Watch These Simple Things to Cut Cold Storage Costs
The cold storage industry is at record demand levels. In 2019, the global food cold storage and cold chain market were valued at just over $149 billion. By 2024, that figure will almost double to $275 billion. On the Pharma side, cold chain drugs will grow by 59% from 2017 to 2023. That, too, is resulting in new demand for a more specialized cold chain.
With this increased demand for cold storage, many companies may use public cold storage facilities for the first time or much more often. Since the cost of cold storage services is always an important component, we must understand how we set cold storage pricing.
Cold storage facility pricing strategy must take a long list of complex factors into account. Each facility's revenue management model is unique due to its location and capabilities. Large customers generally have negotiated contracts that address their specific requirements. But there are commonplace pricing features to consider within the pricing model.
A few of these factors include:
- Storage Fees – The fee structure varies between accounts and can comprise features that maximize revenue and motivate desired behavior. Examples of a few of these structures include:
- Split month pricing - if the product comes in on the 1st of the month through the 15th, a full month of storage fees are paid. But, if the products arrive from the 16th through the 31st of the month, customers pay for half a month. Some companies might average the days or use a formula for a percentage of the recurring monthly rent.
- Anniversary pricing - billed on receipt of the goods into the warehouse facility and each monthly anniversary.
- Escalating monthly charges – In some situations, the operator seeks to drive product turns and charges higher amounts for extra months storage (also called recharge). Some operators may ask even more for months after the second month.
- Handling Fees – These fees are typically charged based on a single charge and include receiving the pallet as well as shipping it out. This fee is critical since it is an activity-based fee versus a facility-based price, allowing further leverage of the facility. The combination of storage and handling fees is significant. The pricing can influence customer behavior. As an example, using split storage pricing for a pallet received on the 10th of the month and shipped out on the 25th requires payment for an entire month of storage and a handling fee. These payments allow for more use of space. Customers may react by managing the timing of shipments into and out of the facility as much as possible.
- Ancillary or Accessorial Fees – These fees cover services some may overlook without a systematic survey of features. They include quick chilling, tempering, case pick, unloading, loading, shrink wrap, placards, labeling, corner boards, slip sheets, kitting, sorting, lot release, pallet management, and additional labor at hourly rates. These fees may be included in the overall bill or negotiated separately per account.
When searching for a cold storage vendor, there are many factors to evaluate. This article can help your team understand cold storage pricing options and negotiate pricing to better fit your needs.