The pandemic wreaked havoc on the supply chain. Everything became harder—from procuring raw materials to maintaining inventory levels and meeting delivery timelines. However, there were areas that benefited; one being cold chain distribution and warehousing.
Demand for cold chain logistics grew as the pandemic changed how we ate, where we traveled, and the pharmaceuticals we needed. While companies and governments work to get the supply chain “back to normal,” cold chain operations may never be the same.
This evolution and what it means for the future makes cold chain logistics a hot topic for supply chain professionals.
How Is the Cold Chain Market Changing?
Industry analysts anticipate the North American cold chain market to grow by 61% from 2021 to 2027. The increase creates a market valuation of $99.7 billion.
Cold storage warehouse vacancies consistently hover around 1%. Low-average inventory during the pandemic alleviated some space concerns. However, with shippers ramping up inventory levels, space is tight once again. The strong demand is attracting investor attention with more than 40% surveyed pursuing cold storage assets, up from 7% before the pandemic began.
More than 3.3 million square feet of speculative cold storage development is currently under development in the U.S.—a 1,000% increase from 2019. However, that number does little to solve the looming space shortage.
Shippers and investors looking to build space face serious headwinds with record-high inflation and rising interest rates. Constructing cold storage facilities generally costs twice that of regular warehouses and takes at least six months longer. With 78% of existing cold storage facilities built before 2000, many lack the qualities of modern cold operations. In fact, the average age of a U.S. cold storage warehouse is 42 years. Retrofitting dry warehouses offers limited cost savings and even those facilities are in short supply.
What’s Driving the Demand?
Limited cold storage space has done little to curb surging consumer demands. The U.S. now represents the world’s largest market for temperature-sensitive healthcare products like biopharmaceuticals, vaccines, and clinical trial materials. But a booming drug sector represents just a fraction of current cold storage needs.
The pandemic accelerated consumer spending in the frozen food sector by $595 per person, while refrigerated food spending also saw increases year over year. The e-commerce trend now represents a serious factor in refrigerated and frozen food storage. Online purchases of edible perishables increased by 58% year over year. These trends have food producers, manufacturers, and grocers pursuing centralized and micro-fulfillment centers to keep products as close to consumers as possible.
A future driver of demand on cold storage capacity is the CHIPS Act, which helps domestic firms develop semiconductor manufacturing capabilities. Many of the raw materials needed for chip production require refrigerated transport and storage, compounding an already growing problem.
Other government regulations including the FDA rule on Requirements for Additional Traceability Records for Certain Foods and the Drug Supply Chain Security Act are increasing requirements for companies manufacturing, transporting, and storing specific temperature-sensitive materials starting next year. Handling these products now requires additional work, tracking, and documentation.
What Will Influence Cold Chain Capacity in 2023?
Space constraints aside, expect three major developments to impact cold chain distribution and warehousing in the coming months. Think of them as the “three T’s”:
The current talent shortage will continue plaguing cold chain operations. A record-setting 248,000 U.S. warehouse workers quit their jobs in July 2022. August posted 505,000 job openings in transportation and warehousing. Cold chain positions typically are harder to fill and experience higher turnover due to extreme temperatures and more difficult working conditions.
Labor shortages and facility output demands have cold chain operators investing more in automation technology from RFID to robotics. Currently only 10% of warehouses utilize some form of automation. That is changing with 83% of 3PLs and 70% of shippers indicating they are interested in augmenting their supply chain operations with new technology. As a result, analysts predict the warehouse automation market to grow to $78.82 billion in annual sales by 2026—an 87% increase from today.
Many cold chain warehouses specialize in one type of product or one temperature zone. Freezer storage ranges from -4°F to 14°F. Cold storage requires 30°F to 39°F. Cool conditions mandate 46°F to 59°F. Finding facilities that offer all three zones is rare because they require special construction and equipment. However, with demand far outpacing capacity, warehouses will invest in expending their temperature-controlled capabilities to maximize storage and services.
Learn More from Langham
Langham Logistics specializes in cold chain distribution and warehousing. We operate three state-of-the-art facilities, assessed as top 3% of temperature-controlled warehouses in the country. With 1,300,000 square feet of storage in facilities all less than 3 years old, Langham Logistics is the definition of “modern cold chain.” Walk through our doors to find sophisticated refrigerated and freezer equipment (including ultra-low temperature), highly skilled team members, and automated technology support.
Langham Logistics is certified in Good Manufacturing Practices (GMP) for warehousing, transportation, and distribution, making us one of the most skilled operators in the country. Learn more about how we stay “cool” under market pressures to deliver for our clients.