In a world increasingly familiar with unforeseen disruptions, the reefer shipping industry has proven itself capable of adapting to evolving challenges. Whether dealing with unexpected geopolitical tensions or a surge in demand for container capacity, reefer shipping remains crucial in ensuring that temperature-sensitive goods reach their destinations reliably.
Two main methods exist for moving temperature-controlled cargo by sea. One is the traditional “conventional reefer” vessel, which harks back to the breakbulk loading and stowage practices that define the early days of refrigerated sea transport. The other is the now-ubiquitous container, albeit in a specialized refrigerated—or reefer—format, designed specifically to carry perishable cargo.
Conventional reefer vessels have adapted to carry diverse cargo types within the same hull through multi-temperature capabilities. Many also feature side-loading, similar to roll-on/roll-off shipping. Reefer containers, meanwhile, are equipped with independent refrigeration units and, thanks to internal dividing walls, can be set to different temperatures within a single container.
Conventional vessels are nowadays few and far between. Although they may be employed on round-trip liner services, they need additional cargoes to be viable, such as dry breakbulk, rolling units, or even containerized cargo. Otherwise, they are typically employed on one-way, usually seasonal services, running from production to consumer areas.
While container shipping may lose out to conventional vessels when it comes to transit times and direct port-to-port sailings (as opposed to multiple port calls in one journey), the inherent flexibility of unit loads, cargo security, intermodality, and the widespread—even if intricate—network that containers offer, combined with the cost benefits of bulk movements over long distances and the personalization required for the first and last miles, means it is now the predominant form of moving produce.
As evidence of the dominance of containerization, many shipping divisions of produce traders have adopted this form to various degrees. Consider, for instance, Dole Ocean Cargo Express (Dole), Great White Fleet (Chiquita), and Network Shipping (Del Monte). Others have adopted hybrid forms that fall somewhere between the two approaches, such as Cosiarma (Orsero Group, Mediterranean-Central America) and Africa Express Line (Compagnie Fruitère, Europe-West Africa).
A Flock of Black Swans
However, it is the container that dominates and is the focus of what follows. That being said, shipping—and not just reefer shipping in any form—has been facing regularly recurring “Black Swan” events, i.e., unforeseen events with far-reaching consequences. “Black Swans” used to be a once-in-a-generation occurrence, such as the subprime mortgage crisis of 2008 that escalated into global finance, economic, and trade crises.
Since 2020, the economic and trade landscape has seen a series of Black Swans, suggesting that we may be in the middle of a flock. The consequences of the coronavirus pandemic of 2019–2021 were deep and wide; economic activity faltered—some sectors even shut down—and global trade suffered.
When the world started to return to normal, pent-up demand was released, leading to a boost in container shipping, especially after factories and supply chains resumed operations. However, the deeply imbalanced nature of this demand meant that ocean carriers were eschewing low-earning return cargoes—such as North American agricultural exports—in their eagerness to rush back to origin and carry headhaul cargoes (the dominant direction of trade). This created a vicious cycle, leading to a container shortage at the headhaul end, usually in Asia, and a predictable rise in shipping costs.
Red Sea Diversions
This experience shaped supply chain managers’ responses when another Black Swan arrived in late 2023: the conflict between Hamas and Israel. Initially, the impacts on shipping were negligible. However, when the Houthis, who control part of the southern Red Sea coastline, began launching missiles and drones against commercial shipping—actions undeterred by the significant naval presence in the area—shipping routes were altered, with vessels avoiding the Red Sea and rerouting around southern Africa.
It was happenstance for the container sector that these attacks coincided with a wave of new vessel deliveries, which is still ongoing. This meant that the additional vessels needed to both reroute and maintain service levels were relatively easy to source.
These diversions primarily affected routes from Asia and the Indian Subcontinent to Europe and the Mediterranean. However, several services that transited the Red Sea (and the Mediterranean) to and from the U.S. East Coast were also diverted or rerouted. With memories of Covid-19 disruptions still fresh, many shippers, anxious to secure shipping and container capacity, moved shipments forward, which in turn caused another spike in rates despite the new vessel deliveries.
Between these events, the Russian invasion of Ukraine had additional impacts. While this conflict is between neighboring countries, its repercussions have extended further, affecting reefer shipping as Russia, a significant importer of perishable products, faced substantial sanctions from many industrialized nations.
Freight Rate Peaks (and No Troughs)
The Covid-19 and Red Sea-related spikes are noticeable in shipping rates from China to the United States, as the accompanying figure shows. At the peak of 2021, rates rose to six or seven times their levels at the start of 2020. The Red Sea-related peak of mid-2024 saw another spike, reaching three or four times the starting rate.
While these rates apply to dry containers, they reflect similar behavior in reefer rates along the same routes, as all containers compete for the same space. Other trade routes were also affected. One way that shipping lines attempt to manage such spikes is by withdrawing larger ships from other trades, such as those serving produce-exporting regions like South America, and redeploying them to the critical Asia-North America-Europe-Asia axis. This shift artificially reduces tonnage and capacity on smaller routes, causing freight rates to rise. This strategy was notably used during the pandemic and continues to influence rates even now.
Market Utopia or Mirage?
Looking ahead, although some carriers may be optimistic that favorable conditions will continue into 2025, there is a persistent sense that the spike seen in 2024 reflects early cargo bookings rather than an organic increase in demand.
As such, a dip is anticipated, potentially even before 2025. Coupled with the considerable shipping capacity yet to come online,even if cargo volumes hold steady, there will likely be overcapacity, which, under normal conditions, would lead to a drop in rates. And if the Red Sea situation stabilizes enough to allow regular transits for all vessels, thus freeing up significant capacity, the rate decrease could even become a collapse.
While demand for consumer goods transported in dry containers might lag, people still need to eat, so the demand for produce is expected to remain steady. And with more ships available, scheduled services should be able to operate with a full complement of vessels, improving service levels as rates decrease.
If this sounds too good to be true—utopian even—you may be right. Carriers often manage overcapacity by skipping certain port calls, reducing sailings, withdrawing ships, or even suspending services. This affects service levels, which can disrupt the time-sensitive perishables supply chain.
More Black Swans
Further disruption is also possible. Extreme weather events seem to be intensifying, as the recent hurricane season in the U.S. Gulf demonstrates. A few years ago, Vancouver’s hinterland faced Dantean wildfires followed by exceptional flooding, only months apart. Latin America has also been contending with low water levels over the past 18 months, leading to restrictions on shipping movements through the Panama Canal, Amazon River, and Paraguay River.
Geopolitically, these issues often take us by surprise, making predictions challenging. However, if Venezuela decides to assert its renewed claims over parts of neighboring Guyana, it could have substantial repercussions for Latin America, which serves as the fruit basket—much like Ukraine is the breadbasket—for much of the world.
Yet, despite the challenges that continue to impact the supply chain—and without even considering the potential effects of prolonged dockworkers’ strikes at U.S. East and Gulf Coast ports or in Brazil—the system has proven its flexibility and resilience. It will continue to do so.
- Darron Wadey has worked for Netherlands-based Dynamar for over twenty years and is one of its container and liner shipping experts. Dynamar has been a provider of reports, analyses, consultancy and news to the shipping and associated sectors since 1981.