The international PRW industry: still growing and ever evolving.

Challenges range from new technogies to large-scale, dramatic takeovers of cold storage companies by tax-privileged real estate investment trusts.

The past year has been an eventful one for the public refrigerated warehouse (PRW) and logistics industry, and it is apropos to reflect on

One of the trends that has affected the PRW business is an increasingly much more global outlook, and IARW programs very clearly reflect our commitment to serve members all around the globe. Opportunities to assist other nations in developing modern, productive PRWs are great, and we are committing a larger share of our resources to doing so.

Increased investment in information technologies, to meet the growing demands of customers, is a second important trend. By putting tools like bar coding, WMS and EDI to work, the PRW industry is providing customers with more accurate, faster turnaround than ever before. With this increased investment in technology has come the recognition of the industry's important role in efficient consumer response (ECR). The IARW is now one of a dozen or so major food industry organizations joining efforts to see that the entire supply chain can achieve and reap the benefits of more efficient distribution.

Another trend having a potentially huge impact on the PRW/logistics industry stems from the recent acquisition of several large PRWs by real estate investment trusts (REITs). These huge organizations the industry because of its heavy commitment in real estate and the potential associated tax benefits. The effect of REITs on the PRW industry will be interesting to watch over the next couple of years.

International Growth

This past year has seen an unprecedented number of calls to IARW from governments and businesses all over the world. As many other industries have become increasingly global in scope, so too has the PRW industry, a fact that is reflected in IARW's focus on international development and services. One of IARW's major international initiatives was to set up a European division in Zwolle, the Netherlands. Opened in 1997, the new office aims to assist IARW's European membership in education, technology, trade and business development, as well as in other matters of importance to the PRW/logistics industry in Europe.

Reflecting the strength of this interest was the first ever IARW/TRREF European Education Institute. Held in March in Leuven, Belgium, the educational program was conducted in cooperation with the food technology faculty at the University of Leuven, and modeled after the 35-year-old TRREF Institute. TRREF, referring to The Refrigeration Research and Education Foundation, is the IARW's 55-year-old sister organization. The TRREF Institute, which just celebrated its thirtieth anniversary at the University of Oklahoma, recently attracted 260 registrants to a program which covered more than twenty subjects pertaining to food safety, food storage, food distribution, warehouse operations, warehouse management systems, and warehouse technology.

The European Institute was aimed at middle and upper management, directly or indirectly involved in operational affairs, seeking practical information on the special requirements of refrigerated warehousing and logistics. Divided into three blocks, the Institute was established as a three-year program in which each year's subjects will increase in difficulty. The program blocks included food science and technology, warehouse and logistics management; and leadership and motivation.

Of course, Europe isn't the only area where the IARW is involved. Despite the fact that the association's principal office is in the USA, I have had the privilege of leading the association this past year from Australia, and after returning the chair to the United States for twelve months, it is expected that the association's chairman in 1999 will hail from Brazil. Last year, 1997, IARW held its annual convention in Barcelona, and a well-attended and hugely successful Asian conference took place in Hong Kong. There, representatives from Japan, China, Vietnam and other nations presented an in-depth look at the state of food distribution and its challenges throughout Asia.

Other worldwide activities included two recent visits to South Africa and the appointment of an IARW representative in that area. The possibility of establishing a similar arrangement to serve members in Latin America exists. The IARW board is expected to discuss this during a meeting in Chile and/or Argentina later this year. In addition, IARW President Bill Hudson just returned from a very exciting trip to India, where the US Embassy requested IARW assistance in strengthening the food distribution system in that country.

As noted by my fellow IARW board member Terry Brown, vice president of operations at the Carmar Group in Carthage, Missouri, growth in Asia, Latin America and South Africa is a natural outgrowth of the changing face of the world. "As the world becomes more developed and more economically mature, there is a great opportunity for frozen foods to be sold," he says. "This gives IARW the opportunity and the responsibility for providing services to refrigerated warehouse and logistics companies, their customers, and the populations they serve."

