TNO-report Inro-L&T/2000-26 TNO Inro Department of Logistics and Transport 97 Schoemaker Street P.O. Box 6041 2600 JA Delft The Netherlands Phone +31 15 269 69 10 Fax +31 15 269 68 54 Internet http://www.inro.tno.nl

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Place and date

Delft, December 2000 Number

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90-6743-760-3

Author(s)

D.F. Broens (TNO) F.E. van Dyk (CSIR, South Africa) L.A. Tavasszy (TNO)

The cold fruit supply chain between South Africa and The Netherlands

TNO Inro carries out research and offers consultancy services in the field of infrastructure, transport and regional development

Netherlands organization for applied scientific research

Report on a pre-feasibility study

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PREFACE

In 1999, following the visit of Mrs. Netelenbos, the Dutch Minister of Transport, Public Works and Water Management to South Africa, a joint body was established with the South African Department of Transport, called the South African Netherlands Transport Forum (SANTF). In brief, the aim of SANTF was the support knowledge transfer between the countries, as well as the co-development of a new transport policy and transport-related investment initiatives in South Africa. Initiated from within the Ports working group of SANTF, the project “Optimisation of the cold fruit supply chain between South Africa and the Netherlands” was started with the support of SANTF, the ICES Programme KLICT, and the industry. The project’s aim is to identify promising opportunities for improvement of the supply chain for fruit from South Africa to the Netherlands using a participative approach, in a setting where all the key actors in the chain are represented. In a follow-up of the project, a quantitative and pilot-based feasibility analysis of these innovations could take place, for which this study would provide the groundwork. The authors would like to thank the industry representatives who were willing to support the project by granting interviews and participating in the Cape Town workshop. Their names are listed in Annexure 2 to this report. The authors have attempted to capture the input from this group as accurately as possible, but take sole responsibility for the opinions expressed and recommendations put forward in this report.

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EXECUTIVE SUMMARY

Background of the study In 1999, following the visit of Mrs. Netelenbos, the Dutch Minister of Transport, Public Works and Water Management to South Africa, a joint body was established with the South African Department of Transport, called the South African Netherlands Transport Forum (SANTF). In brief, the aim of SANTF was the support of knowledge transfer between the countries, as well as the co-development of a new transport policy and transport-related investment initiatives in South Africa. Initiated from within the Ports working group of SANTF, the project “Optimisation of the cold fruit supply chain between South Africa and the Netherlands” was started jointly by TNO and the CSIR with the support of SANTF, the ICES Programme KLICT, and the industry.

Objective The objective of the project is to identify promising opportunities for improvement of the supply chain for fruit from South Africa to the Netherlands using a participative approach, in a setting where all the key actors in the chain are represented. In a follow-up of the project, a quantitative and pilot-based feasibility analysis of these innovations could take place, for which this study would provide the groundwork.

Approach The project was carried out along the following steps: • A global description of the supply chain • An inventory of current bottlenecks in the supply chain • An overview of current and past relevant studies • An agreement on and prioritisation of the bottlenecks by members of the industry • A pilot study proposal for global supply chain optimisation, to be carried out as a new project. The results were achieved through a literature search and intensive interviewing. More than 20 managers in all layers of the fruit chain, on both sides of the ocean, were asked for a description of the chain and its current bottlenecks from their perspective. From these interviews the main developments and bottlenecks were identified. On 19 October 2000 a workshop was held in Cape Town attended by 10 managers from the chain, most of whom had been interviewed before. In an open discussion, the bottlenecks were assessed and

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prioritised. At the end of the workshop, the attendants agreed upon the formulation of a pilot study. That formulation does not form part of this project.

The supply chain for citrus and deciduous fruit between South Africa and the Netherlands The South African fruit industry has experienced some tough times since deregulation three years ago – competition has increased and prices have dropped. The areas of production, the trade flows, the routing of these flows and the logistical process are described based on the latest definitive and complete statistics (1999). The main challenges to surface since deregulation are the following: • Increased operational complexity, mainly due to an increase in the number of exporters • Increased information complexity: sector information systems are not geared to the new situation • Incentive/accountability complexity: there is no well-developed system by which business

partners can hold one another accountable for their performance. Overall, there seems to be a large potential for the improvement of logistics performance. The main symptoms of poor performance levels within the logistics chain relate to product quality, reliability of deliveries, traceability of produce, capacity shortage and administrative problems.

Existing projects for improving logistics Part of the study was devoted to preparing an inventory of existing studies regarding the logistics of fruit exports. The main studies that are discussed in the report are: • Capespan projects (mainly for Cape Town harbour) aimed at reducing logistical costs • Cape Town harbour developments • Vision 2010 (Deciduous Fruit Producers’ Trust) • Orange River Producers’ Alliance (ORPA) initiative • Fresh Produce Traceability Project • Packaging and cooling

Problem analysis: themes and opportunities Opportunities for improvement were identified through a series of interviews with logistics and senior managers of various stakeholders along the chain. They concern the following: • management of cooling the products • accuracy of tally and documentation

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• capacity of cold stores • capacity of the refrigerated truck fleet • capacity of transshipment terminals • traceability of products • information availability and quality • mixed pallet and container-based transport.

Possible improvements in the supply chain These problems were discussed in a workshop where the production, sales and warehousing functions were represented. The following actions were identified as possible solutions: • An increase in investments in order to provide additional inland storage and terminal capacity • Extension of tracing systems from producer to consumer • Certification of and co-operation between exporters in order to improve product quality and

organisational efficiency • Moving ID-capture and labelling activities towards specification points, in order to reduce the

workload of transshipment terminals at peak times • Raising of chain awareness at the operational level to enhance understanding of chain logistics

principles, and motivate an empowered and co-operative culture • Data acquisition and data exchange to improve the management and co-ordination of supply

chain processes • Flexible application of containers in order to improve product quality and move the need for

storage and handling away from ports at peak times • Introduction of logistics communication systems in order to support the exchange of data as well

as the planning and management of operations.

Prioritisation of improvements The screening of these options for improvement resulted in the following prioritisation: • Optimising the use of existing capacity is seen as at least as important as investments in new

storage and terminal capacity. • The highest potential improvement would come from improved communication systems and the

acquisition and exchange of operational data. In terms of chain-wide investments, these actions have top priority.

• Moving the ID-capture upstream and the mixed container/pallet system are promising ideas that need to be explored further; however, they involve a re-design of at least parts of the chain and would therefore follow after the above action.

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• Improvements in tracing facilities, quality and training are also important but are already dealt with in existing programmes and information systems.

Conclusions

• The fruit-growing sector in South Africa is experiencing difficult times. The potential gains of

improving the efficiency (lower costs) and effectiveness (higher reliability) of the logistics processes are high and are recognised within the sector.

• The main operational bottleneck for the logistical performance of the supply chain concerns the poor availability and the limited exchange of data about logistical performance. Many of the problems identified are symptomatic of this bottleneck.

• Possible solutions to this and other related bottlenecks were listed and evaluated with the support of interviews and a workshop with professionals in the sector, leading to recommendations for follow-up actions. Some of these options were perceived as not feasible in the short term. Others, however, were seen as true short-term opportunities with a high chance of success.

• It is felt that the usage of existing terminal capacity should be optimised; in addition, new transport configurations (mixed pallet/container routes) and an improved separation of activities over the chain could be introduced. Above all, however, there needs to be an information infrastructure which captures the logistical performance at various levels in the chain and allows parties to use this information for the co-ordination of their activities.

• Therefore, we believe there is a strong case for introducing a supply chain information system, which allows data exchange at strategic linkages, e.g. between farmers and hauliers, packhouses and terminal owners, carriers and forwarders. Data acquisition and an awareness-raising programme to enhance the usage of such a system could be critical to its introduction.

Recommendations We recommend the following actions to work towards improvements in the supply chain: • Investigate the feasibility of a new supply chain information system for the fruit chain between

South Africa and the Netherlands in order to allow a proper investment decision to be made. • Demonstrate the benefits of data exchange to achieve support for chain co-operation at the

operational level. • Acquire new data material describing the operational preformance of all processes along the

chain, to supply the above studies with quantitative material.

CONTENTS

page

PREFACE.............................................................................................................................................. I

EXECUTIVE SUMMARY................................................................................................................ III

LIST OF TABLES AND FIGURES ................................................................................................. IX

LIST OF ABBREVIATIONS............................................................................................................ XI

1 INTRODUCTION.......................................................................................................................1 1.1 Objectives and results ...................................................................................................................1 1.2 Approach.......................................................................................................................................1 1.3 Structure of the report ...................................................................................................................1

2 CHAIN DESCRIPTION.............................................................................................................3 2.1 History...........................................................................................................................................3 2.2 The Present....................................................................................................................................4 2.3 Fruit-producing regions.................................................................................................................5 2.4 The citrus and decisuous fruit trade ..............................................................................................7 2.5 Routing of flows..........................................................................................................................10 2.6 Outline of the logistics process ...................................................................................................17 2.7 Current challenges.......................................................................................................................21 2.8 Symptoms for improvement potential.........................................................................................22

3 CURRENT AND PAST IMPROVEMENT PROJECTS......................................................25 3.1 Capespan projects .......................................................................................................................25 3.2 Cape Town harbour developments..............................................................................................28 3.3 Vision 2010 (Deciduous Fruit Producers’ Trust)........................................................................29 3.4 Orange River Producers’ Alliance (ORPA) initiative.................................................................30 3.5 Fresh Produce Traceability Project (FPTP) ...............................................................................32 3.6 Packaging and cooling ...............................................................................................................33

4 OPPORTUNITIES FOR IMPROVEMENT..........................................................................35 4.1 Cold chain quality .......................................................................................................................35 4.2 Accuracy of tally and documentation .........................................................................................36 4.3 Cold store capacity in South Africa ............................................................................................37 4.4 Transport and traffic in South Africa ..........................................................................................37 4.5 Terminal capacity and terminal operations in the chain .............................................................38 4.6 Traceability .................................................................................................................................39

5 EVALUATION OF POTENTIAL SOLUTIONS ..................................................................41 5.1 Introduction.................................................................................................................................41 5.2 Solution 1: Investments in inland cold store capacity................................................................41 5.3 Solution 2: Investment in terminal capacity...............................................................................41 5.4 Solution 3: Extension of tracing systems...................................................................................42 5.5 Solution 4: Certification of exporters.........................................................................................42 5.6 Solution 5: Flexible application of containers ...........................................................................42 5.7 Solution 6: Vertical concentration on core business ..................................................................43 5.8 Solution 7: Raising chain awareness..........................................................................................44 5.9 Solution 8: Data acquisition and exchange ................................................................................45 5.10 Solution 9: Logistics information and communication systems ................................................45

