Chinese cold chains grow bigger

China has a dynamic and rapidly growing cold chain sector that relies on polyurethane to ensure food remains frozen or chilled, from the farm to the table. Jane Ho explains the market’s structure

The pace of growth in China’s cold chain logistics market showed little sign of slowing in 2019, being valued at CNY339bn ($49bn) in 2019, up 17% from 2018. The demand for refrigerated warehouses in 2019 also led to a small boom for companies refitting existing warehouses, and for companies making the panels used in the refitments, according to Qin Yuming, secretary general of cold chain subcommittee at the China Federation of Logistics & Purchasing (CFLP).

As fast as the market is growing, it is also consolidating. The country’s 100 largest companies by revenue now account for 16% of the market, up from a 14% in 2018, Qin said. But it still has some way to go to match the US, where 80% of the market is held by the top-three cold chain companies. Qin told a conference in Shanghai in August that a simpler dietary structure for American citizens contributes to this difference.

Rising concentration

Increasing concentration in the Chinese sector is exemplified by the number of mergers and acquisitions that have occurred in the past few years. These include two transactions by New HAVI, a joint venture between global supply chain heavyweight HAVI and Chinese delivery giant SF Express.

SF Express was the largest cold chain firm in 2019, followed by JD Logistics and CJ Rokin, according to a list published by CFLP. New HAVI ranked fourth. The last company on the list had CNY90m revenue last year.

The top 50 firms on the list remains remarkably static each year, but there are a great number of new names among the bottom 30. In fact, Qin said, 23 of these in the 2019 list were there for the first time. Most of those at the bottom have a narrow business scope, and lack a strong competitive edge.

Full Service

CFLP divides cold chain logistics into eight business types, with the three largest being refrigerated storage, trunk transport and urban delivery. A majority of the companies on the list operate between three and six types of service, Qin added. This reflects a growing trend for businesses to expand their scope, as customers now prefer one-stop services.

In 2019,the the top 100 companies operated 120,000 refrigerated vehicles units. Overall, 100,000 of these are leased from specialist providers. Cold chain companies owned or leased 17m tonne, or 40m m³, of refrigerated warehouse volume in 2019, up nearly 20% from 2018. Almost all of the top 100 companies own or lease cold warehouses, and Qin believes this growth rate will increase still further next year.

The importance of cold chains that cross regional borders within the country is also growing. This is becoming particularly important for fresh milk, as consumers are starting to demand more milk pasteurised at lower temperatures, because it is more nutritious than the sterilised products that have been the norm in China.

The greatest number of cold chain companies is in East China, which is home to 41 companies, Qin said. This is followed by North China, which includes the Beijing-Tianjin-Hebei Capital Economic Zone, with 19 companies.

Go east!

East China has the highest consuming power and, he said, is the most well-regulated region. In the past, the majority of the cold chain firms in the area were based in Shanghai, with business often extending as far as the Yangtze Delta. However, more recently the city has become overly expensive, and half of Shanghai’s existing cold warehouses do not have the proper zoning permission. As a result, they are being either demolished or repurposed, and nearby cities such as Hangzhou, Nanjing ,and even Jiaxing, Taicang, Kunshan and other smaller ones, are increasingly attractive to cold chain companies.

Beijing has also been tearing down non-compliant warehouses. This has driven up the prices for compliant cold stores in the city, and has led to new clusters in Tianjin and nearby Langfang. The outflow will continue, but at a slower pace, Qin said. The coronavirus pandemic has made Beijing’s decision makers realise that a mega-city needs its own food supply system, and upcoming policies moving in that direction can be expected.

The pandemic has led to a shift in busines from offline to online, and Qin believes cold chain companies focusing on offline food and beverage services will have had a tough half year. Refrigerated warehouses are no longer in short supply, with an array of major real estate developers setting foot in the sector such as Vanke, Powerlong and Greenland, said Qin. At the conference, Qin advised cold chain firms not to build new facilities in less developed areas with poor transport infrastructure, and reminded companies that not all cold warehouses require freezer storage.

Out of the 100 largest companies in the list, 71 are in the private sector and 20 are state-owned. Qin urged state-owned businesses to go heavy on assets, build more facilities, and rent them to private sector companies. It is much easier for state-owned companies to get zoning permissions.

Seasonal businesses, such as those producing wheat flour, can also rent out their storage area during the off season, he suggested. The refitting of refrigerated warehouses in China reached a peak last year, and as a result, earnings at insulation materials providers increased.