With the advent of the Internet and other management information technology, the IARW not only has an opportunity to grow, but the organization is uniquely poised to offer more people in more places its knowledge and experience in developing productive PRW industries. 'The IARW/TRREF can offer these countries the advantage of not starting from ground zero," says Brown. "We can help them bypass a lot of years of learning and hard knocks by assisting them in becoming established."

Technology for the Future

There is no question that the demands on today's PRWs are more numerous, and perhaps more difficult to meet, than at any time in the past. Customers want more rapid turnover of product and more accuracy than ever before, and current information about both. All this requires an investment in state of the art information technology tools, like radio frequency (RF), bar coding, and EDI. Not only do customers want accurate, instantaneous information about their products, but they also expect the PRW industry to provide a growing list of value-added services (VAS). Today's VAS run the gamut from freezing to shrink-wrapping to labeling to integrated logistics. One example of how the PRW industry has changed is in its response to customer requests for cross-docking. Once considered entirely to be a VAS, cross-docking is increasingly becoming an expected service that the industry provides for more and more customers.

The PRW industry is stepping up to the plate to meet its customers' needs by putting information technology tools to work. It's not uncommon these days to hear of PRWs that are spending literally millions of dollars on software and other technology to ensure that they remain strong players in an ever-competitive environment. Not all of this work has been completed, by any means, as PRWs often face the task of persuading other members of the supply chain to participate in like technologies. "The growth of information technology has struggled because everyone is moving at a different speed with a different set of tools," says IARW board member Gary Sarner, chairman, Total Logistic Control, Milwaukee, Wisconsin. "At some point, we're all going to be on the same page, and when that happens, we're going to see much more efficient movement of goods."

Benefits that can be expected from the move towards more uniform adoption of information technology include driving out excess inventory, better inventory control and lower costs. Together with supply chain partners, PRWs will be able to continuously monitor the flow of product, providing customers with real-time information about goods at any stage in the process.

Widespread adoption of information technology is also increasingly driven by uncompromising governmental regulations, like HACCP which could either reduce or lead to more frequent product recalls. Such concerns have prompted customers to work closely with PRWs to implement compatible warehouse management systems, EDI and other tools that provide dating and/or constant tracking of goods.

"Organizations like FDA, USDA, and the EU government may soon require that product can be tracked all throughout the supply chain in case a recall is needed," says Terry Brown of Carmar. "Information technology is required to be able to do that. Some customers are working with us now so that they're capable of that kind of tracking in advance of regulations." Expect to see continued investment in information technologies, as PRWs work towards providing customers with not only what they need today, but what they may be asking for in the future.

Efficient Consumer Response

The concept of efficient consumer response (ECR) is nothing new. Various segments of the supply chain have been working towards ECR best practice goals and the capability of total electronic commerce for five years now. What is new, however, is IARW's official involvement in the Joint Industry Effort on ECR. The IARW has now joined with more than a dozen food industry trade associations in efforts to develop across-the-board ECR implementation. In inviting IARW to officially pin the effort, the food industry has recognized that the PRW industry plays a vital role in improving distribution and reducing distribution costs.

Kelth Tickell, executive vice president at Commercial Cold Storage, Atlanta, Georgia, says that, in some ways, the PRW industry stands apart from the rest of the joint effort's members. "The PRW industry has been in the middle of the supply chain for years," he says. "As more companies shed the extras, like logistics, we're taking on a more integral role than ever before."

At the heart of the joint effort is the committee, or process improvement group (PIG), appointed to focus on electronic commerce. The PIG has two goals: the first is to increase EDI participation and the use of other electronic commerce tools; the second is to expand the capability of those using the tools. Much of the PRW industry has long been active with EDI, and many IARW members are fairly advanced in the use of electronic commerce when compared to other members of the supply chain. However, the use of electronic commerce can be greatly enhanced if more supply chain members get into the act. Brown doesn't think that the ECR effort has turned the corner yet with EDI, but remains hopeful that complete ECR adoption can be achieved in the future. "If everyone wants to continue to serve consumer demand, all of the supply chain will need to become active with electronic commerce," he says. "Everyone is looking to keep costs down while managing the business, and the only way to do that is to work together to get everyone involved in ECR."