6 ACTIONS LEADING TOWARDS IMPROVEMENTS IN THE SUPPLY CHAIN .........47 6.1 Introduction.................................................................................................................................47 6.2 Data acquisition...........................................................................................................................47 6.3 Demonstration of benefits of data exchange...............................................................................50 6.4 A feasibility study of chain information systems........................................................................51 6.5 Pilot set-up ..................................................................................................................................53

7 CONCLUSIONS AND RECOMMENDATIONS..................................................................55

8 REFERENCES..........................................................................................................................57

ANNEXURE 1: WORKSHOP CONCLUSIONS..........................................................................59

ANNEXURE 2: LIST OF INDUSTRY PARTICIPANTS............................................................63

LIST OF TABLES AND FIGURES

Tables Table 1: SA fruit exports .............................................................................................................8 Figures Figure 1: South Africa's fruit producing regions...........................................................................6 Figure 2: Exports to the Netherlands and share of exports worldwide going to NL.....................9 Figure 3: Growth of export to the Netherlands vs worldwide.......................................................9 Figure 4: Export to the Netherlands and their growth...................................................................9 Figure 5: Citrus exports 1999......................................................................................................11 Figure 6: Citrus exports to Belgian, Dutch and German harbours 1999.....................................12 Figure 7: Deciduous exports 1999 ..............................................................................................13 Figure 8: Deciduous exports to Belgian, Dutch and German harbours 1999..............................14 Figure 9: Subtropical exports 1999 .............................................................................................15 Figure 10: Subtropical exports to Belgian, Dutch and German harbours 1999 ............................16 Figure 11: Main segments in the cold fruit chain..........................................................................17 Figure 12: Export chain, citrus fruit ...........................................................................................19 Figure 14: Port of Cape Town layout............................................................................................27 Figure 15: The traceability model ...............................................................................................34

LIST OF ABBREVIATIONS

CIMO European Association of Fresh Produce Importers CAST Network optimisation tool CGA Citrus Growers Association DET Durban Export Terminal DFTP Deciduous Fruit Producers’ Trust EAN European Association of Numbering EHI EuroHandelsinstitute EU European Union EUCOFEL European Union of the Fruit and Vegetable Wholesale, Import and Export Trade EUREPGAP Euro Retailer Produce Working Group Good Agricultural Practices FPTP Fresh Produce Traceability Project Gariep SDI Gariep Spatial Development Initiative GMP Good Manufacturing Practices GLN Packhouse Location Number GTIN Global Trade Item Number HACCP Hazard Analysis and Critical Control Point ICT Information and Communications Technology IHS International Harbour Services NL The Netherlands ORPA Orange River Producers’ Alliance Paltrack Pallet Tracking software system PPECB Perishable Products Export Control Board SA South Africa SAFT South African Fruit Terminals SANTF South African Netherlands Transport Forum SSCC Serial Shipping Container Code SHAFFE Southern Hemisphere Association of Fresh Fruit Exporters TLB The Logistics Bureau USDA US Department of Agriculture VRS Vertical Reefer Stack

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1 INTRODUCTION

1.1 Objectives and results

The ultimate goal of the project is to improve the performance of the supply chain for citrus, deciduous and other fruit from South Africa to the Netherlands by technical and organisational innovations. In pursuit of this goal, the project is aimed at taking the first modest steps: • a global description of the supply chain • an inventory of current bottlenecks in the supply chain • an overview of current and past relevant studies • an agreement on and prioritisation of the bottlenecks by members of the industry • a pilot study proposal for global supply chain optimisation, to be carried out in a new project. 1.2 Approach

The results were achieved through a literature search and intensive interviewing. More than 20 managers in all layers of the fruit chain, on both sides of the ocean, were asked for a description of the chain and its current bottlenecks from their perspective. From these interviews the main developments and bottlenecks were derived. On 19 October 2000 a workshop was held in Cape Town, attended by 10 managers from the chain, most of whom had been interviewed before. In an open discussion, the bottlenecks were assessed and prioritised. At the end of the workshop, the attendants agreed upon the formulation of a pilot study. The formulation of that proposal does not form part of this project. The focus in this report is on the South African side, due to the indications that most benefits can be achieved by optimising this end of the chain, and in particular the chain segments between harvest and port of exit. Obviously any improvement in this part of the chain will affect the segments downstream. Integration with these downstream segments must therefore be considered within a detailed study of improvements in the logistics organisation of the chain. 1.3 Structure of the report

The report is built up as follows. The following chapter provides a description of the fruit producing sector, its exports and the logistics processes. In chapter 2 we list and summarize the main projects of the last years that were aimed at improvements in the fruit supply chain. Chapter 4 describes the options for improvement identified in the study. A qualitative evaluation of these options is provided in chapter 5, leading to a list of promising actions for the future. Chapter 6 proposes a new project directed at improving the availability and exchange of information in the supply chain. We summarize our findings and list the main recommendations of this study in Chapter 7.

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2 CHAIN DESCRIPTION

The South African fruit industry has experienced some tough times since deregulation three years ago – competition has increased and prices have dropped. Many fruit farms have been liquidated and exporters have disappeared as fast as they have appeared. 2.1 History

Under the old Agricultural Marketing Act of 1937 commodity control boards were established to modernise and strengthen farming after the 1929 depression’s adverse effect on many farmers [Mordant, 1996]. The Act gave the control boards statutory powers to fix the prices of their products and to gazette regulations for the overall control of the marketing of these products. As a result, a Deciduous Fruit Board and a Citrus Board were created in 1939 to control their respective fruit industries [Wenhold, 1997; Cartwright, 1977]. The Fruit Boards were preceded by the Fruit Growers’ Co-operative Exchange of South Africa Limited, which was registered as a co-operative society in 1922 to operate as an export and marketing agency for all the fruit growers in South Africa. The Exchange was made up of three “sub-boards”, namely for citrus, deciduous fruit, and pineapples, as well as seven working committees, including one for grading citrus and another for grading deciduous fruit. Although nearly every deciduous fruit exporter became a member of the Exchange within two years, only about fifty percent of the citrus exporters joined during the same period. This resulted in the registration of the South African Co-operative Citrus Exchange in August 1926. This Exchange later became the secretary of the Citrus Board [Cartwright, 1977]. The Boards were given monopoly powers over the distribution of farm products and were funded by statutory levies paid by farmers. At times, the Boards were helped out of financial difficulties by the government, although they were not directly funded by the state. At the peak of controls, 21 Boards existed [Mordant, 1996]. In 1987 the Deciduous Fruit Board formed Unifruco to act as its export agent. Similarly, Outspan was formed as the export agent for the Citrus Board. (The export agent does not buy the fruit from the producer – the producer remains the owner of the fruit until it is sold overseas.) Single-channel marketing still continued and there was no individual freedom that would allow each producer to decide about his own exports. However, producers were represented on the Boards by members who were elected from the various production regions [Wenhold, 1997]. A new Agricultural Marketing Act was passed in 1996, resulting in the disbandment of the Citrus Board and the Deciduous Fruit Board in 1997 [Jones, 1997]. This brought many uncertainties and an unfamiliar new dispensation. Deciduous fruit producers decided to combine their forces in the Deciduous Fruit Producers Trust (DFPT) [Wenhold, 1997]. The main focus of the Trust is research and development, plant improvement and certification. The DFPT also acts as a mouthpiece for and representative of all producers of deciduous fruit. Similarly, the citrus producers formed the Citrus

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Growers’ Association (CGA). The DFPT established a Deciduous Fruit Exporters’ Forum, which was transformed into the Fresh Produce Exporters’ Forum in 1999 to include exporters of all fresh produce commodities. The members of the Forum subscribe to a Code of Conduct [DFPT website]. The Perishable Products Export Control Board (PPECB) was established in 1926 to ensure that all exporters receive a fair allocation of shipping space, to formulate temperature regimes and treatments for various products, and to ensure that these were applied throughout the transport chain to the overseas market. The PPECB is also responsible for the export quality inspection of agricultural products. In 1983 the PPECB became the first Board to be privatised [PPECB website]. 2.2 The Present

Since deregulation, the quality reputation of fruit from South Africa has been tarnished and prices have dropped [Rawborne-Viljoen, 1999]. South Africa even lost its price leadership over Chilean fruit. Producers were ill prepared for operating in the new deregulated environment. They lost the main advantages of the single-channel system, namely uniform quality and bargaining power, which ensures price stability [Burnett, 1999]. One of the main causes of the drop in price was the flooding of the European Union (E.U.) markets with 2nd grade fruit. As a result, class 2 fruit has now been banned from export to Europe. There is a worldwide oversupply of fruit, which tends to reduce fruit to a commodity. It has been shown that only top quality fruit of the right variety and size will earn good prices [Rawborne-Viljoen, 1999]. It is estimated that the South African table grape export industry will lose close to R1 000 million this year due to unfavourable climatic and marketing conditions. Of this amount, R800 million is related to low prices in the market [Meintjes, 2000]. In the current market place the buyer is in control. This is particularly true for buyers of the major international supermarket groups, who have further strengthened their position through recent mergers and acquisitions [Rawborne-Viljoen, 1999]. There are probably only 50 customers worldwide that handle more than 85% of South Africa’s fruit exports. In the UK, for instance, where 85% of South Africa’s seedless grapes are sold, six big retailer customers handle 80% of sales [Meintjes, 2000]. In the meantime traditional wholesalers have seen a further drop in market share and this trend is expected to continue in future years. The returns from wholesale markets are substantially less than those earned from supermarkets, which means that a producer who is not linked into a major supermarket programme through his exporter will struggle to realise adequate returns for his fruit [Rawborne-Viljoen, 1999]. It is therefore essential to use reliable and knowledgeable exporters who are linked to supermarket programmes and have intelligent marketing strategies [Burnett, 1999]. As a result of deregulation, the competition and complexity in the industry increased dramatically. Instead of a single exporter for citrus and deciduous fruit respectively, there are now 200 exporters of citrus, deciduous and subtropical fruit who operate in direct competition with one another. (Ninety percent of the citrus, deciduous and subtropical fruit is handled by 22, 44 and five exporters

