13 March 2015
Yangtze River Delta Urbanisation: Cold Chain Logistics Opportunities
- Photo: Demand for frozen foods on the rise in YRD.
- Photo: Hong Kong has extensive experience in cold chain logistics management.
- Chart: Demand for Cold Chain Logistics Services in China
- Photo: Consumers in YRD are increasingly spending more on quality food products (1)
- Photo: Consumers in YRD are increasingly spending more on quality food products (2)
- Photo: Consumers in YRD are increasingly spending more on quality food products (3)
- Chart: Per Capita Annual Expenditure on Food of Urban Households
- Photo: Cold chain logistics now an integral part of food supply chain (1)
- Photo: Cold chain logistics now an integral part of food supply chain (2)
- Chart: Zhejiang’s Export Statistics
For some time now, demand for frozen food has been rising among city dwellers in the Yangtze River Delta (YRD). Coupled with an urbanisation process that has driven the rapid growth of cold chain distribution systems in cities, this has led to a continuous expansion of cold chain logistics activities. At present, the proportion of agricultural products and food distributed through a cold chain in the region is rather low, indicating that the market has tremendous room for growth. Moreover, many food and aquaculture businesses are also hoping to expand their overseas markets by making use of cold chain export services. This has attracted substantial investment from a number of logistics operators that are bullish about their prospects and want to explore business opportunities in the region.
In addition to the construction of cold storage and other hardware facilities, China is also in need of advanced cold chain solutions to improve the overall efficiency and quality of its cold chain logistics operations. Hong Kong companies have extensive experience in cold chain logistics management, and have applied new-generation information technology to good effect. They also have a good grasp of the food and drink culture on the Chinese mainland. This puts them in a robust position to introduce advanced technology in order to properly handle the food items and fresh produce that China’s consumers prefer. With the consumer market beginning to demand increasingly better quality frozen products, Hong Kong’s cold chain logistics industry can leverage on its advantages when entering the YRD market.
Continued Expansion of Logistics Activities
Both the economy and the wider business activities in the YRD continue to expand. The increase in household incomes and the greater demand for all kinds of consumer goods are stimulating the demand for logistics services for all types of goods. When drawing up plans for “new-style urbanisation”, local authorities have gone to considerable lengths to perfect their inter-city and regional transportation networks. Over time, a smooth and efficient logistics and transportation system has been established in the YRD. A number of provinces, such as Jiangsu and Zhejiang, have seen their logistics activities increase steadily over recent years. Cargo traffic volumes in both provinces, for example, have almost doubled when compared to 2005. More than 1.8 billion tons of goods were transported through these provinces in 2013, either by rail, road or water.
Beyond traditional transportation activities, the YRD is focusing on enhancing the logistics distribution system across its urban and rural areas, while also co-ordinating with out-of-region and international logistics systems. It is seeking to improve the overall logistical efficiency of the region and to develop modern logistics services with a higher added value. On the one hand, the booming e-commerce has greatly stimulated the development of related logistics services like express delivery. In the meantime, cold chain logistics services have emerged as another focal development of the industry in view of the robust demand for such services.
(For more details about urbanization and the e-commerce logistics sector in the YRD, please see
New-Style Urbanisation in Yangtze River Delta Boosts Service Sector Demand
Yangtze River Delta Urbanisation: Opportunities in E-commerce Logistics)
Indeed, demand for cold chain logistics in China has seen rapid growth over recent years. A report issued jointly by the China Federation of Logistics and Purchasing and the China Society of Logistics shows that, in 2013, China’s cold chain market demand reached 92 million tons with an annual growth rate of 20%. The major products in demand include chilled drinks, quick-frozen cereal products, frozen seafood, cold fresh fruit, fresh vegetables, cold meat and frozen meat. Fixed asset investment in the logistics industry during the year exceeded Rmb100 billion, up 24.2% from the previous year.
