Perishables Power Play: How forwarders are adapting to e-commerce disruption

Less than three hours after the chartered 747-8 freighter, named “The Spirit of Panalpina,” touched down at the U.K.’s Stansted Airport, the last load of frozen guacamole was in the hands of the customer in Braintree, Essex. The pale-green concoction of fresh mashed avocados, tomatoes, onions, garlic and other spices was chilled to precisely -18°C, as pre-arranged by the shipper, and remained frozen during its entire journey, starting hours earlier in Guadalajara, Mexico, and making a short stop in Hunstville, Alabama, before crossing the Atlantic.

For Swiss forwarder Panalpina, this 10th and final shipment, was a satisfying “mission accomplished” moment, proving that its commitment to perishables in recent years was justified. The 10 frozen guacamole flights, completed in record lead time over a six-week period from June to mid-August 2016 and totaling 42 tonnes, were cited as one reason Panalpina’s Charter Network was named as “Air Freight Solutions Provider of the Year” from Lloyds Loading List.

“These shipments demonstrate how Panalpina can fully manage the cool chain from door to door,” said Quint Wilken, head of perishables for Panalpina in Europe. Avocados, he said, are normally transported by ocean freight, but in recent years they have been flown due to gaps in the market, when urgent shortages justified the higher costs. However, the ready-to-eat guacamole product is always made in small batches and then “quick-frozen” to maintain freshness, so shippers choose to move it by air to fulfill high-demand orders and avoid storage issues in the U.K.

With its stated goal of becoming “the preferred global supplier of perishables logistics by 2020,” Panalpina set an aggressive course of merger and acquisition (M&A) activity over the last few years, starting with Kenya-based Airflo in 2015, which quickly doubled its volumes of fruits, vegetables and flowers. Panalpina continued its M&A march with Kenyan flower and vegetable forwarder Air Connection last spring, followed by its September 2017 purchases of Dutch company Interfresh Airfreight Handling, specializing in perishables from Africa, Asia and Latin America, as well as Cool Chain Group Germany, a 14,000-tonne-per-day perishables operation.

The Interfresh deal will also include Panalpina’s ownership of sister companies Fresh Cargo Connection and Dutch Cargo Connection, which provide logistics services for various edible perishables, totaling about 20,000 tonnes of perishable airfreight per year. Panalpina’s most recent acquisition was the purchase of Belgium-based Adelantex and AD Handling, which import about 75,000 tonnes of fresh produce annually in Brussels, Liège and Ostend.

Panalpina may be one of the largest forwarders seeking greater control of the growing perishables market, but it’s hardly alone. Its chief rival, and fellow Swiss entity, Kuehne + Nagel has also been actively seeking market share via M&A, snapping up Community Forwarders Inc. in the U.S. and Kenya-based Trillvane last summer. In August 2017, German forwarder DB Schenker signed a deal to provide logistics services to Sichuan JiuYe Export Ltd., a Chinese perishables company that provides cross-border supply chain services to agriculture, perishables, e-commerce and food producers in China and abroad. While it has an extensive perishables network in markets that export to China, DB Schenker previously had a relatively less-established presence inside the country.

“With people traveling abroad today more than any other time in history, consumers want to experience the same exotic products at home,” said Gary York, vice president of global sales and marketing for Robinson Fresh, the perishables-handling arm of U.S.-based forwarder C.H. Robinson. “The continued globalization of consumers is driving the increase in mergers and acquisitions.”

As the top forwarders jockey for dominance in this fast-growing market, the question remains: Could perishables transportation become the victim of its own success? Rising air rates at a time when demand for airfreight is nearing an all-time high could put the brakes on growth. And what’s to become of the latest entrant into this perishables sector, a Seattle-based e-tailer called Amazon, which just gobbled up grocery giant Whole Foods for US$13.7 billion? Are the eyes of the perishables business too big for its stomach?

Everyone wants a slice

Like most of today’s trends, the boom in perishables is driven largely by the parallel rise of e-commerce. “We have observed the rise of global demand for perishables via e-commerce from a number of fronts,” York said. “E-commerce platforms can often satiate this demand through the execution of sophisticated, just-in-time supply chain mechanisms. Prepared meals or home-meal solutions have also helped drive the e-commerce perishable demand in North American and other regions, as consumers are continuously looking towards fresh and convenient solutions to their busy schedules.”

One perishables expert with Kuehne + Nagel, who asked not to be named, agreed that e-commerce in the food sector “has taken a steep flight in the last few years.” While e-commerce orders for food in Western Europe are popular, mainly with tech-savvy millennials, China’s embrace of e-commerce has a much wider demographic range, “in particular for seafood and fruit and vegetables,” he said. “With respect to food, the growing affluent segment of Chinese consumers are keen to buy European and U.S. products, which meet the food safety and security standards, hence the imports and subsequently overseas transport of foods fast.”

