Rising operating costs, labour shortages, and stricter sustainability requirements are driving European food processors to re-evaluate their logistics outsourcing strategies.
Rabobank Knowledge’s October 2024 report, Do It or Buy It? European Food Processors to Rethink Logistics Outsourcing Strategies, highlights that companies must now adopt tailored approaches when deciding whether to outsource or insource cold chain logistics operations.
Fi Global Insights spoke to Cyrille Filott, global strategist for consumer foods, packaging, and logistics at Rabobank, about the latest developments in and along the cold chain.
For the first time in several years, food industry players are seriously rethinking their logistics networks – and especially cold chains – in response to rising costs, sustainability requirements, and shifting consumer demands. Filott says that the industry is grappling with a complex puzzle: "Where do I produce? Where’s my customer? What are the transportation costs and the sustainability implications?"
Whether it makes more sense to having a few very large storage facilities connected with a big transportation network with trucks going in every direction, or sets of smaller storage facilities with more limited transport is another big debate in the industry with no one right answer, according to Filott.
“This has become a boardroom topic for many companies that were not considering these questions as much just three to five years ago,” says Filott.
The increased costs of storage and transportation, along with regulatory scrutiny on emissions, are now forcing companies to reassess their logistics and production strategies.
Another important factor is the return to ‘just-in-time’ logistics. Covid-19 disrupted logistics for a while, but, says Filott, we are completely back to the ‘old’ model of low inventory and rapid delivery.
“Whether it is the smart thing to do is something else, but from a cost perspective, the most important thing right now is to look for ways to have the least inventory possible,” he says.
The increased predictability of consumer demand, enabled by digital information flows, also plays a role. This is also allowing processors to optimise their logistics by collaborating to fill trucks more efficiently, even if it means detours to pick up additional goods.
Energy costs are a key factor when it comes to outsourcing decisions. European electricity prices have surged in recent years, partly driven by geopolitical events like the war in Ukraine. Since cold storage relies heavily on grid electricity, processors managing their own storage facilities face heightened financial risk from energy price volatility.
Moreover, rising labour costs – which a few years ago might have seemed like a transitory challenge – have become a top concern and a structural issue. Along with much of the rest of the industry, the food logistics sector is experiencing a persistent labour shortage, particularly among truck drivers and warehouse staff, which makes maintaining insourced logistics operations challenging.
Facing all these complexities, outsourcing logistics – particularly cold chain activities such as refrigerated transport and cold storage – enables food processors to reduce capital expenditures and focus their resources on core business operations.
For many companies, logistics services like transportation and storage are viewed as non-core activities, and outsourcing these tasks helps streamline operations and manage costs. As one of the companies interviewed by Rabobank explained: "We are a food company, not a hauling business.”
Outsourcing also enables processors to access international markets without making significant upfront investments in logistics infrastructure. This is especially advantageous when product volumes in a new market are not yet large enough to justify building in-house logistics capabilities.
Additionally, outsourcing helps food processors manage the increasing complexities in logistics, such as rising demand for smaller, frequent deliveries to meet the needs of retailers and foodservice clients.
While outsourcing offers cost and operational benefits, some food processors are turning to insourcing logistics operations to retain greater control. This approach provides more flexibility in responding to fluctuating demand, particularly in managing refrigerated transport and storage. Control over the logistics chain is critical for ensuring product quality, especially in the cold chain where strict temperature control is essential for food safety.
Growing consolidation among cold storage companies is also driving up costs for some companies. This consolidation has led to fewer options.
“There is a lot of nuance here, but for some companies in the industry, it is a concern that the amount of cold store companies they can pick from is declining gradually,” says Filott.
Sustainability is also becoming an increasingly important driver for insourcing. With mounting regulatory pressure to reduce carbon emissions, many companies feel that insourcing allows them to better control their sustainability performance.
This trend is clearly more relevant in the EU than other markets like the US, notes Filott: “When you talk to European-based frozen food companies, they're all thinking about the need to change their isolation, their machines, the cooling equipment on the roof, all to hit certain emission targets.”
By managing their logistics operations, food processors can directly implement sustainability initiatives such as integrating renewable energy sources into cold storage facilities or investing in electric and hydrogen-powered transport fleets. However, this approach requires significant investment in logistics infrastructure and new technologies.
Logistics providers that enhance their value proposition by investing in sustainability and broadening their service offerings to provide integrated logistics solutions, including renewable energy-powered cold storage and zero-emission transportation, are likely to become more attractive to food processors seeking both cost savings and environmental benefits.
Looking ahead, the next 10 to 15 years could bring shifts that processors are not fully anticipating.
“In 2040, companies might look back and think, ‘we should have made different decisions’,” Filott says, with gradual and unpredictable developments – driven by changes in the global climate and consumption patterns – able to reshape the food production and logistics landscape.
Currently, many companies are focused on short-term challenges, such as next year’s harvest or immediate supply chain concerns, rather than considering the bigger picture. Filott advises that long-term scenario planning is essential for companies to navigate these uncertainties.
One potential shift, for example, is the increasing demand for plant-based proteins. “If the world moves [from a 40/60] to a 60/40 ratio between plant and animal protein consumption, that will have a huge impact on animal protein production and where it takes place.”
This shift would also influence logistics, particularly cold storage. While much of today’s protein is stored frozen, some plant-based alternatives or vegetables may require fresh storage solutions. “It hasn't happened yet, but it is the kind of shift companies should be planning for and thinking about,” says Filott.
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