The State of Cold Storage Facility Management and How The Industry Can Fix It
The cold storage market has a bit of a competition issue. Because of aggressive growth by industry giants, more private and semi-private operators are gaining market share. All companies in the industry are competing for a smaller share of the market.
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The US Department of Agriculture reports that there’s been a downward trend of outsourcing to these types of operators for the last 5 years.
This is because companies with unique cold storage and transportation needs are prone to risk – and many 3PLs and national distributors are not removing it from their facilities.
This is also why fewer than 30% of 3PL/4PL contracts are renewed annually due to disruption that results in delayed product delivery, loss of customers, sales, and competitive advantage.
A Deep Dive into the Numbers
In 2022, the U.S. cold storage market was valued at $35.56 B USD and is expected to expand at a CAGR of 13.3% -13.6% between 2023 to 2030 as brands and 3PLs expand their cold storage development.
For example, in Q2 2022, there were 3.3 million square feet of speculative cold storage development underway in the U.S. This was up from only 300,000 square feet in 2019.
Despite aggressive growth in the industry, it’s not all good news for 3PLs/4PLs and distributors. Lineage Logistics and Americold have captured more than 75% of the market leaving limited room for others.
US Foods and Sysco have become giants in the food distribution industry, competing for the largest market share.
Why Cold Storage Facilities Are at Risk
OpenWorks has developed a facility management maturity model where it categorizes facility management organizations based on the approach it is taking. Categories are:
-Starting
-Progressing
-Excelling
-Leading
The chart below illustrates how OpenWorks places FM companies into specific categories based on their operations.
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Continuing Issues Inhibiting Growth of Cold Storage
OpenWorks has found that most 3PLs/4PLs and distributors are putting their operations at risk as the facility management company that they choose is either “Starting” or “Progressing.” Thus, the following scenarios are continually occurring:
Lack of True Control and Not Understanding How to Get it
3PLs/4PLs and distributors outsource commercial cleaning services for only certain rooms like toilets and restrooms, breakrooms, and offices. However, they are insourcing (using internal teams)for the rest of the warehouse and distribution centers, including the cold storage area.
This is because leadership incorrectly believes it has more control when it relies on internal teams when the opposite is true.
The company will still deal with and oversee distributed teams with limited oversight visibility into facility performance.
The labor shortage continues to be a considerable concern regarding supply chain disruption. Because facilities cannot get the labor they need, they are not getting the consistent service they need to stay compliant, safe, clean, and efficient. Inside our recent outsourcing report, you’ll see how 3PLs/4PLs and distributors are adding risk to their operations by insourcing.
Although several 3PLs/4PLs and distributors are consolidating services and using a national facility management provider for their warehouse, distribution center, and cold storage, in many cases, the providers are only tailoring services to the company, and not the individual site needs.
Facility management companies cannot (and should not) take a blanket approach with different types of facilities across different temperature zones:
– refrigerated, chilled (-5 degrees Celsius for fresh fruits, vegetables, eggs, dry fruits, milk, and dehydrated foods) and
– frozen (-10 to -20°F for frozen vegetables, fish, meat, seafood, and other products.)
While 3PL/4PLs and distributors may have consolidated facility management services to one or a few national providers, there is limited visibility across sites and regions. Therefore, the experience is like having many distributed, dispersed teams. They are getting the cost-saving benefits of consolidation but not the risk-reducing benefits.
Loss of Focus and Distraction on What's Necessary
Supply chain facility leaders also need visibility and transparency to make data-driven services that help them optimize operations to achieve business goals. For example, the OpenWorks portal provides customers and service providers alike transparency and data.
Most 3PLs/4PLs and distributors tend to be activity-based vs. outcome-based. OpenWorks partners with these companies (including Ryder, Lineage Logistics, Americold, Schneider, Shamrock Foods, and others) to shift that relationship.
This shift helps leadership to see how to improve efficiency, increase service performance to customers, accelerate inventory turns, and strengthen margins.
Distributors must think beyond technology. Many third- and fourth-party logistics companies and distributors are investing up to $1B in technology to modernize their distribution networks across the U.S. to maintain a modern fleet of tractors and multi-temp trailers.
They are investing in robots, retrieval systems, and RFID scanners, conveyor systems, automated guided vehicles, automated storage, and packaging, sorting and retrieval systems, pick-to-light systems, and voice-picking systems. However, many overlook how cleaning and maintenance directly impact supply chain operations and profitability.
Technology only works properly if the working environment is clean. If the conveyor systems are not cleaned properly and taken care of, the result will be unnecessary downtime impacting productivity and efficiency.
A dirty and unorganized warehouse or distribution center will impede product movement, and reduce inventory turns. The faster inventory is turned, the better the profitability.
Missing a Partnership Mentality
To compete against the giants in cold chain logistics and distribution, 3PLs/4PLs and distributors need to look at the facility management of their warehouses as a competitive advantage, not as a place that can be a bottleneck.
In addition, operations will continue to provide a higher level of customer service and protect key accounts as they close gaps across the organization in the warehouse, operations, supply chain, transportation, service performance, margins, P&L, revenue, and customers. And savvy, modern facilities management companies will assist with these ultimate goals.
Once the cold storage industry focuses on true partnership, the basics of a true clean area, and choosing a facility management company with the correct maturity level that it requires for success, the state of the cold storage industry, will look a little less ... frozen.
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