According to a recent report issued by Los Angeles-based industrial real estate firm CBRE, there could be a demand for up to 100 million square-feet of industrial cold storage and freezer space over the next five years. So, this quarter, we sat down with Jeff Davis with WinChill Cold Storage and asked him to share insights on the future of the cold storage industry both regionally and nationally.
Q: What is driving the growth in the cold storage and freezer industry?
Jeff Davis: The trend in the market to build freezers is huge as manufacturing and production companies seek to reduce their transportation costs by more regionally located freezers, strategic and tactical locations. The shortage on trucks on drivers has caused a general escalation in rates. So, to combat that there is a lot more strategic and tactical thought process going on with manufacturers to streamline the movement of products. So, freezers are going up to match production facilities all over the country.
Q: What are some of the biggest drivers of the production growth?
Davis: The outlook on the protein market is being driven by a shortage of pork in China and the other Asian countries due to an outbreak of Asian swine flu. The Chinese have had to euthanize more hogs than the United States even produces. So, they are buying pork all over the world. It is not even being affected by the tariffs. They are paying the tariffs. Pork is their main staple.
The non-protein markets, fruits and vegetables for example, are also growing with people wanting to eat healthier, and that is taking up cold storage space. So, almost every metric that you judge the freezer business by is on the upswing – severe upswing. Personally, I don’t see any negatives.
Transportation costs continue to rise. How is that impacting the need and location for more freezers?
Davis: One of the key drivers in all of this is the shortage of transportation, and that’s getting worse, not better. Every year, we are short more and more drivers and more and more trucks. More producers lean toward putting their capital into production and freezing into the freezing business. They’d rather build plants and process than they would freezer. So, freezers are a pretty safe bet.
When you build right next to the manufacturer or in a central hub, you have an anchor tenant and it also reduces their transportation costs by 75%. So, you can become a real asset to them. To me, that’s the key to any business. If you are an asset to your customer base, then they can’t afford to not use you. They are going to use you.
How important is having rail access next to these cold storage facilities?
Davis: Anything that is produced in a pork or beef plant normally must have blast freezing, room freezing and be in a location where it is easy to export. That’s why we are committed to building facilities with rail access. That’s a huge! A freezer without rail access today is not nearly as important to the industry. Any freezer built with rail access is going to be successful.
How is WinChill’s success an example of what you’re seeing in the industry?
Davis: Our own experience has been when you build 330,000 square feet in 18 months and you fill in four months, that is probably the best example of the industry. Actions speak louder than words in the financial markets.
Is this same cold storage growth happening in all parts of the country?
Davis: The same pattern is all national. When our customers purchase another entity in another part of the country, they are popping up a freezer right beside it. The real key is streamlined transportation. Almost all manufacturing companies are looking at their sales numbers, and if this cut of meat is being sold more in the South, they are moving that production to a southern plant and a southern freezer. They are not shipping that product from California to Atlanta anymore. They are going to produce as close to Atlanta as they can and ship it there and freeze it there. They are all looking to regionalize to reduce transportation costs.
What does this mean to the future of WinChill Cold Storage?
Davis: Our position has been to build next to the manufacturers – to be an extension of their production plant. That’s guaranteed business every day. Personally, I don’t see any downturn in the business. It’s a difficult business to get into because of the capital requirements, so with a good set of investors and with good backing the freezers are a slam dunk.