THE DEFINITIVE TRUCKING SITE

October 2007

Production of rigid refrigerated bodies is increasing and transporters need to choose wisely when ordering a body to ensure structural integrity and service support.

Growth in the demand for perishable food products is at an all time high making this sector of transport seem an attractive one for both existing and new refrigerated transport operators. However, as FleetWatch correspondent Max Braun points out, scratch beneath the surface of this seemingly lucrative sector and you will find a definite sting in the tail with many problems that need tackling.

The ongoing demand for perishable food products largely being driven by the creation of more than two million formal sector jobs and dominated by the fast rising number of "black diamonds" continues to stretch virtually all the resources of fast moving consumer goods manufacturers and producers - and indeed the retailers - in keeping up with demand. Retailers, fast food outlets, restaurants and hotels have been operating at near capacity all year round.

Famous Brands open one new store every day. With close to 200 food alone convenience stores already up and running, Woolworths aims to have at least 300 of these at Engen sites in the next two to three years. Other well known brands are also following this trend. In 2006, South Africa produced and consumed 1,065 million tons of chicken , 53% up on 1996 excluding the 200 000 tons imported last year to meet the insatiable demand.

Such growth brings with it steady and increasing demand for refrigerated transport services motivating newcomers to enter the field and encouraging existing operators to invest in more vehicles. While all this makes good sense, the apparent good times in refrigerated transport is not without a sting in the tail for most and there exists the possibility of the less experienced finding themselves prone to being badly burnt.

The 2006 FleetWatch refrigeration transport report spelt out the urgent need for the industry to tackle the problems surrounding the nefarious "back door" delays. The Barloworld Logistics survey for South Africa 2007, combined with comments from Fast 'n Fresh managing director, Gavin Wilson, confirms that the four hour (sometimes longer) waiting time to load/unload is indeed real and is the cause of considerable frustration and dissatisfaction on the part of refrigerated transport providers.

Earlier this year, there were high hopes that the retail industry would take steps to improve - and preferably eliminate - this problem. However, all contributors to this article, together with the writer's practical experience, are unable to report any meaningful improvements to reduce waiting times.
 

Not only about retailers
It is not only about retailers. Not all FMCG manufacturers or producers have kept up to speed with developments and stick to loading/unloading time slots between 7.30 and 16.00 hours Monday to Friday. When such limits are in place, transporters are unable to recover their fixed costs unless they compromise operating standards across the board, or chase down transporting dry freight where rates are not likely to cover the cost of operating their expensive equipment.

Freight Dynamics marketing manager, Werner Vermuelen, says his company - after years of experience in refrigerated transport - has reduced its fleet down to 20 vehicles. He believes current rates are just not good enough to justify the risk when all aspects are considered. This is especially so when return loads are not readily available.

Van der Vyfer Transport's Charl Kruger confirms the frustration and knock-on costs that flow from incessant long delays when loading/unloading. Kruger believes that night loading and delivering is now a requirement for the South African industry in order to eliminate or significantly reduce the imbalance in the market that huge growth has created.

Secondary distribution transport services undertaken mainly by FMCG manufacturers and producers face similar difficulties with the added hassles of traffic grid-lock in and around the metro poles, larger cities and towns. Parmalat's Parow distribution manager, Koos du Toit, is negotiating with retailers to introduce "pm" deliveries as an essential step to avoid putting more vehicles on the road in order to complete daily delivery rounds.

The rapid increase in new businesses and additional outlets requires an increase in the delivery of small loads across a wider delivery network. Where vehicles are delayed for two or more hours, it limits a vehicle to no more the four or five drops out of a daily schedule of 12 to 15 drops. Pietman Bell at Darling Dairy in the Western Cape despatches vehicles as early as 3.30am to be first in line when stores start receiving at 7.30am. "Even this does not ensure you will be offloaded for two to three hours," says Bell

No meaningful collaboration
"The proliferation of stores is not always easy to deal with," says Drikus Lubbe, logistics director at Clover: "The number of new stores is putting us under pressure because consumer demand is not really at a level to ensure sufficient sales volumes to make stock replenishment profitable for us. Our trucks now have to visit more stores, travel greater distances and spend more time waiting at loading docks. This increases our cost per kilometer. We have not had any meaningful collaboration with our consignees over the last 10 years to help improve efficiencies."
B-Cool's Rian Pelser also spells out the changing demands imposed on fleets. "With Just-In-Time inventory policies very much the order of the day with food retailers, refrigerated fleets have had to adapt in terms of running times as well as fleet profile, buying smaller vehicles and delivering loads on weekends and at night. We collect, package and deliver fresh produce from the Komatipoort area to Freshmark (fresh vegetables branded for Shoprite) depots all around the country. We used to supply twice-weekly but with increased demand from shops with fresh, fast-moving stock, we have had to dedicate a truck to deliver on a daily basis. Our smaller trucks run on weekends and we make sure a truck is on standby for the high-demand fixed route between Gauteng and Komatipoort."
And so this litany of frustration and growing dissatisfaction goes on. The real question to ask is: "How much longer do retailers and some manufacturers and producers expect independent and supplier-owned refrigerated transporters to accept the situation without fair compensation for the use of their assets and operating resources?

