The big squeeze
When the second largest logistics company in the UK cold storage sector goes under, it points to some serious and very real problems - namely rising energy costs and continually squeezed margins - says Colin Miles, md of the food business at Christian Salvesen, the cold chain specialist.
And it doesn't look like the problems are going away in a hurry either, with more consolidation forecast, forcing operators to innovate to stay in the picture.
"It's a tough environment," says Miles, who is also former president of the Cold Storage and Distribution Federation. "Prices have deflated over the last five years and [logistics] companies have had to be very good at cost savings, efficiency drives and innovation. Some might say this is not a bad thing but if the market's tough, there is simply no choice."
Compounding this problem is rising energy costs - particularly electricity - which is calling into question the industry's potential viability, says Miles. "We are seeing a substantial increase in these costs, depending on where you are in your energy purchase contracts. If you are just coming out of a two-year deal the percentage increase is frightening - up to 50% is commonplace. This is a very big issue."
He adds: "Together with the trading difficulties, it's no surprise that the UK's second largest cold store operator [Celsius First] went into administration recently - all these factors make it difficult to have a sustainable business."
Crucial role for technology
The solution, as Miles sees it, is to invest in technology, although he admits this can be difficult to justify when times are hard.
Greg Tanner, md of Vocollet Europe, which provides voice-directed picking systems to the likes of Wal-Mart, The Co-operative Group and Spar, says industries fraught with tight margins have to be discerning about the IT solutions they choose to implement.
With this in mind he claims that voice-directed systems are really taking off within distribution because of their "maturity and demonstrable effect on the bottom line"
"Voice systems are turning the perception of cold stores as productivity bottlenecks into a misnomer, proving themselves invaluable within sub zero environments," says Tanner.
Benefits of this particular technology include freeing up the hands of the pickers, which improves productivity; eliminating the need for pickers to return to base if an instruction is unclear; and the ability for the picker to run multiple orders in a single trip.
A good voice directed system will accommodate a range of speech patterns and languages, says Tanner, and can virtually eliminate errors as it doesn't allow the picker to progress to the next pick until the current pick is satisfactorily completed, nor can the incorrect data be keyed in.
"As competitive pressure increases, organisations will continue to hunt for new ways to streamline operations and enhance productivity to stay ahead of market rivals," he says. "Voice is fast emerging as a preferred technology to meet this need."
Rien Brakel, md of Culina Logistics, agrees on the crucial role that technology, such as radio data scanners, has to play in the industry.
"A paperless environment means there is no delay from receiving the order and getting it out to the order pickers," says Brakel. "The administration element is being reduced all the time, which is vital if you've only got 12 hours to deliver and you're looking at four to five hours to get to the destination - you've only got seven hours to get all the orders picked and despatched."
However, Brakel is more sceptical about voice activated systems, suggesting that high costs and questionable benefits compared to radio data scanners have prevented them from really taking off.
Technology is also being used to help offset the crippling effects of rising energy costs. In one example, a new range of low energy chillers which reduce fuel consumption have been developed. These are being distributed by process cooling specialist Powermaster.
The mini centrifugal, oil-free compressor technology on the Climaveneta TECS chillers claims to achieve up to 40% higher efficiency than chillers with scroll or screw compressors.
Ageing facilities
There are several other factors that combine with energy costs and pressure from retailers to make the cold storage industry fraught with difficulties, says Miles.
"We are a high asset cost industry," he says. "Building costs are high and that makes individual costs high. But the [cold store stock] is ageing and although there is some investment, this has to be justified, which could lead to some of the older cold stores in the UK going out of production."
Furthermore, as manufacturers shift production overseas in a bid to be more competitive, the location of cold stores shifts accordingly, adds Miles, which can lead to problems of occupancy.
Executive secretary of the International Association for Cold Storage Construction David Thompsett agrees that the sector needs to update its old buildings or risk not getting insurance for them. But according to Olav Turner, md of cold storage building contractor Turner Insulations, very few new stores are being built. This has forced his company to diversify into other areas.
"Stock is ageing but not being replenished - people are just keeping the old ones going," says Turner. "It doesn't help that there is more fresh produce being produced than frozen these days. The industry is definitely heading for more consolidation. At the moment the outlook for cold storage is very bleak."
Consolidation
Indeed, it seems inevitable that more companies are likely to meet the same fate as Celsius First unless more investment is made. But as Miles points out, "investing in a difficult marketplace is tough for anybody"
An industry source has suggested (Food Manufacture p20, April 2006) rising energy costs were a factor in pushing Celsius First over the edge. But he also pointed to the uncertainty over the future ownership of companies such as Birds Eye, as being another significant contributing factor. Celsius First spent £14M on building a huge automated depot at Grimsby a few years back based on contracts with big players such as Unilever.
Miles predicts further consolidation, more situations akin to that of Celsius First, and an acceleration in the rate of older cold stores going out of service.
"The market will reduce in capacity in the next five years, leaving us with three or four key players, and below them a number of smaller, niche players," he forecasts.
Brakel adds: "There seems to be no light at the end of the tunnel and smaller players are going to be pushed out of the equation."
KEY CONTACTSChristian Salvesen 01604 759 900Culina Logistics 01630 695 000IACSC 01844 275 500Powermaster Products 01786 450 350Turner Insulations 01472 361 611Vocollect Europe 0870 600 8255
