About a month ago, we received an inquiry from a government contractor asking if our company, Yukon Ventures, would be interested in a top-secret cold storage opportunity. We read between the lines and understood that the contractor was talking about the rollout of the new COVID-19 vaccine, a subject dominating headlines everywhere.
The mysterious contractor could not outline a specific RFP he was responding to, nor could he plainly outline what exactly the opportunity might be. Without really understanding what environment vaccines might require in the long run, he was phishing for opportunities in what he surmised could be a lucrative contract with the GSA. For a moment, with stars in our eyes, we imagined being a part of this historic process. Should we be building vaccine storage into our new facilities? Moreover, should we build facilities specific to vaccine distribution? Would pharmaceuticals be the bright, shiny future of cold storage?
An interesting prospect, but one that quickly raised concerns. Enough concerns in fact, that we’ve taken a rather contrarian position. As real estate developers, particularly ones who focus on cold storage, you may be surprised to hear that we’ve chosen not to engage in vaccine distribution discussions.
Current vaccine options, with their extreme temperature requirements, are simply beyond the capabilities of conventional food-grade cold storage facilities. The Pfizer vaccine, for example, must be stored at -94 Fahrenheit. Let’s assume it’s possible to build large-scale facilities capable of maintaining the arctic temperatures specific to this use, or to retrofit an existing facility, an even more daunting challenge. That’s just the beginning of the grocery list of complexities.
There are other pressing issues related to vaccine storage, including the need for infallible electric supply and generators that are even more redundant than the ones that handle food inventory. Add to that, enhanced security protocols, which are at a level that never comes into play when storing typical food products. Not just physical security, meaning guarded points of entry and exit, and surveillance to protect the vaccines from potential theft, but also cybersecurity. There are already reports of phishing schemes targeting executives in the vaccine supply and distribution chain.
Can the food-centric cold storage industry, as we know it, effectively take on these challenges? Particularly when the pharmaceutical cold chain, with decades of experience and flush with robust new investments, is rapidly ramping up production of freezer farms full of specialized shipping boxes complete with GPS, temperature, light exposure and even motion detection sensors? We believe our industry is better positioned to focus on COVID-19 challenges and opportunities that have nothing to do with vaccines, and everything to do with our core business. There simply is not enough overlap, from a physical space perspective, for our industry to be concerned with the space and resource utilization of vaccine distribution.
Our most pressing need has been, and continues to be, availability of modern cold storage space. Cold storage was already in short supply prior to COVID-19, with most independent operators at nearly full capacities. Also, the average age of the country’s cold storage facilities exceeds 35 years old. It was estimated by real estate firm CBRE as recently as 2019 that there was a lack of about 100M square feet of cold storage necessary to fulfil demand at the time. Then, starting in March 2020, an explosion of in-store and online grocery shopping strained an already thinly supplied system. “We’ve turned into land guys, because there are no buildings. There’s nothing available,” explained Steve Kozarits, SVP of Transwestern’s F&B Tenant Advisory Practice.
To accommodate this ongoing surge in shopping patterns, manufacturers and processors have begun altering their inventory levels within the supply chain to satisfy new shopping behaviors and hedge against another run on the shelves. Last May, after a cold storage facility and a few protein processing plants went down due to employees contracting COVID-19, the country saw protein prices at the grocery stores materially increase, creating quantity limits across the country. This is to illustrate that the current supply chain has been so value engineered, and so finely tuned, that a problem at only a few facilities can wreak havoc across the country.
The bottom line is there needs to be more cold storage built across the board. Setting aside vaccine distribution for a moment, any reader of Refrigerated & Frozen Foods knows the current inventory is in short supply. And while existing cold storage operators figuratively sit back and enjoy the growing demand, ambient temperature 3PLs and legacy logistics companies are scrambling to come up with solutions to service this ambiguous pharmacy need. According to Matthew Lietzan, VP of Primus Builders, “COVID-19 poured gasoline on the bonfire. All the 3PLs we know are looking to convert at least a nominal amount of space to cold or freezer space."
While these companies do their best to service a tangential need, we urge PRWs to do what they do best: service the needs of refrigerated and frozen customers.