transits has given rise to many innovations, not the least of which is the highly specialized reefer container. The ability to simply ‘plug in’ a twenty or forty foot ocean container for shipment and storage has dramatically changed global trade patterns. Since most perishable commodities run in North-South trade lanes, conventional refrigerated or “reefer” ships followed seasonal cycles. With the rise of the reefer container, vessel rotations are now part of the standard ship calls of a line schedule. The ‘reach’ of the reefer added completely new sources of traditional perishables while expanding the variety of perishable commodities available to global markets. The current composition of perishable shipments breaks down to 38% fruit and vegetables, 25% meat and poultry, 18% fish and seafood, 17% bananas, and 2% miscellaneous freight. Since the crash in 2009, freight rates for perishable commodities have largely out performed container freight. While the trade in perishable commodities has in part grown organically, the expansion of reefer business has come at the expense of conventional reefer ships. Twenty-five years ago, a majority of perishable freight still moved via conventional reefer ships. Now of the 100 million ton plus perishable market, only around 23%-25% [depending on definition of conventional] is moved via conventional refrigerated vessels. And the containership share of the reefer market is poised to increase in the near future. UK-based Drewry Consultants is forecasting the containership operators will hit 1.9 million reefer slots (Feus) by 2018 – a total bolstered by the addition of 18,000-20,000 teu mega-boxships. Conventional Reefer Going but not Gone Most analysts believe that the conventional reefer ship business will drop to less than 20% share in the near future. While there is inevitability in the box assuming a greater market-share, there are few caveats to the forecast. The conventional refrigerated fleet is old, much of it built in the 1980-90s, and expensive to replace. Further, ship deployment requires enough perishable volumes be available on site to make the service commercially viable. Finally, the reefer ships themselves are not always trade lane flexible, so shifting to other business opportunities isn’t always practical. But reefer ships do have some advantages over containerships. Generally, reefer ships have a longer lifespan than container vessels, thirty years being commonplace, because they are kept in better shape transporting food products. Also the service speed for reefer ships is higher than box ships enabling tighter schedules. For example, Chile to Europe is 15-16 days as opposed to 25 days via containership. Finally, the primary cost is in the ship itself as opposed to individual containers. A dry container costs around $4,000 but a reefer container can cost more than $20,000. On a mega-containership with a 1,000 reefer plugs that equals a $20 million investment, an investment that will be sitting around in terminals as much as it is in service. If you need three suits of containers to support a viable service: One is on the ship in transit, one is to be loaded and one is being discharged. To maintain a service, the total is a quick $60 million in reefer boxes - or roughly half the price of a newbuild for a reefer ship. Conventional Reefer ship fleet: a small club The conventional reefer ship fleet has some 600 ships with roughly 200 million c/ft (cubic/feet) of space. The conventional reefer ship business is a relatively small club of shipowners with the majority of the space concentrated in the top ten owners. Although the fleet is “conventional,” many have reefer plus on deck. The largest operator is Seatrade, followed by Baltic Reefers, GreenSea (Seatrade holds 54% of the ships) and Lavinia Corp’s Frigoship. In 2014, Baltic Reefers took over Stockholm-based NYK Cool Carriers, which then changed its name to Cool Carriers but operates a 30-ship fleet “independently” from Baltic Reefers. An unusual feature of the conventional reefer fleet is the ownership interest by “perishable” shippers. For example, Africa Express Line is owned by Compagnie Fruitière, Great White Fleet by Chiquita, Fyffes Atlantic/Geest Line by Fyffes, Network Shipping by Del Monte, Cosiarma by GF Group, Dole Ocean Cargo Express by Dole, Ecuadorian Line by Bonita and Isabella Shipping by Uniban. With more perishable shippers involved as stakeholders in the actual ownership/operation side of the business, the more complicated the “spot” business is for containership operators. Reefer Trends The downturn in the South American trade along with a huge increase in reefer plugs on new containerships has caused containership operators to rethink deployment. For example, Maersk Line has cut capacity by 10% on the trade between the east coast of South America and Europe and the Mediterranean. Maersk plans deploying smaller 4,500-6,500 teu ships to replace the 8,500 teu vessels. The Danish carrier said the move would reduce trade lane capacity by 10%, including reefer plugs. In this uncertain environment, there has been a resurgence among the conventional reefer ship operators. Ecuadorian banana producer Bonita, with its shipping subsidiary Ecuadorian Line, reactivated all of its five reefer ships after idling some tonnage last year. Banex, a banana exporter, is reportedly chartering ships from Siem/Star Reefers for an Ecuador-north Europe route. Cool Carriers has reportedly fixed a ship for a voyage from Hueneme, California to Japan to supply citrus products.