COLD CHALLENGES

Logistics Insight Asia, 1/9/2009

A rapidly globalizing food industry and changing consumption habits in the developing world are two factors driving demand for high-integrity cold supply chains, but we're not quite there yet, according to TRANSPORT INTELLIGENCE.

The term cold chain is used to denote a temperature-controlled supply chain. Cold chains are common in the food and pharmaceutical industries and also for some chemical shipments. With markets continuing to globalize and emerging countries becoming more affluent, the demand to transport fresh, chilled and frozen produce is increasing. Hence, cold chains are becoming increasingly more important.

The main markets producing these fresh goods are now developing countries (China, Vietnam, India and Latin America). They currently have poor infrastructure, congestion at ports and a significant lack of temperature-controlled equipment and facilities. It is estimated that some US$35 billion of perishable goods are wasted every year globally, and significant investments in infrastructure, specialized equipment and training are required to reduce this figure.

The main customers for temperature controlled distribution are the fresh food producers, processed food manufacturers, and grocery retailers. Many emerging markets are now important suppliers of fresh goods: China is currently the world’s largest vegetable exporter while India provides the highest volume of fruit and is number two for vegetables.

Food processors and retailers are seeing increasing globalization of their operations. While continuing to grow in their respective home regions, these companies are exploiting the changing tastes and lifestyles in emerging markets and providing “western style” shopping experiences, with processed convenience foods.

With growing demand and the rising cost of refrigerated sea and air freight (which is more expensive than ambient transportation), processed food companies are now setting up manufacturing plants in the country they intend to serve. This allows for an easier localization process.

For high-volume shippers of these products, whose sales values are typically lower than in sectors, such as high-tech and high-end clothing, the doorto- door supply chain has both substantial cost implications and stringent quality requirements. This relates to sea as well as air freight shipments of refrigerated and frozen goods. Shipping goods by sea, in all east-west and north-south trade lanes, is signifi cantly less expensive in dry (non temperature controlled) containers than in refrigerated, also known as reefer, containers.

Furthermore, for both the freight paying customer and service provider, ensuring that the refrigerated and frozen, often perishable, items shipped are received at their inland destination in the same condition as they were dispatched at origin can be a major challenge.

MARKET CHARACTERISTICS
The total global food market – including temperature controlled (refrigerated) and frozen food products - was estimated to be worth approximately US$4 trillion in 2007 and is forecast to grow to $4.39 trillion by 2010 and $6.35 trillion by 2020. The balance of power is also expected to swing with the Asia Pacifi c region predicted to become the largest food retail market, overtaking both the US and European markets.

The global frozen food market, which in 2007 had a value of $100 billion, is forecast to reach $119.9 billion by 2012, a 20 percent increase. Sales of frozen pizza and ready meals accounted for the largest part of the market’s value (41 percent). Significantly, Asia Pacific, which accounts for 34 percent of the total value, is now the largest frozen food market, having overtaken the US.

The global refrigerated and frozen food industry is dominated by a handful of multinational corporations. Among the leaders are Unilever, Heinz, Kraft Foods, General Mills and Nestlé. Competing in the global food industry is a complex undertaking, as firms must continually react to the demands of wealthier and more selective consumers for higher quality and more varied products. Markets for individual fresh and frozen food products, however, are not becoming more global. Rather, consumer demand for food products differs depending upon on income and regional cultural preferences.

Both fresh and frozen food, which include a lot of processed food, have stringent temperature controlled logistics requirements, providing opportunities for 3PLs, multimodal transport providers, and warehouse providers across all continents.

Supply chains are vital to the large food processing companies and are seen as a means of gaining advantage in a highly competitive market. It is for this reason that the majority of participants manage their supply chains in-house. All, however, outsource aspects such as physical transport and warehouse operations, where they believe that they can remain in control without having assets to manage. Logistics costs tend to be around 8-10 percent of revenue, with road freight comprising by far the largest proportion.

There is a clear trend amongst all of the major processed food producers to improve the cost base of their supply chain by consolidating production facilities. This trend is also reflected to some extent by a centralization of inventory. This should not be exaggerated as most products need highly distributed inventory near retail locations (although this is complicated by the varying role of the retailer in managing stock).

Nonetheless, the major companies are creating larger warehousing complexes with cold storage facilities serving national markets. Crucially these are served by more intensive road freight services. These facilities are not only becoming larger, to accommodate a wider range of products, but are also becoming far more sophisticated in order to hold ambient, chilled and frozen goods.

