Cold Chain Is Heating Up. Are LSPs Ready? (Part 1)
Few topics in logistics are getting as much attention today as cold-chain storage, distribution and transportation. Logistics service providers (LSPs) and third-party logistics (3PL) companies are already faced with many challenges — including demand and supply volatility, rising costs, labor shortages, and the pressures of omni-channel. But LSPs who want to compete in the cold-chain sector face even greater challenges.
Recently, I had the chance to host a LinkedIn Live event featuring Ann Marie Jonkman, Senior Director of Industry Strategy, at Blue Yonder. Ann Marie and I had an in-depth discussion about the enormous growth opportunities for LSPs in cold-chain — and the challenges they need to master to succeed. Here’s the first part of that conversation; look for Part 2 next week.
Terence Leung (TL): It’s impossible to ignore all the headlines and media attention focused on the topic of cold chain recently. Why is cold chain suddenly heating up?
Ann Marie Jonkman (AMJ): One simple reason is the revenue opportunity. The global cold chain market is growing at an annual rate of 14.3%, and it’s going to surpass $1 trillion by 2030. There are a number of factors behind that growth. The farm-to-table movement is creating greater demand for produce and other fresh foods. With more consumers living in urban areas, that means these products must travel long distances. E-commerce, direct-to-consumer channels, and the meal-kit category are also driving cold-chain growth. Another huge factor is the rise of vaccines and other pharmaceuticals that need to be refrigerated. Given the size of the opportunity, I think just about every LSP is looking to capitalize on cold chain.
TL: What actions do LSPs need to take if they’re not already participating in cold-chain logistics — of if they want to significantly grow their market share?
AMJ: One of my mentors when I was coming up in the logistics business liked to say, “Hope is not a strategy.” That definitely applies here. Cold chain is a challenging market sector, and most LSPs are going to have to invest in improving their capabilities to capture this opportunity.
I think a big focus for LSPs needs to be technology adoption. Obviously, they need to make sure they’re using the right refrigeration, insulation and temperature-monitoring technologies in their warehouses and trucks. But, beyond that, supply chain digitalization is critical. Moving perishable products demands an incredible degree of accuracy. A single delivery delay can result in huge amounts of waste, lost profits, and damage to both customer loyalty and the brand reputation. Artificial intelligence (AI), data science and analytics are a cost of doing business in cold chain. They help LSPs identify trends, predict demand with precision, and optimize routes and logistics to maximize reliability. Advanced technology also helps LSPs anticipate and manage disruptions. And, given today’s labor shortages, and the realities of a cold working environment, robotics and automation are also very important in optimizing speed, accuracy, efficiency, and costs.
TL: Are there any other competencies LSPs might need to add?
AMJ: They probably need to improve their understanding and compliance with cold-chain regulatory policies, which are strict for obvious reasons. Think of the number of food and beverage product recalls we read about every day and imagine if a vaccine or other pharmaceutical were found to be compromised. The stakes are high, much higher than for durable goods. LSPs need to be able to track products in real-time, continuously monitor their physical state, and observe stringent security protocols.
Similarly, sustainability is an enormous concern. Are LSPs using environmentally sound refrigeration technologies? Are they minimizing waste? Are they reducing their carbon footprint to the greatest extent possible via strategic load building, shipment consolidation and route optimization? Consumers, government regulators and shareholders will all be watching closely.
TL: It sounds like cold-chain logistics significantly impacts internal employees and external partners, just because it demands a new way of working.
AMJ: You’re absolutely right about that. There’s no room for error, so LSPs need to ensure that warehouse employees and drivers have all the resources and training they need to do their jobs accurately. They need to be educated about safety and compliance. But they also need to have best practices and advanced tools at their disposal, every day. Temperature control is a whole different world for every member of the logistics team.
In terms of partners, I think visibility is the number-one issue. LSPs need to see outside their own four walls, and track products from suppliers through the end customer. They need to share real-time information and collaborate more closely than they’re probably used to. When anything goes wrong along the end-to-end supply chain, all partners need to work together to sense and resolve that disruption. Again, the stakes are high when it comes to temperature-controlled products. Every partner needs to actively participate and communicate in real time.
TL: Given all these demands — which might be new for many LSPs — do you think the cold-chain opportunity is worth pursuing?
AMJ: Cold chain is going to represent a trillion-dollar market by the end of this decade. So I definitely think LSPs need to explore the opportunity. At the same time, they need to know what they’re getting into. Capital costs in temperature-controlled logistics are high, the lead times are long, and specialized capabilities are required.
However, any LSP can profitably capitalize on the cold-chain opportunity if they invest in building the right capabilities to maximize real-time visibility, as well as operational accuracy, speed, and efficiency. At Blue Yonder, we understand the challenges of cold chain, and we’ve invested in developing advanced software solutions that can help LSPs master them. I think the first step LSPs should take is reaching out to us, to learn more about how we can support them.
How Can the Right Software Help? Stay Tuned
In Part 2, Ann Marie will provide an overview of the specific capabilities that help LSPs maximize their cold-chain success. Check back to see what Blue Yonder’s resident expert has to say. In the meantime, watch our LinkedIn Live here.