The Next Hot Vertical – Delivering it Cold
A conversation with Jason Burns, board member of the Customized Logistics and Delivery Association and VP of Business Development for QCS Logistics. He recently moderated a panel on Cold Chain Deliveries at the CLDA Annual Meeting.
QCS is the second largest courier service in the New Orleans Metro area. It has provided courier, freight distribution, and warehousing services since 1984. It offers expedited delivery solutions throughout southeastern Louisiana and the Gulf Coast region.
Within the last few years, the company has expanded its capacity to handle perishable products that require constant temperature controls. He talks about the good, the bad and the ugly of this vertical.
What are cold chain deliveries all about?
Cold chain is the movement of products that need to be continuously temperature monitored. These products require consistent temperatures to stay fresh and effective. They could include: specialized equipment, medical supplies, other pharma, precious metals, electronics, computer critical parts, and, of course, food products like dairy, produce or meat.
Why is handling cold chain that much different from moving other products?
There’s more to it than just bringing on a refrigerated truck. You must start by getting a clear understanding of what’s required for each product you handle. What is the acceptable range of temperature for the products? How long does it take to get the truck chilled to the correct temperature? What technology and equipment do you need to maintain and monitor those temperatures? What processes does your company need to develop to monitor the temperature of the products?
You also need to have back-up plans in case of a failure. It’s hard to recover when something goes wrong. When a refrigerated truck has an issue it’s not like a truck that gets a flat tire. When a refrigerated truck breaks down, the products are sitting in an environment that can quickly lose its temperature controls. And when the backup truck arrives, the products have to be moved to a similar temperature environment. You need dual equipment or added redundancy to accomplish that.
You have to have everything in place before you move your first truckload. That means pre-planning, rehearsing, doing surprise audits and having monitoring systems in place that can give you advanced notice or warning of a potential issue. If you can catch it early enough, you can take action before a situation gets to the point of no return.
What are some of the big lessons you learned as you got deeper into this vertical?
Let’s start with the issue of pre-cooling. When we first got into this vertical, we didn’t take that into account. We naively thought you turn on the refrigerated truck and it goes down to the right temperature. Wrong! It takes time and personnel to make that happen. Depending on the time of year, cooling a truck could take one to two hours before it’s safe to put the product into it. You have to factor that in before loading the product. And, you have to consider who’s going to come in early to pre-cool the truck. We deliver dairy products, breakfast foods, fresh sandwiches, fresh fruit and chips to a large chain of convenience stores across the South. We had to learn those lessons quickly to service that very large and important customer.
Lesson #2 has to do with the vehicles. Refrigerated trucks are not as common as other delivery vehicles. How do you make sure you’ve got the right truck, at the right time and with a backup in place? Do you want to own, lease or outsource this to independent contractors? Finding ICs with their own refrigerated trucks isn’t that easy. Those who have them are probably handling all the customers they can.
We chose to lease. We didn’t feel we knew enough about the lifecycle of these trucks nor did we have the knowledge to service them. We negotiated a lease that included a maintenance program. Our lease also accounts for variable costs such fuel and mileage, as well as refrigeration hours (they are called “reefer hours” in the business). These reefer costs can be significant because the refrigeration units run off a special battery. You’re charged for every hour you run it, including the time it takes to pre-cool the truck. Our lease also provides us with access to a backup vehicle in the event of a vehicle failure or service issue.
Lesson #3 has to do with making the best use of the vehicle to maximize profit. We’re still working on that. For another kind of vehicle, we can co-mingle freight or make use of it after the job’s done. That’s hard with cold chain vehicles. You can’t just use them for other deliveries. We use our trucks to deliver food. That means that we’d have to wash out the truck after the morning deliveries and before putting in another kind of product. In addition, we’d have to wash them out again in the afternoon to maintain sanitary conditions for the next morning’s food deliveries. And we have to make sure they were dry in time to pre-cool them before putting in the food products. The timing for this type of product and the cost factors involved in turning over the truck in time to start all over again make dual use very tough. Let’s just say it’s a lot more complicated than moving pallets.
We’ve talked a lot about the challenges of this vertical. So why do it? What the upside of adding it to your list of services?
It can be very lucrative. There aren’t a lot of people who operate in this space as third-party, independent providers to a number of companies. If you’re a small food purveyor most times you have to go through a distributor if you want to get your products to market. But, by going with an independent like us a food purveyor is not sharing their customers (and profit margin) with a distributor. It’s a win for the manufacturer if the pricing works out on the transportation side.
From our stand point, we like that it’s a specialized vertical. Not a lot of people are in competition with us to do this kind of on-demand and scheduled temperature-controlled delivery. And, because these deliveries are time-sensitive, you can price them higher.
Now that your company’s become more experienced in cold chain deliveries, would you say the upside outweighs the downside?
Definitely. There were a lot of lessons to be learned and we’ll continue to learn more of them as we go along. But I have to say this is a lucrative and satisfying vertical to get into. Our customers appreciate our unique understanding of this sector and they value their relationships with us. That makes for long-term and ultimately profitable business partnerships that get the cold things where they need to go to stay fresh and enjoyable for their customers.