The Essential Steps to Fix China’s Cold Chain

January 22, 2016 Ken Klaver

China’s cold chain logistics sector is estimated to be growing at a rate of 25% per year, but this rapid growth has exposed numerous shortcomings in regards to temperature control and compliance.

In this article, Joe Yang, Senior Consultant & Master Trainer at the American Society of Transportation & Logistics, describes the reasons for the current state of China’s cold chain and the essential steps to transform it into a modern logistics system.

China’s cold chain operations began ten years ago and despite efforts to modernise the system, it is still not mature. One of the key reasons for this is that many industry players view cold chain logistics as a product rather than a tool. This is an important distinction because products are optional, whereas tools are necessary for a specific purpose. In this case, cold chain should be viewed as a necessary tool to protect food and pharmaceutical items during their delivery to the end user. Yet despite this, many industry players do not see it this way.

In the case of pharmaceutical products, the cost of cold chain logistics in China is seen as prohibitive due to the inflated cost over the cost of normal truck delivery. As a result, hospitals and pharmacies often choose the cheapest option because they do not want to pay the additional fee.

By perceiving cold chain as a product rather than an essential tool, the perceived value of cold chain logistics has been degraded and the market has not sufficiently developed as a result.

This is the crucial issue, China’s cold chain market can only exist if people are willing to pay for it. This depends on changing the mind-set of retailers to understand that cold chain logistics are a necessary cost for preserving their product.

The Need for Change

As a drafting member for cold chain standards in the China, I have worked developing high level standards for cold chain air-transport. Our aim is to be fully compliant with international regulations for perishable cargo in aviation transport and we have translated the relevant international guidelines directly into Chinese. There are over 1000 regulations regarding logistics which have been in place since 2005, but unfortunately they are rarely followed in practice. This has to do with business practice in China as whole. Standards are difficult to enforce and training is often neglected.

When standards are required, training is the most important method of ensuring compliance. Based on my experience as a compliance trainer in China, often even the CEOs and compliance officers of large companies are unaware of the standards required. As a result, they pass on bad information and practices to their subordinates.

Companies need to focus on training their employees to a high standard so to ensure that regulations are followed. In the coming years, this will become increasingly important because  China’s food laws are being updated. Understanding and applying cold chain logistics will become absolutely vital, with serious consequences for companies which do not comply with the new standards.

We need trainers to champion compliance in the market, no matter how difficult and frustrating it is, to teach cold chain standards, step-by-step, to business leaders and compliance officers. After all, the risks associated with non-compliance end up costing manufacturers more than simply engaging logistics providers who follow the cold chain standards and regulations.

In December 2015 I will be speaking at a meeting in Guangzhou called EAT, featuring hundreds of representatives from the cold chain industry. Most of North China and Beijing are serviced by meat, vegetable and seafood and pharmaceutical companies from the Guangdong area and the Pearl River Delta (PRD). If we can make it clear the necessity for companies that operate in PRD area to comply, I predict that over the coming ten years, we can implement the same changes across the rest of the country. Guangzhou is the key and if complete cold chain compliance can be achieved there, it be achieved across the rest of China.

Encouraging Compliance

To create this change, the courts need the power to enforce regulations. However, since even policing compliance is such a challenge in itself, this is not enough to solve the problem. A complimentary approach is to implement industrial associations that agree to follow certain standards of procedure and regularly work together. These associations then need to be served with trainers and compliance officers who can train people, who can then go onto train others. Once an association can establish itself as the best practice players in the market, they can begin benchmarking and drive the market to adhere to a full compliance policy and the government standard. The government has a part to play too, in having more inspectors and harsher penalties against  companies that do not comply with regulations.

Technology also has a role to play in transforming the industry. Big data is the much talked about new frontier and is the core of implementing intelligent logistics systems. Big data can be used to keep track of everything, such location data and the temperature of every warehouse and every truck. This type of system utilises the GPS system, or the China-pioneered BTS satellite system. BTS data can be used to monitor the entire logistics supply and manufacturing chain data from the laboratory to the patient.

There will always be human risk inherent in any supply chain, but with intelligent systems and monitoring we can negate or detect error by measuring data and anticipating events. This will then help us improve cold chain process and gradually redesign the system to prevent failure. With methods such as these, I predict we can create a mature cold chain system in China by 2025, utilising the entire intelligent logistics process to improve efficiency and reduce human error.

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