Logistics Risk Management in

Emerging Markets The Shipper’s View

Gabriel Figueroa, Manager, GlobalShang International

Cold Chain facts in Emerging Markets

> Market value

Prevents the waste of limited natural resources

Public sector: invest in basic

infrastructure, programs and

education

Governments Should limit disincentives

Currently lack of basic infrastructure

1st exports 2nd domestic handling and

marketing

• Promote: (1) awareness local, national & regional; (2) capacity, building & training

> Processors

New jobs

> Marketers

> Handlers

+ Profits

actions

Results

Upper middle-income Economies (prime for cold chain expansion)

Some established retail and franchise already utilize cools chain systems (rudimentary to advanced)

Many opportunities for cold chain service providers to enter and expand

Government should promote

L1-7H Upper Middle Income Economies

Country Brazil China Colombia Malaysia Mexico S. Africa Thailand Average

Total 3.8 4.6 3.7 4.9 4.3 4.2 4.2 4.2

L 1-7 H Lower Middle Income Economies

Country India Indonesia Kenya Vietnam Total

Total 4.1 4.0 3.8 3.9 3.95

L1-7H High Income Economies

Country US Australia Canada Germany Japan Netherlands Poland Singapore UAE UK Average

Total 5.1 4.7 5.0 5.0 5.1 5.1 4.3 5.6 5.6 5.4 5.1

Source: 2016 Top Markets ReportCold Supply ChainA Market Assessment Tool for U.S. Exporters | U.S. Department of Commerce | International Trade Administration | Industry & Analysis (I&A)May 2016

Whole supply chain

E-Commerce

R&D

Coordinated + consistent = effective + efficient

PERU

CHINA

Basic Cares

Ethylene Ventilation and cautions

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

2005 2010 2014 2020 (est.)

US$ millions

PERU Export: Fresh Fruit and Vegetables

56%44%

Vegetables Fruits

63%37%

Vegetables Fruits

42%58%

Vegetables Fruits

25%

75%

Vegetables Fruits

5%

7%

15%

Source: ADUANAS PERU

ASIA: Exports of Fresh Fruit and Veg. (2014: US$ 278 millions)

OthersPhilippinesMalaysiaIndiaVietnamSingaporeTaiwanJapanIndonesiaS. KoreaThailandChina + HK

Others

Citrus

Mangoes

Pomegranates

Avocados

Pecans

Bananas

Blueberries

Asparagus

Grapes

2005 2010 2014

250

300

200

150

50

100

2005 2010 2014

250

300

200

150

50

100

Source: ADUANAS PERU

Peru Cool Chain

Cold storage

large and medium-exporters.

Integrated to packing houses

Owned by producers

Cold chain

Critical aspect in the export

Affect the quality.

CHALLENGES in Peru Distance: cost x time

Export Infrastructure: Roads and Ports

2 Ports

Paita:

++ Limited to smaller-sized ships.

Ships do not unload freight

Callao: Southern Peru (ICA)

Facts:

Volumes increased considerably

Port sizes have not increased to meet this new demand.

Expensive (P)

Expectations for improving Pisco and Paita

Paita

Callao

Pisco

Land transportation

Road infrastructure improved recently

Any other event

Road transportation also expensive.

Trujillo to the port in Callao (550km)= US$1500

2x Cost of shipping the same distance in the US (2015).

(40’ Guangzhou-Beijing=US$2,280; Shanghai-Beijing=US$1,400)

Piura

Callao

Ica

In general

Some companies opening packing houses at the andes.

Avocados:

5º-6ºC.

Simple pack

Mango:

6 degrees, low brix.

When arrives, use temperature or ethylene.

Also appearance (Kent is green but it changes)

Shipping: times and protocols

Fulfill the phytosanitary protocol: Captain should approve

Cold chain management calculated based on ETA: Unpredictable delays could makes it difficult to ensure fruit quality

Case:

Citrus to manzanillo: Reboot the temperature on the way.

China (upper middle income)

GDP: > $11 trillion

Exports of goods and services to China (2014): $167.2B (4.4% inc.)

Income: $13,170 PPP per capita/ year

Unemployment (2014): Steady at 4.7%

Inflation (2014): < 1%

Economic Statistics

Population 1.376 billion

Cold storage Capacity 76M/m3

Food Spending US$1.2 Trillion

Food Spending per capita US$875

Agribusiness Market US$1.36 Trillion

Agriculture imports US$65.7 Billion

Agriculture Exports US$10.5 Billion

BMI and Global Cold Chain Alliance

Manufacturing and construction to consumer

Modern Grocery retailers market Share: 5.34% (low end); increased at 64.9% from 2008 to 2013

Major cities dramatic increase for cold chain warehouse and transportation systems

Competitiveness Index Score

Score Government/Regulatory 4.1

Labor Force 4.4

Infrastructure 4.7

Demand/Business Factors 4.8

Industry interest 5.0

World Economic Forum and Global Cold Chain Alliance

Peru To China

Time reduction: HK and Shanghai faster. HK: better Clearance Future: more quality concern / More cold storage

DalianTianjin

Qingdao

ShanghaiNingbo

Xiamen

Shenzhen y Hong Kong

MG price as main factor Avocados 35 days is a risk. To Europe in 21

Problems

High % transporting non refrigerated

Riskier arriving on summer: wet market

Communication problems: Arrival report

Unexpected delay

China:

Follow procedures, cold treatments and documentation, otherwise, problems

Better safe than sorry: Cargo Iinsurane

Grape case: “Sulfur dioxide”

Service and Technology Providers China

Haiboinvestment

Cold Storage and LogisticsShanghai

FruitongCold StoragesEPC provider

Beijing

Asia GlobalCool Logistics

Shenzhen

Alibaba – YiguoSourcing, cool

Logistics and e-commerce

Shanghai and Hangzhou

Huizhan – OhenWholesaler

facilities and customs service

providerShanghai

Pagoda offline retailer with distributio

centers Shenzhen

Shanghai

Ningbo

Wuxi

Jiaxin

Hangzhou

Nanjing

Jinhua

Wenzhou

Conclusion Cold ChainEmergingMarkets

Growing standards and people awareness of improvement on food safety

Cold chain

logistics Early stages of development.

construction business is motivated for booming

procedures may be more regulated,

logistics enterprises should keep growing

IT must quickly improve

Attach importance to more activities related to transit and sales.

Recommendations

Peru: improve an institutional integrated work

Trader:

Choose a reliable logistic company

Reliable Chinese importers and retailers

Visit regularly

Consider to have any presence in your destination market

Use insurance

Work with reliable local importers and retailers

Participate in key fresh fruit shows to meet importers

Provide promotional materials to partners

China

Cold chain capacity may increase by 20 times capacity over the next decade

Lack of trained labor specific to the logistics industry

Cold chain operators, anticipate providing extensive amounts of training

The infrastructure is better-established in most urban locations (not enough)

Congestion can be a major source of frustration

Logistics providers have developed solutions