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respectively [Treptow, 2000a].) In addition, they compete with South Africa’s traditional Southern Hemisphere competitors, namely Chile, Argentina, Brazil and New Zealand, as well as European Union and North American produce [Meintjes, 2000]. Individual exporters protect information that gives them a competitive advantage, such as their volumes and markets. Only total export volumes with origin and destination harbours, but not the markets, can be obtained from the PPECB by their members. If a producer gives his fruit to more than one exporter, he is likely to end up competing against himself. This season, 26 South African brands were recorded in one week on the Dutch market, some of which had never before been noticed in the market. At one stage this season, 55 exporters delivered fruit to the central cold store in the Hex River Valley from 200 growers in the area. Most of these exporters had more than one brand, in total more than a 100 brands from one area at one specific time in one cold store. The number of different exporters caused severe pressure on the packing, logistical and port infrastructure. This led to a decline in efficiency levels in ports and cold stores, as individual exporters’ fruit has to be handled and shipped separately [Meintjes, 2000]. Better market control, good logistics, quality fruit and top information are needed for South Africa to regain its position in the fruit market. Market intelligence needs to be gathered and a market and promotion strategy formulated in order to re-establish the South African brand name and develop niche markets. Market, orchard, post-harvest and logistical information needs to be disseminated to the industry and upgraded into knowledge [Treptow, 2000a]. Luckily, there are positive signs – the DFPT has recently launched a comprehensive programme, Vision 2010, to ensure that South African fruit again becomes a preferred item on overseas consumers’ shopping lists. In the Orange River and various other areas the producers have joined forces to improve production and marketing [Finance Week, 2000] (see Section 3.4). At a recent meeting a group of South Africa’s leading citrus producers, who account for about 80% of the export crop, decided to establish an organisation to co-ordinate future exports to restore the citrus industry to profitability [West, 2000]. The new organisation will not be involved in overseas marketing, but will compile a marketing plan for the various market sectors. Quality and product protocols will be implemented and export agents will have to qualify for accreditation. 2.3 Fruit-producing regions

The climate in South Africa is ideally suited to fruit production. A wide range of fruit is grown in a number of geographically dispersed areas (see Figure 1). With citrus fruit production in the South African winter and deciduous fruit production in the summer, a constant flow of fruit is available for export. [Dole, n.d.]

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Figure 1: South Africa's fruit producing regions

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Apples & pears The two main production areas of apples and pears are the Western Cape and the Langkloof in the Eastern Cape. Pears are harvested from January to May and apples from February to June. Grapes The major growing areas for grapes are in the Orange River area in the Northern Cape, and the Hex River, Berg River and Olifants River valleys in the Western Cape. These areas combined produce a constant supply of grapes from November to May. Stonefruit Stonefruit is mainly grown in the Western Cape. The deciduous season in South Africa starts with the picking of apricots and nectarines in late November, followed by plums, which are picked until May. Citrus The citrus areas are widely spread and are found in five of South Africa’s nine provinces, namely the Western Cape, Eastern Cape, KwaZulu-Natal, Mpumalanga and the Northern Province. The season starts in March and continues until late September. Subtropical Mangoes, avocados and litchis are produced in the Northern Province and Mpumalanga. Pineapples are produced in KwaZulu-Natal and the Eastern Province. The litchis are harvested from December to early February and mangoes from January to March, followed by the avocados from March until August. 2.4 The citrus and deciduous fruit trade

In 1999 export of citrus and deciduous fruit1 to the Netherlands reached a volume of 194 300 metric tonnes [USDA, 2000]. This constitutes 17% of the total export of these fruits of 1 285 098 tonnes for that year. From 1998 to 1999 total exports have grown by 9% whereas exports to the Netherlands have shown an increase of 45%. The expectations for 2000, however, are different. The USDA states in its semi-annual report [USDA, 2000] that exports are expected to drop, because of stricter grading requirements and the impact of the floods on the northern citrus growing areas of the country. A more detailed look into fruit categories is useful as it provides more insight into the relative importance of each product. If we disaggregate the overall picture for 1999 towards product categories, we find the following (Table 1):

1 Includes the categories apples, pears, table grapes, lemons, grapefruit and oranges. Not included in this overview are the

subtropical products.

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Table 1: SA fruit exports (Source: USDA, 2000)

(Unit: metric tonnes) Export SA-NL* Export SA – all regions

1998 1999 1998 1999

Apples 30 418 33 507 27 3551 25 0817Table grapes 13 037 30 141 14 8759 18 3716Pears 9 090 22 564 12 5887 11 3872Oranges 34 556 75 329 44 3311 56 1650Lemons 2 709 2 136 4 1991 6 0056Grapefruit 44 358 30 713 14 0471 11 4987

Total 134 168 194 390 117 3970 128 5098

* SA = South Africa; NL = The Netherlands

These figures are interpreted below (Figures 2, 3 and 4). • Figure 2 shows that the export flow to the Netherlands differs between products, not only in

absolute tonnage terms, but also in terms of the share of exports to the Netherlands relative to all consuming regions in the world.

• The growth of exports per product is also of interest. Although one must be careful in interpreting

growth figures (which may be due to variations in harvest volume), the flow of table grapes, oranges and pears has shown a spectacular growth on the route to the Netherlands. In Figure 3 this trade is compared to the total trade to the Netherlands. This comparison shows that growth on the specific Dutch route is substantially higher than overall growth for these three products. This implies that the Dutch market2 for these products is strong.

• Figure 4 examines the importance of the Dutch route for different segments of South African

exports, by comparing the volume of exports to the Netherlands with the respective growth for each product. Those with a high volume, high growth and a relatively high share of the total South African fruit exports will be of strategic importance to fruit producers. As expected, this applies to pears, oranges and table grapes. Interestingly, grapefruit is in the uncomfortable position of a decline of exports, despite a reasonably high volume and share of total exports.

2 Note that the trade with the Netherlands includes reselling and export to other countries in Europe.

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2.5 Routing of flows

Citrus fruit is exported mainly through Durban (55%), with smaller quantities going through Cape Town (25%), Port Elizabeth (10%) and Maputo (10%) (see Figures 5 and 6). These percentages are approximations and could vary slightly from year to year. Figure 5 shows the number of pallets of citrus fruit from each export harbour to the various continents. The number of pallets of citrus fruit from each export harbour to the harbours in Belgium, the Netherlands and Germany is shown in Figure 6 – the exports to harbours in the UK, France and other countries not neighbouring on the Netherlands are not shown. Deciduous and subtropical fruit are exported almost exclusively through Cape Town, with minute quantities going through Port Elizabeth and Durban (see Figures 7 – 10). Fruit is transported mainly by road to the harbours, except for some of the fruit from distant locations, such as table grapes from the Orange River and avocados from Mpumalanga, that is transported by rail.

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Figure 8: Deciduous exports to Belgian, Dutch and German harbours 1999

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Figure 9: Subtropical exports 1999

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Figure 10:Subtropical exports to Belgian, Dutch and German harbours 1999

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2.6 Outline of the logistics process

In this section the logistics activities and transport options that exist along the chain are discussed. A typical characteristic of the producers’ end of the chain is the ‘push’ nature of the product flow. In contrast to the segment downstream of the decoupling point where deliveries are made from stock to order (at the resellers in Europe), the flow volume is determined by the harvesting process. The sales agent will not start selling the produce until it is allowed to enter the country by Customs/phytosanitary control. It may be sold from stock in the harbour or outside. Until that moment, the chain is ‘push’-oriented. Based on an estimate of the demand, competing supplies and general price levels in different areas and different contractors, the exporters sends the produce to different destinations and informs the agent that the stock will arrive. The consignee serves as an ‘end-of-chain’ since he determines a commercial, legal and logistics ‘decoupling point’. To sell their produce, from a performance perspective, only produce and package characteristics (throughput time, damage) and total cost price are important. Beside these characteristics, the operational performance of the logistics supply chain before the agent’s storage facility is not relevant for the performance of the chain from there towards the market. The produce is sold to wholesalers or retailers and transferred to their distribution centres by the European reselling agent. From the reselling agent’s storage facility, the chain is largely ‘pull’-oriented. The magnitude of the flows can be controlled only to a limited extent, and stocks can primarily be found at the port cold stores (but also to a limited extent at the picking location and at inland cold stores), where the products lie waiting for further shipment. Figure 11 sketches the main segments of this chain.

Stocks at port Stocks at port and

at reseller

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± 7 days from harvest to port

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Figure 11: Main segments in the cold fruit chain

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The time path shown does not include the time spent in the warehouses, which is about four weeks. The figure indicates that products are underway for around four weeks (with the exception of extreme peaks in production, when a limited volume of product may be moved by air transport instead of sea reefer ship). The inland leg takes a relatively long time, due to the many post-harvest processing activities that have to take place. According to the managers that were interviewed, improvements in the control and co-ordination of these landside activities could potentially result in a much lower lead time of around two days. Finally, it deserves to be noted that the reliability of the pictured lead times varies considerably and is said to be the lowest for the landside leg. Transport services The typical steps in the export chain from the producer in South Africa to the client in Europe, including the related transport options, are shown in Figures 12 and 13 for citrus and deciduous fruit respectively. Although Figure 13 shows the various transport options for the export of table grapes from the Orange River specifically, it is representative of deciduous fruit exports in general. The main difference between the chains for deciduous and citrus fruit is that deciduous fruit is normally cooled in the production region before sending it to the harbour, whereas citrus fruit is sent “warm” to the cold store in the harbour. This results in a variety of transport options from the production region to the harbour for deciduous fruit as can be seen in Figure 13. Far fewer transport options are utilised at present for citrus fruit (see Figure 12). No statistics were available at the time of the study about the split between rail and road transport, but typically a very small percentage of fruit is moved by rail. In order to maintain the cold chain, the fruit has to be loaded into a container if transported by rail. If the travel time is more than two or three hours, refrigerated trucks are used for deciduous fruit. Citrus fruit is typically transported on flatbed trucks (non-refrigerated) unless it has been cooled at an inland cold store and is transported over a long distance. Flatbed trucks are also used for deciduous fruit over short distances.

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Pick

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Figure 12: Export chain, citrus fruit (Source: Pienaar, 2000)

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Figure 13: Export chain, deciduous fruit (Source: Safexport Corporation, 2000)

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Information systems Paltrack and AgriHub presently manage information flows. AgriHub was founded in 1992 focussing specifically on electronic integration for the agricultural sector back in 1994. It pioneered electronic documentation and information flow between producers and the local fresh produce markets. At that stage the Internet was not yet widely available, and an in-house developed platform was used successfully to publish daily market prices on-line and to transmit documentation. During 1999 Imperial Transport Holdings acquired a 51% shareholding in the company. In October 2000 the shareholding was transferred to Synchrony, and an additional 15% was acquired. AgriHub currently operates from its offices in Pretoria and Cape Town. Its mission is to provide the fruit export industry with globally competitive supply chains. The company supplies its technology solutions through the Paltrack division and its management solutions through AgriHub. 90% of all fruit exported from South Africa passes through Paltrack’s stock management systems, which provide for full radio frequency bar code scanning, pallet tracking and stock management. An information flow in the supply chain is generated by the company’s own management systems at every level of movement and used for full tracking and tracing, as well as value added solutions such as EDI, data interpretation, data warehousing and fourth party logistics services. Potential customers are mainly overseas depots, agents and retailers. Three installations in Europe and the East have been successfully completed recently, with tremendous interest from the rest of the industry. 2.7 Current challenges

Until three years ago, the South African fruit producer market was heavily regulated. Two large export agents, Outspan and Unifruco, acting on behalf of the Citrus Board and the Deciduous Fruit Board respectively, controlled all distribution channels and maintained high quality standards. Three years ago, liberalisation introduced several problems not known before, such as: • Operational complexity

Produce of some 200 exporters must be handled, all having multiple destinations and extended product ranges. Keeping such flows separated in stock requires more storage and/or handling space. Especially in rush periods, separate flows get mixed up.

