Temperature-Controlled Logistics: Cold Comfort
Perishable-food shippers are warming up to the idea that public refrigerated warehouses and 3PLs are well equipped to handle their diverse temperature-controlled storage and transportation needs. Outsourcing refrigerated logistics lets food companies chill a little—and focus on core competencies to better serve consumers.
Perishable-food shippers are particular about their products and supply chain partners because ultimately they serve mutual consumer interests: those of the buyer and those of the gourmand.
Finicky consumers breed equally selective wholesalers and retailers, who in turn hold suppliers, producers, carriers, and other cold chain intermediaries to high standards and expectations.
On top of the usual shipment protocol required for moving consumer goods in a time-sensitive supply chain, food shipments have limited shelf life and demand special handling, both in storage and in transport. Time lost in transshipment translates at best to a shortened selling window; at worst to dead inventory or unsatisfied consumers. Accuracy and compliance requirements for perishables, therefore, are among the tightest in the industry.
The complications of storing and moving perishable cargo manifest themselves in other ways, too. Globalization places additional pressure on businesses that source food product from myriad offshore locations. This global effect has a greater number of companies considering decentralized stateside distribution networks, using quick-turnaround, low-inventory strategies and facilities to locate product closer to demand and speed time to market.
Equally important, food purveyors require facilities that can flex with evolving technologies and storage and handling equipment, as well as seasonal demand fluctuations. Ensuring that product remains in a "continuous movement" loop within the supply chain further stresses the importance of integrating warehouse and transportation services.
The premium placed on location, flexibility, and unique storage and handling requirements inevitably pushes many food companies to outsource logistics services.
The refrigerated and temperature-controlled logistics sector continues to evolve to meet the diverse palette of food manufacturers and distributors and their ever-changing outsourcing requirements.
With services ranging from freeze blasting and variable temperature storage, to LTL consolidation and integrated rail movement, outsourced logistics providers are extending their value proposition to meet the demands of perishables companies including large manufacturers such as McCain Foods and The Hershey Company, and niche confectioners such as Storck USA.
Public refrigerated warehouses (PRWs) are melting traditional perceptions of cold storage by investing in technology and transportation partnerships to offer diversified and integrated logistics solutions.
Third-party logistics providers are similarly leveraging their proprietary technology, assets, and expertise to offer outsourcers scalable solutions that help manage the nuances of refrigerated warehousing and distribution.
PRWs are multiplying at a feverish pace, a trend that tracks back to the early 1980s, when private warehousing reached its peak. In 1981 the United States housed 932 private refrigerated warehouses, according to the U.S. Department of Agriculture. By contrast, that same year the number of public warehouses—654—sank to its lowest mark since 1955.
But 1981 also marked a turning point for both sectors, as public and private warehousing began trending in opposite directions, reaching parity in 1991, and further distancing themselves in the 15 years since.
"A number of outdated private facilities, particularly in urban areas, were shuttered in the early 1980s. Companies began building modern facilities that served both traditional storage needs as well as growing distribution requirements," says Bill Hudson, president and CEO of the International Association of Refrigerated Warehouses (IARW), Alexandria, Va.
The new facilities were bigger, often with more dock doors and more efficient transportation infrastructure, and gravitated toward serving the public rather than the private sector. This trend also paralleled the IARW's own campaign to steward manufacturers toward outsourcing initiatives that promised greater ROI by focusing on core competencies—a dynamic that continues today.
PRW space currently exceeds 2.35 billion cubic feet and accounts for nearly 75 percent of total refrigerated warehouse space in the country, according to the IARW's most recent report.
"After a period in which refrigerated space grew largely due to replacement of older facilities, the latest report indicates the greatest number of PRW facilities since 1955. The 713 U.S. PRWs reported in 1955 average close to 650,000 cubic feet in size, while the 827 facilities in the 2003 report average more than 3.5 times that size at 2.4 million cubic feet," according to the report.
PRWs are not only growing in number and size—the volume of product moving through these facilities is increasing as well. Cold storage facilities are becoming more dynamic in their ability to scale and customize space for individual customer needs. Net usable space, which accounts for actual storage capacity excluding racks and material handling infrastructure, has grown year-over-year, and currently hovers around 80 percent of gross facility capacity.
Matching Supply to Demand
Customer demand for faster inventory turns has also forced cold storage facilities to become true distribution operations, matching inbound supply to outbound demand.
As a result, food manufacturers and distributors are beginning to see the efficacy of looking beyond their four walls—for both outsourcing and integrating warehousing with transportation—to drive efficiency in the cold supply chain.
"Continuous movement logistics is a big part of our operation. Our goal is to get product to customers on time, accurately, and in a viable condition," says David DeWees, distribution center operations manager, The Hershey Company. Having a willing and able public warehousing partner goes a long way to making this goal a reality.
The chocolate manufacturer has worked with Atlanta Bonded Warehouse (ABW) for more than 30 years to distribute product in the U.S. Southeast from its Kennesaw, Ga., warehouse. Hershey's operates four other regional DCs—two in Pennsylvania, and one each in Illinois and California.