ASIAN ANGLE
Whereas China is a large land mass and has the capacity to develop integrated cold chain infrastructures, the same is not true for the rest of the Asian Pacific countries in the region. Not only are there many differing countries with different cultures and different food habits, but their geographies and demographics differ, particularly across the emerging middle classes in such countries as Indonesia and Thailand.

So the region is very different from, for example, the North American temperature controlled market, which is effectively one market where there are providers and property developers prepared to make investments in infrastructures particularly alongside their stateside and regional customers.

However, Asia Pacific is not one market and the logistics providers and property investments will differ from one country to another. What they do in Australia is not what they do in Singapore, what they do in Thailand will have no relevance to the Philippines and so on, particularly where the transport infrastructure is either nonexistent or there are large tracts of water to cross. For this reason most developments in the region are country-centric, driven by the needs of the countries’ cultural requirements and limited by infrastructure and geographical boundaries.

Much of the region is still developing and cold chain services are not particularly sophisticated. Intra-regional goods are transported by a mix of air freight (due to the large and frequent bodies of water) for international movements and road transport for national distribution. There is a large volume of fruit /vegetables and fish moving between Asian countries and, currently, wastage is high, due to inefficient cold chain solutions.

China
The 2008 Global Cold Chain Capacity report of the IARW mentioned that the total capacity of refrigerated warehouse space in China is around nine million tons (over 30 million cubic meters), a 20 percent increase in capacity since data was collected in 1998.

The IARW report, confirms that in China, the overall knowledge of proper cold chain practices is weak, especially amongst smaller companies. Many processors and manufacturers have underdeveloped processes with a lack of up-to-date technology.

There are very few third party logistics companies in the country that are able to provide optimized cold chain management solutions. Most of the time, the services provided by these companies are too expensive to be accepted by food companies.

However, demand is rapidly rising. Perishable food production in China reached nearly 700 Million tons and consumption accounts for around 240 million tons. Meanwhile, Chinese imports exceeded $30 billion in 2006. Transport Intelligence studies have shown that a lack of cold chain facilities is hampering food and drink multinationals from expanding into China’s second-tier and third-tier cities, the sites of strong future growth.

Demand for chilled dairy products and fruit juices, as well as frozen foods, is growing rapidly in China, especially among urban consumers who increasingly shop at the numerous supermarkets opening up in cities. But international companies importing chilled products can only reach the biggest cities, such as Beijing, Shanghai and Guangzhou, which are close to ports.

Malaysia
Capacity for public refrigerated warehouse space in Malaysia is approximately 13,000 cubic meters. The national cold storage industry is in developing stages, especially in the northern part of the country. Demand for cold storage facilities is expected to increase due to federal government support of agribusiness, which will increase agricultural production.

Over the last 10 years, the mindset of processors, manufacturers and retailers has shifted from a “wet” market retail landscape to opting to preserve products in refrigerated warehouses. This shift is partially due to the recent uncertainty of the fishing season. With unpredictable weather impacting yields, many producers are turning to cold storage facilities to store raw product.

The establishment of more public refrigerated warehousing companies has increased competition. Operators try to stay competitive by reducing operating costs and investment costs. The Malaysian cold storage industry will need greater expertise and technology in order to survive past the vulnerable early development stage.

Indonesia
Asosiasi Rantai Pendingin Indonesia (ARPI), an Affi liate Partner of the Global Cold Chain Alliance, noted that accurate capacity data for Indonesia is difficult to collect. However, the Indonesian cold storage industry is growing, with increased funding for government-supported projects in eight provinces to build cold storage facilities for national agribusiness.

Indonesia’s primary export is shrimp, crab and fi sh products, and it appears that a large majority of cold storage facilities are used for seafood. Most facilities seem to use ice blocks to refrigerate facilities. According to the Indonesian Ministry of Marine Affairs and Fisheries, 2,000 tonnes of ice blocks are needed per day in the 33 provinces where seafood is auctioned, but the provincial ice plants can only produce 300 tonnes per day. This means that the typical refrigerated warehouse is able to store only 30 percent capacity in the off season and around 60 percent in the peak season.

There are few cold storage or airconditioned facilities in Indonesia. Particular challenges faced by the Indonesian cold storage industry include lack of knowledge about proper postharvest handling techniques within the industry and weak agribusiness due to a failure to meet international import standards.

India
India’s cold storage capacity is expanding rapidly, and given that the population has grown to well over one billion people, this should not be surprising. IARW has estimated that India’s cold storage capacity is 76.21 million cubic meters, a figure that has more than doubled since 1998.

