Thomas Eskesen, the former Maersk global head of refrigerated shipping, founder of Eskesen Advisory, and chairman of TPM Cold Chain, shares his insight on some of the biggest challenges in the reefer container sector in this interview recorded on Jan. 4.
What is the impact of the Suez Canal diversions on the reefer market?
On the subject of the Suez Canal, this will have massive implications for the global cold chain industry. And much more than just meets the eye. Directly it’s not a major reefer corridor in terms of what goes through the Suez, it’s mainly protein to and from Europe and Asia, but you also have connecting points towards Africa and the Middle East, and we seek cargo now being stuck on either side of the canal, so for example if you are a fruit shipper from Egypt or Morocco and you have customers in China, then you can’t get your product through and a lot of these are time sensitive cargoes with a defined shelf life, so you will see pretty big implications on delays and the unpredictability of arrivals. At the same time you have cargo coming the other way through the canal from say India, fresh grapes going to the European market, and they also have limited shelf life so it’s becoming more and more disruptive for the fresh industry. We see shortages of products in the Middle East so far example if you are a customer and you are used to buying bananas in the supermarket in Saudi, or Dubai, some of those bananas will come from the Philippines that is fine, but the goods that then come through the Suez Canal from Ecuador or Costa Rica, that is not making it into the market, and that means we see commodity prices more than doubling because of the shortages.
If we try to predict the bigger picture, then I am getting worried now about flow, a lot of empty containers (typically) are passing through the Suez Canal that are being positioned from say China towards Brazil via Europe or it could be newbuilding containers form China needs to get to South Africa for the citrus season, those kind of disruptions are not visible to the eye here and now but they will hit down stream, so the cascading effect could be pretty significant. Every week this goes on the worse it will get. Then you have another effect which is pricing. We have seen the spot price on dry goods go up from China and to and from key markets. We week that the bottom of the reefer rates have been hit and the rates come up again. Those customers have not logged in their pricing even if it is from say Argentina to Europe, they might be in for a surprise because of the scarcity of the container, now they can’t move them around as freely as they could before, so our best advice to customer right now is to be a little bit paranoid and try to understand with the service providers not just the tactical side of what is happening on the vessels that are affected but downstream what does it mean for flow and so on. It’s a pretty massive event actually, probably the event the shipping lines were fearing, of course for crew safety but of course we can also see the stock market reaction which has been very positive, with Maersk shares up over 25% since this has happened. So bottlenecks are good for shipping lines, it ties up capacity of ships and equipment but for mankind hopefully this is over in a month or so, but it has already done enough damage to hit Q2 already, so we should all be concerned.
What are the other big challenges in the reefer sector?
The number one challenge by far is El Nino and weather, no matter where we look we have weather challenges. The El Nino effect is impacting the seafood catch off of the West Coast of Latin America, it’s impacting banana production on either side of the Panama Canal. We think the market has moved in 2023. There were shortages of fruit because of lack of profitability, the farmers were not making money in 2023, now we think it has moved to be a sellers market if they have the product. If they have not had weather implication to their harvest, they are actually in a very good spot in terms of selling to retail. So we should see pretty healthy profits again on the fruit grower side, but also watch out for shortages of fish and other things. We don’t see any demand problems in terms of consumer behavior in the Northern Hemisphere, which is still pretty good. It might only be the Chinese consumer which is showing a little bit of restraint but otherwise we see that demand is still good. So it’s the weather that is by far the biggest challenge for us in 2024. And that means retailers need to be very careful in terms of how tough they are on their suppliers. Rather they should be sure they lock in supplies versus try to beat up suppliers for lower pricing.