Summary
The Covid-19 surge in demand for cold storage space is generating significant increases in cold storage charges and an absolute shortage of space in Europe. In the case of the UK this situation is being compounded by the growing prospect of a no-deal UK departure from the EU customs union. This will generate yet another cost increase for ACP agri-food exporters of fresh products which require cold storage before delivery to final customers. This suggests ACP exporters of products requiring cold storage need to shorten their supply chains through the establishment of arrangements for direct delivery of goods to final buyers. This would allow these ACP exporters to side-step the commercial costs of the worsening cold storage availability situation in not only the UK but elsewhere in Europe. Smaller ACP exporters may need to explore their options for accessing the ‘Airbnb’ model of cold store provision.
Press reports have highlighted how the Covid-19 pandemic has seen a surge in demand for cold storage space across Europe, as a result of food service channels being closed as part of lock-down measures. Traders are urgently seeking alternative customers or locations for food storage. Farmers, manufacturers, and retailers are all reporting increasingly unsuccessful efforts to find commercial fridge and freezer space. The shortage of cold storage space is so acute it is beginning to impact on production and is leading to increased food wastage across Europe (1).
‘Lineage Logistics, the world’s largest temperature-controlled logistics provider, says more than 90% of its cold-storage facilities in Europe are already full’, with the situation being even more acute in the UK, where the CEO of the Cold Chain Federation reports barely any available cold storage space (1).
It was reported that even before the Covid-19 lockdown disrupted supply chains in late February 2020, cold store capacity utilisation in the UK had reached 95%. The Covid-19 induced lock down has seen a further accumulation of stocks fresh meat and vegetable which no longer goes into the out of home eating sector. Even following the lifting of the lockdown, the new social distancing requirements in the out of home eating sector are likely to slow down the recovery of sales in this component of the market (2).
The UK Food and Drink Federation has long been warning of an imminent Brexit induced crisis in cold storage capacity (3). While to date this has been averted as a result of the finalization of a Withdrawal Agreement, the Covid-19 pandemic has exacerbated the underlying shortage of cold storage capacity in the UK.
However, the Covid-19 pandemic has seen companies searching out innovative solution. Some supermarkets now lease refrigerated containers on a year-round basis, rather than only at peak periods, while a form of cold store Airbnb has emerged with smaller business seeking out available capacity wherever it may be located (4). With continued uncertainty over the basis on which the UK will leave the EU customs union on 1st January 2021, the shortage of cold storage space in the UK and associated cost escalation is only likely to get worse in the coming months.
While ‘a recovery in demand and return to normal shipping trade flows will be key to resolving the cold-storage crunch’, analysts at Rabobank have taken the view ‘shipping cancellations will continue in June and through the entire second and possibly the third quarter this year’, with this increasing pressure on cold storage space in Europe (2).
In the case of the UK the prospect of a no-deal UK departure from the EU at the end of 2020 will renew pressures on cold storage capacity, as supermarkets and food manufacturers stockpile in the face of a completely unknown situation in regard to the functioning of EU27/UK supply chains, in the face of a reintroduced EU/UK border.
It has recently been highlighted how the Port of Dover, the principal point of entry for EU27/UK roll-on/roll off freight, has since 1992 been redesigned to allow freight to dis-embark and embark as smoothly as possible and is now ‘not set up to facilitate customs checks’. What is more ‘there is “a huge shortage” of the customs intermediaries who will be needed to complete the checks’, with the planned expansion of capacity having been ‘exacerbated by the COVID-19 crisis which has delayed recruitment and training’. Overall there has been a reduction of available custom agents from more than 200 before 1993 to ‘under one tenth of that today’ in the context of a major expansion of freight coming through the port, which now amounts to 10,000 trucks a day (5).
What is more from a cold storage perspective any stockpiling for a possible disruption of EU27/UK supply chains will be coming at the worst possible time of the year, when the UK is in the midst of Christmas peak of demand for cold storage capacity (3).
This grim reality has seen the Freight Transport Association (FTA) write to the Cabinet Secretary responsible for the Brexit negotiations, Michael Gove, appealing for ‘time to future-proof our supply chain’. In the letter FTA representatives pointed out ‘there will simply not be enough time to put in place all the necessary systems and processes to help trade continue to run smoothly’.
The FTA letter emphasised how the Covid-19 pandemic had ‘shown how vital a robust, fully functional supply chain is to the success of the UK and its economy’ and how it was impossible for FTA members to prepare for the challenges ahead when ‘much of the detail of our future trading arrangements as a country is still to be decided’. This includes ‘what the position will be on customs tariffs and the detail of how checks on food and animals are to be conducted at the UK and EU borders.’ It was emphasized how meeting the big challenges which the UK’s departure from EU customs union gives rise to ‘will take months, not minutes, to implement correctly’ (6).
