FISHING: Oceana Overcomes A Thaw Point
Recent Western Cape Business News
FISHING giant Oceana Group is looking at ways of bulking up its Commercial Cold Storage division (CCS) after closing down its fruit handling service in Cape Town’s Duncan Dock.
CCS, which operates in a competitive market where users are particularly sensitive to rates, saw total fruit volumes handled down by a hefty 19% in the year to end September 2009.
Oceana CEO Francois Kuttel explained that fruit volumes through Cape Town (mainly deciduous fruit) were significantly lower as producers using the port were increasingly switching to packing product into square containers at source.
Consequently CCS closed its fruit handling service at year end and converted the space to store frozen product.
Despite the fruit setback Kuttel says CCS will continue monitoring opportunities to develop its business in the ‘broader’ southern African region.
Currently CCS comprises eight stores – including the Duncan Dock in Cape Town and Maydon Wharf Fruit Terminal in Durban.
CCS is the Cinderella of Oceana’s operations, being much smaller than group’s core inshore fishing business and the mid-water and deep sea fishing segment.
CCS turned over R210 million in the year to end September 2009 compared to the R2.1 billion generated by inshore fishing and the R950 million by mid-water and deep sea operations.
With CCS accounting for just 6% of total revenue, one might wonder why Kuttel is so keen to expand the cold storage business. Surely building onto the core fishing business would make more sense?
While CCS is much smaller than the core fishing businesses the cold storage business does – despite operating in a competitive environment – enjoy much fatter margins of around 32%. This is far more favourable than the trading margins achieved in the inshore (8%) and mid/deep water (19%) fishing businesses.
The margin in 2009 for CCS also showed a slight increase over 2008 - suggesting that management at the company are doing something right. Maybe Kuttel is being smart in trying to expand a business with such strong margins – especially if the business can counter some of the cyclical vagaries of the fishing sector.
Right now CCS has a warehousing capacity of around 105 000 pallets, housing ‘fresh’ commodities like fish, meat, poultry, vegetables, dairy products and fruit.
But expanding the reach of CCS does seem curious considering that the average occupancy of frozen product for 2009 was 78% - well down on the previous year’s 83%. The reduction stemmed mainly from a dip in frozen imports.
Perhaps where Kuttel is going to score – assuming the economic recovery picks up momentum and increased output from primary food producers - is from efficiencies from a larger business.
It would seem CCS has already started dealing with one of the two biggest margin risks to its business model – being electricity and quayside property rentals.
Kuttel says the process of converting lighting in all stores to low-energy units has been completed at most sites. Voltage smoothing units are also being tested at selected sites.
He says one such unit installed at CCS Paarden Eiland could see savings of 9% on the kilowatt-hour usage.
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