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Business Trends

Japan's cold chains tap Southeast Asia's Westernizing tastes

Growing urban populations boost demand for refrigerated storage and transport

Workers are bundled up for the cold at a Sojitz refrigerated warehouse in Myanmar. Japanese logistics companies are tapping demand for cold storage as diets change. (Photo by Yuichi Nitta)

TOKYO/YANGON -- Japanese logistics providers are establishing cold-chain operations in Southeast Asia as demand for fresh food grows from the region's exploding urban populace, but competition also awaits from smartphone-based newcomers.

In Thailand, on the outskirts of Bangkok, Nichirei opened in 2014 a cold-storage center with Japanese insulation technology, served by refrigerated trucks. The facility originally handled such products as chicken and juice and has recently seen an increase in dairy items like cheese as local diets become more Westernized.

"Demand for refrigerated and frozen transportation is rising as diets change," said the president of the operating company, which is considering expanding the warehouse.

The facility is run by a joint venture with a Thai conglomerate, Siam Cement Group. The company trains the staff for complex tasks. Employees are given computational problems every day to improve their skills and are moved into more challenging jobs as they improve.

Yamato Holdings also holds a stake in a joint venture with Siam Cement called SCG Yamato Express that began cold-chain shipping last year. "Delivery costs have fallen, and I have few difficulties anymore," said the owner of a frozen soup company in Bangkok who now uses the service.

Previously, the soup had to be packed in dry ice or insulated material because Thailand Post, the national postal service, and other companies offer only regular shipping. The products would often melt as a result. Now, however, the company saves around 30% on delivery costs with Yamato's service since it need not provide its own insulation.

Siam Cement, which handles everything from cement and petrochemicals to logistics, is preparing to enter the online food delivery business. "Yamato's expertise is essential to providing a stable service," said a director in the company's distribution segment.

In neighboring Malaysia, Yusen Logistics acquired last year two local logistics companies that now offer cold-chain services. Yusen mainly handles shipping for machine components but has expanded to processed food products like ice cream and chicken.

The purchase was aimed at meeting Islamic dietary rules in the Muslim-majority country, which is home to many halal food processors. The company wants to roll out cold-chain services between Southeast Asia and the Middle East, said Lee Check Poh, chairman of the local subsidiary.

Japanese companies are also expanding into Myanmar, which is considered Asia's last frontier. Sojitz established a refrigerated shipping joint venture with a local distributor that handles food wholesaling for City Mart Holding, the country's largest retailer. It will import dairy and meat products as well as deliver those items to supermarkets and restaurants in Yangon.

The only people in Myanmar who can buy such foods today are foreigners and the wealthy. Most typical households still buy their food at local markets. "Local demand for refrigerated or frozen products is not yet promising, but will pick up in three to five years," said Ichiro Uesawa, president of the joint venture.

The market for these goods is rapidly growing in Southeast Asia overall. Consumption is expected to total $21.1 billion in 2020 among the region's six largest countries, a 140% increase from 2010.

Modernization in the logistics sector has supported the market's growth. The distribution of food products is rapidly shifting to supermarkets and convenience stores from traditional markets and mom-and-pop shops. Refrigerated and frozen goods are easier to procure now that major distributors offer shipping via insulated trucks.

Southeast Asia's rapid urbanization has also played a significant role. Demand for transporting fresh foods from farming villages is expanding as the cities grow. Asia's urban population swelled 30% from 2005 to 2015 and is expected to rise another 21% by 2025, according to the United Nations.

Although this is an opportunity for Japanese companies that have taken the lead on cold-chain services, they do not have the field to themselves. Germany's Foodpanda and Japan's Line are both rolling out food delivery services in Thailand that let customers order on a smartphone app. The food will then be delivered from the restaurant or supermarket by a partnering scooter taxi service.

"We want to differentiate ourselves by such means as directly delivering farm-fresh foods from rural areas," said Sakae Yamasaki, vice president of SCG Yamato Express, which plans to continue searching for new markets in need of cold-chain services.

The quality of local cold-chain services also varies widely. Food products have been damaged from a lack of refrigeration as well as loading and unloading at room temperature. It is estimated that 90% of Southeast Asia's food waste is created during transport.

The Japanese government is working with the Association of Southeast Asian Nations to draw up guidelines for improving the quality of cold-chain services in the region. It aims to create standards for logistics providers to follow and to encourage Japanese companies with strengths in refrigerated shipping to enter Southeast Asia. Both sides hope to approve the guidelines at a meeting of ASEAN and Japanese transport ministers this fall.

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