The cold chain industry is growing at a rapid pace, thanks to the increased need to transport perishable goods like food and medicine. For solution providers in this sector, opportunities are several. However, they need to have a clear understanding of the pain points to make a real difference.
Izvor: a&s International
E-mail: redakcija@asadria.com
As countries worldwide increasingly realize the importance of maintaining robust trade links with each other and the technological developments that can assist them in it, trade volumes are on the rise. According to data from the World Trade Organization (WTO), merchandise trade volume is expected to rise 4.4 percent in 2018, almost as much as the 4.7 percent increase recorded in 2017. Growth could ease a bit to 4 percent in the coming year but will remain firmly above levels recorded during the financial crisis.
The cold chain market, one of the major components of global trade, was valued at US$147.6 billion in 2017 and is expected to grow at a CAGR of 15 percent from 2018 to 2025, according to Grand View Research. The increased presence of connected devices and automation of refrigerated warehouses is considered some of the major factors fueling this growth.
The growth figures mentioned above include statistics from different sectors, including food and medicine. Speaking specifically on the latter, Mark Sawicki, Chief Commercial Officer of Cryoport, said that according to recent reports, the total global sales year to date for biologic products and drugs has exceeded $300 billion.
“The specialized global logistics solutions for these products are forecast to reach approximately $15 billion by the end of 2018 and grow to $18 billion by 2022,” Sawicki said. “We agree with the estimates and see a growing demand for our products and for the industry.”
Not all industry experts are, however, convinced that the growth could rise at the rapid pace that is projected. This is not because of a lack of demand. In fact, the demand is strong but the infrastructural support to meet the demand may still be at a nascent stage in certain parts of the world. For Alvis Lazarus, CEO of Hesol Consulting, who spoke specifically about the Indian market, the outlook shows strong potential, but the reality is slightly different.
“With the current outlook, cold chain industry could easily be a winner, but it isn’t yet,” Lazarus said. “Though the demand is so promising, the means to cope up with that demand is still very fragile.”
Naturally, the more products that require cold conditions are developed, the more the need for cold chain solutions. Till Krenzien, Principal of Competence Field Engineering and Implementation at Miebach Consulting, pointed out that the cold chain is a process requirement.
“It is constantly growing since more products are developed, which require constantly cold conditions,” Krenzien said. “Our industry studies for the pharmaceutical market during the last five years show a growth of 8 to 10 percent per annum.”
Factors Driving Growth
While there are several factors that contribute to market growth, certain key aspects stand out. According to Lazarus, the root of growth is the rising per capita income and changing consumer buying behavior. The US Department of Commerce, in a recent report, noted that the expansion of cold chain systems is a force multiplier that can boost exports and open new opportunities and markets over multiple sectors in the long term, rather than a one-off export transaction that can be quantified simply as an export success.
Industries like pharmaceutical are increasingly in need of cold chain solutions. Krenzien pointed out that pharma companies are developing more liquid (injectable) and biopharmaceutical drugs, which require cold storage conditions of 2 to 8 ̊C and deep freeze conditions of -20 ̊C and below (down to -70 ̊C). The requirements for existing drugs are also seeing an increase, leading to accelerated efforts to comply with regulations.
Explaining further on the market conditions and the factors fueling demand, Corey Rosenbusch, President and CEO of Global Cold Chain Alliance (GCCA), added that occupancy levels have peaked at the moment.
“We have seen growth from a capacity standpoint,” Rosenbusch said. “We are looking at about 5 percent growth rate a year in terms of what capacity is added to the industry. Capacity is tight right now, both on the transportation as well as the warehousing side. Occupancy levels are in the upper 80 percent, which is not full but in a distribution environment, it is considered so. Most people would even say at an 82 or 83 percent they are full because they need to have the flexibility for products to flow in and out.”
There are several reasons for this. One of the main reasons is that manufacturers have started to rebuild their inventories after the economic crisis in 2008 when they were trying to pull back and clear up balance sheets. Also, there is a lot of Stock Keeping Unit (SKU) diversification that require additional pallet positions. Further, many retailers are introducing policies that penalize manufacturers who are unable to fill orders. All these have pushed growth.
“Generally speaking, the growth of the food industry, especially the perishable food industry, is highly correlated with middle-income growth,” Rosenbusch said. “So, any time you see a growth of middle income in a region, country, or part of the world, that is going to drive the growth of cold chain.”
