China struggles to keep up with cold chain demand

In recent months, general airfreight in China has shown lackluster growth and suffered yield pressure. However, there is at least one segment of cargo traffic that is making air cargo operators in China salivate – cold chain services – and the logistics sector is scrambling to keep up with the momentum.

In 2013, investors poured more than US$16 billion into cold chain assets in China, and one estimate projects a need for 30 million tonnes of additional coldstorage capacity in the next five years.

Some of the larger players have already made substantial investment to meet this demand. For instance, FedEx, in a two-pronged thrust, is targeting the Chinese market for temperature sensitive shipments. In August, the integrator launched a cold-chain product on its International Priority Service for outbound shipments, as well as on its Priority Delivery Service in the Chinese domestic market.

The new offerings give shippers a choice of two packaging options – gel packs and a “cold shipping package.” The former, which comes in various sizes – ranging from 10 liters to 3,410 liters – can maintain ambient temperature for 70 to 120 hours within three bands: from -20 to 0° C; from 2 to 8°C; and 15 to 25°C. The latter cold shipping package, developed by NanoCool, can be activated with the push of a button on the top of the package to ship items at 2 to 8°C for a 96-hour period. According to FedEx, no pre-conditioning steps are required, and users can proactively monitor the temperature data of shipments and be notified of their status.

Earlier this year DHL Global Forwarding (DGF) also took steps to ramp up its capabilities to handle temperature-sensitive cargo in China. The US$18 million expansion of its air cargo facility at Shanghai Pudong included the construction of a 1,600-square-meter cold storage facility, which marked a twenty-fold increase in the company’s cold chain capacity at the airport. The new facility can maintain temperature ranges from 2 to 8°C; from 15 to 25°C; and from -18 to 0°C. Steve Huang, DGF’s CEO for China, reported that demand for cold chain services has been on the rise, an observation echoed by Jack Lo, cargo product and marketing manager at Cathay Pacific. He pointed to China’s rising middle class and a growing number of pharmaceuticals made in China that have gained certification from health authorities in Europe and North America as the major drivers for import and export growth, respectively.

This leaves general cargo way behind. At the first Cool Logistics Asia conference in September, Clement Lam, director and general manager of Swire Pacific Cold Storage, predicted that the percentage of products being transported and stored in proper cold chain facilities will increase disproportionately to the growth of capacity. According to Kelvin Leung, DGF’s CEO for the Asia Pacific region, the forwarder is the only logistics company in the Shanghai No. 1 Customs Supervised Bonded Zone that can offer cold cold storage in a multi-temperature controlled space.

Handling firm Pudong Air Cargo Terminal Ltd (Pactl) has built a new perishable center at the airport with a deep-freeze area (-18 C), several cool storage facilities (4 to 8 C) and an ambient temperature storage zone (15 to 25 C). The center has an acceptance area with separate X-ray machines and a build-up zone, a 1,500-square-meter handling area for quick breakdowns, and a specially designated delivery sector.

“As most of our airline clients are offering and further developing sophisticated perishable and pharmaceutical services, we expect the recent growth in our perishable and pharmaceutical business to continue,” commented Pactl vice president Lutz Grzegorz.

As Cathay’s Lo noted, the growth in pharmaceuticals shipments is not solely down to Chinese consumers being able to pay more for imported products – although imports still far outweigh exports. Outbound volumes, he said, have been going up even faster, as more pharmaceuticals produced in China have gained international certification and are increasingly shipped to North America and Europe. Investment from international pharma players is on the rise, which has lifted the quality, he noted. “In addition, increasing numbers of traditional Chinese pharmaceutical companies and R&D-oriented Chinese biotechnology companies also join in the service,” he added.

Albeit smaller in volume than imports, it is export traffic that exerts the strongest pressure on cold-chain infrastructure at airports in China. Typically, cold-room capacity on the export side of cargo terminals is considerably smaller than in the import area, and large outgoing volumes sometimes overwhelm the infrastructure, Lo observed.

For all the carrier’s efforts to beef up its perishables-carrying capabilities, there is still limited suitable capacity flying into the Pearl River Delta today, Lo said. Cathay has been utilizing the bellies of sister company, Dragonair, to move perishables in and out of destinations in China, such as Chongqing, Chengdu and Zhengzhou. “We are making efforts to qualify more China stations to become Pharma LIFT capable stations whenever demand is available,” he said, adding that Cathay has also brought in more active temperature control containers.

As yields for general cargo show little promise of improvement, more operators will be rushing temperature-controlled offerings to the Chinese market. Expect more announcements in the months ahead.