ABW, which originated in 1948 as a candy broker providing protective warehousing to the confectionary industry, offers public and contract food-grade, temperature-controlled storage and handling. Presently ABW operates 1.5 million square feet of high-cube storage capacity, and provides co-packing and postponement services, crossdocking, and refrigerated LTL pool distribution.
Hershey's manufactures products across the United States, and distributes them in regional pockets. Because Hershey's offers a broad range of products, one unique challenge is managing disparate shipments, particularly when they require temperature-controlled trailers for transport.
Carrier capacity is an ever-growing problem for shippers of all stripes, but food manufacturers such as Hershey's are further handicapped because of seasonal demands, fluctuating volume, and special storage and handling requirements.
ABW's location on the periphery of one of the United States' fastest-growing consumer markets and its connection with regional LTL carriers gives it considerable leverage helping Hershey's store and distribute product.
By example, ABW's sister transportation partner, Colonial Cartage Corporation, offers direct refrigerated LTL and pool distribution service to Georgia, Alabama, Tennessee, and north Florida. The company also has a network of pool distribution partners that covers the entire Southeast.
Storck Makes a Delivery
ABW has played an equally pivotal role in Storck USA's growth in the United States, and in the Southeast specifically.
Storck USA, American subsidiary of German parent company August Storck KG, manufactures and distributes candies such as Werther's Originals and RIESEN's chocolates. The company currently uses five public refrigerated warehouses in the United States—in New Jersey, Georgia, Texas, California, and Indiana.
Its entire product line is manufactured in Germany, shipped via container to the United States, and distributed domestically via LTL, and to a lesser degree, TL. Storck imports containers into six North American Ports, with more than half transported in reefers. About 20 percent of this volume comes into the Port of Charleston, S.C.
After conducting a network optimization study six years ago, Storck opted to move its warehousing and DC operations from Florida to Georgia, and began working with ABW to manage volume coming into the Port of Charleston.
"The Atlanta region is growing quickly and offers an ideal distribution location for the Southeast," notes Michael Clifton, manager of logistics, Storck USA.
"Because we import products, it is increasingly necessary to locate our facilities near ports," he adds. "The ordering patterns of mass merchandisers and grocery chains are constantly changing. We receive small but frequent orders, so we have to be close to the customer, and react quickly to replenish orders."
Storck loads its products in Germany on slip sheets using an automated process, then ships containers stateside to ABW, which offloads product for redistribution.
To ensure product integrity, ABW maintains its warehouse at about 55 to 65 degrees Fahrenheit and can offer storage space down to 40 degrees based on customer needs. Humidity is also a critical factor given the sensitivity of Storck's candy products, reinforcing the need to quickly and efficiently unload containers.
Some challenges Storck faces mirror those of other companies depending on regional and national truck transport; however the nature of its freight magnifies these issues.
Drayage and truck capacity for refrigerated cargo is scarce around ports, and finding refrigerated carriers for LTL moves is especially challenging, says Clifton. Storck's inventory turnaround averages about 30 to 40 days, but can fluctuate depending on seasonality and demand spikes.
ABW's partnerships with Colonial Cartage and its extended network of regional LTL carriers affords the candy manufacturer considerable flexibility in finding truck capacity.
Additionally, because ABW has a large network of customers in the food sector with similar product and shipment requirements, it can sometimes mix and match loads and consolidate freight to reduce transport costs and provide economies of scale.
ABW has also evolved its warehouse and technology capabilities to seamlessly assimilate with customers such as Hershey's and Storck. "ABW has access to our internal web site and continually feeds us real-time shipment information," says DeWees.
Four years ago, Storck rolled out a web-based supply chain portal to gather data from all its warehouses so customers and business partners could find information about shipments and orders at a moment's notice.
The portal also saves data from Storck's warehouse management system and provides an accurate record of Storck's inventory in ABW's warehouse.
"It shows us where inventory is located, and how long it has been in the system, which enables us to ensure product remains fresh," Clifton says.
Moving forward, Storck is looking to implement a new forecasting tool to streamline transportation and service performance. With customer ordering patterns in flux, it's critical to have a demand forecasting process that can predict future needs, notes Clifton.
The PRW Alternative
Outsourcing to a 3PL is the primary alternative to public warehousing, aside from bringing refrigerated warehousing competencies in-house.
Asset-based 3PLs that own and operate refrigerated and temperature-controlled warehouses offer a value proposition similar to PRWs, with perhaps more flexibility and scalability. Their depth and breadth of services often go well beyond simple refrigerated storage.
"3PLs offer considerable flexibility. Businesses don't have to pick one place to locate a DC," says Sara Martin, director of education and information services, IARW. "With an outsourced logistics provider, companies can have a warehouse presence in multiple locations. 3PLs also provide scalability to seasonal businesses."
McCain Foods, a $1.6-billion potato product and snack manufacturer, partnered with AmeriCold Logistics to outsource cold storage and distribution at 12 of the 3PL's facilities across the United States.
The potato processor, headquartered in Florenceville, New Brunswick, Canada, produces one-third of the world's french fries and serves a "who's who" of customers including Gordon's, Kroger, Red Robin, McDonald's, and Wendy's.
