Rising demand spurs development of cold chain logistics industry

A promising market beckons for China's cold chain logistics industry, with domestic customers showing growing interest in food quality and diversity.

Thanks to modern logistics services, food from all over the world is now available for delivery. Even food that is hard to preserve, such as ice cream, can be delivered to customers' doors 24 hours after they make an order online.

Bingtian Meidi, an online ice cream shop on e-commerce website tmall.com, received more than 10,000 orders on its opening day, July 30, 2014, for its fresh US-made ice cream.

Links in the chain

Shanghai-based Bingtian Meidi sells ice cream from several US brands, including Häagen-Dazs, Ben & Jerry's and Crystal.

All the ice cream is imported directly from the US and is delivered no more than 24 hours after the order is made, a member of the company's customer service staff told the Global Times Wednesday.

If customers find that the ice cream is melting when they receive it, the company will offer a full refund, according to Bingtian Meidi's online announcement.

What enables the speedy and cold delivery is Chinese delivery firm SF Express Inc's new service, SF Cold Chain, a sub-brand providing cold chain logistics services for fresh food sellers.

SF Cold Chain was launched on September 25 in Shanghai, and has already cooperated with many vendors on e-commerce websites taobao.com and tmall.com, according to a press release SF Express sent to the Global Times on Tuesday.

As well as delivering products for other vendors, the service also provides fresh food delivery to 54 cities in China for sfbest.com, SF Express' own online food shop, the press release said.

SF Express started developing its cold chain logistics service when sfbest.com went online in May 2012, and a food supply chain department was set up in December 2013.

SF Express' two cold storages in Shanghai and in Xiamen, East China's Fujian Province, went into operation in September.

The company expects to have 10 cold storages in China by the end of 2014, which would make it the top domestic enterprise in terms of possession of cold storages, according to the press release.

As a leading player in the Chinese market, SF Express already has a nationwide network, which will help it expand its cold chain services, Lu Zhenwang, founder of Shanghai Wanqing Commerce Consulting Co, told the Global Times Wednesday.

Lu also runs his own online shop, Qiangxiangou, on taobao.com. It focuses on high-end agriculture products that are local specialties, and he also uses SF Express to deliver his products.

Stopping the rot

Some e-commerce companies are also preparing their own cold chain logistics.

US-listed Chinese e-commerce company JD.com Inc started selling fresh milk from Australia on August 26, according to a press release the company sent to the Global Times Wednesday.

Australian milk is transported to Shanghai by air and after customs clearance, JD's cold trucks deliver the milk to customers' doorsteps, the company said in the press release.

Both SF Express and JD stressed that they provide a one-stop cold chain logistics service.

The more traditional two-stage logistics service involves delivering products to cities, with the products then being taken to customers by local delivery services.

The local delivery services, which are responsible for the last part of the route to customers, may have no professional cold chain equipment, leading to the risk of the food spoiling, SF Express said.

The rate of rotting or damage for fruit and vegetables, meat and sea food during delivery in China is 25 percent, 12 percent and 15 percent, respectively. But the rates in Europe and the US are only around 5 percent, Wu Guoli, head of SF Express' food supply chain department, was quoted in the press release as saying.

"If China can reduce the rotting and damage rate to 5 percent, then we can cut annual losses by as much as 100 billion yuan ($16.3 billion)," Yu Ping, head of the China Federation of Logistics & Purchasing, was quoted as saying by Shanghai-based newspaper National Business Daily on September 26.

He also said that 92 million tons of fruit and vegetables were delivered via cold chain logistics services in 2013, up by 20 percent year-on-year, and the growth in Shanghai was over 30 percent, leading to more logistics firms establishing cold storages in Shanghai, according to the report.

With the surging market demand, China's cold chain logistics industry saw fixed-assets investment of 100 billion yuan in the past year, the report said.

Obstacles and risks

The biggest obstacle for the future development of cold chain logistics is the high cost involved, both in investment and the higher fees customers need to pay, according to Lu.

Cold chain logistics requires a number of cold storages across the country, and a 6,000-square-meter cold storage would cost 20 million yuan to build, according to Wu from SF Express.

Due to the high cost, many firms do not have enough capital to provide cold chain services all the way along the route to customers, Lu noted.

Moreover, the high investment leads to higher delivery fees, which many customers may not be willing to accept, he said.

However, support from the government could help the industry's development.

China's State Council on Saturday released strategic guidelines for the development of the logistics industry from 2014 to 2020, calling for the construction of more cold chain logistics facilities for fresh agricultural product delivery.

Although the guidelines did not reveal specific details about the government support that would be provided, logistics experts believed it would lead to a positive trend in the long term.

Experts at the 2014 International Cold Chain Logistics Summit held in Xiamen on May 29 and 30 also stressed the importance of operating safety, according to the summit's website.

Richard Tracy, vice president of the Global Cold Chain Alliance, said at the summit that the safe use of refrigerant ammonia is an important global task, and professional training and protection equipment are essential.

In August 2013, 15 people died and 25 others were injured after a liquid ammonia leak at a refrigeration unit at Shanghai Weng's Cold Storage Industrial Co Ltd, according to local media reports.