Currently, India is the top producer of fruits and second largest producer of vegetables in the world. However, approximately 30 percent of the country’s produce gets wasted due to lack of cold chain infrastructure. Aside from the clear need for infrastructure, there is significant demand due to the retail boom and a growing middle class. The retail sector is expected to grow by 40 percent to US$427 billion by 2011.

So there are a myriad of opportunities for temperature-controlled logistics companies in India. With a limited number of organized players entering the Indian cold storage industry and ample government support by way of tax exemptions and subsidiaries, the Indian cold chain market is one of the most lucrative in the world.

Players in the Indian market face a number of challenges including economic dependence on a single commodity (potatoes), high cost of operations due to inefficient technology, and subpar postharvest handling techniques. In addition, there is a lack of trained personnel, and integrated warehousing and logistics operations in India.

QUESTION OF INTEGRITY
The biggest issue for many retailers is how to ensure that the cold chain is maintained and a quality product is delivered. There are apparently few service providers capable of maintaining a quality cold chain throughout a consignment’s life cycle. A lack of common procedures, tracing systems, communication standards, measuring criteria and openness from carriers, forwarders and logistics companies means there is no simple way to ensure temperature is maintained and cargo arrives in good condition.

Even when a company shipping domestically in the US, from California to Florida, was using the same carrier, same retailer, and the same five truck loads, there was a variance in the condition of cargo upon delivery, according to the Cold Chain Group.

A lack of interest and communication from carriers was also pointed out. Japan, for example, is the biggest importer of temperature controlled products by air in the world – but has no cold store at Tokyo’s main airport.

Whether a seafood company uses sea, air or road, however, it takes a lot of effort to keep that cold chain intact. To ensure quality, it needs to take control of the supply chain. Any company that takes some of the risk when shipping cargo has to take ownership of that cargo and therefore the shipment.

In order to prevent glitches in the cold chain and avoid unnecessary cost, refrigerated and frozen companies must put logistics high in their priorities. It may not be the company’s core business, but the shipper would gain paying attention to the supply chain, and that includes logistics.

RFID is frequently promoted as the next advance in supply chain management and a combination RFID and temperature logging tags could provide means of complying with Hazard Analysis and Critical Control Point requirements, including the maintenance of records for regulatory agencies.

Evidencia has developed a new radio frequency identification (RFID) logger that combines tracking and tracing with temperature readings, giving manufacturers a way to identify when food safety may have been compromised. The ThermAssureRF data logger combines an electronic in-transit temperature sensor and advanced micro-chip and wireless technologies to track inventory throughout an entire facility.

ThermAssureRF can also be tagged with Electronic Product Code (EPC), an international standard for tracking goods throughout the supply chain. The temperature loggers are currently being used by a variety of companies, including those shipping wine, produce, seafood, meat, poultry, pharmaceuticals, and cosmetics.

TEMPERATURE FORECAST
The food industry is becoming increasingly international and a significant proportion of the increasing volumes of food that are being moved around the world are stored and transported in refrigerated or temperature controlled conditions

Although demand is growing, the supply side of the industry does not offer a consistent high standard of provision across the whole world. In particular, China is lacking a national infrastructure of refrigerated warehouses and, within its indigenous logistics industry, the skill and attitude towards quality control which will enable it to sustain high quality cold chains.

To remedy the apparent mismatch of demand and supply investment in facilities and also improved management techniques are required. At a time when much of the world is in recession, it is by no means clear where the investment in infrastructure, will come from.

It may be that food retailers with the support of 3PLs will start to build cold chains where existing provision is inadequate and seek the support of property developers for the real estate and finance aspects of the project. This may be on an exclusive basis to give the retailer a competitive advantage or on a shared basis to reduce costs.

---------------------------------------------------------------------------------------------

--------------------------------------------------------------

CREATING A COLD CHAIN CULTURE

A cold chain is much more than a chilly set of logistics activities, it is a vital, health-preserving part of global trade, says ANGELOS ORFANOS.

Frankfurt Airport on a pleasant summer afternoon. The outside temperature is 20 degrees centigrade. An LD3 container has been sitting out on the tarmac for the last two hours is and its internal temperature is right now is a whopping 76 degrees. That’s bad news if it contains temperature-sensitive goods such as pharmaceutical or life science products heading to Asia.

The complexities of a successful cold chain are often not recognized or understood by the end-user – whether this be a healthcare professional, scientific researcher or medical patient. However, the processes in place are vital for an increasingly globalised marketplace, facilitating trade, whilst at the same time ensuring product integrity and safety.