• Information complexity

The increase in the number of organisations also means an exponential increase in communication needs. Existing sector information systems are not geared to a situation of this nature. Operational and strategic information, formerly in the hands of one single entity (for either deciduous or citrus), is now held by many different sources ruled by different interests.

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• Incentive/accountability complexity

Where before the chain was under central control and management, different managers, bilaterally tied by contracts and operational transactions now govern it. A focus on local performance may hinder chain performance. There is not yet a well-developed system to hold business partners directly accountable for their non-performance.

Since the ports are still in process of being privatised, many key players seem to have reason to be holding back investments, waiting for the political and economic situation to clarify. Over the past few years, the Orange River area in particular has emerged as a major production area. Stretches of desert are turned into vineyards and tonnes of table grapes find their way to the Cape Town harbour, 800 kilometres away. The success of the development projects in the area is such that the largest problem for the producers seems to be the area’s distribution capacity. With its short peak season of only a few weeks, investing in dedicated capacity is largely unaffordable. Using the existing channels and facilities, the flow of Orange River grapes consumes all available cold storage, refrigerated truck and road capacity as well as that of the fruit terminal in the Cape Town harbour. The area is continuously looking for new opportunities to bring its vulnerable and precious produce to its markets. Some other general developments also influence the behaviour of the companies in the cold chain. One of the most eminent is the occurrence of so-called food scares in Europe. As a result of the constant pressure from lobbyists and occasional food scandals, consumer concern is high around human diseases (meat), non-human disease control (meat and fruit), non-toxic residuals (hormones in meat) and toxic residuals (e.g. insecticides on vegetables and fruit). Consumers increasingly take an interest in the production process or the origin of the products that they buy. 2.8 Symptoms for improvement potential

Call for quality improvement Wholesalers and retailers call for a quality improvement of the produce they receive. It is generally felt that quality has deteriorated over the last years. Logistics performance at end of chain: Incorrect product type/quality Consignees of the produce in the Netherlands claim that the produce coming off the ship is often not what they expected. Bills of lading do not conform to the actual ship’s load. As a result, they cannot plan their sales properly. Pallets for the UK are unloaded in Rotterdam. For the same exporter or product type, one day’s shipment sometimes contains pallets with an earlier harvest date than the previous week’s shipment.

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Logistics performance at end of chain: Incorrect number of pallets The same that holds for the product type, also holds for the number of pallets. The number of pallets of produce of a given type/brand often does not conform to the declaration. Logistics performance en route: Waiting times at terminals Carriers claim that, at terminals both in South Africa and in Rotterdam, they have to wait longer than necessary. This holds true for both seaside and landside transport operators. Trucks at the South African terminals sometimes have to wait too long. This is not only due to the traffic congestion on the way to the harbour, but also to the congestion at the terminal quays. If the produce is transported in a reefer truck, the quality is not so much at risk, but truck utilisation is low, resulting in a shortage of reefer trucks. The problem is bigger if conventional trucks are used and the produce is standing in the sun, warming up to unacceptable temperatures. In both instances the truck operator loses income due to low truck utilisation. Sometimes the ship has to wait for produce to arrive, which can be very costly if demurrage has to be paid. (Demurrage ranges from US$ 6 000 to US$ 18 000 per day, depending on the week of the year.) Furthermore, also at Dutch terminals trucks claim that they have to wait unnecessarily long: the terminal will only start searching for their load once they have physically arrived. Logistics performance en route: Too late delivery Trucks often arrive too late at the terminal for the terminal operator to handle them efficiently. The Cape Town terminals do not operate 24 hours per day, but with advance notice special arrangements can be made. Logistics performance en route: Data capturing lead-time During rush hours terminal operators in South Africa use more than 30% of their personnel capacity for data capturing, a task which could have been done on the premises of the producer or the packing station, both non-bottleneck locations. Administrative performance: Lack of traceability (‘connectivity’) Faulty deliveries at the end of the supply chain cannot be traced back to the producer. Within South Africa tracking is made possible to a large extent by using Paltrack, but outside South Africa Paltrack is not used. Administrative performance: Faulty documentation and labels At the end of the pipeline, produce often appears which does not conform to the description on the label or on the documentation. If this is the case, the produce is not allowed into the European Union. Especially with regards to produce originating from Durban, the shipping line Seatrade recently forbade its captains to sign for ‘free on board’ cargo. The documents frequently do not represent what is inside the ship, and often arrive very late. In general, if the documents arrive more than a week after the ship has left the harbour, the consignee knows that ‘something fishy’ is going on.

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3 CURRENT AND PAST IMPROVEMENT PROJECTS

In this chapter an attempt is made to summarise the current and past improvement projects that were mentioned during the interviews and of which information could be obtained. 3.1 Capespan projects

Through the years Capespan (formerly Unifruco and Outspan) commissioned many studies to improve the efficiency of the local and export fruit supply chain. The nature and results of these studies are mostly confidential. The most recent studies were Logtrack 2000 for exports through Cape Town harbour and a similar study for exports through the Durban harbour. Logtrack 2000 [Source: Bouwer, 2000] The purpose of Logtrack 2000 was to reduce the logistics costs for Capespan in the 2000 deciduous fruit season, and to improve the effectiveness and efficiency of the logistics process in the Western Cape. The Logistics Bureau (TLB) performed an audit on the Capespan supply chain during April and May 1999, and specific opportunities for improvement were identified. Project Logtrack 2000 was launched from the findings and recommendations of this audit. The project structure consisted of various task teams, and best practices were developed by each team in the design phase. Key aspects of each task team were as follows: • Depot task team: To improve data integrity, and to prevent unnecessary inter-depot transfers.

Five area logistics co-ordinators were appointed at depots and International Harbour Services (IHS). Paltrack was modified for quicker response and to override cold-by dates. Extensive logistics awareness training was performed at depots.

• Vessel loading: To load a vessel as a project with emphasis on planning, scheduling, one-person responsibility, cost management and performance reporting. Setting a 48-hour milestone for fruit specification.

• Transport planning: To manage and stabilise the flow of vehicles to IHS; to negotiate better transport rates and rationalise number of transporters. Greater percentage direct loading. To design and implement vehicle scheduling system and load-out system at depots.

• Port facilities: To implement a vehicle flow management system on IHS site. Implementing quayside vessel loading teams.

• Network modelling: Use network optimisation tool (CAST) to identify most efficient depots and routes to get the fruit to IHS.

• Training: All solutions were accompanied by training. Awareness training was provided for a broader view of the supply chain and the impact on each job.

• Dashboard: To publish critical performance parameters of the Capespan supply chain on the intranet.

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Durban Export Terminal (DET) study [Source: Speedy, 2000] A study similar to Logtrack 2000 was done for DET. It looked at the flow in and around Capespan’s Durban terminal with the view of improving the efficiency of the export fruit supply chain. International Harbour Services (IHS) wind study [Source: GPB Consulting, 1996] IHS operates from berths B, C & D in the Cape Town harbour (see Figure 14). In 1996 IHS commissioned GPB Consulting to conduct a study on ship loading delays caused by wind after experiencing large delays in 1994, 1995 and to some extent in1996. The biggest delays due to wind occur in December to February, i.e. the period during which stone fruits and grapes are being loaded for export. These fruits have a short shelf life and a relatively short marketing (sales) period. The data suggested that an average wind speed of more than 65 km/h over a two-hour period is likely to cause a delay. Short delays (say less than 24 hours) are disruptive and incur additional shipping, harbour and labour costs, but have no quantifiable marketing penalty cost. Longer delays (more than one day) start to incur significant costs that could include ship demurrage cost, labour costs at the port, possible transfer of fruit between inland cold stores, and lost market opportunity sales. The analysis showed that at least one and maybe two two-day delays could be expected between January and March every year, affecting three to six vessels at a cost of R1,4 million each (in 1996 terms). A long list of recommendations were made for the short and medium term to reduce the effect of the wind. These included:

• using D-berth instead of B or C if the weather forecast gives any indication of high wind • ordering ships that are wind-loading friendly for loading during January and early February • replacing the cranes with new one that can load safely at higher wind speeds • moving the fruit terminal over time to a different part of the harbour • enclosing sections of the quay to protect personnel and fruit from the elements during loading • not taking in any fruit for cooling or re-cooling during weeks 1 – 8 to reserve space for storing

fruit when shipping is delayed setting up a tactical computerised decision framework to be used by a senior decision workgroup for determining the cost/benefit of the various options when a vessel is delayed due to the weather.

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Figure 14: Port of Cape Town layout

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3.2 Cape Town harbour developments3

A Draft Development Framework for the Port of Cape Town was distributed to its stakeholders for review in June 2000. The two major thrusts that will govern future directions for the Port of Cape Town were identified as the lack of appropriate infrastructural capacity to handle current and future port operations (especially in the container and fruit terminals and for ship repairs) and the need to integrate the port with the surrounding city. The preferred development option is a northeast shift of the port with limited seaward and landward expansion, and modernisation of existing basins, berths and back-up areas. This includes the expansion of the container terminal and the relocation of the current fruit terminal to a newly developed combi-fruit terminal in a section of the current container terminal (see Figure 14). Currently fruit is exported from berths B, C & D by IHS and from berth E by South African Fruit Terminals (SAFT). The E-berth has only been in use for fruit exports since deregulation, in response to pressure from independent exporters for a non-Capespan operated export facility. The present fruit terminal experiences various limitations: • The E-berth has no quayside cold storage facility. The quayside cold storage facilities provided by

IHS cannot cope with present industry demands due to the advent of order pickings, i.e. several fruit owners with different order logistics occupying a single cold store. This has led to 75% of the fruit being loaded directly from the truck into the vessel. Racking systems in the cold store would allow for order picking, since it allows access to all content at all times. However, the rationalisation of Portnet land has led to a philosophy of keeping warehousing functions off the immediate quayside.