The resources and skills required to provide a professional, reliable and cost-effective refrigerated transport service, whether for a transporter or consignor, demands much more than just paying or being rewarded with some agreed CPK (cent per kilometre) rate. The brief synopsis which follows of the key elements to consider when calculating the cost of an appropriate cost of a professional and reliable refrigerated transport service, serves to illustrate where much is often lacking in operational efficiencies of this vital aspect of the road transport industry.

Cost components of refrigerated transport
What we're talking about here is recovery of all fixed and running costs of suitable and properly spec'd vehicles, trailers and equipment based on agreed kilometres (per trip/month/year - whichever is applicable) and/or optimum loads of an agreed magnitude expressed in mass or volume terms.

Taking into account that the cost of owning and operating a suitable six-axle (28-pallet) reefer has increased by an average of 15% a year for the past five years mainly due to the more recent rapid increase in interest rates, fuel, tyres and insurance, this places added emphasis on the need to get agreement on realistic transport rates. And such agreement is in the interests of all for a lack of understanding of the real costs opens the door for "fly by night" operators and dodgy "brokers" that inevitably damage transporters, shippers and consignees.

In consideration for a fair rate, the refrigerated transport provider must undertake to provide an ongoing professional service for the duration of the contract or agreed period. Such service includes:

• Deliveries to be on time as determined by the shipper/consignee.

• The utilisation of suitably spec'd and equipped vehicles capable of meeting the scheduled delivery timelines while at the same time being fuel-efficient and reliable. The Reefer insulated box to be capable of holding the set point temperatures of say 4C to 6C for fresh products and -18C to -25C for frozen products. Boxes to be clean a free of damage, cracks and holes in accordance with health regulation R918. A suitably spec'd fridge unit to maintain the agreed set points so as to operate efficiently, especially in respect of fuel usage and be properly maintained to ensure reliability and product quality. Vehicles must be fitted with a satellite tracking device and reliable on-board temperature monitoring probes capable of printing the recordings. All aspects of food safety and traceability must be met.

• Vehicles, trailers, fridge units and allied equipment to be properly and regularly maintained with a view to underwriting optimum availability, reliability, roadworthiness and safety. With this in mind, the vehicles and allied equipment should be replaced in accordance with a sensible and sustainable vehicle replacement policy. Current replacement cost is approximately R1,7-million to R1,9-million per rig.

• Drivers must be intelligently selected, properly trained and correctly licensed to undertake the transport and delivery of fresh and frozen perishable products. 

• When applicable, vehicles must be registered with the PPECB (Perishable Products Export Control Board) in compliance with EU food safety and traceability regulations.

• Transporters must be able to show what steps are taken to conserve fuel usage including: fuel management; driver training; maintenance; tyre fitment; etc.

• Transporters must be in possession of adequate insurance cover including goods in transit (GIT). 

• If we assume the above is a reasonable description of refrigerated transport cost elements and the level of service refrigerated transporters are expected to meet, then we should ask the question: "How should these transporters manage some of the realities of refrigerated transport in 2008?"
   

Skilled reefer drivers are hard to come by and operators need to ensure adequate training is supplied.

Refrigerated transport in the real world
Let's take it as fact that the majority of loading/unloading takes place in the time frame of Monday to Friday between 7.30 and 16 00 hours. That sounds reasonable but due to a shortage of staff and a lack of training, it more often than not happens that sufficient people are not always available to unload when trucks arrive at the agreed time. Also, due to a lack or a total absence of handling equipment such as forklifts, pallet-jacks, etc, loading/unloading takes longer. Add to this the fact that insufficient or clogged up storage areas inhibit the process of goods receiving and you begin to understand what just about any Reefer operator will confirm are commonplace situations encountered several times a day, everyday.

What action then, should the refrigerated transport service provider take to deliver the remaining drops on time and earn enough to meet the running costs and hopefully, recover at least some of the fixed costs?

• Should they drive faster and for longer hours to make up for lost time even although this would be exploiting the driver and probably infringing road traffic regulations and fuel wastage?

• What about rolling back the maintenance schedule to save costs and increase the hours on the road. This, even although it compromises safety, reliability and durability?

• What about buying a few additional vehicles to soften the blow suffered when vehicles stand more than they move on a daily basis? This requires additional drivers, vehicle licenses, insurance and fuel costs not to mention congesting the roads to an even greater degree and exceeding the capex budget.