According to Grand View Research, growth factors include trade liberalization, government efforts to reduce food waste, and expansion of multinational retail chains. Entities like the WTO, bilateral trade initiatives such as the European Union Free Trade Agreement and the North America Free Trade Agreement have boosted the need for transporting perishable goods across the globe.
While this may be the case mostly in developed economies, emerging markets are seeing a different trend altogether. Here, the cold storage market is fueled by a move from consumption of food that is rich in carbohydrates to those that are protein-rich.
“Countries such as China are expected to portray a significant growth rate over the coming years due to a consumer-led transition in the economy,” reports Grand View Research. “With growing technological advancements in warehouses management and refrigerated transportation, the market is likely to expand in developing economies. Furthermore, growing government subsidies have enabled service providers to tap these emerging markets with innovative solutions to overcome complex transportation.”
Trends Seen in the Industry
Industry experts point out that technological developments have paved way for several trends in this sector. Key among them is the need for real-time monitoring of factors like temperature and atmospheric composition. These data help service providers understand the various conditions and help them take preemptive action.
However, some experts are quick to point out that the trends are in line with technological developments in other sectors in the transport and storage industry.
“There is a misconception that the technologies are so different, but the truth is that they are not,” Lazarus said. “If you consider the overall supply chain, the cold chain fits in majorly on the distribution (warehousing and transportation) as well as the raw material storage and transportation industries. Hence, all the key supply chain concepts, methods and tools make perfect sense for the cold chain as well.”
For example, tool kits for procurement and sourcing, transportation and warehouse management as well as standards all apply to cold chain operations as well. Even in a cold chain setup, all the existing tools and techniques like space planning, layout designing, storage systems, and material flow and handling are used. Despite this, there are certain differentiators that need to be mentioned.
“Now, the differentiator is the technology in maintaining the product at the right specifications like temperature, packing, handling etc., throughout the supply chain,” Lazarus continued. “We really struggle to achieve this due to lack of design norms, operational inefficiencies, discipline issues and lack of process controls. As a cold chain supply chain consultant, I have worked on multiple projects fixing these gaps and, in most cases, we are not inventing anything new, but fixing the missing basics. There have also been instances, where we used IoT-based supply chain solutions to bridge these gaps. Recently we worked on an IoT solution to bridge multiple upstream and downstream issues within a dairy product supply chain.”
Lazarus’ point is that new tools and technologies keep coming up but those that are already there are not obsolete, and they make perfect sense even today. Speaking on this point, Rosenbusch said that technology was indeed the main topic of discussion at GCCA’s recent board meeting, stressing on its importance.
“When I say technology, automation is a big part of that,” Rosenbusch added. “If you look at Europe, the continent has always been a leader in automation, with just about any building you go into having some form of it. This is obviously because of the lack of availability and high price of land and labor. Labor is very expensive in Europe, so that has been a driver behind a lot of the automation that you see there. Those same challenges are not necessarily there in the U.S. However, we are seeing a tipping point and that is labor availability. [Concerns on] the availability of labor have pushed people to seriously consider automated solutions.”
He added that automation does not necessarily mean complete AS/RS systems in the cold chain industry. In some cases, for instance, it’s just about integrating conveyors or pallet moles into existing infrastructure. So, anything that can create efficiency or help replace some of the labor that has become a challenge is definitely being used.
“But it’s not just automation from a technology standpoint, but also systems, that include WMS and TMS, business intelligence, solutions to help look at supply chain optimization for customers, etc.” Rosenbusch. “We have even heard of people using drones in their buildings to do cycle counts, fully IoT-enabled systems for refrigeration. It’s a broader introduction of technology into all elements of the business.”
Challenges Hurting Growth
When it comes to the challenges in this industry, factors ranging from regional differences to economic concerns play a major role.
“We primarily represent, what we call, the third-party cold chain,” Rosenbusch said. “This means anybody who is offering cold chain solutions as a service. There is a lot of demand for these services right now, but I think the contractual environment has prevented a lot of food companies that are demanding those services from making long-term commitments. So, when you look at the need to put up more assets, to put up more buildings, to invest in growth, what they require is an anchor client, an anchor tenant or a long-term commitment.”
This is not just from a return on investment (ROI) perspective but also from a financing perspective when banks and financial institutions look at feasibility.
