The Struggle To Deliver Fresh Produce In The Times Of Direct-To-Consumer Channels
Fresh produce supply chains struggle with time constraints and seasonality, aside from issues with locating reefer capacity and towering freight prices
A hearty welcome to the 22nd edition of The Logistics Rundown, a weekly digest that aims to put some perspective on what’s brewing within the logistics industry. This is a space where we religiously dissect market trends, chat with industry thought leaders, highlight supply chain innovation, celebrate startups, and share news nuggets.
Supply chains are in a mess or have been over this year. With supply and demand equations being hazy and logistics networks struggling to keep up, stakeholders across the end-to-end value chain have felt the pinch. While this is true of most supply chains from automotive to epoxy resin, fresh produce logistics is probably in deeper trouble as it struggles to find freight capacity.
Fresh produce has a much shorter life span than regular commodities and packed goods, which puts urgency in its logistics operations. On top of it, freight capacity is even harder to find with fresh produce, as it generally requires refrigerated boxes for transport. Refrigerated (or reefer) capacity is much harder to find, considering fewer such boxes are in circulation than the regular containers.
Tracing back, we see that the advent of globalization has a lot to do with the daily struggles of moving fresh produce across continents. As incomes rose, economies opened up, and trade became paramount, consumers were flushed with the veritably long list of fresh produce options at their local supermarket, brought from all over the world.
Soon, shippers and retailers realized consumers weren't satisfied with just having their fresh produce choices, but also expected their choices to remain in stock around the year. This is where it gets tricky. A lot of the fresh produce made available at the local store is seasonal. While sourcing seasonal produce is relatively easier, making the said produce available through the year would mean sourcing them from thousands of miles away and across multiple regions to circumvent issues with seasonality.
While sourcing seasonal produce is relatively easier, making the said produce available through the year would mean sourcing them from thousands of miles away and across multiple regions to circumvent issues with seasonality.
Avocado could be a great example. The search for food options that provided the elusive 'good fat' in dietary regimen led to a surge in interest in avocados in the 1980s. Initially, the US was dominated by avocados coming out of a California-based company called Mission Produce. However, avocados were a seasonal harvest and so supplying them through the year would be unlikely—unless they were sourced from outside the country during the off-season to ensure stocks through the year.
This is where Mexico comes in. NAFTA's introduction in 1994 led to the arrival of Mexican avocados into the US, 80 years after the federal government banned them due to fears of infestation and cost under-cutting. Mexico's avocados solved the seasonality issue, ensuring a year-long supply of the green gold.
For businesses indulging in fresh produce, it makes sense to prevent seasonality from entering the equation. Uniform year-long availability would make it easier to predict consumer demand. Demand sensing, one of the primary metrics defining a fresh produce business, has an overarching impact on the health and efficiency of operations.
If globalization was a catalyst for disrupting fresh produce supply chains, the COVID-19 pandemic could be yet another stimulus for change. Quarantines and work-from-home options have led to a spectacular rise in e-commerce patronage, putting direct-to-consumer (DTC) channels in greater relevance. As products moving through B2B channels transitioned to B2C, the fresh produce segment also saw a compelling reason to dip its feet in trendier waters.
The last mile is of prime importance in DTC, considering it's the leg that touches the end-consumer. The question is this—how can fresh produce sellers ensure the product remains in great condition as it pipes down from the farm to the fork?
"The problem with fresh produce is it spoils quickly. Trying to get them to the consumer in a timeframe where the product remains fresh and safe to eat is a challenge," said Drew Ryder, the president of food tech firm Deken Technologies. "The produce must also look good—consumers are not going to buy vegetables that look beat up from the transportation. Sellers struggle with a host of such issues."
Retail, and fresh produce in particular, is a low-margin, high-frequency business. So how is fresh produce sourced from thousands of miles away available at a cost factor that is agreeable to the average consumer? Economies of scale, that's how. By scaling production and sourcing, retailers can bring prices of imported produce down to an extent where it could be cheaper than locally sourced alternatives.
But with DTC, fresh produce supply chains lose their biggest advantage—selling at scale. While sourcing continues to remain at scale, downstream operations cannot remain so as end consumers would not buy crates of apples as a supermarket does.