It is worth noting that China’s cold chain logistics activities are mainly concentrated in the eastern coastal areas, including the YRD and its other economically developed regions. Cold storage in eastern China accounts for about 60% of China’s total cold storage capacity. This expansion has been driven by the ever-increasing demands of urban residents for food and catering services, and by the rapid development of the cold chain distribution system in cities in recent years. Urbanisation accelerates the infrastructure construction process, particularly with regard to transportation networks, especially in coastal China. It also encourages cold chain transportation, which in China is mainly reliant on expressways. In 2013, expressway transportation accounted for 90% of China’s refrigerated transportation volume.
Cold Chain Logistics a Burgeoning Sector
To capitalise on this trend, the YRD is actively fostering the growth of the cold chain logistics services market. Jiangsu, for instance, has already positioned cold chain logistics as a key logistics project for continued development. This includes the development of a public logistics information platform to serve cities such as Nanjing, Wuxi, Suzhou and Nantong; and the use of advanced technologies – such as bar codes, labels, radio frequency identification (RFID) and Internet-of-Things (IoT) – to improve grain warehousing and other logistics capabilities. It is also looking to improve the infrastructure for fresh, chilled, frozen, pre-cooling, transportation, inspection and other cold chain processes; while setting up a cold chain logistics product monitoring and traceability system. Jiangsu also plans to establish a cold chain logistics industry belt in the areas along the Lanzhou-Lianyungang Railway and in Lianyungang city in the east of the province. There are plans for the creation of logistics nodes for the Huaihai Economic Zone in such places as Suqian city, by utilising the Beijing-Hangzhou Grand Canal and the Xuzhou-Suqian-Huai’an-Yancheng Highway. The province is additionally focusing on developing cold chain logistics for agricultural and food products.
Provincial government figures show that, in 2013, enterprises above a designated size in Jiangsu had a total cold storage capacity of 3.26 million tons, including an ultra-low temperature storage capacity of 2.56 million tons, and a low-temperature storage capacity of 700,000 tons. In total, there were 70 cold chain logistics processing and distribution companies that were above the designated size, and 91 marketing and sales companies with agricultural and sideline products that had transaction values in excess of Rmb100 million. Currently in Jiangsu, large food companies, including Yurun and Tianhuan, are constructing (or are proposing to construct) 1.5 million tons of ultra-low temperature storage capacity and 1.4 million tons of low-temperature storage capacity. As a result, cold storage capacity in Jiangsu is set to increase significantly over the next few years.
One reason for the rising demand for cold storage is that, thanks to increases in income, consumers in Jiangsu province and the whole YRD region are spending more on food and the popularity of eating out is growing, leading to a rise in demand for fresh food and seafood. Food expenditure by Jiangsu’s urban residents, for example, reached Rmb7,074 per capita in 2013, nearly 50% up on the Rmb4,774 recorded in 2009. The largest expenditure items are (in order of importance) meat, vegetables and seafood. In neighbouring Zhejiang province, food expenditure per capita stood at Rmb8,000 in 2013.
Furthermore, many e-commerce companies have entered the fresh and frozen food market. Yihaodian and SF Best (an offshoot of SF Express), for example, are now “fresh food e-commerce operators”. Cold chain logistics services are becoming an integral part of both food consumption and the supply chain. To ensure the quality of fresh food and other ingredients during long-distance transportation, many logistics companies, optimistic about the business prospects, are investing in expansion in order to capitalise on the emerging market opportunities.
Cold chain logistics development in the region, however, still faces many bottlenecks. HKTDC Research visited a number of relevant local planning departments of the YRD at the end of 2014, and was told that China’s cold chain logistics are still at an early stage compared with those in a number of the more developed countries. It is however, one of the areas that has been designated for development, with logistics businesses and logistics parks actively expanding into operating cold storage facilities. Nonetheless, the challenge lies in strengthening effective supervision, especially in the case of illegally constructed small cold storage facilities. There is also a need to put an end to non-compliance with temperature requirements and the use of non-standardised cooling operations. Further steps also need to be taken to reinforce the monitoring and inspection of cold transport chains so as to improve warehousing, transiting, loading/unloading and other processes throughout the urban distribution process. These need addressing to ensure frozen goods remain at a proper temperature throughout transit and are not subject to “chain breaking” situations that may affect quality goods and lead to goods perishing.
