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Taking the temperature

20th August 2009, Page 32
20th August 2009
Page 32
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Page 32, 20th August 2009 — Taking the temperature
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Which of the following most accurately describes the problem?

'Integration' and 'consolidation' are the keystones of the chilled and frozen transport sector, which is no surprise considering the high start-up costs and training needs for any new players entering the market.

Words: Dave Young / images: Graham Rich

WeLl before we fell into the current recession, the temperature-controlled (TC) road transport sector was subject to intense upheaval and change. Wincanton sold much of its work to the Culina-Baylis operation, while, following an acquisition spree, high-profile Innovate went bottoms-up — most of its assets were purchased by the Stobart Group (chilled) and the Yearsley Group (frozen).

'Integration' and 'consolidation' seem to be the current key management strategies for the chilled and frozen transport sectors — an attempt to secure cost savings in the face of largely static rates and grow market shares.

Most big operators look to improve profitability by adding value — cold-storage, packing, order fulfilment — to the basic transport task, frankly admitting that the better profit comes from temperature-controlled warehousing, and not from transport.

"It's one part of the service package, but not high yield," reveals TDG business unit director Alan Poulton.

He adds: "Transport is low margin, but if the only way to get business is by doing transport, we'll do transport."

TDG's business unit concentrates on a national network of 19 cold stores across the UK, located from Aberdeen to Plymouth to Tilbury, all within reach of major population centres. Some of its sites offer customers services such as stock management, blast freezing and packing among other 'add-ons!

Strategic policy

Ihe firm's main focus, however, is primary distribution, collecting food from manufacturers, cold storage and

delivery into regional distribution centres (RDCs) — an enterprise created as a deliberate policy of strategic growth from antecedents in TDG Novae°Id and Exel Logistics.

Poulton expects warehouse consolidation to continue in the broader industry, not least because cold stores have high start-up costs and revenue outgoings.

Given the rising cost of energy over the past 18 months, TDG is interested in taking costs out and has, explains Poulton, found that a number of environmental initiatives also satisfy this requirement.

Aside from a small inhouse fleet of 15 artics, Langdons is 'I DG's principal transport partner. "It has a shared user network [ChillNet, see panel on page 321 so can do part loads. We've no need to put capital into secondary distribution for less than full loads," states Poulton.

He does, however, concede that Culina-Baylis and Yearsley [TDG's main rivals] have different approaches. but stresses their similar logistics roles There are, Poulton estimates, around 190 cold stores within the UK; 75% run by third parties and 50% are in the hands of "top five companies such as For the future, says Poulton: "TDG is well placed to benefit from consolidation and moves to third-party logistics (3PL) shared-user distribution."

Ironically, more efficient working might lead to some overcapacity, but in the event of sudden increases in demand, he believes TDG will benefit by being able to draft in extra vehicles from unrelated parts of the group.

Other players in the chilled sector (not all keen to be identified in print) view things a little differently, although the zeitgeist terms 'network infrastructure', 'radial distribution' and 'shared user' crop up continually in off-therecord conversations; and there's apparent unanimity with the view espoused by Robert Ryan, sales director at Langdons.

He says: "Frozen food has held up in the recession, there's currently a big demand, but there's spare capacity for chilled, it's difficult to get rate increases."

Diversifying activities

Most of the volume players —TDG is an exception — tend to combine warehousing and transport, each feeding

A. As well as transport work to the other. "The better your network, the more Pulleyn offers associated able you are to satisfy an increasing customer need warehousing services for next-day delivery," believes Ryan.

"We don't really want to do solely transport," declares Jonathan Baker, commercial director at Yearsley, which is the largest privately owned operator in the sector.

Shared-user operation (goods from more than one customer on the same vehicle), already ubiquitous in primary and secondary distribution within the drinks sector, is becoming increasingly common in TC operations.

The benefits of optimal vehicle utilisation, containing costs arid competitive pricing come at the price of complex traffic planning and real-time load monitoring, and this is where IT and telematics systems usually come into their own. Taken a stage further, those businesses that have 'got their act together' in the TC sector can extend the same consignment structure to limited shelf-life ambient goods for the same customers, enabling them to get further work or more easily secure backloads. They might also be extremely useful in monitoring and reconciling customer complaints. For example, by proving a truck arrived on time or the cold chain was unbroken.

Partnerships and alliances between TC companies are becoming more popular. Langdons is part of the German Nagel group (not to be confused with Kuehne-i-Nagel), which has an entrepOt international hub depot at Dover. Its main purpose is to consolidate export loads and make them more viable.

Partnerships

Langdons' Glasgow base works with DHL throughout Scotland, and is also the primary TC transport provider to TDG. In addition to warehousing at its own site in Bridgwater, Somerset, Langdons has discreet storage areas and offices in its customer and partner premises At one time, it relied heavily on owner-drivers running in its colours, but has had to change with the times. "The job's very different now," says Ryan. "Trucks are used more intensively but go less far afield. We do distribution during the day and trunk at night."