• The strong southeasterly winds during the fruit export season cause delays for vessels being

loaded, especially at berths B and C, and the salt spray damages the fruit. • Commercial land developments adjacent to the fruit terminal will create operational restrictions

within the port and put serious pressure on the transport links to the fruit terminal. The future vision is to relocate all fruit exports to a section of the current Container Terminal. The orientation of this particular area allows for the loading of bulk fruit in strong southeasterly wind conditions. Adjacent land is available (Eskom site) to develop modern cold stores and facilities for container stuffing/de-stuffing. The adjacent Blue Store can be readily converted into a racking system type cold store. This will give a capacity of 17 500 pallets, all of which will be available for loading/unloading. A Vertical Reefer Stack (VRS) will be constructed as additional reefer storage and at the same time it will act as a wind wall, ensuring that at least two berths will be operational at all times during strong southeasterly conditions. The VRS will provide better productivity rates during

3 [Source: Portnet, 2000]

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the handling, storage and loading of reefer containers. The relocation is dependant on, amongst others, the outcome of an Environmental Impact Assessment for the expansion of the Container Terminal. Some of the fruit terminal operators are, however, of the opinion that the proposed site will not be able to handle the increasing volumes of fruit exports, especially since fewer berths than are currently in use will have to be used for fruit and other breakbulk cargo. The land area currently occupied by the fruit industry (B, C, D & E berths) can be re-developed into non-core port business ventures such as a cruise liner terminal, small craft basin and exhibition facilities [Portnet, 2000]. On 3 November 2000 Portnet published the following request for proposals for revamping the Blue Store: “The container holding store (Blue Store) in the Port of Cape Town has become available to be leased and converted from a porthole container facility into a world class cold store for palletised fruit. This will be a phased conversion until the Conair boxes have been phased out after ± 3 years” [Cape Argus, 2000]. 3.3 Vision 2010 (Deciduous Fruit Producers’ Trust)4

The present status of the fruit business is that of an oversupplied market situation worldwide. The Deciduous Fruit Producers’ Trust (DFPT) initiated Vision 2010 to establish a process to guide the South African deciduous fruit industry through the present difficult situation. During working sessions with industry leaders over a four-month period, the following twelve main driving forces behind supply and demand were established:

• Identification of market preference • Statistics and business information • Capital availability • Market access • Infrastructure and logistics • Government support • Transformation • Technology • Industry guidelines, standards and protocols • Dissemination of information • Training and skills development • Promotion.

A list of actions was drawn up to address the driving forces. These include:

4 [Source: Treptow, 2000b]

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• Initiating the development of a comprehensive industry information system, including production, shipping and market information.

• Disseminating market, orchard, post-harvest and logistical information. • Developing and publishing a core set of orchard and post-harvest procedures for the business:

o EUREPGAP-based orchard procedures o PPECB GMP procedures incorporating HACCP procedures o PPECB fruit distribution procedures o Involvement in the international EAN traceability system development

• Identifying and evaluating all available training and skills development facilities and designing a long-term training and skills development programme for the fruit industry.

• Establishing a working group to determine the present and future infrastructure and logistical needs, including port facilities, cold storage, refrigerated transport, and logistical and forwarding infrastructure.

• Structuring and developing need-driven research actions, including technology development for the entire business.

3.4 Orange River Producers’ Alliance (ORPA) initiative5

In late 1999, the Northern Cape provincial Department of Economic Affairs and Tourism commissioned a consortium led by the CSIR to carry out sectoral economic research as part of a broader project that was meant to inform the formulation of a provincial economic development strategy. The study looked at the agricultural, agro-processing and tourism sectors as part of a short-term initiative designed to identify project-level economic opportunities that could be promoted by the Department. The results of this study were tabled by the CSIR in July 2000. One of the major opportunities identified was the further development of the table grape, raisin and wine industries along the Lower-Orange River. In particular, the study noted the progress made by the table grape industry in establishing a globally competitive position in the export of table grapes to Europe. However, the study also revealed that the future growth of the industry is seriously threatened by logistical inefficiencies and transport capacity constraints. Indeed, it was anticipated that serious difficulties would be experienced during the 2000/2001 season in so far as meeting the demand on the existing logistics and transport infrastructure was concerned. The emergence of the table grape industry in Southern Namibia will place even greater stress on transport and logistics systems. Based on the findings of the CSIR report, the project manager of the Gariep Spatial Development Initiative (SDI) has engaged with the organised table grape industry in the form of the Orange River Producers’ Alliance (ORPA). ORPA is a section 21 company established for the purpose of

5 [Source: Gariep SDI, 2000]

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promoting and developing the table grape industry. Ninety five percent of producers representing ninety percent of table grape production are members of ORPA. Unless the logistics and transport capacity problems can be addressed timeously, the prospects for further growth amongst established table grape producers as well as the development of new entrants into the industry will be severely diminished. In addition, the prospects for the development of new high-value agricultural enterprises in the region will also be jeopardised. Agreement was therefore reached with ORPA that the Gariep SDI will provide support for: • the development of a regional agri-logistics strategy and plan • the provision of a consultant to co-ordinate the implementation of the plan for the 2000/2001 table

grape season • a post-season evaluation of the agri-logistics plan and revision of the plan where necessary. In addition to the above, growth in the industry needs to be accompanied by the development of new markets so as to diversify the target market. Related to this, the industry is cognisant of the need to develop quality standards for producers and exporters so as to ensure the supply of consistently high quality produce to targeted markets. It is therefore necessary for ORPA to develop a strategic marketing plan. The scope of the initiative includes (but is not necessarily limited to) the following: Agri-logistics strategy and plan • Define strategic intent of ORPA with reference to logistics systems and management • Assess status of and define changes to logistics profiles of producers and exporters • Identify the most appropriate mix of road and rail transport • Enumerate and devise a strategy to overcome refrigerated transport capacity constraints and

identify appropriate mix of road and rail transport • Establish road transport model and develop appropriate protocols • Determine the scope for optimising the utilisation of the Kakamas and Upington railheads as well

as the possibility of accessing the Saldanha-Sishen railway line • Establish a rail transport model and develop appropriate protocols • Investigate the potential of using alternative ports to reduce vulnerability to delays at the Port of

Cape Town • Establish a sea freight model and develop appropriate protocols • Develop a cold store model and appropriate protocols • Engage producers, transport operators, cold store operators, exporters and ports authorities to

negotiate protocols, standards and rates • Identify market, logistics management and food safety information systems requirements and

advise ORPA on same

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• Assess and document agri-logistics profiles, requirements and key action steps required to improve agri-logistics management for other exporting agricultural sub-sectors in the Gariep SDI project area.

Implementation of agri-logistics strategy and plan • Co-ordinate the implementation of the agri-logistics strategy for table grape producers during the

2000/2001 table grape season • Ensure compliance with agreed protocols by all relevant parties • Design and establish a logistics management system capacity within ORPA. This is seen to be an

essential part of this phase of the initiative and should ensure the transfer of technology, experience and capacity to ORPA.

Review and amendment of agri-logistics strategy • Carry out post-season review of the agri-logistics strategy and plan and make amendments for

subsequent seasons. Strategic marketing plan This will be done as a separate assignment. 3.5 Fresh Produce Traceability Project (FPTP) 6

Traceability systems are used for accurate and timely identification of products, as well as their origin, location within the supply chain and efficient recall. Furthermore, they help determine the origin of a food safety problem, comply with legal requirements and meet the consumers’ expectations for the safety and quality of purchased products. Traceability requires a verifiable method to identify growers, fields and produce in all its packaging and transport/storage configurations at all stages of the supply chain. Identification numbers must be applied and accurately recorded, guaranteeing a link between them. The EuroHandelsinstitute (EHI), European Association of Fresh Produce Importers (CIMO), Euro Retailer Produce Working Group (EUREP), European Union of the Fruit and Vegetable Wholesale, Import and Export Trade (EUCOFEL) and Southern Hemisphere Association of Fresh Fruit Exporters (SHAFFE) recognised the necessity to adopt common identification, communication, and traceability standards. Under the co-ordination of the European Association of Numbering (EAN) International, they have established the Fresh Produce Traceability Project (FPTP). The project team developed the “Fresh Produce Traceability Guidelines” (FPTP guidelines) to enable efficient identification of sources of defects, as well as the identification and separation of non-defective produce. The DFPT and other members of the South African FPTP workgroup also participate in this project.

6 [Source: EAN International, 2000]

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The adoption of the FPTP guidelines is voluntary. They define the minimum requirements for the traceability of fresh produce. The aim of the guidelines is to provide a common approach to tracking and tracing of fresh produce by means of an internationally accepted numbering and bar coding system – the EAN•UCC system. It is important to distinguish between the terms tracking and tracing: • Product tracking is the capability to follow the path of a specified unit of a product through the

supply chain as it moves between organisations. Products are tracked routinely for obsolescence, inventory management and logistical purposes. In the context of the FPTP guidelines, current interest focuses on tracking produce from the grower to retail in unmodified logistics units.

• Product tracing is the capability to identify the origin of a particular unit and/or batch of product

located within the supply chain by reference to records held upstream in the supply chain. Products are traced for purposes such as product recall and investigating complaints. In the context of the FPTP guidelines, current interest focuses on tracing produce in unmodified trade units from retail to grower.

The traceability model (Figure 15) represents: • the physical flows (arrow) in the fresh-produce supply chain. Only the steps where a

transformation takes place are taken in account. • the information flow (broken arrows) that accompanies the physical flow to assure traceability. The identifier used on a trade unit (e.g. box or crate) must contain the Global Trade Item Number (GTIN), Packhouse Location Number (GLN), packaging date, and the lot/batch number. The GTIN includes information such as the product variety, grade, storage, size, treatment, growing method, etc. The identifier used on a logistics unit (e.g. pallet) must contain the Serial Shipping Container Code (SSCC), GTIN and count of trade items contained in the logistics unit, GLN, lot/batch number, variable weight and packaging date. 3.6 Packaging and cooling 7

Hortec, a subsidiary of the DFPT and the former Services Division of Unifruco Research was approached by a group of concerned exporters to conduct an investigation into the variables in the post-harvest packaging of table grapes. (Hortec,.) A workgroup to discuss matters pertaining to this issue was formed (“the Cool group”) and the main objectives were identified as follows: • To optimise the existing infrastructure in line with market requirements • To standardise carton and internal packaging for SA circumstances

7 [Source: Gütschow, 2000]

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• To increase shelf life, for example: dry stems, free moisture in carton, berry crack, etc. The following variables are being addressed in this scientific project: 1. Trials will be performed in two different areas. 2. Standard Iso Pallet to be used. 3. 4,5 kg carton (Filacell, Del Monte, PWS (Peter Worthington-Smith and Brower, Conventional

closed-top carton). 4. Liners (non-perforated conventional bag, macro perforated bag, micro perforated bag). 5. Absorbency materials (two different types or standardise to one according to budget – suggestion

to outsource this). 6. Plastic carry bag (standardise). 7. Uvasys and Double phase Chilean Oskovid SO2 sheet, American sheet. 8. Grapes sensitive to SO2-burn, botrytis, berry crack, discolouration etc. (Thompsons Seedless and

Red Globe). 9. Forced air conventional cooling preceded by pre-cooling or not (area-dependant). 10. Storage times (5 wk, 5 + 1 wk, 7 + 1 wk). 11. Full quality evaluation. 12. Temperature monitoring by PPECB (relative humidity readings, etc.).

