The Reefer Sector: Ripe for Recovery & Consolidation

by Nicolai Heidenreich

Over the last 12 months the refrigerated cargo, or reefer, industry has undergone important changes in ownership structure. Brought about by two years of coping with poor freight rates and struggles to cover opex and debt service, many owners have decided to either leave the business or tie their ships up on a best effort basis. As a result of shifting market dynamics, we anticipate a significant improvement in freight rates and values over the next 24 months. The purpose of this article is to provide readers with an overview of the reefer business and the specific reasons why we are so bullish on the sector. We will conclude by arguing that the reefer industry might be among the next members of the dysfunctional shipping family to tap the non-traditional capital markets.

Distinguishing Reefers
Those who learn through association would be well advised to compare the reefer sector to the liner or chemical trades. Like its liner and chemical counterparts, the reefer industry is dominated by a few major players with the five largest reefer pools/operators controlling 58% of the market for reefer vessels over 350,000 cubic feet. (See table 1 and 2 at right). The reefer pools are essentially marketing entities which do not own the majority of the tonnage but instead generate revenue on the basis of the freight rates they are able to negotiate with the charterers. These marketing entities have long relationships with the clients, which is one of the reasons why the reefer industry is less attractive to independent asset players with a short term view. This relatively institutional environment, coupled with an uncertain and illiquid sale and purchase market, has also served to discourage speculative ordering which typically outstrip any sustained period of relatively strong demand.

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