The Rise of REITs

A relatively new phenomenon in the PRW industry is the rapid acquisition of cold storage facilities by real estate investment trusts (REITs). The celerity with which this has occurred promises to change the face of the industry over the next few years, perhaps dramatically. Created back in the 1960s to encourage real estate investment in the United States, REITs are generally structured so that they don't have to pay corporate income taxes. In order to take advantage of that unique privilege, however, the organizations must pay 95% of taxable income to shareholders.

While the investment trust concept intended to prohibit the REITs from directly operating properties, certain REITs were able to escape the restriction by means of a "grandfather clause" passed in the early '80s. Meanwhile, other REITs have called upon creative thinking to circumvent the original intent. As real estate became a hot investment, and stock markets soared, many of the REITs strayed from their original interests in office buildings and shopping centers, and invested heavily in a variety of other properties such as prisons and hotels. Their latest fondness, it appears, is for public refrigerated warehouses. In the past year-and-a-half, four REITs have purchased at least seven different PRWs in the USA and Canada, and most recently, in Europe. In one of the most dramatic of these investments, two high-profile REITs acquired Portland, Oregon-based Americold and URS Logistics of Atlanta. The combined Americold Logistics represents over 25% of the PRW market in the USA, with 15 million sq. ft. of warehouse space in more than 80 locations. In a similarly striking move, another REIT acquired both Christian Salvesen, the fifth largest PRW in the United States, and Frigoscandia, Europe's largest PRW company.

What makes PRWs so appealing to the REITs is the fact that ours is a heavily asset-based industry, according to Gary Sarner. "Much of the PRW concentration is in real estate, so it fits the REIT law," he says. "Their interest in the industry is an extension of what they have been doing over the past 25 years. There are only so many shopping malls, office buildings and dry storage warehouses that they can purchase before they need to diversify."

Right now, as the commercial real estate market sizzles, REITs may have an advantage, due to their unique structure and tax status, over other potential PRW buyers. "REITs are able and willing to pay prices that others aren't willing to pay right now," says Sarner. "Until current dynamics change, they'll be the most likely buyers of PRWs."

This can present an advantage for PRW owners who are considering selling, as they can demand top dollar from potential buyers. For PRWs interested in expanding and growing, however, the REITs may have made the purchase of other cold storage facilities more difficult. Whether or not the current REIT advance on PRW properties will continue for long remains to be seen. Key to the trend lasting is how attractive the industry will be as the various factors shift and sway, but the bottom line may be how well the industry performs for the REITs once they begin reinvesting - as they may be required to do by law.

Also at issue is the amount of capacity available for purchase by REITs. They have already nearly tapped out office building capacity, and the same could occur in PRWs. And finally, the real estate market will have much to do with the continued REIT buying frenzy. If interest rates rise, or if stocks fall markedly, REITs may pull back and slow down their rate of investment. Keep in mind, says Sarner, that "nothing lasts forever."

Clearly, the issues affecting PRWs today will influence the industry for the foreseeable future, as international development, technology and ECR, and REIT involvement may just be beginning to heat up. Fortunately, the PRW/logistics industry is strong, and it is endowed with experienced professionals of great talent. Ever-changing though it may be, the PRW/logistics industry is uniquely well suited to take on these and other issues as we enter the twenty-first century.

More Alternative Refrigerants Added to DuPont's Suva Line

Two new refrigerants, R-408A and R-409A, have been added to the line of alternatives to chlorofluorocarbons (CFCs) available in North America under the Suva[R] brand from E.I. du Pont de Nemours & Co., Wilmington, Delaware.