GROWER PACKHOUSE RETAILER

Human readable field bin label

Batch traceability

Trade unit label

Logistics unit label

TRACKING:

FARM SUPPLIERBATCH PACKHOUSE RETAILER

TRACING:

SUPPLIER

SUPPLIERBATCH

Figure 15: The traceability model (Source: EAN International, 2000

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4 OPPORTUNITIES FOR IMPROVEMENT

This chapter summarises the results of the 20 interviews with managers all along the chain that were held to prepare this report and the workshop. During the workshop these findings were discussed and further commented upon. 4.1 Cold chain quality

Product quality is a particular chain performance argument. In the end, quality is what the consumer perceives as such. All steps, all operators and all enterprises along the chain have a distinct influence on this consumer-perceived quality. That is: optimisation of product quality is a common goal requiring a common effort. The Dutch retailers that were interviewed took an interest in directly approaching, selecting and influencing the growers. It is known that UK retailers are doing the same already. Quality of the produce does not improve along the logistics path, so a good start is to require and reward high quality standards at the growers. Quality indicators differ per product type. For fresh fruits taste is most important, followed closely by texture and looks. These could be named the sensory quality aspects. Another important quality indicator is the authenticity. A few Dutch retail organisations believe in regional specialisation and the general idea that products should be produced in the region that is most suited for the crop. Related to authenticity is food safety. This is however a generic requirement, it is not a distinguishing quality indicator. For both quality aspects, sensory quality and authenticity, the logistics chain between the grower and the consumer should focus on preserving the original quality as well as possible. Some simple requirements for a theoretically perfect quality performance are as follows: • the produce should be cooled down immediately after harvest • the produce should be packed into the final consumer package immediately after cooling • the product itself should not be handled after that • the cold chain should not be broken. As to some technical aspects (quality degradation during transport and storage, the best cooling techniques) there appear to be several knowledge needs. For instance, growers indicated that research is still being done on whether it is better to cool deciduous fruit very quickly to low temperatures (as is claimed by some exporters) or more gradually. In the technical area there is still room for innovation and research. However, those considerations fall outside the scope of this project. A technical quality-related question which is more logistics-oriented is the role of the reefer container. Some producers and exporters claim that it is best for the product to be packed as soon as possible into a container that is not opened until it arrives at the distribution centre of the final outlet. Indeed, the cold chain is unbroken in this case. The quality advantages and disadvantages of containerised and

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non-containerised transport may differ per region and season. If there is a lack of reefer trucks or cold storages, containers will have a higher appeal. Outside peak season and rush hours, the transport from cold storage to the harbour terminal in uncooled trucks over short distances, as is common practice, may even be acceptable. On the other hand, no reefer ship sailings may be available outside the peak season or to the particular destination, whereas regular container ship sailings probably will be. Another seasonal problem follows from the fact that in peak season the terminal capacity may be so highly occupied that produce is temporarily stalled on the quay outside the cold storage. 4.2 Accuracy of tally and documentation

Among the symptoms for improvement potential, the Dutch wholesalers mostly mentioned the faulty tallies, documents and product specifications. Apparently, many mistakes are made along the chain in handling produce and documents or in data capturing. The bottleneck location could be anywhere in the chain. Problems occur not only with South African produce, but also with Chilean. This indicates that at least some mistakes are made during handling in the Dutch terminals. Regarding problems with the incorrectness of product descriptions and tallying, the Durban harbour was often mentioned as a source of more problems than other harbours. This may be due to local specificities – Durban is a specific citrus harbour. Furthermore, the problems seem to be larger with independent collecting exporters, since produce that is packed at commercial packing stations and stored in independent cold stores often shows more faults. Apparently the increase in mistakes and faulty tallies is a result of the increasing information complexity. Clearly, inaccuracy builds up along the chain. If mistakes are made at an early stage, people at later stages may try to correct them, but this could be a source of mistakes in itself. It does not come as a surprise that terminals are indicated as sources of problems. This is where all flows come together, leading to the most complex logistics problems in the chain. Furthermore, especially in South Africa, terminals are often forced to capture logistics data, especially in peak periods, since preceding parties in the chain, who are better suited to do so reliably and fast, do not feel responsible. Accuracy is to a large extent a behavioural problem. Some technical tools may be developed to enhance human functioning, but most appropriate solutions will involve changing attitudes, increasing awareness of responsibilities, and setting incentives for correct functioning. Secondly, even if people want to function correctly, they may not know how to, due to a lack of experience or knowledge. This is particularly the case with seasonal workers. Packing stations and inland cold stores employ much seasonal labour, to almost 100% of their work force. In such cases there is little continuity, experience, knowledge and awareness of responsibilities.

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Thirdly, even if people want to function correctly and know how to do so, they may not have the opportunity, due to stress and time pressure. This may be the case in the peak seasons at the terminals. 4.3 Cold store capacity in South Africa

Cold stores have two functions: to cool and to store. During peak season, normally only for a few weeks per year, cold store capacity shortages occur in some of the production areas. In that period, cold storages are only used for (forced) cooling before the produce is moved directly to the harbour or other cold storages. Permission is even obtained to transport the fruit to other cold storages before it is completely on temperature (-0,5ºC) in order to free up cooling space for warm fruit in the production area. Most production area storages are either the property of individual producers or belong to a co-operative of producers. Investments in additional storage capacity may solve the problem, but will hardly pay off in economic terms. In the area having the most problems (Orange River) all these storages are standing idle for 10 months per year. To install more cold storage capacity it is necessary to have multiple economic uses for it. However, the Orange River is characterised by a monoculture of table grapes. Although storage capacity is heavily used during peak days, capacity utilisation might be increased if it were to become known which storage still has some capacity left. Cooling capacity may be increased if quicker forced cooling is applied. Some regions have found flexible solutions using reefer containers for storage during peak season. Another question is the proper location of stores in the chain. Keeping all stocks in the Netherlands may influence prices negatively since the storage cost is higher than in South Africa. But keeping the stocks in South Africa disables a flexible reaction to price changes in the European market. Within South Africa, there is ample occasion for discussing the location of storages. The harbour often gets congested, giving reason to keep produce outside the harbour as long as possible. Indeed, Capespan is trying to leave the produce unpacked at the harvest location for as long as possible, shipping it only when there is a clear need for the produce. This may go together with a minimisation of lead times and late specification (‘postponement’). Furthermore, producers try to bring the produce to the (region of the) harbour as soon as possible. Especially in peak times, lack of storage capacity does not allow local storage in any case. Cold storage facilities are centrally situated in production areas and around the harbour cities. Normally they are the decoupling point location, from where the produce is shipped into the city and the harbour. For ‘pull’-managed terminals this happens on demand of the terminal. 4.4 Transport and traffic in South Africa

Some problems are specific to transport in South Africa. Access to the Cape Town harbour is difficult since it is encapsulated in large domestic areas. It can be approached via two highways, which are both congested for large parts of the day. Cape Town is the sole export harbour for the Western Cape

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Province, the major export harbour for the Northern Cape Province and still an important export harbour even for a lot of produce from the Northeast (Northern Province, Mpumalanga, Gauteng). Like the capacity of cold stores, the capacity of reefer trucks falls short in the peak season. Solutions may be found in both investments and in utilisation. During the peak harvesting season reefer trucks are in short supply, but outside the season they are in oversupply. Using reefer containers may increase flexibility and decrease dependency on trucks. However, containers can only accommodate 20 pallets (or 23 by splitting 3 pallets), which make them less efficient than modern trucks that take 30 pallets. Furthermore, they are expensive because of the rent of the power supply (e.g. R1 000 per round trip to the Orange River). For short-distance transport (less than three hours), conventional trucks are mostly used (being quickly loadable/unloadable and available during peak season). Where in the past four to five trips to the harbour could be done per day with a single truck from a cold storage situated 1½ hours’ drive from the harbour, it is now sometimes difficult to fit in three trips. The lower utilisation rate is not only as a result of the congestion on the roads, but also of congestion at the terminals. One of the people interviewed suggested introducing a new reefer truck design, which can quickly be loaded and unloaded from the side. This has always been the case for conventional trucks, but reefer trucks only open at the back, except for some examples in Japan where such a new reefer truck design seems to be in use. As an alternative to road transport, railroad transport is in use on the long trajectories (Orange River – Cape Town; Mpumalanga – Cape Town). Railroad utilisation is not yet maximised, due to the lack of critical mass of many exporters. Rail is only used for container transport, whether the container is exported as such or whether the pallets are removed from the container at the harbour for export in a conventional reefer vessel. Porthole containers can only be used for fruit containerised in the harbour or for short-distance transport, since they cannot be cooled while being transported on a truck or train. When transported on a truck, reefer containers need their own power supply (genset), whereas on the train they don’t. When transported by train the container is considered to be “in the stack” (of the container vessel) as soon as the train departs from its origin, whereas if transported by truck the container has to be in the harbour before the stack closes, else it won’t be loaded onto the container vessel. This means that the lead time for trains is considerably shorter than for trucks. 4.5 Terminal capacity and terminal operations in the chain

The capacity of the terminals is also a topic of serious discussion by the parties in the chain. Symptoms like fault rates and waiting hours in peak season give substance to these discussions. In South Africa, projects are investigating opportunities for opening up new harbours or satellite stores outside existing harbours to remove these bottlenecks. Most parties however agree that much can be gained by a better usage of terminal capacity. Operational complexity decreases the maximum capacity throughput rate. The lack of insight into the exporters’ operations makes it difficult to plan ahead. Carrying out data capturing at the terminals does not help to increase the throughput rate

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either. It consumes a lot of the available human capacity, which is at a premium especially in peak season. Keeping different exporter flows separated requires more storage space than would be necessary if these consignments didn’t have to be accessible individually. Additional complexity comes from additional tasks that are performed by the terminals. New services are delivered, for instance in the Netherlands terminals offer warehousing as a new option to consignees. Keeping stock involves different capacities and a higher space and information need than stowage. An open question is if terminal performance could be improved by smarter information usage. One problem is the limited availability of data about the chain since the South African trade has been liberalised. Data-exchange among partners who are learning to exist separately is even more difficult than among partners who have known one another for a long time and are willing to co-operate. Another major problem is that data systems are not connected, especially not overseas. Probably a lot can be achieved if data could flow more freely through the chain. Problems are not common to all terminals at the same time. The problems may be comparable to terminals in the same harbour (every major harbour in South Africa has two fruit terminals). Still, processes may be completely different for different terminals. Depending on produce characteristics and characteristics of the surroundings, terminals will have a push- or a pull-driven system of operation. Produce may come in cold or warm, and even go out cold or warm (the latter only for some citrus fruit which occasionally only gets cooled in the ship for the first time). 4.6 Traceability

The concern for traceability is boosted by repetitive food scares and scandals in Europe. As mentioned in Section 3.5, food safety is a major issue in Europe at the moment, not only in meat (BSE, hormones) but also in fruit and vegetables (toxic residuals). Traceability ensures that if a product is found unsafe, its producer, the production batch and perhaps even all other outlets for that batch can be traced. In South Africa, the European coding organisation EAN and the Deciduous Fruit Producer Trust are working on the Fresh Product Traceability Project, to develop a tracing system using bar codes, product labels and box labels. Another reason to work on traceability is authentication. This kind of traceability can often be sufficiently covered by labels indicating the region or country of origin, or other labels certifying a certain claim. It is more difficult to be able to trace complaints through the chain. If a product arrives in a bad condition, can it be traced back to determine who is to be held responsible?

