The Cold Chain Revolution: Expanding Logistics Markets (Part 2)

In The Cold Chain Revolution: Expanding Logistics Markets (Part 1), we explored examples from Africa, examining how cold chains have enhanced and safeguarded the lives of local populations. In this second part, we will look at the cold chain situation in Asia.

Cold Chain Expansion in Asia Needed

First, in order to understand the extent of cold chain penetration in Asian countries, we plotted the size of nominal GDP per capita (in US dollars) on the horizontal axis and cold storage capacity per capita (in m3) on the vertical axis for the top 8 countries in terms of population size or nominal GDP size in the Asian region. Figure 1 plots the countries that fall into either the top eight countries in population size or the top eight countries in nominal GDP size in the Asian region. [^1] [^2]

Figure 1

South Korea leads in refrigerated and frozen storage capacity per capita, with Japan following closely. It is followed by Turkey, India, China, Vietnam, the Philippines, and Indonesia. The global cold warehouse capacity per urban resident, including developed countries, was estimated at 0.152 m3 in 2020.

In light of the fact that the global cold warehouse capacity per urban resident (i.e., the capacity per urban resident) is estimated to be 0.152 m3 in 2020³, it can be said that South Korea and Japan already have sufficient cold and frozen storage facilities, Turkey has the minimum necessary facility volume, and other countries do not yet have sufficient necessary volume. With rising per capita GDP, increasing consumption potential, and growing demand for richer diets and advanced medical care, the countries in Figure 1 are expected to follow the paths of South Korea and Japan, experiencing a rapid rise in demand for refrigeration and frozen storage facilities. This is expected to be the case.

It is also important to note that Cold Warehouse Capacity is primarily the capacity of refrigerated and frozen storage facilities for business use, and does not reflect the extent to which domestic demand is being met, as it includes volume for the storage of exported goods. Figure 2 below shows the ranking of the top 20 countries in terms of refrigerated and frozen storage capacity in 2020. The United States, India, and China account for 61% of the world's total refrigerated and frozen storage capacity. While India and China rank among the top in absolute storage volume, much of it is geared toward exports, leaving insufficient capacity to meet the needs of their vast populations. Therefore, the actual demand for refrigerated/freezer storage facilities, taking into account the expansion of domestic demand, is greater than shown in Figure 1.

Figure 2

According to data from World Data Lab, a private Austrian research firm,⁴ the number of middle class people (defined as annual consumption of US$4,380 or more per year) in the Asian region, including India, China, Indonesia, Vietnam, the Philippines, and Turkey, is growing rapidly, and by 2024 alone, approximately In 2024 alone, approximately 110 million people will be in the middle class. This transformation in Asia represents the largest economic shift globally, making it crucial to explore innovative ways to extend the cold chain and meet the evolving food and safety needs of this growing middle class.

Examples from Asian countries

From here, we will look at the situation in each country.

China

China's cold chain logistics market size is estimated at US$85.82 billion in 2024 and is expected to reach US$138.66 billion by 2029, growing at a compound annual growth rate (CAGR) of 10.07% during the forecast period (2024-2029). China currently accounts for approximately 60% of the world's total vegetable production, 30% of fruit and meat production, and 40% of eggs and seafood production, which alone suggests how high the demand for cold chain is. In December 2021, the Chinese government (State Council) approved a five-year plan to build cold chain logistics and announced that it will invest in smart technologies such as smart sorting equipment, logistics robots, temperature control monitoring systems, and 5G. The plan is expected to be completed by 2025. At the same time, he announced the construction of a refrigerated logistics network by 2025 that will cover both urban consumption areas and rural agricultural production areas throughout China, as well as link up with international markets. To this end, he also declared the strengthening of infrastructure such as roads, the Internet, and water and sewage systems. The entire country has embarked on the construction of a refrigerated/frozen logistics network.

However, China's refrigerated logistics sector is regionally fragmented, with few companies handling both refrigerated warehousing and transportation. This fragmentation complicates the integrated management of storage, transportation, and delivery, making quality control for food and pharmaceuticals challenging. Leading integrated refrigerated and frozen logistics companies that handle storage, transportation, and distribution include Sinotrans Limited, SF Express, Beijing Ershang Group, Jinjiang International Co. Yet, the combined market share of these five companies is under 15%, highlighting the market’s high level of diversification. This market environment has led to an increase in the number of new entrants and more intense competition.

Here are some of the businesses that Japanese companies are developing in this environment. Marubeni Corporation established a joint venture with Chinese logistics startup G7 in 2019 to launch a leasing and rental business for refrigerated and frozen trailers in China G7 is a leading service provider in China, providing logistics IoT services for commercial vehicles to approximately 60,000 companies, totaling over 1.12 million commercial vehicles. G7 is a leading service provider of logistics IoT services for commercial vehicles in China. By collecting and analyzing vehicle operation information (data on distance traveled, acceleration, emergency braking, engine temperature, etc.) using onboard devices and providing it to customers in real time as an information service, G7 is working to optimize overall freight transportation by improving operational efficiency and safety.

In addition, NIPPON EXPRESS is focusing on building a logistics network for pharmaceuticals in China, and is the only Japanese company to have obtained GDP certification (Good Distribution Practice for Pharmaceuticals). In order to cover the business domain of pharmaceuticals (biological pharmaceuticals, biological samples, investigational drugs, etc.) logistics, which is impossible to develop independently due to foreign investment restrictions, NIPPON EXPRESS has entered into a business alliance with Shanghai Sheng Sheng Logistics Co. In this way, Japanese companies continue to make great strides in the food refrigeration/freezing business, storage, refrigerated/frozen logistics vehicle leasing/rental, and the construction of logistics networks for pharmaceutical products. Despite its growth, China's cold chain market is still expanding, and more Japanese and foreign companies are expected to enter in the coming years.

