Trucker C.R. England is taking its cold chain expertise to China, where the refrigerated transport specialist plans to buy a trucking company and set up a domestic distribution network.
The economic climate is right for such an ambitious overseas expansion, as China expands both its transportation infrastructure and middle class, said Joe Finney, vice president of less-than-truckload services at England Logistics, the trucker’s non-asset arm.
The Chinese throw away $65 billion worth of food each year because of spoilage, he said. That waste reflects a major break with age-old rural distribution patterns as China becomes increasingly industrialized and food travels farther to end-markets.
“They have no cold chain process,” Finney said. “Their distribution network right now is antiquated.”
That’s created potential for a food safety crisis in China, where the government is promising a crackdown on tainted and unsafe foods.
Contaminated foods are part of the problem. China last month seized supplies of powdered milk that contained melamine, a toxic chemical used to make plastics, fertilizers and concrete. Melamine-tainted milk sickened 300,000 children in 2008 and killed at least six. The same chemical was later found in pet food produced in China and sold in the United States, where it killed thousands of pets.
But even good foods go bad without proper handling and refrigerated transportation and storage. More stringent food safety laws with production standards and inspection requirements took effect in China last year, but the nation lacks the needed refrigerated warehouses, trucks and distribution outlets — especially in second- and third-tier cities removed from China’s coast.
“We see that as a real opportunity to go in and establish a functioning cold chain distribution network within China,” Finney said. England Logistics is completing due diligence review of a trucking and warehouse operator it hopes to acquire, he said. “There’s a tremendous amount of warehousing being built, including cold chain. But it’s not being utilized well. And that’s our expertise.”
C.R. England isn’t the first U.S. trucking and logistics company in China; Schneider National and YRC Worldwide, among others, have operations there. C.R. England’s focus on temperature-controlled or refrigerated transportation, however, stands out. The company is one of the three largest U.S. refrigerated truckers, along with Prime and Greatwide Logistics.
England Logistics, a $200 million unit of the $1 billion trucking operator, entered the Chinese market in 2008 after purchasing international freight forwarder Dynalink. It has offices in Shanghai, Ningbo, Qingdao, Dalian and Tianjin.
In January, China granted it Wholly Foreign Owned Enterprise status, which allows the company to operate in the country without Chinese agents or a joint venture partner. The logistics provider is expanding its consulting, forwarding and special projects cargo services in China and planning its trucking acquisition.
Most of its ocean and air freight forwarding business is in dry commodities, not refrigerated products, Finney said, although, “We do get some containers of fish.”
England Logistics isn’t the only entity hoping to play a bigger role in China’s food distribution markets. Many companies are focusing on a branded foods market that market research firm A.T. Kearney expects to reach $650 billion by 2017. The 2010 Cold Chain China Summit took place in Shanghai last month.
China’s growing middle class is not only buying more food, it’s buying different kinds of food through new distribution channels, such as supermarkets and hypermarkets, A.T. Kearney said in a 2007 study. And A.T. Kearney found middle-class consumers in China were willing to pay premium prices for quality foods.
The problem is delivering those goods. “Where the United States has nine refrigerated trucks per 10,000 middle-class consumers, China has just two,” A.T. Kearney said. “Where the United States has 13 cubic feet of cold storage per middle-class consumer, China has just 1.6.”
It’s not just a question of putting more refrigerated trucks on the road. “The biggest need over there is the infrastructure,” Finney said. He means not only the highways that China is building furiously, but the processes and technology that support a refrigerated supply chain — from dispatching to vehicle tracking and just-in-time delivery schedules.
“Right now, an independent driver can come in and pick up cold chain freight, drive it to a truck stop, divvy it up with other drivers and then they all take off again,” he said, making it next to impossible to track freight and ensure it’s handled safely.
Part of the challenge England Logistics and other international companies face in China is the traditional distribution approach of the food industry, Finney said. That’s beginning to change as more consumers demand higher quality foods and China’s government cracks down on sellers of unsafe products.
“The multinational companies all require a cold chain distribution network,” Finney said. “The domestic food-producing companies are starting to realize they need one. They see the need and the expectation.”
Contact William B. Cassidy at email@example.com.