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Another issue is tractability. That is, the ability to track shipments during transport. The information system Paltrack, designed by Capespan for their own purposes, is now widely used for tracking of pallets in the entire fruit chain in South Africa. However, the system is sometimes said to be ripe for revision in the sense that it follows complete pallets, not smaller shipments, and that it is not well suited to facilitate communication between different companies.

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5 EVALUATION OF POTENTIAL SOLUTIONS

5.1 Introduction

The solutions mentioned in this chapter and the preliminary judgement of their feasibility are based on the interviews and workshop. This ties in with the fact that the scope of the project was to test support among stakeholders, not to give a full economic calculation of feasibility. The solutions mentioned and the support found are summarised below. 5.2 Solution 1: Investments in inland cold store capacity

Bottlenecks addressed: • Cold store capacity shortage. Two different views were expressed: • Extension of cold store capacity in production region. • Extension of cold store capacity just outside export harbours (staging stores). Cold stores in the production region are mostly connected to one crop only and consequently have a very low usage rate. If, by combining different (anti-cyclic) crops in the same region, a better usage rate of cold storages could be obtained and capacity extension might pay off better. In that way, the logistics of existing crops might benefit from the introduction of other crops. So, from a logistics perspective there is thus a clear argument for local crop diversification. This contradicts the wish of European retailers for local specialisation and ‘authentic’ recognisable images of regions and crops. Staging stores generally have a better utilisation rate since they are close to the harbour and could be used for storing different crops (and perhaps even other perishables such as meat and fish) throughout the year. Also, the flow into the harbour could be regulated much better, thereby eliminating some of the bottlenecks in the terminal. Neither of these views found much support in the interviews and workshop. Both are local responsibilities. Furthermore, the notion is that additional capacity will offer increasingly fewer returns on investment. 5.3 Solution 2: Investment in terminal capacity

Bottlenecks addressed: • Harbour terminal throughput capacity. • Harbour operations accuracy (by relieving the pressure on the terminal personnel).

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This solution in particular found no support among those interviewed, not at the workshop. The cold storage capacity of the Durban terminal was recently extended, but it was felt that this has not solved any of the problems. All attendants at the workshop agreed that the bottleneck of the harbour throughput capacity should be handled by better capacity utilisation. The three keys to better terminal utilisation are: • simplification (reducing the complexity, for instance by standardisation) • specialisation (no data capturing at the terminal site) • information (pre-announcement and better management). 5.4 Solution 3: Extension of tracing systems

Bottlenecks addressed: • Complete traceability of foodstuffs from consumer to producer. The Fresh Product Traceability Project, led by EAN International and including among others the Deciduous Fruit Producers’ Trust, is working on an all-industry solution. (See Section 3.5). 5.5 Solution 4: Certification of exporters

Bottlenecks addressed: • Product quality. It was felt that one cause for the worsening image (quality) of South African fruit on the export markets, besides the bad climatic conditions of the previous year, is the diversity of new exporters, all having different levels of experience, product knowledge, quality standards and strategies. Various producer groups, such as DFPT, ORPA and the citrus producers are working on the certification of exporters (and producers) to establish quality labels. 5.6 Solution 5: Flexible application of containers

Bottlenecks addressed: • Inland cold store capacity shortage • Other storage capacity shortage • Reefer transport capacity shortage • Quality preservation. It is widely assumed that containers are useful to preserve the quality of the produce. The produce remains untouched during transport and under constant conditions. Containers are, however, costly as a result of their rental (and the rental of the power source when transported by truck or standing on the quay) and of additional handling. No integral analysis, comparing the advantages and disadvantages of different transport options was found in the study in terms of:

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• overall chain costs • product quality effects (end-of-chain) • energy use along the chain. This alternative therefore remains to be an open question. In peak season when transport capacity is most pressurised, containers are used to enable railroad transport, e.g. from the Orange River area. Furthermore, trucks for transporting containers are more readily available than reefer trucks. In the production area, containers are even used as temporary storage facilities. Until recently, containers had to follow different routes in the harbour and on the sea, since they could not be loaded onto the bulk reefer vessels. Only recently, both the reefer terminals and ocean carriers have become willing and able to handle containers alongside the bulk flow. This opens up opportunities for flexible optimisation: within the same channel, and with the same partners and equipment, one can have the advantages of both containers and conventional palletised logistics. At present less than 5% of fruit exports utilise this transport option. Since containers are already used, there was no direct support during the interviews and the workshop for further investigations. However, in subsequent discussions it was felt that containers could be utilised to a greater extent and it was once again emphasized that no integrative analysis was available of 1) the (dis)advantages of containers for these flows and 2) the optimal level of containerisation. 5.7 Solution 6: Vertical concentration on core business

Bottlenecks addressed: • Data accuracy • Terminal throughput capacity. Certain tasks that are currently performed at the terminal could be moved upstream, especially concerning the product data capturing into Paltrack. This is not core business, nor preferred side-business of terminals, and should be done at the source. Each pallet receives a bar code label that contains only the pallet number. Additional information, linked to the bar code, is kept in a database. This includes, amongst others, the fruit specification, i.e. the product description (brand name, fruit type, variety, size), packaging description (carton type) and the producer. At the larger packhouses/cold storages where the full Paltrack system has been implemented, the data are captured with a radio frequency (online) scanner and transmitted to the central database via the Internet. Due to the cost of these scanners some of the smaller packhouses use an off-line scanner and then download the data later. If the packhouse does not have Paltrack, the data

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need to be captured further downstream, typically at the terminal. This is being phased out, since data capture activities at terminals worsen congestion and result in measurement inaccuracy, especially during peak times. 5.8 Solution 7: Raising chain awareness

Bottlenecks addressed: • Level of logistics accuracy and data accuracy. Since much labour is seasonal in the South African fruit industry, both in production and in logistics, there is a low level both of experience and involvement amongst labourers. It is felt that this may affect the accuracy of several critical control points, e.g.: • data capturing and labelling of crates, cartons and pallets • storage handling and picking • delivery windows at terminals. It is noticeable that ‘awareness training’ was one of the focus areas of Capespan’s Logtrack 2000 project (see Section 3.1). The Vision 2010 project has also identified “training and skills development” as a main driving force that needs attention (see Section 3.3). Several actions can and should be taken to raise the awareness of labourers and managers of their responsibilities, accountabilities and the consequences of their actions, e.g.: • education and training, illustrating the operational connections within the chain • a clear indication of responsibilities and performance objectives • performance measurement • incentives, pay-by-performance. Capespan recognised the importance of awareness in the Logtrack 2000 study, focusing on rationalising inter-depot flows, improving data capturing and vessel loading. Furthermore, the introduction of the planning and management tools developed in the project went along with extensive user training, offering the user not only the sense that he is partially responsible, but also that he operates in the context of an entire chain. Logtrack 2000, with all its advantages, is however restricted in scope to the Capespan produce chain. Performance control within a company entails different instruments and projects than performance control between companies. The South African Netherlands Transport Forum (SANTF) project on the Chain Simulator matches the needs of the South African fruit industry well by offering an inter-company training tool.

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5.9 Solution 8: Data acquisition and exchange

Bottlenecks addressed: • Cold store capacity shortage • Terminal capacity shortage • Transport capacity shortage • Logistics and data accuracy. Even on request, little data are available on goods flows, performance and the logistics chain in general. It is felt that there is a need for additional information from management perspective, to be supplied by extensive data search. Especially where information is held in many decentralised locations (like storage capacity usage in production areas), data acquisition is a first step towards facilitating the industry. Part of the data need could supposedly be met by data that are available locally in the chain. However, these data are not generally available as a result of: • unawareness of information uses in other chain sections • unawareness of the availability of particular information • unwillingness to share data (vertically integrated companies especially may not want to share data

with a supplier or customer if that supplier or customer is at the same time their competitor) • non-connectivity of data systems. An example where the exchange of existing information could improve local management is by exchanging orders and production volumes. As a result, all logistics operators in the chain could know beforehand what to expect, and in their resource planning anticipate potential problems. Waiting hours at terminals, both in South Africa and in the Netherlands, could be much improved by opening up and connecting the management information systems of warehouses, shippers and carriers. In Chapter 6, a pilot project proposal, including a data acquisition plan, is developed. The objective of the pilot project proposal should be to show to the industry that openness and communication will help improve chain performance. 5.10 Solution 9: Logistics information and communication systems

Bottlenecks addressed: • Cold store capacity shortage • Terminal capacity shortage • Transport capacity shortage • Logistics and data accuracy • Traceability.

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In addition to the bottlenecks addressed, information systems will also facilitate secure electronic document transfer (e.g. shipping documents). The data acquisition and data exchange that can bring about logistics improvement have a ‘soft’ and a ‘hard’ component. The communication that should be brought about should not only be supported by the right data availability and willingness to share the data, but also by the right information and communication systems, supporting: • the retrieval of the data • processing of the data into useful information • the secure transfer of this information to the authorised users • effective decision support through the user’s systems. Existing sectoral systems are Agrihub and Paltrack. Many general purpose (not industry-specific) information and communication systems are available, like Manugistics, i 2 Technologies (RHYTHM Suite), etc. These could provide additional logistic functionality on top of existing data-oriented systems like Agrihub. As a part of the pilot study, a benchmark of such information systems could be carried out.

