The Cold Storage Shortage: A Critical Look Ahead for Shippers
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The driver shortage continues to steal most of the headlines, but there is another pressing concern in the logistics industry: the cold storage shortage. Because demand for fresh and refrigerated groceries is exploding around the world, shippers need to plan carefully—or their products could get left out of the cold, instead of in it.
Why Freshness is No Phase
In 2017, 27 percent of consumers said they purchased groceries online. Internet sales topped $19 billion last year, representing 3 percent of total grocery sales. Today those groceries make their way through 35 million square feet of cold storage warehouse space along with another 300 million square feet in retail stores. Unfortunately, this capacity is inadequate for the booming growth ahead:
- Online grocery sales are forecasted to grow five-fold to $100 billion by 2024, when 70 percent of consumers are expected to buy groceries online. To say that cold storage could be in short supply is very likely an understatement (Boss Magazine).
- Cold storage facilities are already near capacity, and more are needed because stores are responding to market demand by adding fresh products and services, in terms of both volume and variety (Food Logistics).
- Populations in cities are growing, and these consumers want more fresh, convenient foods. This is particularly true of dual-income households and millennials, who cook less and shop online more (Logistics Management).
- Now that the economy has recovered from the Great Recession, consumers are committing more discretionary income to fresh and organic foods, which require more refrigeration with varied temperature breaks and complex cold chains (Logistics Management).
- Frozen food continues to demonstrate strong demand around the world, which means existing capacity will not become available to handle new cold storage needs (Logistics Management).
Why the Shortage Could Snowball
You might think that the shortage will take care of itself as new facilities open to meet demand. But, as always, the problem is more complex than it seems. Building and operating a cold storage facility can be twice as expensive as a typical warehousing facility due to the need for specialized expertise, equipment, technology, food safety, optimal site locations, and more.
Instead of simply storing and distributing, because of changing consumer expectations, cold storage facilities are now providing complex fulfilment services, such as processing, packaging, mixed loads, and frequent deliveries. This major shift adds value for shippers and retailers but limits the available space for cold storage (Logistics Management).
Further complicating the shortage, Public Refrigerated Warehouses (PRWs) serve to fill the void in cold storage capacity. But because they don’t require long-term contracts, shippers are quick to switch providers rather than committing to long-term relationships. That dynamic has left PRWs reluctant to make capital equipment improvements and add cold storage capacity (datex).
What’s in Store for Cold Storage
According to experts, there is not much growth in cold storage facilities to date because of the steep barriers to entry in cost and expertise, and the long-term investment. The total market for cold storage should reach more than $212 billion by 2025, but capacity is only projected to grow by 1 percent per year through 2023.
Until capacity catches up, shippers should watch for a jump in demand for cold storage space in Public Refrigerated Warehouses (PRW). Although capacity is limited, these cold storage facilities will likely fill the immediate void.
Shippers should also assume that consolidation will continue. Given the cost and complexity of building their own facilities, e-tailers may keep acquiring grocery stores to fortify their cold chains with existing cold storage distribution capabilities and in-store cold storage space.
Refrigerated Shipping Expertise
There are plenty of changes ahead for shippers and cold chains. As fresh food demand grows and evolves, LoadDelivered will stay focused on creating and delivering rigorous temperature-controlled solutions. In fact, LoadDelivered was founded on temperature-controlled shipping and continues to lead the industry as a 5-time recipient of Food Logistics’ award-winning Top 300 3PL and Cold Storage provider.
Contact us to learn more.