China plans cold chain regime for food logistics as spoilage limits volumes

© Andrey Salamchev

China is to act over concerns of inadequate cold chain infrastructure for food logistics.

Just 20% of perishables transported within the country move in refrigerated conditions, and spoilage is up to 30%.

The State Council, the nation’s cabinet, has issued a document that calls for the creation of a cold chain logistics system to improve food safety, the Xinhua news agency reports.

It wants to establish a cold chain temperature tracking system and build up infrastructure, both in producing regions and consumer markets.

Demand for fresh food has soared in China, driven by growing affluence and rising demand for better quality in the country’s expanding middle class. For international airlines such as Cathay Pacific, carrying perishables from overseas producers to Chinese gateways has been a rapidly growing segment of their cargo business.

According to a research report on the cold chain logistics industry in China, published in March by Market Research Reports Store (MRRS), over 130m tons of goods were transported through cold chain logistics in the Middle Kingdom in 2016, constituting a market size of Rmb130 bn ($18.87bn). The study’s authors project CAGR of this market in China north of 15% during the 2017-2021 period.

The industry is scrambling to invest in cold chain infrastructure, but it has failed to catch up with the pace of demand so far. Major international air cargo gateways including Shanghai and Guangzhou have cold chain facilities on site, but many other airports lack adequate facilities. Even those airports which have coolers are struggling to accommodate growth.

Kunming supply chain firm YCH Group signed an MoU with Kunming Airport Logistics Industry in March to set up a cold chain building on 175 acres at the airport. Last summer Henan Airport Group teamed up with Dalian Port Yidu Cold Chain Logistics to establish a ‘Central China Hub of Frozen and Fresh Produce’ with a total investment of Rmb100m.

Beyond the gateways, cold chain logistics are scarce. The authors of the MRRS study found that only 20% of perishables transported within the country are refrigerated (compared with 80-100% in the US). The estimated spoilage rate is between 20% and 30%.

The study suggests that at the end of last year, China’s total capacity of cold storage amounted to about 114m sq metres and there were fewer than 100,000 reefer trucks in the system.

For international logistics firms that handle perishables, shipments to China typically end at the entry point, in most cases the large gateways.

“We are very involved in bringing perishables by air and ocean to the port of Hong Kong as well as those in China, but we are not much involved in any distribution after arrival and/or customs clearance into the country,” said Markus Fellmann, global vice-president of Hellmann Perishable Logistics.

Chris Connell, president of Commodity Forwarders, said: “Our volumes fly into major airports such as Beijing, Pudong and – to a lesser extent – Guangzhou. Flight schedules are the biggest reason for this, but a more centralised approach of customs and inspection in the large hubs compared with smaller airports also plays a role.”

He added: “Some of these volumes do get sold in other cities hours away, but that is at the discretion of who imports the goods, the truck cold chain available and, in some ways, an almost just-in-time feeding of produce due to limited refrigeration in these ‘beyond’ cities at the wholesale markets.”

A study by LEK Consulting, published in March, found that the use of active ULD technology is very limited in China, and the authors identified three reasons: the overwhelming dominance (about 85%) of narrowbody aircraft on domestic routes; frequent cold chain disruptions at the interface between air and ground transportation; and the investment required, which is not yet feasible for Chinese carriers at the current market size.

Shortage of cold chain capabilities puts a limit on the volume of fresh food that can be shipped to China. For example, with cherries from Washington and California, Mr Connell said, these have to be sold quickly to avoid spoilage.

“One limiting factor is that this commodity goes straight to the wholesale market for distribution where there is limited cold storage, so volumes need to be sold rather quickly.

“Any back-up in products hurts air freight moves a few days down the line, as the price per box drops in order to clear cool room space out,” he said. “Chilean cherries which happen to be shipped during the colder months in China are less influenced by limited cold storage.”

Bloomberg has recently published a series of articles on China’s domestic food market – worth a read if you are in this sector.