By Keith Norbury
The shift to containerization from dedicated reefer vessels is causing challenges for the temperature-controlled cargo sectors, says a transportation consultant, who co-wrote a paper for the Canadian Transportation Research Forum on refrigerated cargo in 2010.
The problem is particularly acute on the West coast of North America, said Darryl Anderson, Managing Director of Wave Point Consulting in Victoria, B.C. “I found one example of one reefer ship coming into the port of Vancouver and I don’t think it loaded any cargo,” Mr. Anderson said.
While that 2010 paper, which he co-authored with Joseph Monteiro, didn’t address the issue directly, it did allude to it, Mr. Anderson said.
“We actually don’t have designated reefer ships calling on West coast ports; we’re using containers predominantly,” he said.
Dan Gleason, President of Associated Cargo Specialists Canada Inc., said that situation isn’t unique to the West Coast. Reefer ships are dwindling in numbers everywhere, particularly on North American routes.
“They’re just too expensive to run,” Mr. Gleeson said. “You don’t see bulk ships being built. You see super-container vessels being built.”
Drewry Maritime Research, in a news release promoting its 2011-12 reefer shipping market forecast, noted that the industry is changing quickly with the specialized reefer fleet “feeling the strain” from the “burgeoning” containerized reefer sector. Thirty-six reefer vessels were scrapped annually from 2008 to 2010, with another 19 added to the scrap heap by June 2011. That left 691 vessels in the fleet. “If scrapping continues along recent trends, it is feasible that the fleet could dwindle to 476 vessels by 2015,” Drewry reported.
Mr. Gleeson said a bigger concern for him is that the shipping companies serving the Canadian market are finding it tougher to make money here. “If we’re talking just the Canadian marketplace, I’m a little concerned because their rates are going down,” Mr. Gleeson said. “The last thing we want is the shipping companies turned away from here because they’re not making a reasonable profit.”
Susan Oatway of Drewry Maritime Research also referenced that difficulty in commenting on the 2011-12 forecast, which predicted that by 2014 container ships will provide up to 96 per cent of overall reefer capacity and carry 74 per cent of perishable reefer cargo. While the specialized reefer fleet is shrinking, it creates a reefer pricing dilemma for container ship operators, she noted. “On the one hand they will be keen to see constant – or increasing – utilization levels of reefer slots. Given the high number of new builds scheduled to be delivered, this suggests downward rate pressure. On the other hand, they will be keen to maintain pricing structures given both the impact this inevitably has on other cargoes, as well as their current financial concerns.”
Dave Bedwell, Executive Vice-President of China Ocean Shipping (Canada) (“COSCO”), said years ago his company was “one of the major players in the export, temperature-controlled container business.” However, COSCO pulled away from the reefer market because of the scenario Mr. Gleeson described.
“The business was attacked ratewise and it became just too big of an expense for the amount of return on ocean revenue,” Mr. Bedwell said.
At one time, he said “these temperature-controlled products were based on the value of the actual product.” So expensive products like rockfish, shellfish, snow crab or lucrative herring roe presented “a lot of good moneymaking opportunity in the old days of reefer business.”
But as bigger reefer ships were built and more reefer plugs were added at terminals, temperature-controlled cargoes now turned into “freight of all kinds,” or FAK, commodities. Certain non-vessel operating common carriers, or NVOCCs, started classifying whatever was in a container at a flat FAK rate, he said.
“We said, ‘We can’t take this any more. We are out.’ And we walked away,” Mr. Bedwell said.
Nevertheless, he said that Japanese and Korean carriers are still big in the refrigerated cargo market, a comment that Mr. Anderson echoed.
“Japan is a very strong market for Canadian frozen and chilled products because it’s a premium market. Stuff that’s going into China is not a premium market,” Mr. Anderson said.
As Mr. Anderson and Mr. Monteiro noted in their 2010 report, “the supply of refrigerated containers has also increased from 848,000 in 2000 to 1,371,500 in 2006.” Despite that increase, though, another developing issue is that “container shipping companies are reluctant to put refrigerated containers too far inland,” Mr. Anderson said. “And I’ve talked to the shipping lines and I know the reasons why.”
The shipping lines do not make a lot of refrigerated containers available, particularly 20-foot containers, and their business models require them to exercise tight control over the return of empty containers to serve export customers. The further away containers move from West coast ports, the slower the turn-around time, and the less control the shipping line can exercise over the return. Also, repair facilities may not be readily accessible further away from ports, putting cargoes at risk, and/or potentially delay the return of a functional container.