Both are blends. Suva 408-A consists of R-125 (7%), R-124 (46%) and R-143a (47%). R-409A includes R-22 (60%), R-124 (25%) and R-142b (10%). Intended as replacements for R-502 and R-12, respectively, they both have A-1 ratings for low toxicity and non-flammability.

"With the addition of these products to our Suva line, DuPont authorized distributors can truly provide an alternative refrigerant for any customer need," said Mark Baunchalk, national sales and marketing manager for the line. "This reinforces the distributor network as the most convenient and competitive source for refrigeration contractors and service technicians."

Other DuPont CFC alternatives, including Suva MP39 and HP80, "continue to be the most widely selected alternatives in the USA and around the world," commented John Bray, global business manager for the Suva line. Industry experience shows that MP39 and HP80 are still the best all-around replacements, he added, but 408A and 409A now offer further alternatives.

RELATED ARTICLE: Henningsen on Growth Curve; New Expansion Opens in June

A 2.3 million cubic foot expansion is set for completion in June at the Henningsen Cold Storage Co. refrigerated warehouse complex in Portland, Oregon, USA.

The expansion will bring total frozen and refrigerated capacity at the site to 4.1 million cubic feet. The complex is strategically situated along Interstate 84 and the Union Pacific rail line, with easy access to the entire Pacific Northwest. The new section features a combination of selective drive-in and stationary racking, added rail and truck dock capabilities, and more convertible space.

Besides the Portland complex, Henningsen operates refrigerated warehouses in Richland, Washington; Forest Grove, Oregon; Jerome and Twin Falls, Idaho; Detroit Lakes, Michigan; and Stilwell, Oklahoma. Total capacity, counting the Portland expansion, is 31 million cubic feet.

RELATED ARTICLE: Alford Assumes Management At Fifth Warehouse in Texas

A 2.22-million cubic foot refrigerated warehouse at La Porte, Texas, near the Barbours Cut Container Terminal at the Port of Houston, has been leased and will be managed by Alford Refrigerated Warehouses.

The facility is approved for poultry and pork exports by the US Department of Commerce, US Department of Agriculture, the European Union and the Russian Federation. It offers 25 truck docks and four rail car spots serviced by the Union Pacific Railroad, and has seven separate storage rooms. Alford now operates five Texas warehouses in all, with total space of 30 million cubic feet.

RELATED ARTICLE: Global Warming Not a Killer Says Public Health Group

Global warming isn't going to cause an outbreak of apocalyptic plagues, according to Dr. Elizabeth M. Whelan of the American Council on Science and Health, a New York, N.Y.-based public health advocacy group.

Dr. Whelan's remarks added weight to more familiar arguments against global warming regulations that came at the same time from the American Farm Bureau Federation and the National Black Chamber of Commerce.

Both groups warned that regulations proposed at a conference on global warming last December in Kyoto, Japan, would cripple the economies of developed countries by forcing them to drastically reduce greenhouse gas emissions.

The Kyoto proposals are aimed at carbon dioxide, nitrous oxide and methane. Opponents are skeptical - El Nino notwithstanding - that the global warming is actually taking place, and argue that Draconian regulations would be a cure worse than the disease in any case.

Dr. Whelan characterized climate science and especially allegations of health effects as "rife with uncertainty," citing a claim by US First Lady Hillary Clinton that global warming would increase those at risk of malaria from 45% to 60% of the world's population.

The US coast of the Gulf of Mexico is already several degrees warmer during the summer than the Caribbean Sea itself, Dr. Whelan noted. But the incidence of malaria is high in the Caribbean and virtually nil in the USA because the latter has a strong public health program.

The biggest public health problems today, she continued, have nothing to do with global warming. One example is diarrhea, which has caused 922,000 deaths in India since 1990 due to lack of water treatment and sanitation. The Kyoto proposals, she said, would make things worse by reducing the resources available to improve public health.