In response to the concerns summarised in the FTA letter, on 12th June UK Cabinet Secretary Gove announced UK controls on imports from the EU could be introduced in 3 stages. In January ‘full customs checks and tariffs will be imposed on “controlled” goods such as alcohol and tobacco’, but with this also seeing ‘checks on live animals and high-risk plants’. In April, taking into account any agreement which might be concluded with the EU, ‘the health checks will be extended to all products of animal origin including, meat, pet food, honey, milk or egg products with pre-notification of imports required by the authorities’. In July ‘all goods will be subjected to customs declarations at the point of importation and relevant tariffs’ (7) (for more details see companion epamonitorng.net article ‘Commitment to Phasing in of UK Controls on Goods Entering from the EU Provides a Framework for Addressing ACP Triangular Supply Chains Issues’, 25th June 2020),
However, for goods to flow smoothly along cross channel routes the arrangements on both side s of the channel are critical with EC officials suggesting ‘the EU has no intention of relaxing checks on UK goods’ entering the EU (7). What is more the early phasing in of controls on high risk plant products (January 2021) and animal products (April 2021) while getting beyond the Christmas peak demand period for cold storage capacity, is still likely to reinforce the need for wholesalers, retailers, and food manufacturers to hold higher levels of stocks to ensure continuity in supplies.
Across a range of product area this will serve to intensify demand for cold storage capacity, driving up costs still further for ACP exporters of fresh produce which require cold storage facilities in the UK prior to delivery to their final customers.
| Comment and Analysis While the cold storage business is seen as having considerable growth potential and is attracting growing levels of investment interest (8), the time frame for the establishment of new cold storage capacity is lengthy. Not only can building large cold stores cost million in investment, it can also require around 3 years to build, once planning permission has been applied for. Against this background the current shortage of cold storage space in the EU is likely to be around for some time to come. This is likely to see cold storage costs rising across the EU.These costs increases are likely to be particularly high in the UK, where the impact of the Covid-19 pandemic on stocks in cold storage being compounded by the consequences for the functioning of EU27/UK supply chains arising from a possible no-deal UK departure from the EU customs union and single market. Fears of the consequences of a no-deal UK departure from the EU customs union, is likely to encourage larger holdings of stocks in cold storage, until such time as new arrangements for moving goods into the UK from EU27 member states are working smoothly.When combined these factors are making access to cold storage capacity increasingly scarce and expensive, as products where longer storage time is possible are stockpiled (e.g. frozen and chilled meats, butter, cheese etc.). This is also putting a squeeze on access to cold stores for shorter shelf life products. This is adding to the costs ACP exporters face in getting goods to final customers in the UK. Additional cost increases also arise from the global imbalance in the availability of refrigerated containers (‘reefers’), which the Covid-19 related lock down measures gave rise to. This problem of the cost increases for the leasing of reefers is being further compounded by the extended use of ‘reefers’ as cold stores by retailers who have extended year round, a practice normally only engaged in during the Christmas peak period. Against this background, exploring how to shorten supply chains through the establishment of direct delivery of goods to final buyers would appear to be essential across a range of ACP export products requiring access to cold stores. This would allow ACP exporters to side-step the commercial costs of the worsening cold storage availability situation in not only the UK but elsewhere in Europe. For smaller ACP exporters accessing the ‘Airbnb’ model of cold store provision, whereby those with temporary excess capacity lease it on a short-term basis to those in temporary need of cold storage, may prove of some value. For larger companies involved in importing ACP products, who have their own cold storage capacity in Europe, joining an ‘Airbnb’ cold store network as a supplier of capacity could open new revenue streams. |
Sources:
(1) freshfruitportal.com, ‘European cold storage space extremely limited amid sky high demand’, 5 June 2020
https://www.freshfruitportal.com/news/2020/06/05/european-cold-storage-space-extremely-limited-amid-sky-high-demand
(2) Reuters, ‘World’s biggest cold storage supplier could reach full UK capacity in three weeks’, 24th April 2020
https://www.reuters.com/article/us-health-coronavirus-storage/worlds-biggest-cold-storage-supplier-could-reach-full-uk-capacity-in-three-weeks-idUSKCN2261ZQ
(3) Guardian, ‘UK running out of food warehouse space as no-deal Brexit fears rise’, 18 November 2018
https://www.theguardian.com/politics/2018/nov/18/uk-running-out-of-food-warehouse-space-as-no-deal-brexit-fears-rise
(4) thesterlingchoice.com, ‘Is there a Storage Shortage?
https://www.thesterlingchoice.com/is-there-a-storage-shortage/
(5) Institute of Exports, ‘Dover seeks inland support to handle Brexit surge of declarations’, 10 June 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/06/10/Dover-seeks-inland-support-to-handle-Brexit-surge-of-declarations
(6) Logistics Manager, ‘FTA calls on Gove to give UK time to future proof supply chains in face of Brexit stalemate’, 11 June 2020
https://www.fpcfreshtalkdaily.co.uk/single-post/2020/06/11/FTA-calls-on-Gove-to-give-UK-time-to-%E2%80%9Cfuture-proof%E2%80%9D-supply-chains-in-face-of-Brexit-stalemate
(7) Guardian, ‘Full controls on goods entering UK will not apply until July 2021’, 12 June 2020
https://www.theguardian.com/politics/2020/jun/12/brexit-full-border-controls-on-goods-entering-uk-will-not-apply-until-july-2021
(8) Consultancy.eu, ‘Growing cold storage market set for further consolidation’, 30 January 2020
https://www.consultancy.eu/news/3750/growing-cold-storage-market-set-for-further-consolidation