Cold chain logistics is heating up in the Philippines

During my last business trip to the Philippines, I visited various cold chain storage facilities in this rapidly developing country. I’ve had many conversations with business leaders in this sector and I’m intrigued by the overall market growth. And I’m particularly impressed by the development of cold chain logistics services.

Over the last few years, there has been an increase in the number of temperature-controlled facilities in the country. It’s been – and is – driven by higher domestic consumption, mounting concerns over food safety, and the ongoing shift in consumer habits to buy fresh and frozen products from supermarkets rather 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 in the number of cold storage facilities – and investments in required and ongoing infrastructure improvements.

But the explosion in numbers of such facilities and specialist services in the Philippines is not just based on internal factors: 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 percent year-on-year. Agriculture-based products amounted to US$1.03 billion, ranking them second in overall exports.

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 US Department of Agriculture (USDA). It is working on organizing producers’ groups to increase agricultural production and meet international food safety requirements through provision of improved technologies, developing cold chain related markets, and strengthening intermediate organizations.

In a separate major development, China recently signed a US$1 billion agreement to step up imports of Philippines agricultural products. This comes on top of a previously arranged US$100 million import agreement in the same area. The deal with China is anticipated to reinvigorate the Philippines’ agricultural industry. 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 concerns around excessive chemical pesticides and pest infestations. With respect to product specifics, the Philippines are witnessing a particularly high demand in dairy and frozen desserts due to economic growth and rapid urbanization, 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 Philippines’ cold chain market.

Handling perishable goods requires temperature-controlled environments and uninterrupted handling of all processes in the value chain to meet food safety standards and customer demands. As such, managing cold chains comes with special risks and many challenges. But the risks that are involved offer tremendous potential for adding value through new or additional services.

To keep up with market developments and demand, businesses managing cold storage facilities are examining how to vertically integrate their supply chains better while providing additional value to their customers at the same time.

One such added value I came across during my site visits in the Philippines was the ‘icing on the cake’ – quite literally: A cake manufacturer is storing unfinished cakes at their cold storage distributor and is then using the distributor’s services also to add the icing –stored in the same facility – on the cakes. The finished cakes are then stored in the low-temperature environment within the facility and distributed as needed. The more such value-adding services a cold storage provider can offer, the stronger the competitive edge becomes.

Another option to turn risks into business opportunities involves the requirement to wear gloves in low temperature environments. This makes holding a pen and writing on paper nearly impossible. Using regular mobile devices for data entry isn’t an option either, because standard consumer devices are not built for constantly shifting temperatures when operators enter and exit cold storage spaces. So, cold storage facilities can add value by providing mobile devices that are able to withstand such environments. They usually come with a built-in heater, defroster, and special battery packs to further optimize operating life and usability of the product.

Despite the growth in cold chain services, newcomers to logistics are finding the industry riddled with issues. This is mainly due to Philippines’ existing infrastructure not being up to latest standards: inadequate storage facilities and frequent power outages are just some of the challenges businesses are facing. Many of the nation’s trucks also lack the equipment to maintain required temperature levels to perishables during last-mile delivery. The fact that most Filipino food production centers are located in remote locations further amplifies this issue.

The country also faces extreme weather conditions such as frequent typhoons and droughts that wreak havoc on crop production. Seasonal demands and harvest variances also put additional stress on the cold chain industry. Out of the 12 months in a year, the four months leading up to the Christmas and New Year holiday season are considered high peak. This phase requires especially tight coordination between the food producers, storage providers, and marketing operators.

The good news is that the Philippines government is working on developments. A nautical highway, for example, is underway to boost the efficiency of the logistics industry: The Strong Republic National Highway (SRNH) is an integrated network of highways and vehicular ferry routes that form the backbone of the nationwide transport system. After all, the Philippines is a maritime nation.

What may come as a surprise to many: Even though the Philippines has several ports, the volume of international container shipments in and out of the country 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 volumes handled at these main ports are not being spread efficiently. There is much room for improvement.

While there are notable challenges in infrastructure development in the Philippines, the growth of cold chain storage and logistics services is poised for more rapid development. Up, that is. And while infrastructure developments are underway, the cold storage industry has much to do to get ready for more.

At the moment, the industry is connected to all the food production centers in remote agricultural communities while major consumption areas are concentrated in urban centers. What’s currently lacking is end-to-end, integrated cold chain management to consistently allow all players on the network to connect and engage in a more efficient and effective manner.

Are you trading with the Philippines or is your company based there? What are your thoughts on the growing cold storage industry? Do you think that the government is developing strong enough policies and implementing them fast enough to respond to the challenges the country’s supply chains are facing? I would love to hear your thoughts on this – on LinkedIn.