“The industry in the food sector has become so dynamic,” Rosenbusch continued. “It’s changing so rapidly, that it makes it difficult for food companies to make a ten-year commitment for some assets. But these are not cheap assets, and I think that’s one of the factors that is affecting growth.”
Regulations are another factor that is important to consider. For instance, certain automation solutions might require tall buildings and the height may not be in line with what the local laws permit. The general political environment of a country may also come into play when considering challenges that need to be overcome. Concerns in this regard may limit the amount of investment that individuals and organizations would want to make. Especially when it comes to expanding to new markets, there are uncertainties on how governments function and this too becomes a hurdle to growth.
But perhaps the biggest challenge is labor itself. Having a skilled workforce to fill the jobs and be able to meet the current requirements is not easy.
Krenzien added certain other technological challenges as well. In his opinion, while it is critical to monitor factors such as the temperature at each point of the supply chain, aspects such as lack of adequate infrastructure, especially in terms of refrigerated trucks, warehouses and efficient roads in developing economies is a difficulty.
Enhancing Business in Cold Chain
For vendors that provide technical support to cold chain service providers, understanding the challenges and requirements is critical. Labor and energy are the two biggest costs for service providers, and manufacturers would do well if they can concentrate on coming up with solutions that would ease the pressure on these two fronts.
On a final note, Rosenbusch added that a survey of food companies that GCCA had conducted recently found that food safety and protecting their brand was the biggest concern. No one can afford to have an outbreak of a food-borne illness because it would completely destroy their brand. In other words, this is the major fear that keeps them awake at night and, this, in turn, should be the primary focus of technology vendors who manufacture cold chain solutions.
Giga-TMS Offers an Ideal Cold Chain Solution With Promag
With global trade links continuing to grow at a rapid pace, the need for an uninterruptable cold chain to transport perishable goods like fresh food and medicine is at an all-time high. One of the key players in this industry, offering robust solutions to cold chain service providers, is Giga-TMS.
Controlling the various parameters of temperature is critical to the efficient operation of cold chain systems. In this regard, Giga-TMS offers Promag, its solution that enables temperature monitoring, cloud-based data with web portal access and mobile apps, prevention of data tampering, and track and trace of transport. From an operational point of view, the solution that Giga-TMS provides allows fresh products to hold their value longer, increasing their transportability and providing opportunities that expand their market reach.
What Features Make Promag Special?
Giga-TMS offers an end-to-end solution. Monitoring begins at the farms and factories and remains in operation until products reach destinations like distribution centers, third-party logistic outlets, warehouses, grocery stores, specialty retail stores, restaurants, and hospitality centers. While this itself is a great advantage to the customer, Promag’s following features ensure the whole process runs as smooth as possible.
1. Basic functions: These include a range of relevant sensors for factors like temperature and light, along with an integrated alert mechanism. The solution can make use of Wi-Fi or cellular connectivity.
2. Ease of use: End customers like restaurants and retail outlets do not have dedicated technical departments to take care of cold chain processes. The solutions offered to them should be robust and easy to set up and use. Promag, with its ease of connectivity and cloud-based support, ensures minimum onsite maintenance.
3. User interface: Given the fact that customers in the transport and preparation of food often must adhere to stringent deadlines, a simple, intuitive user interface is critical. This will reduce the time required for training new employees as well.
4. Data for analytics: The role of data is being increasingly understood in various industries and the cold chain is no different. With Promag, customers will be able to gather information through real-time monitoring, which can be analyzed and used to predict conditions.
5. Accuracy and reliability: None of the features mentioned above matter if the solution does not provide a consistently dependable service. This is where Giga-TMS truly stands a class apart. Promag conforms to international standards that ensure reliability and accuracy.
How Does It All Benefit the Customer?
By ensuring that products like food and healthcare supplies remain intact during transport, Giga-TMS is an asset to cold chain service providers. Naturally, customers of different products have different requirements. For instance, the conditions that are necessary to transport fruits and vegetables are different from that required for medicines. The advantage of Promag is that it can suit customers across verticals. By ensuring the efficient transport of goods, the solution helps to boost productivity, improve accuracy, customer satisfaction, reduce costs and enhance the overall brand image. In short, with Promag, cold chain service providers can rest assured that their investment is in the right place.