Cold Chain Federation chief executive Shane Brennan shares his insight on how Covid 19 is impacting temperature controlled storage and distribution.
With frozen and chilled food products still coming into store at a high rate but demand all but gone for many usual customers such as food service, schools and airlines, cold stores are now starting to fill up. We predict that they will be full across the UK, with no new space available, in about two weeks’ time.
Cold chain businesses are doing their best to plan ahead, at the same time as battling to meet wildly changing requirements from week to week, but forward planning is very tough when total uncertainty means that feasibly life could pretty much return to normal by September, but equally restrictions could stay in place at some level until Spring or even Summer 2021.
Another major concern for the near future is how can Government possibly have the new customs checks infrastructure that is needed in place by 31st December? There wasn’t enough time to put in place the infrastructure, people and systems needed before Covid-19, and there certainly isn’t now. The fact that Government does not seem willing to admit this is very worrying. The risk is chaos and confusion that food supply chain businesses, which will still be reeling from the damage wrought by the covid-19 recession, will be expected to resolve.
Cold chain overview
The cold chain is already seeing a tightening in availability of cold storage across the sector for both frozen and chilled food, especially frozen. It is very hard to get new space now, and we predict in two weeks’ time getting new space will be pretty much impossible.
This is because while new products have been coming into the cold stores, the rate of products flowing out has slowed markedly as a result of large swathes of the food sector going into hibernation during lockdown. This will have a big impact on cold chain businesses’ profitability. There is also a reduction in demand for cold chain businesses’ value added services, such as blast freezing.
Temperature controlled haulage has seen a huge drop in volume, we estimate between 40-60% across the sector. Many vehicles are parked up and drivers have been furloughed.
The biggest concern for cold chain businesses right now is the expectation that a significant number of customer businesses will fail, with bad debt repercussions. While right now many businesses are fighting to stay alive (and looking to the cold chain for support through, for example, extended credit terms), the expectation is that the strongest risk of customer business failures will come when lockdown ends and businesses try to get back up and running.
There is generally a low take up of Government loans at the moment across the cold chain sector businesses are trying to avoid new borrowing, keeping this option as a last resort because there is uncertainty whether market conditions will allow them to pay the loan back later in the year.
Coming out of lockdown: key issues
Some EU countries are starting to take steps towards de-restrictions but we are not expecting big decisions on strategy in the UK until the PM is back to work. The likelihood is a phased approach across the board, shifting from general movement restrictions to targeted ones (for age groups / regions) alongside a phased return of economic activity and phased permitting of gatherings of people and cross-border movement de-restrictions – all with social distancing protocols maintained throughout.
All this means that life as normal could be with us by September 2020, or more likely not before at Spring/Summer 2021. Like all sectors, this makes planning ahead very tough for cold chain businesses.
Cold chain business support measures
Cold chain businesses are generally trying to avoid taking on new borrowing, therefore we are currently seeing low take up of the Government’s intervention loans
Business rates relief is still not applicable to food storage businesses
We want to know from Government whether VAT and tax deferrals will continue after 1 June.
A serious concern is that cold chain businesses (like other sectors) are finding it hard to get hold of Trade Credit Insurance – there are other Governments such as in France which have taken measures to help with this. We hope to see a similar approach from the UK Government too in the coming days, which will be a big relief for cold chain businesses with the high risks of bad debt over the coming months.
Cold chain employees
Absentee rates are lower than expected at this stage – they are still 10-15% in manufacturing, retail and distribution roles, and still around 5% in transport.
There is no decision from Government yet whether the furlough scheme will continue beyond 1st June, so it is very hard for businesses to plan for the medium and longer term: if there is no clarity on extension of the furlough scheme, businesses may soon need to start the processes for making redundancies.
Employee safety: cold chain businesses continue to apply social distancing wherever possible, and have made changes such as providing separate washroom facilities for drivers, banning non-essential travel between sites, increased cleaning schedules, staggering the start / finish / break times for shifts to avoid people congregating, banning all visitors on site, and reminding employees not to come into work if they have Covid symptoms.