Adapting to Change: The Uncertainties Facing the UK Cold Chain

September 2020

The cold chain is at the forefront of the ongoing uncertainty facing the UK economy. Short term disruption has been brought about by many factors, most notably the fallout from the Brexit referendum, but has also been exacerbated by the COVID-19 outbreak. Against a backdrop of ongoing pressure to decarbonise and make supply chains more sustainable, there is a lot for a cold chain operator to consider. But which impacts are temporary and will need to be weathered, and which will bring about more permanent long-term change to the way we do business?

THE COLD CHAIN IS PART OF THE SOLUTION

• As this blog will discuss, rapidly changing consumer habits, socio-economic policy and environmental issues will put pressure on the cold chain in the coming years and decades.
• The Cold Chain Federation’s core objective is to guide our members through this uncertainty and ensure successive Governments and wider society recognise the cold chain as a force for good. The cold chain extends product life, reduces waste and ensures product quality. Everyone in the UK relies on the cold chain to deliver products like food and pharmaceuticals safely.

THE WAY THE UK BUYS FOOD

• Prior to the COVID-19 outbreak, grocery deliveries had been gradually increasing, however in the UK, online orders had taken 20 years to go from 0 to 7% of total grocery sales. Following the lockdown restrictions imposed in March, it has risen from 7% to 13% in about 8 weeks [1].
• It is likely this would be higher if not for lack of drivers and vehicles as many customers were not able to book delivery slots with the major retailers. Whilst some customers may return to stores, many will continue this way of shopping.
• Although perhaps not unexpected, the speed of increase creates a headache for retailers. Currently, home deliveries are expensive, and home shopping prevents ‘impulse buys’ in the aisles. Most retailers have also continued to expand and invest big into bricks and mortar stores.
• The delivery of temperature-controlled products is a particular problem as refrigeration is expensive and requires ‘multi-temp’ vans or dry ice (for frozen deliveries) which is expensive.
• The rise in home delivery has been good news for those retailers specialising in this service, with Ocado expanding and seeing a 91% increase in sales over June [2] and boosting their market share and Amazon Fresh soon to enter the market [3].
• Retailers need to rapidly make online retailing profitable which could shake up the supply chain. Changes to adapt to the growing demand for home deliveries could include:
  • More investment in temperature-controlled vehicles to service home delivery demand
  • ‘Click and collect’ could be an option.
  • More realistic pricing
  • Refitting stores to include micro-fulfilment centres for deliveries
  • Implementing more automation solutions to make picking more efficient
• The ‘Amazon effect’ of Amazon Fresh could also shake up deliveries:
  • Could outsourcing deliveries for groceries, as Amazon does for other products be coming to grocery distribution? How could this impact standards?
• As part of our Net Zero project, the Cold Chain Federation will seek to build stronger relationships with retailers to help our members navigate changes to the cold chain as a result of changing consumer demands.

BREXIT – SHORT TERM DISRUPTION, LONG TERM CHANGES?

• Brexit has been a spectre hanging over logistics businesses who operate cross-Europe trade since the referendum in 2016. As we head to the end of the transitional period on 31^st December, the risk of disruption to the supply chain on Day 1 and beyond is inevitable.
• From January, hauliers travelling between the UK and EU will have to be ready for additional checks and documentation requirements at the border. It is feared that the infrastructure at the border will be unable to cope and that many hauliers will arrive without the required documents. This will cause logistical challenges for businesses and potentially affect the saleability of perishable products help up in the backlog.
• Defra are predicting queues of up to 7,000 lorries in Kent from 1^st January [4] and have revealed in our discussions with them that we could see disruption to food availability for up to 6 months following the end of the Brexit transitional period. There will likely be price rises and shortages of certain foods.
• How Brexit will affect supply chains long-term is more uncertain as we await the outcome of last-minute trade negotiations with the EU. Likely changes could be:
  • A reduction in overall trade with the EU and more trade agreements with non-EU countries, which could threaten long held food standards.
  • De centralisation of manufacturing back to the UK [5] (although many EU centred companies are likely to shift manufacturing to the continent).
  • The potential for more seasonal produce grown in the UK.
  • Potential labour issues, although the employment downturn from COVID-19 is likely to offset this impact.
• Since the Brexit referendum, the Cold Chain Federation has, and will continue to, represent and highlight the concerns of our members directly to Government Ministers and officials. These relationships will be critical to feedback and get action on post January 1^st issues affecting the cold chain.

NET ZERO AND OTHER ENVIRONMENTAL PRESSURES

• As we have begun to explore as part of our ‘Net Zero Cold Chain’ project, there is growing pressure on industry to reduce emissions.
• In the next decade, we can expect this pressure to grow in the form of more stringent Government energy and carbon reduction targets and regulation beyond what we face currently.
• In addition to reducing carbon emissions, other issues such as single use plastics and improving air quality will continue to grow and dominate environmental policy.
• Efforts to improve air quality in urban areas will lead to an increase in delivery restrictions and the use of certain equipment (such as diesel TRUs).
• Increasingly businesses will seek to be viewed as ‘net zero’ or otherwise environmentally friendly.
• Currently, retailers and other food businesses have focused on ‘in house’ emissions, but this will soon start to include seeking suppliers who meet increasingly stringent environmental credentials for carbon emissions, air quality emissions, food waste and plastics used in packaging and wrapping.
• On top of this will be increasing public scrutiny on businesses, increasing consumer awareness of where their products come from and preferential selection of products which meet environmental expectations.
• Through our net zero project, the Cold Chain Federation has demonstrated our pledge to support members through the anticipated regulatory and policy pressures expected as part of the UK’s net zero by 2050 commitment.

SUMMARY OF IMPACTS TO COLD CHAIN BUSINESSES

• Changing demands of retailers to support evolving consumer demand for online delivery of produce.
• More innovative approaches to last mile deliveries of perishable products, which could be an opportunity for some suppliers and vehicle manufacturers.
• Short term disruption to operations from 1^st January as the Brexit transitional period ends, and long-term changes to the way we trade with the world.
• Growing pressure to reduce emissions and make other environmental improvements will require rethinking of the way we do business, greater collaboration within supply chains.

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[1] https://www.ft.com/content/b985249c-1ca1-41a8-96b5-0adcc889d57d

[2] https://www.chargedretail.co.uk/2020/06/23/ocado-achieves-largest-market-share-of-all-time-as-online-grocery-sales-jump-91/

[3] https://www.transportxtra.com/publications/parking-review/news/66585/amazon-to-start-free-food-deliveries-in-uk

[4] https://www.theguardian.com/politics/2020/sep/14/uk-not-border-ready-with-only-four-months-to-go-until-brexit

[5] https://blogs.lse.ac.uk/businessreview/2020/05/19/the-future-of-uk-supply-chains-in-a-disrupted-world-brexit-and-covid-19/

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