The supply chain has been severely affected in recent years, and while solutions have been found to keep operations at consistent levels, some question marks still remain. We recently sat down with Stephan Keck, CEO of Ebrofrost, to discuss the Asian markets and the issues that are currently affecting production.
Producers that source IT components or technical intermediates from partners in Asia are suffering production losses. Is Ebrofrost or its customers in the food industry having to deal with similar problems?
Fortunately only minimally – if we’re talking about technical components for manufacturing facilities. However, we are having some problems sourcing special varieties of rice such as jasmine and basmati. This isn’t causing downtime or losses, but it is causing huge increases in shipping costs. Other than this, our regular business operations are not dependent upon Asian imports.
Many companies pursue a strategy of “lowest possible production costs anywhere in the world – the logistics chain will make it work”. Is this business model sustainable for the foreseeable future?
We believe that during the supply chain crisis, many companies discovered that the global procurement market is vulnerable to disruption and that just-in-time procurement is no longer feasible. A slightly lower purchase price does not justify the costs and administrative expense required to overcome non-deliveries. Of course, this depends on the industry. However, if we’re talking about a greater focus on regional procurement, we need to be completely clear. Regional in this case, depending on the product, still refers to continental or pan-Europe. The cost-effective manufacture of consumer products requires reasonably large and expensive plant investments to achieve the economies of scale demanded by food retail to avoid placing too great a burden on consumers. I’m talking here about niche products and not about standard shopping basket items such as drinks, eggs and flour etc.
Shipping rates e.g. for 40-foot containers are eight times what they were two years ago. Experts anticipate that these costs will stay high, perhaps not at this level but certainly at a high level over the next few months. How do you expect this to develop?
I fully agree with the experts. It’s an illusion to expect that we could return to pre-crisis levels – even if we continue to send new cargo ships out to sea with even greater capacities. There are many arguments against a reduction in rates: energy prices – CO2 pollution – personnel problems or shortages in international shipping etc.
To date, manufacturers have also been producing products at very low manufacturing costs in the Far East because the logistics costs carried less weight. This attitude appears to need adjusted given the current cost levels. Do you think it makes sense to relocate production from Asia to Europe?
When do manufacturers source products from the Far East? Primarily if their quality is in line with the market and shipping costs play a reduced role. Other “softer” factors are usually relevant indirectly, for example: carbon footprint, quick and easy communication, short logistical time frame, ad-hoc agreements for unscheduled activities or problems etc. These factors are magnified when issues need to be resolved rapidly. The bottom line is that if quality and collaboration are top of the list, if all the cost components are competitive, then it is always advantageous to cooperate with a European supplier. The benefits in quality offset a few percent in calculation easily.
Another issue is the environmental pollution caused by transportation that is technically unnecessary – the keyword being CO2. What is your view on this topic?
Having production relatively close to the processors considerably eases the environmental burden. To achieve European climate objectives, global logistics need to concentrate on products that cannot be manufactured in the same quality in other parts of the world. Pea protein, for example, is certainly not one of these products.
Which Asian products can you offer to the European market?
Here in Germany and Denmark we produce Chinese egg noodles, soba, ramen and mie noodles – all from fresh dough. As with all our pasta and noodles, we fully cook, portion and freeze them. We can always supply them quickly due to our own cold storage warehouses. Our customers do not need to worry about the exorbitant costs for container deliveries from the Far East.