As China’s middle class expands and develops, so does the food marketing system and cold chain that deliver the more diverse commodities Chinese consumers crave.
“We’re seeing a few big changes in the Chinese mainland market,” said J.D. Schwefler, vice president for international business development at refrigerated warehousing and logistics company Americold Realty. Americold and China Merchants Terminals jointly own and operate China Merchants Americold, which operates the largest refrigerated trucking company in mainland China, a trading house and a network of cold storage facilities in China and Hong Kong.
“We see a continued demand for transportation and a growing demand for direct store delivery,” Schwefler said. “Western-style grocery retail chains are growing, and that also changes how customers want their products delivered and stored. Western retail chains, and those chains can be Wal-Mart, Metro, Tesco, are all growing at a pretty substantial rate. “They have a really wide and diverse inventory, especially of fresh foods — fruits, vegetables and meat.”
Not all of the expanded items are imported from the U.S., or even imported. “Domestic food production is changing as well,” he said. “The important thing is that regardless of where product is produced, in country or imported, they are looking for a cold chain that has integrity.”
China’s export economy is starting to slow, but demand for food hasn’t.
Tesco’s aggressive expansion plans in China suffered a setback when the British retailer said it was closing four unprofitable stores there. The China Daily reported the store closures were in Bengbu, Tieling, Taizhou and Changshu. Tesco has 132 stores in China, with the majority located in coastal cities. The supermarket chain previously said it would open 16 stores this year, but has opened only two.
Hua Tao, head of the Shenzhen Franchise Association, downplayed any link to an ailing economy, and said Tesco is a relatively new entrant to the Chinese market and had struggled to secure good locations and suppliers.
In an agricultural trade outlook report released in August, the U.S. Department of Agriculture increased its estimate of what China would purchase from the U.S. this year to $21 billion from $18.5 billion. Much of the total is in bulk items such as grain and cotton, but the USDA noted imports of those items are dropping while purchases of fresh fruits and vegetables, meat and other high-value items are growing.
The USDA expects Chinese consumers to spend $7 billion on tree nuts in the fiscal year beginning Oct. 1, up $800 million primarily because of China’s growing demand for almonds, pistachios and walnuts.
Although Chinese consumers are expanding their diets, they continue to buy staples such as pork and chicken paws.
Sales to China have remained steady, even as they have gotten sometimes complicated, according to Eugenia Radermacher, trans-Pacific logistics manager for meat exporter JBS. On a weekly basis, the company ships 100 to 120 40-foot containers from the U.S. to China. That year-round business is mostly chicken paws, but pork shipments increase significantly in the months before Chinese New Year, she said.
While it is consistent business, it isn’t trouble-free. China put a new poultry import system in place in June that has a few kinks, Radermacher said.
In an attempt to reduce forgeries and increase food safety, Chinese authorities imposed a new requirement for electronic delivery of poultry health certificates. But a number of shippers and carriers report shipments that are delayed and stacked up at marine terminals waiting for Chinese officials to clear them and allow them into the country.
“The certificates are to be scanned and sent to a USDA server and then on to China,” Radermacher said. “If it all works as it is supposed to, there would be ample time to do pre-clearance, but we are still seeing a lot of delays.”
Customs officials in some ports are getting faster at clearing shipments, she said. “For a while, Shanghai was a really tough one, but it seems to be getting better there” Radermacher said.
“We are seeing poultry backing up in Hong Kong, with containers sitting on the docks,” said Vince Rankin, APL’s senior director of reefer trade for the Americas. “In our bill of lading, it’s delivery to the port, but the container very often is taken out on interchange. On poultry, in particular, we’ve always had to give extended free time on the equipment.”
As a major producer, JBS has traditionally dealt with end-users, Radermacher said. But as the market in China evolves, there is a natural evolution toward direct sales, Rankin said. “We’re seeing more direct sales and less transshipment,” he said.
Historically, a large percentage of goods destined for mainland China would be sold to a broker middleman and shipped to Hong Kong. “I don’t have the statistics, but we’re definitely seeing more produce shipped directly to ports in Guangdong province instead of to Hong Kong,” Rankin said.
“I think it is the natural evolution of things,” he said. “The middleman takes a margin on the business. If you are the end-user, at some point you ask if you really need to pay this guy in Hong Kong and then have goods transshipped or if you want to buy direct and have it shipped closer to you. I think the efficiencies of bringing shipments to the end-user make it inevitable.”
The switch on direct shipments is more pronounced with perishables than frozen goods, according to Bill Duggan, vice president of refrigerated services for Maersk North America. “The emerging middle class in China wants fresh vegetables, and it is definitely a growing business from the West Coast. That trend is coupled with companies such as Wal-Mart opening grocery stores. They want more control of their supply chain.”
JBS business into China is strictly port-to-port, Radermacher said. “I don’t see that changing anytime soon. The infrastructure is not there yet for us to get it into China and the rural areas. I think everyone is looking at that possibility eventually, but I think it is a way off.”
In the past five years, the trucking component of the business has grown 20 percent a year as business expands in Tier II and Tier III cities and not just the coastal areas, Schwefler said. “We see that growth continuing, and we keep adding to our refrigerated truck fleet,” he said. The company also has what he calls “pretty aggressive plans” to expand its refrigerated warehouse network throughout China.
The newest trend in the China cold chain is “potentially next year’s headline,” Schwefler said. “We see an increase in the desire for companies to outsource their logistics to third parties.”
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