Strategy

Cold chain logistics heats up in the Phillippines

by Frans Kok, General Manager, AEB Asia Pacific

Over the last few years, there has been an increase in the number of such facilities in the country driven by high domestic consumption, mounting concerns over food safety, and the ongoing shift in consumer habits to buy fresh and frozen produce from supermarkets than from traditional wet markets. The growth of e-commerce and online grocery shopping has also bolstered the demand for frozen food. These trends have all contributed to a rapid increase of cold storage facilities and infrastructure support.

Beyond the internal demand, external demand is also driving the explosion in cold chain storage facilities and logistics. Philippines’ agricultural exports have increased dramatically in recent years. In the last quarter of 2016, the Philippine Statistics Authority noted that agricultural exports rose 42.2 per cent year-onyear. Agri-based products amounted to US$1.03bn, placing it in second position for exports overall.

Additionally, government initiatives, such as the US-supported Philippines Cold Chain Project (PCCP), are also beginning to play a major role in improving the Southeast nation’s cold chain logistics infrastructure. The PCCP is a four-year project funded by the United States Department of Agriculture (USDA) Food for Progress programme, and it operates in 260 barangays (towns) in the Caraga region, which is located in the northeastern part of Mindanao. It is working on organising producers’ groups to increase agricultural production that meets international food safety requirements through provision of improved technologies, developing cold chain-related markets, and strengthening intermediate organisations.

In a separate major development, China recently signed a US$1bn agreement to step up imports of Philippines agricultural products. This new deal comes on top of a previously arranged US$100m farm produce import agreement. The deal with China is anticipated to reinvigorate the Philippines’ agricultural industry, with its value roughly equivalent to farm exports revenue for the fourth quarter of 2016. Aside from tropical fruit, rice, coffee, cacao, chicken and duck meat, China is also keen to boost imports of seafood products. This will come as music to the ears of Filipino farmers after they saw access to the Chinese market temporarily blocked last year due to food safety fears related to excessive chemical pesticides and pest infestations.

Minimising risks in uninterrupted product handling

Beyond providing a temperature-controlled environment, cold storage facilities are looking into how to vertically integrate their supply chains while also providing additional value-add to their customers.

A good example would be at one of the facilities, a cake manufacturer had stored their unfinished cakes at the cold storage distributor. The distributor then helped to finish the process by adding the icing stored in their facility onto the cakes. These were then stored in the low-temperature environment within the facility.

Another potential issue is with wearing gloves in a low temperature environment. This makes holding a pen and writing on paper nearly impossible. Using regular mobile devices for data entry is not an option either, because standard consumer devices are not built for constantly shifting temperatures when operators enter and exit the cold storage space. Cold storage facilities can value add by providing mobile devices that are able to withstand such environments. They are usually equipped with a built-in heater, defroster, and special battery packs, which can withstand these low temperatures in order to optimise the operating life and usability of the product.

Simple integration measures, such as these, are crucial to address the uninterrupted handling of the during the steps of the value chain.

Dairy and frozen desserts are witnessing a particularly high demand due to economic growth and rapid urbanisation internally and externally. Frozen meats, such as burger patties, are also highly sought after due to the thriving business process outsourcing (BPO) industry within the country. The BPO industry consists of shift work hours as opposed to fixed timings, leading to an increased demand for convenient, easy-to-consume meals. As a result of these quickly shifting trends, the frozen products segment now accounts for the largest share in the cold chain market.

Key issues that impact the growth of cold chain

In spite of the growth in cold chain logistics, newcomers to the logistics business are finding the industry fraught with issues. This is mainly due to Philippines’ existing infrastructure.

From inadequate storage infrastructure to power outages, many of the nation’s trucks also lack the equipment to maintain the necessary temperature to preserve the integrity of the fresh and frozen produce during final destination delivery. This is also further hindered by the majority of Filipino food production centres being located in remote locations.

Additionally, the country also faces extreme weather conditions, such as frequent typhoons and droughts that wreak havoc on crop production.

Seasonal demands also put a stress on the cold chain industry. Out of the 12 months in a year, the four months leading to the Christmas and New Year holiday season is considered peak. This requires tight coordination between the food producers, storage and marketing operators.

The good news is that the Philippines government is developing a nautical highway to boost the efficiency of the logistics industry through the establishment of the Strong Republic National Highway (SRNH) – an integrated network of highway and vehicular ferry routes that form the backbone of the nationwide transport system – after all, the Philippines is a maritime nation.

What comes as a surprise to many is that even though the Philippines has several ports, the volume of international container shipments in and out of the Philippines is low compared to major export economies in the region. While significant investments have been made in developing international ports, such as Batangas, Cagayan de Oro, Davao and Subic, we are also seeing that the volume of these main ports has not been spread efficiently.

Will existing issues hamper the growth of cold chain logistics?

While there are notable challenges in infrastructure development in the Philippines, the growth of cold chain storage and logistics is poised for more rapid development.

The industry has connections to all the food production centres in agricultural communities while major consumption areas are concentrated in urban centres. What is currently lacking is an integrated cold chain supply chain to consistently allow all players on the network to connect and vertically integrate with each other in a more efficient and effective manner.

Red tape is a potential issue, but if the government develops strong, relevant policies, and implements them fast enough to respond to the country’s supply chain infrastructure challenges, we will see a thriving cold storage logistics hub in the Philippines.

About the Author

Currently based in Singapore, Frans has more than 20 years experience in the IT and Automotive Industry, serving the logistics and supply chain needs of customers from many countries in the US, Europe and Asia. He has extensive experience in International Sales, Marketing and Business Development, and a strong background in both direct and indirect sales for Mobile Application, Supply Chain Management, Enterprise Applications and Integration Platforms.

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