Outside intermodal herd
Hawaii dairyman transforms company into a specialized tank container operator.
By Chris Dupin
There are many routes that entrepreneurs have taken to the shipping industry, but the one sailed by Bahman Sadeghi is more unusual.
In 1986 he started a farm, Island Dairy, on Hawaii’s “Big Island,” at a time when the state’s milk industry was at the beginning of a major change.
As he expanded his dairy, he said it became necessary to move milk to Oahu where the bulk of Hawaii’s population lives. Of the state’s 1.4 million residents, only about 185,080 people live on the Big Island, compared to 953,207 on Oahu, where Honolulu is located.
“We investigated a lot of different options, and basically started Hawaii Intermodal Tank Transport (HITT) as a result,” he explained.
To move milk between the islands, Sadeghi built food-grade intermodal tanks that could be carried by ship or truck which were ideal for transporting milk.
The business grew, also eventually carrying milk from California to Hawaii and expanding to the carriage of other liquid commodities.
Sadeghi sold his farm last year to an Idaho dairyman, but he has continued to expand HITT, which today is headquartered in Palmetto, Fla.
His company recently signed a deal with non-vessel-operating common carrier Aqua Gulf Transport to expand its business in the Caribbean, and he is gradually transitioning his operation to the less regionalized name of one of HITT’s subsidiaries, AsepTrans.
Since HITT moved milk and not hazardous materials, it was able to build its tanks with a lighter shell, giving them a larger payload of 24,000 liters.
Sadeghi also wrapped the tanks in a heavy layer of insulation so that they could sustain their temperature for longer periods of time.
The company said products shipping in its tanks experience as little as half a degree temperature gain per day.
HITT explained that a data logger on a shipment of frozen orange juice loaded at 12° Fahrenheit and transported in one of its heavily insulated tanks for 20 days was discharged at 22° Fahrenheit, even though it did not have a refrigeration unit.
But HITT also has large numbers of tank containers that are equipped with refrigeration units so that products can be maintained at fixed temperatures.
Sadeghi said these tank containers are important for longer sea voyages, particularly for some products such as not-from-concentrate or NFC juices.
The company has also developed a proprietary process for moving products aseptically to help extend the shelf life of commodities.
Unusual Dairy Industry. Hawaii has a big beef industry — 140,000 cattle and calves at the beginning of 2012. Jeff Hull, a spokesman for Jones Act carrier Matson Navigation Co., said his company has a fleet of “cowtainers” that can be used to move cattle to the U.S. mainland.
But the Hawaii dairy industry has shrunk over the years — from a peak of 15,100 head in 1965 to 1,900 cows at the beginning of this year, according the U.S. Department of Agriculture.
As recently as 1982, the state was self-sufficient in milk, but according to a report on the dairy industry presented to Hawaii’s legislature in 2010, the dynamics of the state’s dairy industry “began to change dramatically as dairy operations on Oahu began to close in the 1970s as they came under land development pressure and were pushed out to marginal lands.”
That report noted the state was totally self-sufficient in producing its own milk until 1982 when local milk was contaminated by dairy cows eating pineapple tops treated with the insecticide heptachlor. The state said this “contributed to a loss of public confidence in the safety of Hawaii-produced milk and a decline in sales. At the time, no milk was allowed to be imported into the state.”
In 1984, Safeway Stores sued Hawaii’s Department of Agriculture, saying the state’s denial of a distributor’s license to import and sell mainland milk was a violation of the U.S. Constitution’s “commerce clause.”
The state had argued the license “would tend to promote destructive or demoralizing competition in a market already adequately served or that it would not be in the public’s interest.”
But the court found the state “could not discriminate against interstate commerce even if the reason for the discrimination is to cancel out some advantage that out-of state goods have over local products.”
Safeway Hawaii began to import milk in 1985 and others followed — in 2010, the state estimated 90 percent of the product was imported, although Grant Tomita, milk control program specialist with the Hawaii Department of Agriculture, told American Shipper Hawaii’s milk production has begun to rebound and is about 20 percent today.
Sadeghi established his dairy in Oahu as these events were starting to roil the Hawaii milk industry.
