The Cold Chain Is A Top Opportunity For Third-Party Logistics Providers

Covid has led supply chain management issues to be more discussed than ever before. But within supply chain management, the complexities associated with vaccine distribution made cold chains one of the key supply chain topics getting attention this year. Cold chains are supply chains specializing in the planning, storing, loading and movement of temperature-sensitive products. If you have foods or medicines that are shipped or stored outside of specified temperature parameters, the safety of consumers can be put at risk.

The 26^th Annual Third-Party Logistics Study – sponsored by NTT Data, Penske, and Penn State – was released today. The report is based on surveys of shippers and third-party logistics (3PL) providers – there were 345 respondents – as well as interviews with subject matter experts. This is a meaty report – 86 pages long – covering many important topics. But their coverage of cold chain issues was particularly insightful.

The Cold Chain is a Top Opportunity for 3PLs

About 90% of third-party logistics respondents report that their company plans to expand their cold chain capabilities and service offerings. Overwhelming, 3PL respondents reported that “cold chain services are important to their company’s growth over the next three years, with 62% saying they’re moderately important and 38% saying they are critically important.”

The report goes on to point out that “global population growth, increased consumer demand for fresh products, strong grocery e-commerce sales and a wider variety of perishables are driving the need for cold storage space.” According to Tom Madrecki, vice president of supply chain and logistics with the Consumer Brands Association, “demand for cold chain services is so high that finding available, cost-effective services is difficult. “There is increased demand for services that are more specialized,” he said.

“What’s more, some shippers are opting for cold chain services to preserve the shelf life of products even if temperature-controlled trailers aren’t a necessity. More shippers are gravitating toward cold chain services that aren’t required by regulators. “You can move a truckload of shelf-stable rolls without a cold chain,” Mr. Mandrecki explained, “but by having one, you add another few days to the product’s life expectancy.”  The added shelf life can justify the added cost of cold chain services.

Cold Chain Logistics is Challenging

Cold chain logistics is a complex problem because of the multiple nodes and parties involved in moving chilled or frozen goods. 56% of shipper respondents with cold chain products reported that packaging was either fully outsourced or partially outsourced. For warehousing and storage, 61% of shippers reported this function was either outsourced to some degree. No shipper respondents reported handling cold chain transportation exclusively in-house. Frozen goods were more likely to be outsourced than chilled goods. Similarly, the last mile saw more outsourcing than other transportation segments.

But no matter what service or transportation leg, there are many complexities. Shippers and 3PLs differ on which were the greatest challenges. For shippers, the proper handling of these goods was reported as being more difficult than anything else. For 3PLs, investing in a cold chain infrastructure and maintaining that infrastructure, as well as temperature monitoring, where the key challenges.

In a conversation with Sylvie Thompson, one of the authors of this study, Ms. Thompson pointed out that while the infrastructure issue ranked low for shippers, it was the top concern for third-party logistics providers. Challenges create market opportunities. The report points out that “there are several services 3PLs must have to meet shippers’ cold chain requirements. “The most important is having a range of cross temperature/cold chain types” – such as refrigeration to deep freeze. That is followed by temperature monitoring, and product traceability with proof of compliance.

So, if 3PLs wish to compete in this hot segment, Ms. Thompson points out, they “have to create an ROI model that justifies entering the market.” This helps explain why the infrastructure issue becomes a much higher priority for third-party logistics providers. Ms. Thompson is the supply chain transformation consulting practice leader at NTT DATA.

Safety and Regulatory Compliance

Regulatory compliance is a top concern for shippers. That makes visibility and traceability important technological features associated with cold chain services. “Through visibility and traceability,” the report explains, “logistics providers can maintain a chain of custody as well as temperature monitoring to ensure the safety of temperature-controlled products. This also helps shippers comply with regulatory requirements, such as the Food Safety Modernization Act, and government-mandated record keeping.”

Within the next several years regulations are apt to increase for companies involved in the production, processing, and distribution of agricultural commodities. President Biden signed an executive order on America’s Supply Chain in February of this year. In response, the U.S. Department of Agriculture is now seeking comments how to improve and reimagine the food supply chain.

ARC Advisory Services has done research on traceability. Traceability is difficult because each link in the cold chain must be able to support traceability. End-to-end traceability requires effective collaboration across the different parties. In a recent report on supply chain collaboration networks, ARC identified TraceLink as having strong technological capabilities in traceability. Networks have special features that support collaboration, traceability, and shipment visibility.

TraceLink provides global track-and-trace solutions for the pharmaceutical industry linking pharmaceutical manufacturers, distributors, contract manufacturers and packagers/repackagers, importers, governments, hospitals, and pharmacies. Its network includes 1,300 customers in 51 nations. There are 283,000 members on the network. Over 730,000 documents are processed per day. 23 billion products are tracked. In April of 2021, TraceLink introduced its new OPUS platform which is built on top of their network. The platform provides a low-code environment for developing multi-enterprise applications that digitalize processes between companies. This solution provides visibility to “past due” and critical incidents.

In conclusion, most shippers, 91% of the respondents, and 3PLs, all of them, said they expect demand for cold chain capacity to increase over the next three years. Both shippers (70%) and 3PLs (52%) said the pandemic has accelerated their growth plans and increased the need for more cold chain capacity.