But with DTC, fresh produce supply chains lose their biggest advantage—selling at scale.
And in comes another trend that has a slow but steady bearing today—premium, pesticide-free, organic produce options.
Typically, fresh produce is picked a stage earlier to it getting fully ripe, as ripened produce will not stay fresh over its few-day journey before it reaches the consumer. "The unripe produce matures a bit more while in transit, and by the time it gets on the shelf of a grocery store, it looks in the best possible shape it can be," said Ryder.
"However, produce that's picked unripe does not taste the same as produce that's picked up after it ripens at the stalk. Tomatoes, for instance, will taste much better when picked ripe than the ones we find in the supermarket that are picked unripe. We could take them home and try ripening them on the shelf, but they still won't taste the same."
With organic produce, shelf lives are even shorter, complicating logistics further. A major segment of the organic produce enthusiasts also intersect with the idea of consuming 'locally-sourced' products—a trend that has found more takers since the pandemic outbreak.
While this has revitalized local growers, there's still humongous friction in the localized fresh produce DTC systems due to selective buying from the end customers. "There are cooperatives where people pay a group of farmers enough money per season to supply them with a certain amount of produce. This works fairly well, but the problem for a farmer is committing to a certain quantity of a very specific type of product—like 10 pounds of potatoes and 5 pounds of cucumbers," said Ryder.
There's still humongous friction in the localized fresh produce DTC systems due to selective buying from the end customers.
If there's volatility in supply, the consumers either end up unhappy, or there's excess produce that runs the risk of ending up as garbage. However, there's still light at the end of the tunnel. By introducing Uber-like scale to this equation and selling fresh produce via a digital platform, such cooperatives can collectively reach end consumers.
The logistics of the operations is another spectacle. Shorter shelf lives on the produce force sellers to think of alternative ways to reach end consumers, even as they work to dodge sky-high freight prices.
Community boxes could be a great solution. These are a series of lockers placed at a strategic location close to the farms and accessible to consumers from nearby urban settlements. Fresh produce can be put in these lockers, which are automated and open 24x7 for business. Consumers can find such fresh produce hotspots via a digital platform and drive by to get the product of their choice.
"Self-serving, automated logistics systems are going to make more sense in the future," said Ryder, contending that the fresh produce supply chain is in for another disruption. For now, it's interesting to see how the market's exertion to reach fresh, tasty, appealing, and safe produce to the end-consumer could create such unceasing waves of disruption to its supply chain.
The Weekly Roundup
🚢 The ports of Los Angeles and Long Beach are experiencing one of the worst crises of their existence, with 47 container ships queuing up in the San Pedro Bay this week. The situation is only expected to worsen with the holiday shopping season in tow, pushing retailers to stock their inventories over this month. The number of vessels looking to dock at the LA and LB terminals is 4.8 times the pre-COVID levels.
🚂 US railroad company BNSF has stated that its Chicago intermodal facilities have come under extreme duress due to a substantial number of staged inbound trains and elevated inventory levels flowing into the hubs. BNSF's CEO mentioned in a letter that "significantly more freight is coming into BNSF facilities than is being picked up and that simply is not sustainable."
🚚 General Motors is stopping production across most of its factories in North America, citing the deteriorating semiconductor chip crisis as the reason. The chip crisis has continued all through 2021, fueled by consumer demand at a time when auto production plants were reeling under the impact of the pandemic. The recent surge in COVID-19 cases in S.E. Asia, where most chip factories are located, has worsened the crisis.
🛒 Chinese e-commerce major JD.com has bought a controlling stake in China Logistics Property Holdings in a $2.1 billion deal, which will give the company access to fresh warehousing space—something that has been in short supply over the e-commerce boom this year. JD Logistics already runs 1,200 warehouses across China and will now hold a 26% stake in China Logistics.
...said who?
"The pay rate has to be competitive because that's the first thing hourly associates look for. There's simply not enough human beings to fill all the open positions."
- Brian Devine, senior vice president of logistics-staffing firm ProLogistix, while commenting on retailers and logistics stakeholders increasing pay due to the ongoing labor shortage.
Want to talk with us? Have something you'd like us to cover? Drop your thoughts to vishnu@truckx.com
We are TruckX, the Internet of Things plug to logistics. Check us out at
www.TruckX.com