In fact, York said, “Chinese consumers buy more perishable product online than any other country in the world, as they have effectively formulated trust in recognized brands from the U.S. and other Western countries.” Robinson Fresh, C.H. Robinson’s division that focuses on the development and execution of fresh food supply chains, has begun to introduce some of its licensed brands such as Green Giant Fresh and Welch’s into the region, he said.

While there have been fears that new technologies for preserving delicate foods and flowers will cause a greater modal shift of perishables toward the much cheaper seafreight option, York said there are several reasons why airfreight will always play a significant role in perishables transport. For instance, “air cargo is a good option for trialing a product to make sure it is popular enough with consumers to justify other modes of transportation, such as seafreight containers, where more substantial volumes are required per order,” he said. “Some specialty items may dictate air versus ship because smaller quantities might be more efficient to move via air, especially when perishability is a factor.”

In addition, airfreight allows for shorter lead times than seafreight. “It can match demand quickly, so it may be preferred for products that have a short shelf-life or elastic demands,” York added. “With air, customers can order several times a week, thus limiting the risk of putting product in sea containers for several weeks.”

Can Amazon not be a factor?

Six months after Amazon and Whole Foods announced their bombshell merger, the silence from the perishables forwarding industry has been remarkable. While much of this may come from a reluctance to speculate, some forwarders have dismissed this takeover of a major grocery network by the world’s most disruptive logistics company as largely irrelevant – at least for now.

“As we stand at the moment, Amazon has had very little impact, to be honest,” said Colin Wells, global head of perishables for Panalpina. “The people at Amazon have to develop their forwarding logistics footprint, whereas if you look at Panalpina, we’ve already got an established forwarding and logistics platform.”

One indirect way the Amazon/Whole Foods deal will send ripples through the perishables business will be in the form of a wake-up call, Wells said. “A number of importers and growers and other retailers are finally realizing they need to do something sooner rather than later by viewing perishables on a global scale rather than just a country-centric solution.”

Wells added that Amazon is not yet seen as a major threat in this sector. “If anything, I embrace [the Amazon/Whole Foods deal], because the industry needs changing,” he said. “We believe there’s going to be new virtual e-tailers coming up in the next few years that none of us have even heard of [and] they are going to need choice. Amazon will have their own solution, and therefore we believe that Panalpina will be well-positioned to actually offer solutions to non-Amazon retailers.”

Robinson Fresh’s York said Amazon is merely one of several large retailers that are trying to gain more influence over the perishables market. The $3.3 billion Walmart and deal is another great example, he said, along with Chinese e-commerce giant, which is now investing in offline infrastructure in order to add diversity for its consumers.

“We are seeing that, in order to be successful in this industry, retailers need to have substantial infrastructure and distribution in both e-commerce and brick-and-mortar platforms,” York said. “Consumers are demanding flexibility with home delivery, in-store pickup and traditional in-store shopping. All of these options are important. Machine learning, artificial intelligence, drones and other new technologies continue to push the boundaries for retailers and consumers alike.”

Amazon, York added, is still growing its platform within the fresh fruits and vegetables sector. Purchasing Whole Foods gave Amazon credibility with consumers because of Whole Food’s reputation for quality foods, and it also gives consumers more choices in terms of how they purchase products, but it is hardly the perishables juggernaut it seemed last year after the announcement.

More M&A on the horizon?

Although it may be some time before Amazon’s entry into the field can rival the logistics networks of the leading global forwarders, its mere presence will still likely to lead to more M&A activity in 2018 and beyond. Last fall, when Deutsche Post-DHL Group discussed its third-quarter numbers, CEO Frank Appel hinted to investors that he was considering expansion into the grocery e-commerce market, saying the company was “getting more and more traction there.” DP-DHL currently operates a medium-sized grocery e-tailing operation in Germany called “Allyouneed Fresh.”

But on the forwarding end, most of the M&A activity appears to be limited to a handful of companies. “If you look at companies seeking a true global network, really there’s only two primary forwarders currently in the market – that would be K+N and ourselves,” said Panalpina’s Wells. Panalpina, which has arguably been the most active in the perishables M&A scene, “has been very strategic – some smaller acquisitions, some bigger,” Wells added. “The mergers are really being done to create a true perishables network that allows us to offer a potential customer – be it at origin or destination – an end-to-end solution. Panalpina truly is in a good position where we can offer a one-stop shop.”

“It can be expected that the segment will grow in the coming years, bringing along different requirements regarding the transportation of food,” said the K+N perishables expert. “The quality level of the cold chain, for example, will have to be very high to limit any food safety risks.”

Speaking shortly after announcing the company’s second-quarter results last July, K+N CEO Detlef Trefzger remarked that K+N’s market share in the perishables sector was “extremely low,” adding that the sector was fragmented and would likely see more consolidation in the coming months. “The perishables market is growing,” Trefzger added. “Therefore there will be other targets out there we will look at and will for sure try to complement our network where we feel we need additions and can’t build it as fast, reliably and organically ourselves.”

Food for thought the next time you dip into a zesty bowl of guacamole. Though it may taste “fresh,” it may well have come from the other side of the world, thanks to airfreight.

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