As recently as five years ago, a western traveller would have had a hard time finding something as simple as orange juice in China – sometimes even in major cities like Beijing.
Instead, orange-flavoured drinks – heavily infused with syrup – would be the norm.
That’s because China at the time lacked a well-developed refrigerated shipping logistics network. So dairy, seafood, fruit and other temperature-sensitive goods from Canada could reach only so far beyond major ports like Shanghai and Shenzhen before spoiling. That severely limited the market for fresh-food products – a major component of Canadian and B.C. exports – in China.
That network handicap, however, no longer exists.
China – driven by an unprecedented mass conversion into e-commerce and a wealthier populace in constant search of certainty in certifiable food origins and safety – has practically built overnight an extensive cold-shipping logistics network throughout the country, with one major player’s 26 warehouse facilities now covering 41 major Chinese cities far into even the less developed central, western and northeastern parts of the country.
Cold-shipping networks in China hold the key for B.C.
agri-food and seafood products looking for a bigger foothold in a market with a growing appetite for Canada’s products, because Canadian exporters can now reach more Chinese rural consumers, who are increasingly searching for food producers with reputations for reliability.
“Before, the facilities [for refrigerated transport] in China were still a little bit weak,” said Cory Guo, international logistics director for Jiuye Supply Chain Management, the Shanghai-based pioneer for the Chinese cold-shipping network. “But e-commerce has pushed the market to a new level, and now a lot of people are concentrating on this area. E-commerce can deliver to all parts of China, and the distribution network should be quick enough to service that demand – especially for products like food.”
The buildup of China’s temperature-controlled supply network began with Jiuye’s launch in 2014, when Guo said major companies like the Alibaba Group (NYSE:BABA) and JD.com Inc. (Nasdaq:JD) – China’s “Big Two” e-commerce players – began evolving the types of products they sell (from longer-lasting goods like electronics and preserved foods to fresh produce and time-sensitive products) in response to consumer demands for healthier eating to supplement a renewed focus on lifestyle.
The advent of the cold-supply network also coincided with Alibaba’s and JD.com’s shift into “boundaryless retail,” where companies are integrating online and offline buying, giving shoppers complete choice of what to buy, how to buy and the method for receiving their purchases, be it delivery or store pickup. The business model is being pursued in North America by e-commerce giant Amazon.com Inc. (Nasdaq:AMZN) with its purchase of Whole Foods Market last year.
JD.com, for example, already has several new, high-tech 7Fresh supermarkets opened in major cities. The markets offer online purchases of groceries with home delivery while offering products like berries from Chile and beef from Australia – an important selling point for Chinese consumers in a market that has been rocked by a number of tainted-food scandals domestically in the last decade. Alibaba has a similar game plan with its Hema supermarkets, which already boast 25 stores throughout China.
Li Kaisi, general manager of import merchandise at JD.com, said 7Fresh uses cold transport to stock two major Canadian products: B.C. Dungeness crab and Atlantic Canada lobsters.
But Li, who grew up in Toronto, said not enough Canadian producers know about China’s cold-transport network, which has now connected tremendous demand for seafood in the previously inaccessible Chinese interior to B.C. products.
“People here realize Canada is a good source of food products,” Li said from one 7Fresh store in the outskirts of Beijing. “I think, from my perspective, a lot of people relate Canada to quality and safety, especially when it comes to fresh food. That’s why we do so much seafood from Canada – and people trust JD to bring that seafood safely from Canada to China, because we do have our own logistic network, so we can guarantee the quality of our food. We know exactly where the food comes from.”
Li added that JD is working with Canadian brands to bring more to China, a sentiment echoed by Guo in Shanghai.
“I think Canada has been a little late in coming to the e-commerce market in China, but that also means more potential down the road,” Li said. “I think there’s great demand for it.”
Some local businesses have already taken note.
Richmond’s North America Investment Association (NAIA) attended the Hong Kong Belt & Road International Food Expo this summer to drive B.C. producers into high-potential, less saturated markets in China that might now be open due to more advanced supply-chain networks in the country.
The 12-company trade mission signed three main Chinese memorandums of understanding with the governments of interior city Chongqing (population 30.5 million) and southeast city Nanjing (metro population 11.7 million) and the northeast province Heilongjiang’s Beidahuang Group – China’s largest agricultural conglomerate, which posted revenue of approximately US$18.33 billion in 2016.
“People in these markets really care about the source of their food, and Canada has a sterling reputation in that regard,” said NAIA president Amy Huang. “We signed quite a few deals, including some that are immediate orders that we’ve already shipped out.… Given the situation we are in with the United States, the market in China and OBOR [One Belt, One Road initiative] is really crucial for us.”
Another group in B.C. that has already realized the potential, ironically, isn’t a producer. DP World (Canada) Inc.’s Fairview container terminal in Prince Rupert, in its Phase 2A expansion completed last year, included a new refrigerated container cargo service in its $200 million project to link up with the aforementioned new cold-transport network in China (as well as established markets like Japan).
Company general manager Maksim Mihic said that the new container technology, which keeps commodities like lobsters alive, allows container ships to compete with air transport for the temperature-sensitive goods market. The Fairview terminal’s new ability to service Asia’s demand for such products, he said, will also play a pivotal role in fulfilling DP World’s (FRA:3DW) ambitions of increasing its annual West Coast Canada containerized cargo capacity to four million 20-foot equivalent units by 2022. The Dubai-based global terminal company, which operates 78 container terminals worldwide, also runs the Port of Vancouver’s Centerm container terminal.
Mihic added that the Fairview service also helps northern B.C.’s First Nations communities in selling their fish products to China.
“What they do now is they have to get their local products trucked down to Vancouver and spend $6,500 for trucking. Now, they can transport that through the local port and save that money.”
According to Drewry, the global trade in seaborne refrigerated goods expanded 5% in 2017 to 124 million tonnes. The U.K.-based shipping consultancy added in a recent report that 2017’s containerized refrigerated traffic expanded 8%.
Another aid for Canada’s case for tapping into China’s cold-
distribution network could be the ongoing tariff conflict between China and the United States.
Jiuye’s Guo said that while Beijing’s tariffs on American imports have not yet affected items like seafood, they may already have had an effect on a key B.C. product.
“Now is cherry season; usually, a lot of companies in China would be sourcing cherries from Washington state,” Guo said. “But this year we are seeing a lot of that supply being replaced by B.C. cherries, because the U.S. tariffs increased by 20% – and it may still increase a lot. •
This report is part of Business in Vancouver’s participation in the Canada China Business Council media fellowship, which includes flight, meal and accommodation costs in China.
