Dive Brief:
- Union Pacific is ending its Cold Connect service, which shuttled reefer cargo from the West Coast to a facility in New York, the company confirmed to Transport Dive sister publication, Supply Chain Dive Monday.
- "With COVID-19 impacting volume and truck prices, it is no longer sustainable to continue operations," a Union Pacific spokesperson said in an email.
- Customers of the service were notified that May 8 was the last day to place inbound orders, the company said. "Most Cold Connect-related positions have been eliminated," but some will remain onboard to make sure the remaining shipments in the pipeline reach the final destination.
Dive Insight:
The coronavirus pandemic resulted in a downturn in trucking demand in April, which caused rates on the trucking spot market to fall, making it difficult for rail companies to compete.
Food and refrigerated volume in April were "impacted by a challenging truck environment," Union Pacific EVP Kenny Rocker said on an earnings call. Reefer spot rates for trucking freight were down 10% in April compared to the same month last year, according to DAT.
Cold storage and reefer transportation has been seen as a growth opportunity for the logistics business, from warehouses to ocean freight, in recent years, thanks in part to the rise in online grocery. One 2019 report from CBRE estimated there will be a need for 100 million additional square feet of cold storage warehousing space over the next five years.
J.B. Hunt is currently building up its refrigerated intermodal fleet and plans to add 1,500 temperature-controlled containers throughout the year, J.B. Hunt CFO David Mee said on an earnings call in January.
But companies shipping refrigerated freight over the rail are mostly contract shippers, according to Tony Hatch, an independent rail freight analyst with ABH Consulting. "Larger rail customers don't mover their goods back and forth [between rail and truck] with that kind of nimbleness," Hatch said in an interview with Supply Chain Dive.
"My guess is they had a cost structure and weren't able to gin up enough business and rates to justify it," he said. Less than a year ago, Union Pacific executives spoke about refrigerated rail as a long-term growth opportunity, and then as a divestment.
Emma Cosgrove contributed to this report.