Cold storage costs increasing, but inventory at unprecedented levels
During the National Fisheries Institute’s Global Seafood Market Conference in January 2022, a panel covering the supply-chain challenges faced by the industry had a common theme: Cold storage prices are going up.
Now, months later at Seafood Expo North America/Seafood Processing North America, taking place 13 to 15 March, 2022, in Boston, Massachusetts, U.S.A., the story has changed slightly – but not in the direction that the seafood industry wanted.
Lineage Senior Vice President Brian Beattie told SeafoodSource the story behind recent cost increases is largely the same as it was a few months ago, and the same as it was even before the COVID-19 pandemic started.
“If you track back pre-COVID, one of the biggest issues everybody in this entire building was dealing with was labor,” Beattie said from the company’s booth at the expo.
Even before the COVID-19 pandemic, Beattie said, labor was becoming harder to come by, and he theorized that part of that was the increasing presence of companies like Amazon and other e-commerce sites. Those factors only compounded once the pandemic began.
“I have a philosophy on labor, that not only was it because of the pandemic that caused supply chain disruptions, but there was this thing that happened as a result of COVID: Many people that didn’t shop from home and get e-commerce goods now get e-commerce goods,” Beattie said. “Amazon came to town in a huge way. It took a lot of people to pick goods to send to a house. So their labor went up, on a vertical trajectory, and that labor had to come from somewhere.”
That labor was pulled from more than one place, Beattie said. Grocery stores, manufacturing jobs, warehouse jobs, all shifted to e-commerce positions. As a result of the demand, companies had to compete to acquire staff and costs subsequently went up.
“So labor costs are almost vertical from where they were two and a half years ago,” Beattie said.
Costs related to the tight labor market have been compounded by the skyrocketing cost of energy, which can be attributed to the geopolitical turmoil caused by Russia’s invasion of Ukraine. The invasion and the subsequent sanctions caused ripple-effects throughout the world’s supply chains.
“Our two major costs are labor and energy,” Beattie said. “Energy costs are at a ridiculous level. So if you combine the cost of labor, with the cost of energy, we had to raise prices.”
The even worse news for the seafood industry is that Beattie predicts costs aren’t going to go down any time soon, and in all likelihood will get worse.
“I haven’t found that customer yet that’s saying ‘I think I’m done, I think I’m good, I’ve got a full staff, and I don’t think I have to raise my hourly wage one more time,’” Beattie said. “I haven’t heard that yet.”
The flow of goods, as well, has continued to be wracked by the same supply chain difficulties that the industry has been forced to cope with since the start of pandemic.
“The flow of goods right now, it’s disrupted. It’s still a huge challenge,” he said.
Beattie reported soaring inventories in cold storage across all of Lineage’s facilities. Normally, at this time of year, Beattie said, the demand for cold-storage tends to dip before the big push for the holidays as companies begin preparing to have inventory in anticipation of the holiday season. This year, however, the exact opposite has happened, and space in cold storage is tighter than it has ever been at this time of year.
“I’ve never seen it like this in my time in the supply chain,” Beattie said. “We’re more full than we’ve ever been at this time of year, and we haven’t started the ramp-up for the busy season.”
In the past, many companies would practice “just-in-time” style stocking of goods for markets that had become predictable. The pandemic’s supply chain complications, coupled with a soar in demand, left companies in a situation where planning for potential disruptions has become the norm.
“Right now, we’re seeing ‘Let’s build for just-in-case, and let’s build our inventory,’” Beattie said.
For Lineage, the difficulties have served as a motivating factor for the company’s increasing push for more automation in its warehouses. The company has a long-term goal of eliminating the need for employees to be in the freezers at all.
“You’re going to see us invest more in building buildings, as we go forward, with automation,” Beattie said. “Our investment, not only in the United States but across the globe, is accelerating now.”
So far, the company has automated all activity inside the freezers in 22 out of 400 facilities. Jobs in the freezer, Beattie said, are difficult to hire for as few employees want to deal with the cold temperatures day in and day out.
“It's a lot easier to be able to hire an IT engineer than it is somebody that could go in on a lift to go pick a pallet out of a freezer,” Beattie said.
The other side of the cost equation, energy, is also in focus for the company. The company is making a push for solar energy, and has committed to being carbon neutral by 2040.
“One of the great things about having a warehouse that’s designed the way that we have it designed, is that we have that flat roof on each one of them. So we’re also doubling down on solar,” Beattie. “We’re well into the solar journey, and where we invested first was where the state level and local level was committed and had the incentive to partner with us, that was the starting point and it’s a march now.”
The company has developed patented technology to move towards renewable energy, and has a location that is now entirely powered by solar energy.
“We’re up to 25 patents now, where we are totally running the building off of solar, and we store and give energy back to the grid,” Beattie said. “Solar is definitely way up the list.”
Photo by Chris Chase/SeafoodSource