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Clouds and silver linings at Cool Logistics Asia

Amid fears of choppy waters ahead for perishable logistics, high calibre delegates from more than 20 countries gathered at the second Cool Logistics Asia Conference in Hong Kong this September. Conference director Alex von Stempel reflects on the debate.

Delegates congregating from Europe, the US and Asia on 7 September to attend the Cool Logistics Asia conference may have wondered whether the perishable supply chain is reaching breaking point. Shippers, carriers, freight forwarders and customers were all still reeling from the news of Hanjin's bankruptcy, after the Korean carrier filed for receivership on 31 August, just the week before.

Although it was too early to fully assess the repercussions on perishables, such as fruit and vegetables, the failure of the world's seventh largest container line was inevitably a key topic of debate. The Hanjin receivership caused short-term havoc in the market, affecting shippers and alliance partners alike, says Thomas Eskesen of consulting firm Eskesen Advisory, former head of reefers at Maersk Line, and one of the conference moderators.

Reefer container trade

Coinciding with the opening of the annual Asia Fruit Logistica Exhibition, the conference heard about the dismal financial performance of the container shipping sector, with "everyone losing money", coupled with the warning that "[shippers] get what they pay for", according to Eskesen.

Apart from Wan Hai, which chalked up a small operating profit, all the other lines – including the market leader Maersk – have plunged into the red in the first half of this year. With ship supply growth at 6% still outstripping cargo demand growth at 3%, hope now hangs on the reefer sector to provide the 'silver lining' in a sea of clouds.

According to Ronald Veldman, maritime consultant at Seabury Group, reefers remain "the positive exception, growing at over 5%, and will keep growing at a steady pace of about market average." Veldman says that global reefer cargo volumes grew by 163 000 TEU from January to June 2016 compared to the same period in 2015, with chilled foods up by 7% and 4% growth in frozen goods.

Isabella Hu of COSCO Container Lines was even more positive, expecting that container rates would go up in the second half of the year, buoyed by intra-Asia demand. This was largely driven by China and will impact reefer volumes, she argues. Veldman adds that from 2010 to 2015 intra-Asia reefer cargo had grown by 283 000 TEU with onions, garlic and fruits responsible for ‘close to 70% of overall perishables’ trade growth’.

From trade lane to demand chain

While the growth rate for perishable cargoes as a whole still remains relatively healthy, at least compared with the rest of shipping, retail supply chain consultant Simon Pearson challenged attendees to take a fresh look at the business of perishable logistics.

"The logistics sector needs to leave behind the tramlines of trade lane thinking and embrace the new reality of the demand chain,” the former Asda Walmart executive said. That includes understanding the changing needs and behaviour of the end consumer, said Pearson, including the trend for Chinese consumers to shop "in small [amounts], but more often".

Online commerce

This chimed with comments made by Clark Meng, general manager project development, Fresh Business Unit for e-commerce giant JD.Com, who warned producers and exporters that the customers "won't be educated”.

According to JD.com, which is investing heavily in cold store capacity across China and in the last mile in particular with plans to deploy drones into remote areas, fresh produce still represents 1% of the total online market and just 3% of China's USD2-trillion fresh produce market. These statistics contradicted some of the more optimistic views mentioned by proponents of e-commerce during the Asia Fruit Congress the day before.

Meng also observed that e-commerce cannot be treated as a 'like for like' replacement for traditional retail outlets and the company is now pursuing more of an omni channel strategy with investment in physical stores.

Closing the gap between promise and reality is critical for the future growth of China's online fresh produce business growth and much of this is down to domestic logistics. Therefore it is not surprising that JD.com is seeking to retain control of the last mile. Interestingly, COSCO is also planning to be more involved in the last mile, Hu mentioned.        

All in all, the fact that consumers are more demanding means that "even more cost will have to be taken out of the supply chain" in the future, according to Pearson who also used Cool Logistics Asia for the official launch of his new venture, World Food Logistics a ‘technology-enabled’ provider of supply chain management services operating from ‘source to shelf’. Pearson also encouraged LCL shipping for fresh produce, though with less than 1% market share, Eskesen warned that the container lines have other worries at present.

IoT and farms-in-a-box

In his shipping summary, Eskesen proclaimed "the end of the lone wolves" in container shipping and that only carriers "with a scale can survive". This view was supported by Ole Schack-Petersen, chief strategy officer of perishable logistics provider LCL Chairing in one of the break-out sessions on perishable product solutions and innovation.

Petersen observed that the remote container management (RCM) system recently deployed by Maersk Line across its entire fleet of reefer containers using IoT technology was fast becoming a new industry standard that the smaller lines would have to follow sooner or later.

Living up to his image as an innovator, Alfred Cheung of the JC Food Republic and former head of reefer trades at OOCL, aired his new concept - using maritime containers as an environment to grow fresh produce using hydroponics technology. Old reefer containers have already been repurposed for urban farming by a number of start-ups and collectives around the world, as reported recently in the Wall Street Journal.

Will New Panamax put paid to specialised reefer ships?

Another highlight of the conference was a presentation by Paul Gallie, formerly with APM Terminals and now an independent shipping and reefer space consultant, on the impact of the Panama Canal, which he believes will put the final nail in the coffin of conventional or specialised reefer shipping.

The speed with which sub-Panamax vessels were now being retired, coupled with newer tonnage still in the pipeline, was an indication that bigger vessels would continue to rule the waves, he concluded.

   

The Cool Logistics Asia Conference returns to Hong Kong alongside Asia Fruit Logistica from 6 to 8 September 2017.

 

 

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