Country creaking under cold storage supply imbalance

Amid challenging times for exports of Vietnamese produce and an increase in e-commerce, the flaws of the inconsistent cold storage supply become more obvious.

While some large-scale corporations invest in their own storage systems, small- and medium-sized companies are depending on the overcrowded leasing market.

Country creaking under cold storage supply imbalance
Some companies are upgrading all parts of their business as well as building cold storage facilities for items such as fruits and vegetables. - VIR Photo: Le Toan

As many Vietnamese fruits are entering harvest season, the demand for cold storage systems is rising to a higher level. Nguyen Dinh Tung, general director of Vina T&T Co., Ltd., said that export businesses are in a difficult situation because the cold storage providers in Ho Chi Minh City and neighbouring provinces have run out of space. At the same time, rental prices for cold storage increased dramatically, while goods that could not be exported need even more space.

A survey by JLL Vietnam shows that during the pandemic, up to 50 per cent of seafood export orders have been cancelled and led to escalating inventories, with cold storages operating at maximum capacity.

According to Tung, the cost of renting cold storage has increased rapidly since the beginning of 2020, from VND1.2 million ($52) to VND2 million ($87) per tonne. Some enterprises that purchase agricultural products for export have been forced to stop doing so and refrain from accepting any new orders. Because the establishment of a company’s own cold storage would be very costly, businesses mainly rent them and bear the price offered by the lessor.

However, the available cold storage in Vietnam does not meet the demand. Data from the Agency of Foreign Trade under the Ministry of Industry and Trade showed that the whole country had only 48 cold storages with a capacity of 600,000 pallets in late 2019, with about 80 per cent already filled at that time.

The cold storage supply is limited in part because these facilities take longer to build than other types of logistics properties – up to six months for one facility. The construction is also more expensive, sometimes up to two or three times higher than that of a conventional warehouse. Besides that, lease terms usually lasts from 15-20 years, making the already scarce supply even worse.

Tricky management 

Cold storage – as one part of a cold chain – is crucial for easily spoilable goods like produce. For instance, without cold storage the loss of fruits and vegetables can sometimes amount to up to 45 per cent, while up to 30 per cent of seafood spoils before ever reaching a buyer. Thus, some exporters had boldly invested in cold storage systems, but these also come with new challenges.

As soon as the lychee season ended this year, Do Hoang Phuong, director of Global Import-Export Food JSC, began to find new customers to lease his company’s 800-tonne cold storage in the northern province of Bac Giang.

Since Phuong’s company owns cold storage, it can generally be more proactive in exporting, but during the off-season, financing becomes another issue. “I’m sure that investing in cold storage won’t be very effective if we only focus on lychees,” said Phuong.

Vietnam’s cold storage development happened asynchronous to the growth of agricultural exports, which increase year by year. Despite the pandemic, the country’s export turnover of agricultural products in 2020 reached about $41.2 billion, but most items were raw and fresh.

Meanwhile, cold preservation systems are mainly applied for seafood, while other agricultural products only see a very low application level of these systems. According to a survey by CEL Consulting, in 2020, only 8.2 per cent of producers for the domestic market worked with proper cold chains, much lower than the two-thirds of exporters.

The impact of the pandemic has changed the operation of global cold chains. Many countries opened more facilities and put more emphasis on safety and adaptability to new circumstances, leading to a construction boom.

 

According to consulting firm Emergen, the construction volume of cold storage is predicted to reach a value of $18.6 billion by 2027, an increase of 13.8 per cent per year. But even at this rate of construction, cold storage shortages are likely to continue due to a huge demand for agricultural products.

In Vietnam, the demand continues to increase, proportional to the export turnover of more than $40 billion in recent years. In addition to the existing cold storage facilities, in 2020, a number of new storages were built, albeit not put into operation yet. Among these are Truong Hai Auto Corporation’s (THACO) Hung Vuong warehouse for about 60,000 pallets, the AJ Total Long Hau warehouse for 32,000 pallets, and the AJ Total Hung Yen warehouse for 25,000 pallets.

However, with cold supply chains decentralised and mostly run by small- and medium-sized suppliers, cold storage centres represent a great investment opportunity for operators. THACO – a multi-industry corporation in Vietnam – is also implementing its ambitious plan to turn its Chu Lai Agro-Forestry Industrial Park into an export centre for fresh and post-processed fruits for international and domestic consumption.

