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More Chinese firms eye potential of cold chain logistics

More Chinese firms eye potential of cold chain logistics

Staff Reporter

2014-06-15

The fresh food e-commerce sector is expected to post rapid growth over the next five years as several enterprises in China have made investments in the sector, which is expected to stimulate the development of cold chain logistics, reports Guangzhou’s 21st Century Business Herald.

Shenzhen-based delivery company SF Express has already opened Heike, an online shopping service community store, which integrates services with SF Express’ cold chain logistics.

“After opening cold chain logistics, its operations will speed up when the company’s partners receive more orders,” said Li Dongqi, CEO at SF Best, an online food store under SF Express.

Other domestic firms are also striving to tap into the fresh food sector, the paper said. Cainiao Network Technology, which was founded by Jack Ma, co-founder and chairman of Chinese e-commerce giant Alibaba, and other investors, announced recently that it planned to expand its cold chain 24-hour delivery business to Beijing and Guangzhou.

Last month, Amazon China invested US$20 million in Shanghai-based Yummy77, which was the company’s first strategic investment after entering China’s market. Jingdong Mall CEO Liu Qiangdong, meanwhile, has also announced plans to team up with Dalian Zhangzi Island Fishery Group, China’s largest seafood company, to achieve vertical integration in the online-to-offline supply chain in the seafood sector.

E-commerce firms have become the most important factor driving the development of cold chain logistics. Last year, the capacity of cold storage in China was 26 million tonnes, up 36% from a year earlier. SF Best recorded sales of 400 million yuan (US$63.8 million) in 2013, surging by 536% from 2012, while fresh food sales at Jingdong grew five fold this year, compared with the sales reported in 2013.

Several analysts predicted that the cold chain industry will maintain a 20% growth rate this year, they also projected that an additional 30 million tonnes of cold storage will be in demand during the next five years.

Top-tier Chinese cities are experiencing the largest growth in the sector, with Beijing, Shanghai and Guangzhou each having seen a 30% increase last year. However, the circulation of cold chain logistics in the country is merely 19%, reflecting a serious shortage in capacity of cold storage and the number of refrigeration trucks. In comparison, such circulation has reached over 85% in advanced countries such as Japan and the United States.

“Fresh products have strict requirements for cold-temperature delivery. The development of cold chain logistics has constrained the development of fresh food e-commerce,” said Tang Zhong, the CEO of a vegetable delivery firm.

To save costs, some truck drivers tend to turn off the refrigerators and turn them back on when they arrive at their destinations, the paper said.

 

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KB Kee is the Managing Editor of the Moat Report Asia (www.moatreport.com), a research service focused exclusively on highlighting undervalued wide-moat businesses in Asia; subscribers from North America, Europe, the Oceania and Asia include professional value investors with over $20 billion in asset under management in equities, some of the world’s biggest secretive global hedge fund giants, and savvy private individual investors who are lifelong learners in the art of value investing. KB has been rooted in the principles of value investing for over a decade as an analyst in Asian capital markets. He was head of research and fund manager at a Singapore-based value investment firm. As a member of the investment committee, he helped the firm’s Asia-focused equity funds significantly outperform the benchmark index. He was previously the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. KB has trained CEOs, entrepreneurs, CFOs, management executives in business strategy, value investing, macroeconomic and industry trends, and detecting accounting frauds in Singapore, HK and China. KB was a faculty (accounting) at SMU teaching accounting courses. KB is currently the Chief Investment Officer at an ASX-listed investment holdings company since September 2015, helping to manage the listed Asian equities investments in the Hidden Champions Fund. Disclaimer: This article is for discussion purposes only and does not constitute an offer, recommendation or solicitation to buy or sell any investments, securities, futures or options. All articles in the website reflect the personal opinions of the writer.

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