“In Vancouver there is critical mass because you’ve got more than one shipping line, and you have people that can repair the containers,” Mr. Anderson said. “You’ve got two railways serving the port. If there is delay anywhere in the logistics system, you can solve that problem and get that container back into your supply chain again rather quickly.”
Prince Rupert’s Fairview Container Terminal has 72 480-volt/ 60-amp reefer plugs, according to the Prince Rupert Port Authority website. Meanwhile, the Deltaport container terminal near Vancouver has 1,020 440-volt reefer “points,” according to the B.C. website of Terminal Systems Inc., which operates the terminal on a long-term lease with the Vancouver Port Authority, and TSI’s Vanterm facility has 360 440-volt reefer points.
Prince Rupert’s capacity for refrigerated cargo will undergo improvements, however. A proposed terminal expansion that is expected to commence this summer will double the number of reefer plugs while quadrupling the terminal’s capacity to two million TEUs. And Canadian National Railways “will also probably start a reefer service from the port of Prince Rupert,” said Jean Jacques Ruest, CN’s Executive Vice-President and Chief Marketing Officer. “Today the port of Prince Rupert barely does any import/export of reefers as such.”
Vancouver’s capacity for refrigerated containers still doesn’t make it easier to move them deep inside the country, said Jim Honeywell, Vice-President of Canadian Distribution Services Ltd. of Richmond, B.C. “Typically the reason they do that is cost,” he said. “But secondly, a lot of the ocean carriers don’t like the refrigerated ocean containers going into the interior. They like to keep them close to the port.”
In a process he calls “trans-loading”, his company’s solution is to bring in truck trailers stuffed with meat from the prairies. “We de-stuff them and then we re-stuff them into pre-chilled ocean cans,” he said. “And then we take them to the port and put them on a ship and away they go to China and Japan and Russia, which is a big part of our business.”
” It works the same with imported refrigerated cargo, such as seafood from China. Workers at his company’s 300,000-square-foot facility, which includes a massive freezer, will strip the load from the container and put it on skids. (Ocean containers are typically floor-loaded, he said.)
“We’ll put it on pallets and stick it in a truck with rubber wheels, or on rail, and zing it off to Calgary and there’s no worry about the return of the container,” Mr. Honeywell said.
Compared with that, it’s much more expensive to “source load” because putting an ocean can on a chassis requires an electrical generator set to produce the power to cool the unit, he said.
Bal Heer, Sales Manager for Cratex, a Delta, B.C. company that sells used shipping containers, said the issue isn’t just restricted to refrigerated containers, however.
“They want the containers to deliver locally, like Coquitlam, Delta, Langley and then go back to the shipping line. They hate taking them all the way inland, say to Prince George,” said Mr. Heer, whose company sells about 20 refrigerated containers a year that have been removed from service. The company also rents containers to firms like cheese factories and fish processors to use for storage.
“During the recession, a lot of the shipping lines sold an awful lot of their used equipment because they wanted to get more cash into their systems,” Mr. Heer said.
“Meanwhile, few new containers were manufactured to make up for the ones that were sold off. That created a shortage of containers, the majority of which are made in China.”
“Container production has picked up a lot lately,” Mr. Heer said. “I don’t know how behind they are on the reefer side of things. But I think as the economy picks up more containers will come into play for sure.”
Gary Stordy, Public Relations Manager of the Canadian Pork Council, said that is already happening. Access to containers isn’t the problem it was just two years ago.
“Just prior to the whole economic meltdown, it was extremely difficult to book space in a refrigerated container,” Mr. Stordy said. “That has improved.”
Even a glut of containers isn’t likely to solve the problem, though, of getting them inland where they are in most demand.
“Everyone in agriculture says we want more refrigerated containers inland because that’s where the agricultural commodities are,” Mr. Anderson said. “And every shipping line that I’ve ever talked to, which is quite a few, says ‘Yes we’ll do some, but really, ship your things to the coast and we’ll fill the containers there.’“
Further complicating matters is that many refrigerated containers used in export are 20-footers, whereas imports tend to arrive in 40-footers. This creates a problem for shipping lines and railways as they try to balance their imports and exports, Mr. Anderson said.
“Every container in North America is driven by the demand for imports,” Mr. Anderson said. “We don’t import a lot of goods in 20-foot refrigerated containers. So they’re at a premium.”