Supply chain: New challenges for growing the nation’s “cold chain”
In a recent interview with LM, three senior executives shared their views on the current state of the cold chain industry.
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When it comes to ensuring sustainable and safe transport of food and medicine, a single unified vision is required. Fortunately shippers have been provided with that leadership through the Global Cold Chain Alliance (GCCA), a confederation of several major industries engaged in temperature-controlled logistics. In a recent interview with LM, three senior executives shared their views on the current state of the industry.
“The first thing we need to talk about is the capacity issue,” said Andy Janson, chairman of the International Refrigerated Transportation Association (IRTA) and a past member of the Board of Governors of the World Food Logistics Organization (WFLO).
“The recession has caused this to be a buyer’s market for shippers,” he said. “So much of the freight had dried up, but there was still plenty of capacity out there. Rates became very competitive. Fortunately, fuel costs were drastically improving as the price of oil dropped, but we’re seeing costs creep back up now.”
And what about capacity? Janson said that he follows the Morgan Stanley Truckload Freight Index, which is showing a six-year high in demand.
“Now, that the demand has surged, we are concerned that there will not be enough trucks in the cold chain to carry the holiday season loads,” he said.
Not that this signals a major uptick for the economy, he cautioned.
“Things will improve, but this may not be a dramatic rebound,” said Janson. “We haven’t even really begun the recovery yet. Consumer confidence deeply impacts the supply chain and until that fully recovers, we’ll be treading water. We are predicting carrier’s rates will gradually go back up.”
Export Initiatives: Meanwhile, the GCCA is working with its members to champion new export incentives. According to GCCA spokesmen, the one area where perishable commodities might see some benefit is the advancement of free trade agreements. The U.S. currently has agreements with South Korea, Colombia and Panama that have been signed and are awaiting Congressional approval.
“The Administration has indicated an interest in finalizing the free trade agreement with Korea, which has been stalled since its signing in 2007,” said Lowell Randel, GCCA’s director of government affairs.
Meanwhile, said Randel, cold chain shippers are ever mindful of the potential complications to their industry coming from new regulations.
“The Department of Transportation’s Comprehensive Safety Analysis (CSA 2010) regulations are of concern for U.S. trucking companies,” he said. “In addition, the Food and Drug Administration has begun the rulemaking process to develop regulations under the Sanitary Food Transportation Act, which would impact the domestic transportation of food.”
According to Randel, it is primarily the regulations—or trade policies of other countries – which have the greatest influence on the flow of perishable commodities.
“The recent issues with U.S. poultry and Russia provide a good example,” he said.
Russia had been the largest export market for U.S. chicken before a ban was put in place in January. The ban was enforced because Russian officials were concerned about a chlorine rinse used in U.S. processing plants to kill pathogens that can cause food poisoning.
To date, however, all but one of 26 U.S. poultry and slaughter plants have been cleared by Russian officials to ship poultry to Moscow.
U.S. chicken companies now replace the chlorinated rinse with cetylpyridinium chloride, peroxyacetic acid or hydrogen peroxide. Poultry producer Sanderson Farms Inc resumed exports to Russia in August, with Tyson Foods and Pilgrim’s Pride following shortly after.
Safety First: And while supply chain professionals breathed a collective sigh of relief when the new requirements were approved in July, Janson also wants to stress how the GSCC places supply chain sustainability above all else.
“When looking for a carrier, first and foremost, you need to look at their safety record,” he said. “You also should ensure that their company is financially sound. Ideally, they should also have some type of performance track record with other customers that they can share.”
He admits, however, that ultimately, shippers won’t have a full picture of a carrier’s performance until they start doing business with them.
“You’ll need to wait to see if they perform,” said Janson, “but we highly recommend measuring performance.”
Finally, after safety and efficiency have been addressed, shippers want to know which regions of the world will drive demand for perishables and other commodities in the cold chain.
“According to the Foreign Agriculture Service, exports of agricultural commodities have rebounded well in 2010, with total exports estimated to exceed $104 billion,” said Randel.
As one might expect, much of this growth is coming from China and Southeast Asia, he adds. Since 2000, China has seen an increase of over 600 percent, and agricultural exports to India have grown 200 percent.
“NAFTA countries also continue to see strong growth for U.S. agricultural commodities, with exports to both Canada and Mexico growing over 100 percent over the last 10 years,” said Randel.
Richard Tracy, GCCA’s director of international programs, said that in the short term, developed countries will continue to drive the market for perishable food commodities as suppliers strive to provide seamless supplies of goods year round:
“This means sourcing locally when in season and then shipping from locations where the products are in season. In my travels to Central Asia recently I heard that a major European retail chain was looking to source product there. While I was in Uzbekistan, I met a person who had been working with South Africans to provide fruit and vegetable products that were off season in South Africa.”
Which points to the final fact that the future trends will be driven by the emerging markets as their urban populations expand.
“That means there will be opportunities for regional shipping of goods between developing countries and China and India,” concluded Tracy. “China’s rural-to-urban shift as well as the burgeoning middle class there will be a major factor,” he said. “Companies seeking to enter these markets will have to do their due diligence, though. They should look at each one on a case-by-case basis. The same holds true for India.”
About the AuthorPatrick Burnson, Executive Editor Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at [email protected]
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Article TopicsInternational Refrigerated Transportation Association · Supply Chain ·
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