Leveraging Hong Kong’s Logistics Expertise
Increasing demand for cold chain logistics services in the region has attracted a substantial number of mainland enterprises to invest in related facilities and services. Yet, in addition to the construction of cold storage facilities, the market still keenly needs foreign-invested cold chain services. The planning department, which has a particular responsibility for logistics development in Ningbo in Zhejiang, told HKTDC Research that China needs advanced and comprehensive cold chain solutions in order to meet the ever-tightening requirements by consumers for higher quality food, beverages and related products. Hong Kong companies are experienced in cold chain logistics management and in those new-generation IT applications that enhance operational efficiency and quality. Another advantage is that Hong Kong businesses are familiar with China’s food culture, and have introduced advanced technology to process the food products that mainland consumers prefer. As a result, Hong Kong is a prime source of investment for Ningbo.
In fact, several Hong Kong companies have already entered the YRD cold chain logistics market. Hong Kong-registered Swire Pacific Cold Storage Limited, for example, has a multi-temperature cold storage and packing and processing plant in Shanghai. It also has cold storage facilities at China’s largest inland container port, Port Longtan, in the Qixia District of Nanjing of Jiangsu, and in the Ningbo Economic Technological Development Zone in Zhejiang. As a result, it is currently providing cold chain logistics services to the YRD and throughout China.
Overall, Hong Kong companies have decades of experience in cold chain logistics services. They have implemented modern quality and inventory management measures and perform rigorous inspections on related facilities and processes on a regular basis. For example, checks are done during warehouse move in/move out, batch management, and logistics and distribution to ensure that products maintain their best quality throughout the distribution process. Furthermore, Hong Kong companies have applied advanced technology to the entire logistics process, including position tracking, remote temperature and humidity sensing, as well as monitoring and traceability systems. This allows them to perform end-to-end monitoring and management during both transportation and distribution. As the mainland market begins to demand better quality for frozen products, Hong Kong companies have a considerable edge when entering the YRD market.
Ningbo Zeroes in on YRD Cold Chain Logistics Opportunities
As the economy continues to grow and living standards improve, the YRD province of Zhejiang has seen an increase in demand for cold chain logistics. Data from the development and reform commission of Ningbo city in the province shows that despite the continuous improvement of living standards and strong demand for cold chain food products, agricultural products serviced by cold chain logistics in Ningbo only account for 5% of its total vegetables, 15% of its total fruit and 25% of its total meat. The ratios are low considering that more than 80% of fresh agricultural products are serviced by cold chain logistics in more developed regions, notably Europe and North America. China, then, is in need of new entrants to the sector to provide additional cold chain logistics services to meet market demand.
The import and export of high-end fruit and vegetables, meat and aquatic products in Zhejiang have grown rapidly in recent years. On the import side, residents have a growing appetite for imported food and beverages. Zhejiang, for example, imported US$3.7 billion worth of agricultural products in 2009. By 2013, that had almost doubled to US$7.38 billion. As mainland residents pursue higher standards of living, this also drives demand for high quality fresh food imports, such as cherries from the US, salmon from Japan, red wine from France and grapes from Chile. As a result, increasing amounts of fresh food from abroad is reaching the tables of Chinese consumers through international cold chain logistics systems.
In addition, there are many food and aquaculture businesses in Zhejiang hoping to utilise cold chain services to strengthen exports and further develop the overseas market. In 2013, Zhejiang’s agricultural exports reached US$10 billion, while aquatic products exports reached US$1.89 billion. As Ningbo is the major port for Zhejiang’s foreign trade, the city port has enormous demand for cold chain logistics services and related facilities. As a result, Ningbo has been actively promoting investment in its port’s cold chain logistics in recent years. This is in order to cope with the thriving growth of the cold chain logistics services market in the province and the entire YRD region.
 Sources: China Logistics Yearbook; China Logistics Development Report
 Source: China Logistics Development Report
 For details, please refer to Jiangsu province’s 12th five-year plan for logistics development.
 Swire Pacific Cold Storage Limited is a subsidiary of Swire Pacific Limited. According to information on the company’s website, cold storage is one of the Group’s core activities. In terms of storage capacity, the company is the world’s third largest cold chain logistics operator.