These are not tongue in cheek questions. This is the real world as refrigerated transporters' find it. The next question then must be: "If there is a better way of doing it, how should it be done and who actually does it better?"

There are numerous refrigerated transport providers that tackle the task from a "partnership" perspective. One such transporter is Hestony Transport, the largest cold storage tranporter in the Free State.

With a fleet of approximately 200 reefers, Hestony's managing director, Etuan van der Westhuizen, says that presently rates are not bad. He believes there are not enough vehicles to satisfy current demand and advises transporters to stick to their guns. According to Van der Westhuizen, changes in demand have forced his company to adjust its delivery schedules to meet changing delivery times. "Customers expect more and we have to push harder, work longer hours to keep them happy."
 

Hestony – a hand over of new MAN trucks. Established 20 years ago, Hestony has a longstanding relationship with MAN. Apart from satisfaction with the product, technical and support services, Hestony has an admirable 36 or 42 month trade-back deal with MAN. This, says Van der Westhuizen, assures Hestony of minimum down time, access to the latest technology and extended service intervals – a characteristic of ongoing truck technology.

On the question of customer co-operation, Van der Westhuizen says he works with his clients to bring rates down. "It may mean running trucks on weekends, setting fixed per day or CPK costs, but you must grow organically with your customers if you want to survive." Then there's the fuel factor. The more products are distributed to warehouses and shops, the more fuel is used by transporters. "Add traffic congestion and the hours standing in loading queues and you're looking at a serious rate rethink," says van der Westhuizen.

"Dealing with these challenges means using technology to help manage your operation, to make life easier and improve efficiencies. Loading at certain depots has become such a problem that we now employ our own forklift teams, based permanently on site. It's all about adapting to change and finding solutions. But, at the end of the day, we can't afford to have our trucks standing". 

Established 20 years ago, Hestony has a longstanding relationship with MAN. Apart from satisfaction with the product, technical and support services, Hestony has an admirable 36 or 42 month trade-back deal with MAN. This, says Van der Westhuizen, assures Hestony of minimum down time, access to the latest technology and extended service intervals - a characteristic of on-going truck technology.
 

	The challenges facing longhaul refrigeration transporters will not get easier as running costs rise, traffic gets thicker and consignees get more demanding..    Collection and, delivery times are changing to  nighttimes and weekends to help prevent queuing at depots and standing in congested traffic, to boost turnaround times.

Outlook for 2008
Manufacturers, producers, retailers and transporters remain optimistic for 2008. However, there is general agreement in the notion that the upcoming year will not see the same levels of growth as experienced in the past two years. Interest rates, the National Credit Act, the fuel price along with further hikes in tyre, steel and equipment prices will represent a challenge for one and all. Food prices, wages and currency volatility will contribute to slow growth in retail sales.

Johan Schafer, transport specialist at UPN, says 2008 will be a year in which to stabilize the business and develop strategies to cope with slower growth. The challenge is how operations are managed to cope with high volumes while reducing costs to offset slower growth. It's a question of managing the basics - optimising payloads, controlling kilometres, training drivers, and managing fuel diligently and maintaining vehicles for optimum availability.

Gavin Wilson, managing director of Fast 'n Fresh, says the demand for transport services has been good for the past couple of years and believes that 2008 will see a continuation of many more tenders for the transport of perishable goods for food producers and manufacturers that took off during 2007.

In terms of transport costs, limited storage facilities, poor offloading conditions, more and more new product lines at many existing retail outlets together with the intensifying competition that is emerging from the rapid increase in new and upgraded retail outlets, fast food and convenience stores will be just part of the impact on transport costs for retailers.

The other side of this coin lies in the worsening traffic grid lock in and around the metro poles, the delays at the back door that prohibits transporters to recover their costs without imposing an additional standing charge. The level of demand for refrigerated transport exceeds the number of trucks available to do the work. The delivery time for new trailers and insulated boxes is protracted due to a shortage of axles, braking equipment and new chassis.

The time is now for "open cards" between those who want to distribute and deliver perishables and those who want to transport them to form meaningful partnerships based on fair returns for both parties. It is about forging mutually beneficial long term business partnerships. It is that, or the likelihood of being stuck with the fly-by-nights that haul for less without much regard for on time delivery, safety, the drivers or food safety.

In conclusion, this extract from Spar Group's Cold Chain Best Operating Practice provides an elegant summary of what this special report endeavours to portray:

"Cold Chain best practice from source to consumer requires an investment of time, training, patience, passion and specialised equipment. Understanding and cooperation between all links in the cold chain is crucial to the success of this process. Through the support and commitment of each participant along the chain, the execution of the cold chain will undoubtedly be successful"