Of course, this doesn’t mean that cold chain is merely a chilly set of logistics activities. Cold chain is a temperature-controlled supply chain entailing an uninterrupted series of storage and distribution activities which maintain a given temperature range. And although this may conjure images of refrigerated trucks delivering goods to icy storage facilities, cold chain excellence depends on much more than infrastructure.

But fi rst, let’s look at why cold chain excellence has become an important deliverable for service providers in the logistics industry, and a must for drug and pharma companies around the world.

GLOBALIZING IMPACT
Despite the economic downturn, the life sciences and healthcare sector continues to grow – whether it be by producing medicines to treat the common cold, developing tests for an epidemic such as the H1N1 Flu, or engaging in R&D to find a cure for cancer. And as the industry evolves, it continues to globalize. Today’s pharmaceutical footprint looks very different that it did a decade ago.

As pharmaceutical companies consolidate manufacturing bases, increasingly, supply chains are changing and products are travelling greater distances and through a more diverse range of climates. A product that starts its journey in a climate that requires protection from heat may end up in a climate where it needs protection from freezing.

In addition, as healthcare globalizes, so do the associated legal requirements. Products must meet an international patchwork of regulations relating to transport and handling. And new or revised regulations that pertain to the required temperature range of life science and healthcare products, such as those set by the FDA in the US, also require service providers to respond with cold chain solutions.

The changing profile of pharmaceutical products, such as the increase in new biotech drugs, also has an impact, because these have a larger molecular structure and are more sensitive to temperature and humidity. But don’t forget that even “traditional” medicines like insulin, fatty-based suppositories, and eye drops require consistent temperature control as they move along the supply chain.

HOT CONSEQUENCES
The main concern with cold chain is the possibility of temperature excursion – when the required temperature zone for a product is exceeded. From release by manufacturer to arrival on the market, pharmaceutical products have a certain tolerance for temperature excursion. However, if the temperature excursions during the transport period cumulatively exceed that designated by the manufacturer, then the product could spoil and potentially cause significant expense. All the measures in place are designed to ultimately protect the health of the end-user.

For the manufacturer, temperature excursions could mean having to dispose of products and face supply shortages. In extreme cases, there could be legal repercussions such as fines, license suspensions, site closures, damage to corporate image and health problems.

This makes third party logistics providers responsible for developing a culture of cold chain excellence, where they have a deep understanding of the product and how to manage it as it moves along the distribution line. Anything less than this will fail to satisfy the customer and, worse, protect the patient. However, as a temperaturesensitive product moves to the market, there are numerous possibilities for things to go wrong.

In fact, the greatest risk of temperature excursions occur at the several handover points in the chain. As a product moves from shipper to forwarder to an airline or ocean carrier and then to a customs environment and back into a trucking environment, there are many opportunities for temperature deviation.

COLD CAPABILITIES
The importance of the cold chain requires pharmaceutical companies to place a tremendous amount of trust in their logistics service providers. Therefore, they need to work with a service provider that has the competence to manage the entire supply chain.

For example, we have already identified the customs environment as a risky handover point for temperaturesensitive goods. At some ports, customs have cold storage spaces, while at others they do not. If a shipment of pharmaceutical products becomes held up at a customs environment that does not have cold storage facilities, there is a real risk that they will become compromised.

Hence a rigorous testing process to qualify the trade lanes along the cold chain and mapping out the entire door-to-door supply chain to get end-to-end visibility is a recommended 3PL capability, to ensure that your products are not subject to unsuitable and potentially hazardous conditions. Once temperature excursions on a lane are identified, they can be minimized or even eliminated.

For the service provider, the approach to creating a culture of cold chain excellence involves having the right infrastructure in place – such as cold storage areas where pharmaceutical products are separated from dry chain goods, and special vehicles to transport cold chain goods – but it also involves well-tested processes and dedicated and knowledgeable people, who know how to do everything from dry ice calculations to managing packaging solutions.

Cold chain challenges are problems for life science companies. The logistics service provider needs to make its customer’s problems its own. While this requires investing in the latest technologies and infrastructure, the largest investment needs to be made in cultivating the best processes and training competent staff . Ultimately, the goal of the logistics service provider is to get

the products to the right place in the right condition and on time. Only by taking a holistic view of the cold chain, constantly monitoring for potential exposures and by closing gaps, can this be achieved.

Current Rating:

 Excellent
 Very Good
 Good
 Quite Good
 Poor

 Rate This Article