Pandemic-imposed Challenges
Lineage has been forced to adjust many of its plans and procedures to deal with COVID-19.
“From an operations and logistics standpoint, having the highest quality and best locations of warehouses has been critical, because much of the food supply has moved from restaurants to retail,” Marchetti explains.
Lineage put many new protocols in place to protect employees and ensure that its processes responded to challenges its customers had been experiencing during this period, Marchetti adds.
Despite these challenges, demand for storage has continued to increase. Lineage has responded by continuing new construction to add needed capacity and acquiring new warehouses to meet customer needs.
“Families are not consuming fewer calories, just different ones through different channels,” Marchetti says. “This means that different parts of our network are seeing big increases in throughput. As we work to help customers adjust to these changes, we’re continually moving product, diverting product, and storing it in other places. This remains a huge challenge.”
Could Lineage store and transport COVID-19 vaccines when they become available? Yes—in theory, but perhaps not in practice. “We’d do it in a heartbeat if we were asked,” Marchetti says. However, he explains that the temperature needed to preserve vaccines is colder than for food, and the logistics for distribution are much different. “We’ve been in touch with the administration to offer our support, guidance, and counsel to develop the best process and procedures—even if our own warehouses don’t wind up housing the vaccines,” he says.
Opportunities and Outlook
Meanwhile, Lineage’s applied science team is reimagining the way the company solves problems.
Lineage already applies mathematics and robotics to store more frozen goods per square foot than was ever thought possible. In some cases, technology has also been used to help customers reduce the number of trucks needed to move product by increasing their use of trailers.
While prospects of achieving still greater savings in space and energy cause excitement, Marchetti says Lineage’s new capital will be used for growth and deploying innovations across an expanding network.
“In Southern California, the demand for space is surging,” he says. The United States will be the REIT’s largest focus for growth, but the European market also presents opportunity and Lineage will look to further connect its dots across the globe.
“With the pandemic, we’ve seen changes in parts of our supply chain,” Marchetti says.
Many of Lineage’s customers are global companies that ship to global markets, he adds. “Our thesis that these customers would like to see Lineage at both ends of their international supply chains is proving out already. Many are leaning on us to create efficiencies across their whole supply chain.”
Richard Barkham, global chief economist at CBRE, says shopper surveys show that nearly half of those now having groceries delivered or buying online with in-store pickup will continue those practices after COVID-19 subsides.
CBRE explored the relationship between e-commerce grocery growth and cold storage warehouse capacity and found that an additional 75 million to 100 million square feet of freezer/cooler space will be needed to meet the new demands.
Barkham predicts continued consolidation among cold storage companies and increased automation, trends initiated by Lineage more than a decade ago.
As for what investors should expect from Lineage in the next 12 months, Marchetti responds, “a lot more of the same, and a lot that will be new.”
Most of the companies Lineage acquired grew organically, according to Marchetti. The company also has some new automation projects coming along, acquisitions will continue, and Lineage expects to add new value-added services to take on more challenges in its customers’ supply chains, with an emphasis on e-commerce and transportation management.
“We’re excited about the future and hope to do more and more as the environment normalizes,” Marchetti says.