It does this by sometimes using the same, double-shifted lorries While artics run bulk loads into RDCs, the firm has added more tail-liftequipped, lifting rear axle, 26-tonne rigids to the fleet, which are especially useful for collections from smaller food suppliers.

Similar to its competitors, Langdons has invested substantially in software in order to improve customer service and to be able to predict emerging marketing opportunities.

Internet sales are increasing, reveals Ryan, who, perhaps counter-intuitively, reckons long waits at RDCs are becoming fewer, partly due to an increased spread of working across a 24/7 time frame. An alternative business model, particularly suited to family firms that don't have to put as much emphasis on the economies of scale enjoyed by corporate concerns, is specialisation and niche marketing.

Temperature-controlled transport is most commonly associated with foodstuffs, but Pulleyn famous for the superb presentation of its trucks has spent 15 years working closely with customers to develop services specifically tailored to the pharmaceutical industry.

"Our vehicles are specified with state-ofthe-art temperature monitoring equipment; and positioning systems are supervised remotely from our headquarters in Reading.

"An alarm system notifies the driver and HO if there are any deviations outside set parameters," explains the Pulleyn website, which reflects the company's considerable investment in bespoke IT technology and detailed participation in the design and build of custom-made trailers and bodywork.

As well as moving pharmaceuticalsand medicines throughout the UK and Europe, Pulleyn also offers a range of associated warehousing services, including deep frozen, ambient and chilled, along with services such as picking, packing, labelling and dedicated in-house customer systems at its HO.

Other markets

"The food sector is not our target area," confirms director Scott Pulleyn. "We market most strongly to the pharmaceutical industry. We can't compete with the networks and infrastructure (of multinational logistics companies), so we go for a niche market approach."

Another aspect of this strategy is Pulleyn's work transporting classical orchestras the immensely valuable string instruments, for example, are extremely temperature sensitive. However, cutbacks in arts funding and corporate sponsorship could cause a temporary downturn in touring and live performances.

As well as the artics, the all-Mercedes-Benz 55-plusstrong Pulleyn fleet includes 7.5-tonners that run to and from Europe, which is testimony to loads that are more about value than tare or cube.

Adopting an overview of TC road transport for the UK food sector, Alan Lines, general secretary of Transfrigorcute UK, sums up the first-hand experience of many operators. He says matter-of-factly: "Frozen is holding up better than chilled.

Consolidation in chilled

He adds: "Those supplying hotels and restaurants arc struggling. There's a lot of consolidation and a lot of people are parking up trucks or reducing their fleet sizes in the chilled sector to make sure they are running full. A fall-off in demand in more upmarket goods and fresh product, and supermarkets making more use of own-account vehicles to do backloads is putting pressure on smaller operators. Simultaneously, the cost of fuel is coming back up. For 'fridge boys; this is a double-whammy."

Looking on the bright side, though, he adds: -Pharmaceuticals are doing well, and Transfrigoroute UK hopes to have an online load sourcing system in place, exclusively for members, later this year."

At industry lobbying and strategy body the Food Storage and Distribution Federation (FSDF), chief executive Chris Sturman has been working closely with government departments on emergency planning for the distribution of Tanaiflu [an antiviral drug that slows the spread of non-resistant strains of the influenza virus between cells in the body] but cautions: "There isn't going to be a gold-rush, [possibly] a bit of extra volume."

As a member of the Department for Transport low carbon supply chain steering group which has also worked in conjunction with the Freight Best Practice initiative. Sturman confirms that more retailers are using own-account vehicles in pursuit of cost savings and the environmental benefits of fewer trucks backloading.

In addition, he foresees greater use of smaller TC trucks, including urban artics, to service the increasing numbers of multiple urban food outlets, such as Tesco Express and Sainsbury's Local.

Sturman believes: -In the past two months, Tesco has spent £25m with Stobart; Iceland has renewed and expanded its agreement with DHL, and, while ambient is kept in-house for specialist TC work, Asda uses FSDF members Fowler Welch and NFT Distribution."

He thinks it makes sound commercial sense for food retailers to avoid possible service quality issues and high capital and training costs, as well as for them to use already available skills and equipment within existing cold chain operations.

Tin a further example of acquisition in the UK, Norbert Dentressangle continues to consolidate the Christian Salvesen TC business.

Overall, Sturman estimates, "frozen is up about 7% year on year, but chilled struggles to maintain volumes, and smaller operators have and will continue to go into administration'!

Condusion

The TC transport sector requires higher capital investment than general haulage, which produces a 'knock-on' effect on revenue costs and training requirements.

Consequently, there are few new players, it's more a case of `acquisitions and consolidation:

The latter for obvious economic reasons is currently more en vogue, albeit pursued more cautiously than in recent years.

Perhaps tellingly, although Yearsley took on some of Innovate's assets, the new concern, Yearsley IS, is ring-fenced in order to protect the main business. •


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