As part of this endeavour, its subsidiary Chu Lai Logistics built cold storage for fruit on an area of about 15,000 square metres, as well as upgraded specialised equipment, and is now to open more international shipping routes with a planned frequency of at least five trips to China per month.

THACO also plans to upgrade its infrastructure, vehicles, and equipment to increase transportation output from and to southern Laos, northern Cambodia, and the Central Highlands region. By doing so, it aims to turn its ports into centres for forwarding, shipping, and exporting fruits of Vietnam.

Market gaps 

While THACO is a positive example, most of Vietnam currently lacks sufficient cold storage, which could lead to shortages and imbalances in supply. Currently, most cold chain service providers are concentrated in the south – an area with high demand. Nearly half these are owned by domestic companies, another quarter by foreign businesses, 14 per cent by logistics companies, and the remainder by some members of the Vietnam Logistics Business Association like Transimex, Gemadept, and Saigon Newport.

International investors also recognise the opportunity for cold storages in Vietnam. Emergent Cold Vietnam Co., Ltd. and Preferred Freezer Ltd. both decided to merge with Lineage Logistics Ltd. – the world’s largest cold chain corporation. In Vietnam, Lineage has three warehouses in Song Than 1 Industrial Park in Ho Chi Minh City’s District 7, and in VSIP Bac Ninh in the northern province of Bac Ninh.

Dao The Anh, deputy director of the Vietnam Academy of Agricultural Sciences, found that the cold storage system should be suitable for each production area, with small-scale cold storage for cooperatives, medium-sized solutions for enterprises, and large-scale complexes for specialised farming areas.

According to Anh, Vietnamese agriculture not only needs cold storage to preserve products after harvest but also for processing and consumption. “Cold chain investment involves large capital, technology, and operational costs. Thus, if the state supports investing enterprises, such projects could be implemented in the form of public-private partnerships,” Anh explained.

According to Vanessa Chang, department director at the Taiwan External Trade Development Council, Taiwanese companies active in Vietnam have been planning to provide support to the local cold chain industry. “Taiwan’s companies have the technology and flexible design for cold chain systems, and it is easy for these companies to integrate all necessary resources. However, we still have to obey the local regulations and laws. If the government supports us, we will do it faster and better,” Chang said.

Source: VIR

Vietnam faces shortage of cold storage warehouses

Vietnam faces shortage of cold storage warehouses

The growing tendency of consumers shopping online globally has led to a sharp demand for cold storage warehouses, but investment in cold storage facilities remains modest.

More investment poured into cold storage facilities

More investment poured into cold storage facilities

While many industries are suffering during the Covid-19 pandemic, cold storage supply chains are heating up the logistics industry.

 
 

Other News

.
FTAs momentum for Vietnam's exports
FTAs momentum for Vietnam's exports
BUSINESSicon  24/11/2021 

Since joining the World Trade Organisation 15 years ago, Viet Nam has become a part of 17 FTAs, which are either under negotiation or underway. This has helped create a momentum for the country's exports.

Textile - garment industry may flourish in 2022: insiders
Textile - garment industry may flourish in 2022: insiders
BUSINESSicon  24/11/2021 

The textile - garment industry is expected to thrive and earn 40 billion USD in exports next year, when the COVID-19 pandemic is forecast to ease in Vietnam and the world.

VIETNAM BUSINESS NEWS NOVEMBER 23
VIETNAM BUSINESS NEWS NOVEMBER 23
BUSINESSicon  23/11/2021 

Demand for industrial, logistics estates at core of enquiries next year: Savills

Enterprises of agricultural export to China strive to adapt to new market regulations after COVID-19 impacts
Enterprises of agricultural export to China strive to adapt to new market regulations after COVID-19 impacts
BUSINESSicon  23/11/2021 

China's increasing demand for imports of high-quality agricultural products has contributed to boosting the recovery of domestic production and export after the COVID-19 pandemic impacts.

Vietnam - US trade likely to reach 100 billion USD this year
Vietnam - US trade likely to reach 100 billion USD this year
BUSINESSicon  23/11/2021 

Vietnam–US trade could hit 100 billion USD in this year, up 221 times against the figure in 1995 when the two countries normalised relations.

Special working groups set up to speed up public disbursement
Special working groups set up to speed up public disbursement
BUSINESSicon  23/11/2021 

Prime Minister Pham Minh Chinh has decided to establish six working groups to accelerate the disbursement of public investment capital in 2021 at ministries, agencies and localities.