McCain operates four manufacturing facilities for potato production and six for snack foods. "AmeriCold currently handles product from all four of our potato plants and from five of our six snack plants," says Timothy Egan, director of warehousing for McCain.
Nearly 60 percent of McCain's outsourced logistics spend is with AmeriCold, representing about 45 percent of its total warehousing budget—including two private refrigerated facilities. AmeriCold manages 1.7 billion pounds of inbound receipts for McCain annually, with the largest DCs in Burley, Idaho, and Plover, Wisc., handling about 700 million pounds per year.
At any given time, McCain stocks 3,500 SKUs in AmeriCold's DCs, and during peak demand periods that number climbs as high as 4,000 SKUs.
McCain turns inventory 11 times a year on average, says Egan, although certain products require more or less stock replenishment. All of its product is frozen and therefore must meet strict requirements.
"AmeriCold checks the temperature of our products on receipt of shipment, then on the outbound end to make sure it is below our 10-degree Fahrenheit standard. The temperature is monitored constantly," he adds.
Left Outsourcing in the Cold
Outsourcing cold storage has proven a valuable strategy for McCain, especially given the nature of its relationship with customers.
"Some of our customer contracts are short term, so building a facility specifically to meet their needs is economically unfeasible," says Egan. "Working with AmeriCold allows us to maintain a variable warehousing footprint."
McCain also operates two private refrigerated warehouses that it uses to establish base standards both internally and externally.
"We like having two refrigerated warehouses of our own to benchmark performance—our own performance, and our 3PL's. We currently measure utility costs, for example, at our private facilities in Maine and Washington to see how we can be more energy-efficient."
McCain benchmarks its 3PLs "to keep them honest," says Egan. But on average, its 3PLs do a better job inside the four walls than McCain does, because warehousing is not its core competency, he adds.
McCain continually leverages the 3PL's expertise and resources to streamline its supply chain. AmeriCold is accommodating McCain's transition to rail shipping, for example.
"We've been engaged with rail for the past five years, but we have renewed our focus during the last year," says Egan.
McCain, which owns and operates more than 150 rail cars, has made it a prerogative that any new warehouse facility it brings online—outsourced or not—is served by rail. Most AmeriCold facilities offer rail connections and McCain currently ships 500 million pounds a year via rail—both inbound and outbound—through the 3PL.
AmeriCold also handles some of McCain's motor freight shipments. The manufacturer is considering having AmeriCold manage LTL consolidation, which would help drive synergies between warehousing, distribution, and transportation.
Given its national footprint and large carrier network, AmeriCold has the leverage to pool LTL orders from multiple shippers and reduce transport costs without compromising time and service requirements.
AmeriCold's proprietary supply chain technology solution, i3PL, ties together transportation and distribution activities. The solution centralizes information on an interactive web site that enables users to search, drill down, and view data about orders, inventory, and transportation status.
Perhaps more importantly for customers such as McCain, the technology allows them to search and analyze data across multiple facilities. If the future figures as promising as the present, McCain will use i3PL to monitor shipments across modes as well.
Demand for integrated refrigerated warehousing services will continue to shape the way PRWs and 3PLs expand and evolve their service offerings to remain competitive.
The delineation between outsourced public warehouse and outsourced logistics provider will become increasingly obscure as warehouses dabble in transportation-related services and 3PLs morph between niche and all-in-one expertise.
One thing remains clear, however: as businesses reevaluate their stateside distribution networks, either responding to global sourcing strategies or to better serve specific U.S. markets, the trend toward outsourcing refrigerated logistics will grow.
PRWs and 3PLs are primed to invest in and develop next-generation solutions, build bigger and better facilities for handling variable-temperature freight, and expand their service portfolios to deliver integrated solutions.
For food shippers and shoppers alike, that's cold comfort.
Bringing PRWs Out of the Cold
Public refrigerated warehouses can offer benefits to companies that need to store and distribute low-temperature products. These benefits include:
Financial. Manufacturers, wholesalers, and retailers alike can cut down—or entirely cut out—capital investment.
Professional. Public refrigerated warehouse/distribution facilities employ trained professionals who specialize in providing maximum protection for customer products. Most carry warehouse legal liability insurance.
Technology. Most public refrigerated warehouse and distribution facilities have the computer and telecommunications capability to network with customer computers and provide critical transaction data and analysis. Information about inventory management, shipment histories, production scheduling, and stock replenishment can be routinely shared.
Distribution. Public refrigerated warehouse and distribution facilities are strategically located to connect with all transport modes, but shippers can also take advantage of reduced transportation costs that are available through consolidated shipments. Food manufacturers, especially, can bypass the need to acquire or construct refrigerated facilities in one or several permanent locations.
Core competency. Companies can focus on their core competencies and let the public refrigerated warehouse and logistics companies design facilities, control warehouse and logistics costs, provide sanitation, monitor product temperatures, and provide related services such as blast freezing, product labeling, repacking, and import/export certification.
Source: International Association of Refrigerated Warehouses