While his tanks were originally built to move product between the state’s islands, he said “once we demonstrated our abilities, we were also approached to transport the milk from the mainland to Hawaii.”
His company moves milk to Hawaii from farms in both Northern and Southern California, using ships operated by both Matson and Horizon Lines.
Shipping milk in bulk in tank containers is attractive because, while a shipper can move only 4,400 gallons of finished packaged dairy product in a 40 foot refrigerated container, it is possible to carry 6,300 gallons in a 20-foot bulk tank.
After years of decline Hawaii’s milk industry “is on the comeback now,” Sadeghi said. “Previously the business model was importing feed in dry containers and making milk. That model has become harder to sustain because of the cost of the commodities, as well as fuel.”
At his dairy he fed the cows locally produced corn and grass. He believes the future for the Hawaii dairymen is to produce milk using local feed.
“The industry has to reinvent itself,” he said. “I think it will reemerge. How quickly depends on the level of commitment and investment.”
N-F-C Spells Opportunity. But Sadeghi said the decision to sell his farm and concentrate on the tank container business has less to do with expectations for the Hawaii dairy industry than the “opportunities that we are seeing in terms of shipping NFC — not-from-concentrate — juices from Florida over to Europe and other perishable foods.”
Colin Rubery, technical secretary of the International Tank Container Organization, said estimates for the world tanker fleet vary from about 340,000 to 390,000 units.
Big players in the tank container industry include companies such as Stolt with 29,448 units, Hoyer with 23,740, Interbulk with 10,140, and VOTG with 9,970, according to a June list in Hazardous Cargo Bulletin that includes 125 operators.
Rubery suggested there are more than 200 operators, but he said the number of food-grade containers is much smaller, perhaps around 20,000 units.
Sadeghi said his company has a fleet of about 700 tank containers.
Examples of cargoes commonly carried in food-grade tank containers include wine, spirits, edible oils, juices and food additives, Rubery said.
“Flexitanks,” plastic liners that fit inside standard dry containers, are also becoming more popular for the movement of some food products, since they eliminate the need for a two-way movement of equipment and are disposable.
Sadeghi said there is growing interest by consumers in NFC juices and the bulk of these shipments are from Florida to Europe. The company has used its tanks to shuttle fresh juice from Central Florida to Port Manatee in Tampa Bay where they are emptied into a tanker that transports cargo in bulk, about 2.4 million gallons of juice or the contents of about 400 tank containers.
NFC juices have to be transported aseptically to prevent the growth of bacteria or fermentation and tank containers work well for that process, Sadeghi said.
“The NFC market in the U.S. is fairly mature, but in Europe it is an emerging market. The consumer prefers more not-from-concentrate juice — not just in orange juice, but pineapple and grapefruit juice,” he said.
While the grapefruit juice Sadeghi ships comes from Florida, his company is also involved in other markets, for example, shipping pineapple juice from Central America and coconut water from Sri Lanka to the U.S. West Coast.
“We have been focusing on the cold supply chain,” Sadeghi said. “Our vision is that to serve our customers we need to be a global player. More and more products are moving from further away.”
In September, HITT announced it entered into a partnership with Aqua Gulf Transport to move bulk liquids such as juices and corn sweeteners to Puerto Rico and other locations in the Caribbean.
Scott Fernandez, who directs business development at Aqua Gulf, previously worked with HITT on its Hawaii traffic during a 24-year career at Horizon Lines.
“When I came to Aqua Gulf about six months ago, I thought of helping them get this technology more known in Puerto Rico,” he said. “We’ve done trial loads to Puerto Rico, the Dominican Republic and some other Caribbean points. Rather than work at arm’s length, we talked about a strategic alliance between the two companies.”
He said HITT should benefit from Aqua Gulf’s extensive marketing and sales network in the region, while customers should benefit from having additional competition in a region with relatively few tank container companies.
The focus, he said, will be on the movement of food-grade commodities, particularly those that can be moved in a fresh state, under refrigeration. Today, many of those products have to be packaged and moved in conventional reefer containers rather than moving in bulk.
Sadeghi said he expects most of the temperature-sensitive bulk liquid volumes will be southbound, but potentially products could move in both directions.