India

The Indian cold chain market is expected to reach $19 billion in 2021, and then $43.9 billion by 2027. However, at present, the number of refrigerated trucks in operation in India is about 10,000 as of 2022, which is only 2% of the total transportation capacity of vegetables and fruits distributed in India. In addition, small-scale transporters with one to four trucks account for more than 50% of the market, making it difficult to introduce technology that would require large-scale investment. The Indian government recognizes this situation as a challenge and welcomes 100% foreign investment not only in the cold chain business itself (freight forwarding, warehousing, and storage), but also in infrastructure construction projects such as airports, ports, and roads necessary for cold chain construction. In addition, the Ministry of Food Processing Industries of India (MoFPI) has launched a program to provide dedicated subsidies and grants for infrastructure investments related to cold chain construction.

In light of this environment, the Goodrich Group, Amazon, and Japan Frozen Foods have made additional investments in the construction and operation of refrigerated and frozen warehouses, refrigerated truck operations, and temperature control system projects in the country. Ltd., a Japanese trading company, invested in TCI Cold Chain Solutions, a cold chain logistics business in India, and has made a full-scale entry into temperature-controlled transportation and storage services required in various industries, including fresh food, pharmaceuticals, chemicals, and fast food. The company intends to expand its business in India by utilizing its experience and technology in logistics services that strictly adhere to deadlines and temperature control, which it has cultivated in countries around the world.

Philippines

The environment surrounding the cold chain in the Philippines is on an expansion trend. Demand for imported agricultural and food products is growing, especially in Manila, and an increasing number of consumers are choosing to buy food products that are sold in bags in temperature-controlled stores, known as modern trade, rather than from so-called open markets, known as wet markets, from a safety perspective. However, standards for handling refrigerated and frozen goods have not yet fully penetrated the market, and we are at the stage where businesses must first understand the need for logistics that maintain a constant temperature and that are uninterrupted. In addition, consumers need to understand the safety that can be achieved through high-quality logistics, and to allow them to pay a fair price for it. These are the activities being promoted by advanced countries in the construction of cold chain networks, with the involvement of the Philippine government. In Japan, the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) is supporting the establishment of intergovernmental cold chain quality standards and the expansion of investment incentives in this business area to encourage Japanese logistics companies to expand their business in the Philippines. The Philippines is an island nation with high temperature and humidity, and it is difficult to establish a cold chain throughout the country.

Vietnam

Vietnam, on the other hand, differs slightly from the aforementioned countries. The people's diet depends on the wet market, and a simple form of preservation using Styrofoam cooling boxes with refrigerants is widely used. In urban areas such as Ho Chi Minh City and Hanoi, modern trade business is being conducted, with the entry of foreign retailers such as Japan's AEON, but it still only accounts for more than 10% of the total volume of food products traded in the country. Under these circumstances, the cold chain is still underdeveloped, with the exception of a few cold chains built mainly for exported food products. The Vietnamese government has no laws, regulations, or quality standards for the cold chain, and discussions are still in progress. As a result, unskilled traders who do not pay enough attention to the handling of chilled and frozen products are rampant, and this has caused consumers who have experienced poor quality food to turn away from chilled and frozen foods.

Japanese companies such as Konoike Unyu, SG Holdings, Meisugar Transport, Sojitz, and Kokubu Group Honsha have entered the market, but price competition with inexperienced companies has made it difficult for Japanese logistics companies with sufficient knowledge, technology, and business experience to develop their businesses. The Japanese government is working to expand the business. The Japanese government continues to focus on the introduction of international standards in the cold chain, the development of infrastructure, and the establishment of new preferential investment programs in order to expand business opportunities for Japanese companies in this market, which has room for growth.

Summary

The speed and scale of market growth in this business area is tremendous, and it is very exciting to consider the possibilities for business development. On the other hand, it is necessary to consider business in accordance with each country's different land environment, climate, infrastructure environment, national spending power, and policies, and the difficulty lies in the fact that experience gained in other countries cannot be applied without modification. We will continue to pay close attention to new businesses that emerge in this market.

References

China announces plan for the future of cold-chain logistics
中国コールドチェーン物流市場規模と市場規模株式分析 - 成長傾向と成長傾向予測 (2024 ～ 2029 年)
Overview of cold chain development in China and methods of studying its environmental impacts
2020 GCCA Global Cold Storage Capacity Report
GDP by Country
China’s fresh food cold supply chain is still at under half of its market potential
China Cold Chain Logistics Market Size & Share Analysis - Growth Trends & Forecasts (2024 - 2029)
Jun 25, 2019 Marubeni Corporation Establishment of a Joint Venture with G7: Providing Refrigerated Trailer Leasing and Rental Service
キーマンインタビュー | 日通国際物流（中国）有限公司
中国日通、生生物流と医薬品物流に関する業務提携覚書を締結 ～医薬品物流への取り組みを強化〜
インド物流市場の概況と市場参入のポイント
INDIA NEEDS A ROBUST COLD CHAIN NETWORK
三井物産、コールドチェーン物流事業に参入(インド)
日本式コールドチェーン物流サービス規格のASEAN地域への普及を推進します～フィリピン及びベトナムにおけるアクションプランを策定