JV-Company-Kerry-Cold-Chain-2May2019

Hong Kong’s Kerry Logistics has expanded its perishable cold chain business in mainland China, forming a majority interest joint-venture with Shanghai Zhizhen Logistics.

Kerry Cold Chain Solution will focus on niche food products such as raw ingredients and dairy product additives.

The firm currently operates 1m sq ft of ambient and cold chain capacity in China, including a 50,000sq ft temperature-controlled facility in Shanghai, complete with automated storage and retrieval systems.

“The market for food-related cold chain logistics in mainland China is immense with enormous growth potential,” said Edwardo Erni, Kerry Logistics’ managing director for China and North Asia (pictured above, centre). “There is also ample room for technological growth to reach international standards.”

China’s 100m-strong middle class, now the largest in the world, is fuelling demand for greater quantities and varieties of imported fruit and vegetables, meat, seafood and dairy products.

As a result, the cold chain sector is growing by 20% a year, according to the China Society of Logistics, with the likes of Alibaba, JD.com, Tencent and SF Express all competing for a slice of the estimated US$31bn market.

Temperature management is a complex and expensive business, however, especially for B2C last-mile deliveries, while spoilage rates remain as high as 30%, particularly in rural areas.

Mr Erni told The Coolstar that improving technology, increasing customer expectations of food freshness and a concerted effort to reduce spoilage were all pushing cold chain development forward.

“Traditionally, the high capital requirement for developing and operating cold chain capability has been a barrier to adoption. However, in recent years development has increased significantly, with many other logistics players planning to build end-to-end cold chain capability.”

Given the complexity involved, he said controlling costs was the primary challenge.

“But another challenge is working with third-party delivery companies engaged in a race-to-the-bottom price strategy to compete. As a result, precise temperature control often requires additional measures,” Mr Erni explained.

He said while long-distance and B2B cold chain shipments were mostly fulfilled by reefer trucks and last-mile B2C deliveries by insulated boxes, there was “room for improvement” in both sectors to maximise operating efficiency and ensure temperature requirements. Kerry is converting sections of its warehousing to cold storage, as well as investing in additional reefer trucks to keep up with surging demand.

Another challenge for China’s cold chain sector is the fresh batch of US tariffs and Chinese retaliation on US agricultural imports.

“The US-China trade war undoubtedly impacts trade, and the most recent threat of tariffs lists food items, including cold chain goods,” said Mr Erni. “Many logistics players find themselves needing to renegotiate contracts and seek new vendors to control costs as a result of increased duties.

“Fortunately, much of China’s demand for and export of fresh food and cold chain goods can be fulfilled within Asia, limiting the impact of the trade war on cold chain development.”

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