Vietnamese investors pour money into realty bonds despite China’s Evergrande case
Vietnamese investors pour money into realty bonds despite China’s Evergrande case
FEATUREicon  24/11/2021 

Realty bonds often catch special attention in the primary market thanks to attractive interest rates, even though warnings are often issued about their risks.

Vietnam Airlines to fly non-stop to US
Vietnam Airlines to fly non-stop to US
FEATUREicon  24/11/2021 

The first commercial flight from HCM City to the West Coast of the US is scheduled to take off on November 28, 2021. Vietnam Airlines’ CEO Le Hong Ha talks about the opening of the special air route.

Enterprises of agricultural export to China strive to adapt to new market regulations after COVID-19 impacts
Enterprises of agricultural export to China strive to adapt to new market regulations after COVID-19 impacts
BUSINESSicon  23/11/2021 

China's increasing demand for imports of high-quality agricultural products has contributed to boosting the recovery of domestic production and export after the COVID-19 pandemic impacts.

Petrol, animal feed, fertilizer prices cause higher production costs
Petrol, animal feed, fertilizer prices cause higher production costs
FEATUREicon  23/11/2021 

The increase in price of fuels and input materials of many products has occurred in 2021. Notably, the price fever of many commodities has not shown any signs of "cooling down".

Vietnam eyes 4 GW offshore wind power capacity by 2030
Vietnam eyes 4 GW offshore wind power capacity by 2030
BUSINESSicon  23/11/2021 

Vietnam will increase offshore wind power capacity to 4 GW from 1 GW and onshore wind power capacity to nearly 17.34 GW from about 1.26 GW by 2030, according to the latest draft of the National Power Development Plan VIII.

Use of Fintech services rises 3.5 times in 4 years in Vietnam
Use of Fintech services rises 3.5 times in 4 years in Vietnam
BUSINESSicon  23/11/2021 

In only four years, the rate of Vietnamese using services of Fintech companies has increased from 16% to 56%. 

Garment and textile exports likely to reach US$38 billion this year
Garment and textile exports likely to reach US$38 billion this year
BUSINESSicon  23/11/2021 

With export turnover surging by 11% to reach approximately US$32 billion during the past 10 months of the year, the local garment and textile industry is anticipated to rake in roughly US$38 billion this year.

Banks await more foreign strategic investors
Banks await more foreign strategic investors
BUSINESSicon  22/11/2021 

Several banks are currently issuing dividend paying shares as well as making strong efforts in finding more foreign strategic investors to increase capital. 

Famous businesswomen meet in prison because of land irregularities
Famous businesswomen meet in prison because of land irregularities
FEATUREicon  23/11/2021 

Nguyen Thi Loan, Chau Thi Thu Nga, Pham Thi Tuyet Nhung and Truong Thi Kim Soan, once famous businesswomen in the real estate market, have had to pay for their illegal business affairs.

Trading value at stock market reaches record high
Trading value at stock market reaches record high
FEATUREicon  22/11/2021 

Cash keeps flowing into the stock market, including during trading sessions when the VN Index falls.

VIETNAM BUSINESS NEWS NOVEMBER 22
VIETNAM BUSINESS NEWS NOVEMBER 22
BUSINESSicon  22/11/2021 

Vietnamese Ambassador to Australia Nguyen Tat Thanh attended a ceremony to inaugurate the Vietnam-Australia Trade and Investment Promotion Centre on November 20.

Vietnam's import-export revenue forecast to hit new record in 2021
Vietnam's import-export revenue forecast to hit new record in 2021
BUSINESSicon  22/11/2021 

The Ministry of Industry and Trade (MoIT) has forecast that total import-export revenue this year may reach a new record, at between 640 - 645 billion USD, with a slight trade deficit.

Vietnam – RoK Industrial Park to take shape in Hung Yen
Vietnam – RoK Industrial Park to take shape in Hung Yen
BUSINESSicon  22/11/2021 

The northern province of Hung Yen has issued a decision on the establishment of the Vietnam – Republic of Korea Economic Cooperation Industrial Park (IP).

Land prices rise in suburban Hanoi due to planning rumours
Land prices rise in suburban Hanoi due to planning rumours
BUSINESSicon  22/11/2021 

The Hanoi property market is once again seeing a wave of increased land prices in suburban areas, thanks to rumours of some districts being developed under the model of "city within a city".

 
 
 
Leave your comment on an article

OR QUICK LOGIN