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6 ACTIONS LEADING TOWARDS IMPROVEMENTS IN THE SUPPLY CHAIN

6.1 Introduction

Based on the preceding bottleneck analysis, the projects already underway and the support found on both sides of the ocean, a continuation project towards actual improvements in the supply chain is proposed. The following activities would be undertaken in this project: 1. Data acquisition, which will be needed to supply new studies with quantitative support. 2. A demonstration of the benefits of data exchange to achieve support for chain co-operation at the

operational level, 3. A feasibility study of a supply chain information system which optimizes the availability and

exchange of information throughout the supply chain from farmer to retailer. These three activities are described in more detail below. 6.2 Data acquisition

Lack of information has been both one of the hindrances and one of the findings in this study. It is a general complaint that data on logistics flows and performances are not available. As it was not within the scope of this study to gather primary data, the data most appropriate to measure are indicated. This is done from the perspective of the objective to improve the logistics chain. It is therefore natural to first focus on performance data. Later on, the same performance measures can be used by managers to control the process, and by companies to define and monitor the bilateral performance agreements.

Performance indicators A very practical issue, both for the common lack of performance data in the fruit chain and for the pilot study on information systems, is what supply chain information should be gathered and how it should be assessed. The literature offers many ‘common sense’ general rules, e.g.: • performance indicators should be realistic, representative, coherent, consistent and appropriate to

the particular product-market combination • measures should preferably not be company-specific to enable inter-company comparison

(‘benchmarking’) • data collection should be objective (unbiased) and economical (which is especially important in

the EU context). There is a general caution that, while much of the data necessary for logistical performance analysis may appear to exist in companies, often the information has been prepared for other purposes, and

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often the information may involve company-specific management accounting rules which do not facilitate inter-company comparisons. Thus three levels of indicators can be measured, according to their availability: • Indicators actually in use in companies: indicator specifically in use, measures are available/may

not be appropriate. • Indicators that conform to standardised assessment models (see Section 6.2.2 below): indicator is

generally in use, measures may not be available/may not be appropriate. • Indicators that are customised to specific decision problems in the chain: indicator may not be

generally in use, measures may not be available/defined to be appropriate. If an indicator is not specifically in use and measured in the chain, it has to be clearly defined and communicated. Only after that primary data can and should be gathered. All three levels can be split into three categories, according to the role of the indicator in the chain. These are: • end-of-chain performance indicators: e.g. end-of-chain product quality, total costs and total lead

time • process performance indicators (per activity): e.g. number of deliverances in time (transport),

number of faulty documentation (tallying) or number of faulty label entries (data capture) • contractual indicators: these are indicators agreed upon by contractual partners, mostly referring to

specific process performance indicators; e.g. number of times that time windows have been exceeded, number of times documentation arrives too late, etc.

Clearly, the latter category is only to be used in industry benchmarking if different partners are prepared to make comparable agreements.

Identification of Key Performance Indicators To start with, it will be very useful to know all volumes produced and shipped. When leaving South Africa and entering Europe, cargoes are carefully administered. The PPECB has tallies of produce in the country. This information is useful in hindsight, but even more so in advance: as was argued in previous chapters, operational planning can be improved by exchanging forecasts of volumes to be expected. In logistics, it is well known that the right logistics concept design depends on five characteristics of the products to be transported or stored: 1. Value density ($/m3) 2. Cubic density (tonnes/m3)

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3. Storage life (e.g. due to decay of organic material or to product design life cycle) 4. ‘Appearance’ (bulk: gas/liquid/solid loose/solid big bag/solid container; unitised) 5. Unit density (pallet, container, # of consumer packages/m3; number of colli/m3) 6. Country/segment/customer specificity (branded/unbranded; single language labels; country

specific colli etc.) Other characteristics influencing the proper logistics concepts and organisation are: 7. Composition of logistics cost (broken down into various standard components) 8. Number of companies involved in the chain, the number of links and the market structure of all

intermediary markets 9. Average size of shipment (tonnes) 10. Percentage of containerisation 11. Modality use 12. Category of information system used to support the supply chain. Referring to Goor et al. [1999] and Bowersox et al. [1999] for an overview of standard performance measurement systems in use, a few measures were selected that are relevant to this chain from the perspective of improvement opportunities. If standard performance measure systems are considered, there is a multitude of systems to choose from, but none of them seems to be completely suited to the task. However, they could be used to build a customised system as was done here. The following main categories can be distinguished in this sytem: A. Quality of produce B. Quality of logistics service

B1. Tally/picking accuracy B2. Document accuracy B3. Corrective actions

C. Productivity C1. Capacity utilisation C2. Inventory levels C3. Labour productivity

D. Time D1. Lead times D2. Throughput times D3. Waiting/idle times

D3.1 Ship at dock D3.2 Truck at dock D3.3. Documents too late

D4. Variations E. Costs

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Segmentation To allow for accurate and representative performance criteria distinctions should be made with respect to: 1. Seasons (peak, on, off) 2. Region/location Both the size and the nature of bottlenecks and performances will differ according to these two indicators. It is especially important to include peak season when operational problems in the system are most likely to be recorded.

Link to the Chain Simulator Project Data are also being gathered by the SANTF Chain Simulator project, executed by the Rotterdam-based Scheepvaart en Transport College. The project will yield a qualitative description of document flows that are tailored to building simulations and cases in the Chain Simulator, a logistics training tool. The document flow description appears to be complementary to the underlying study, and might be a good starting point for the information analysis. 6.3 Demonstration of benefits of data exchange

For the pilot, the following steps can demonstrate the benefits of information exchange and co-operation: 1. Detailed picture of logistics processes 2. Inventory of current information processes 3. Inventory of available information at different levels 4. Description of performances under current habits 5. Simulation of potential performance improvement by better information use. The comparison of performances should be focused on relieving both generic bottlenecks (see Chapter 4 of this report), gaining industry support for an industry solution, and relieving specific bottlenecks of the pilot chain, to ensure the commitment of these chains. Performance measures that are important from a generic perspective are given in Section 6.2. Where possible, use should be made of existing documentation and descriptions, like the studies mentioned in Chapter 3 or the Chain Simulator project.

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A communications plan should be followed as to the dissemination of eventual positive messages. An interesting option to be developed further is to deploy the Chain Simulator for communication purposes. In the Simulator, planners can experience the benefits themselves by playing their usual game, while comparing different procedures under different simulated situations in a realistic laboratory context. 6.4 A feasibility study of chain information systems

One of the main findings of this project is that the existing chain information systems do not deliver all desirable functionalities. Given the needs identified and the support found during the project among stakeholders in the sector for considering a new information system along the supply chain, we propose to study in more detail the potential costs and benefits of an improved system for supporting the flow of operations level information . This system should: • be complementary to functionalities of existing systems; • be state of the art, i.e. comparable to or better than systems used in other chains and • result in a tailor-made solution for the fruit chain. The main functionality of such an information system would be to improve both the availability and the accuracy of information about the daily logistics activities throughout this chain. Tracking and tracing would be a desirable function. The system could be an extension of the Paltrack system towards the Dutch terminals and retailers to make available information on a daily basis, inluding a track and trace availability. The extension could be made using chain logistics support software.

The investment required would include the design and implementation of the required data-interchange systems, the associated communication protocols and possibly new management practices, resulting from an improved insight into specific bottlenecks along the chain. The feasibility analysis would include a comparison of the benefits and costs of such a system. The benefits would be measured against the functionalities that can be derived from Activities 1 and 2. The costs of the system include both the costs of operation and maintenance of the system, and investment. The feasibility study would progress through the following stages: • Mapping of investment context and options • Preliminary technical design (information exchange, process redesign) • Designing alternative investment scenarios • Building performance indicators and carrying out measurements • Evaluating feasibility (simulations, cost calculation, cost/benefit analysis, risk analysis, funding,

technology availability, management support) • In dialogue with beneficiaries, discussing the conclusions and determining the way forward.

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The conclusion of the feasibility study could be followed by the implementation of a chain support information system. The steps of the feasibility study are explained in more detail below.

Investment context and options The starting point for this stage is the recommended technology for improvement in the logistics chain which was made within the pre-feasibility study. For this specific technology, the technical, organisational and financial feasibility of the proposed changes has to be investigated. As this evaluation will need to be done on a fairly detailed level, and in co-operation with all the affected parties, this first step is of crucial importance. The investment context and options involve the following: • Agree on the decision-making framework (criteria, approach) • Identify potential stakeholders, beneficiaries and organisational relationships • Define objectives at chain level, e.g. improved lead time, peak spreading, flexibility, costs • Define objectives at process level, e.g. improved information availability, speed accuracy, costs • Identify existing information flows • Identify organisational prerequisites for implementation • Identify availability of management support for change.

Preliminary design The objective of this stage is to build up the technical and organisational specifications of the system to a level where these can act as a basis for the feasibility study. Up to this point, the investment has only been defined roughly in terms of its technology, objectives and area of impact. There is an agreed understanding that an improvement in information transparency, supported by information technology, would be followed by cost savings and an improvement of the reliability of shipments within the chain. There is a general idea that lead times could be reduced by more than half, and that these innovations could increase the capacity of warehouses. In order to confirm these ideas, however, a more detailed specification of the investment is needed. Based on the technical design made here, one should be able to estimate the expected level of performance, the costs and the expected impact on the logistics system.

Designing alternative investment scenarios Throughout the course of the development of these specifications, certain uncertainties will arise as to the eventual implementation, options will become clear for variations in the investment, and the immediate, short-term needs for investments will be identified. These variations, and the typical uncertainties of the business context in which they are likely to occur, will form the basis for the design of scenarios. The scenarios will allow the building of

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decision trees and networks (showing road maps for investment), add criteria for decision-making (those related to critical uncertainties) and generate new solutions (to avoid threats to the system).

Building up performance indicators and carrying out measurements Preferably all the data acquisition would be done in the first two steps. Once the investment scenarios and criteria have been defined, it might be necessary to gather some additional data.

Evaluating feasibility The balancing of a system’s benefits and costs may be based on a simple Net Present Value framework but might also involve multiple criteria, both quantitative and qualitative. When sufficient information is available about the functioning and performance of all the logistics activities along the chain, a quantitative simulation approach which is fed with real-world data may provide useful insights for a many-sided, complex evaluation approach. Also, contextual factors need to be taken into account, like e.g. the degree of management support for investments and the availability of technology.

Taking stock of results At this stage, the results are brought together and discussed with the various stakeholders to assess their support of any of the promising alternatives. Willingness to invest, re-distribution of benefits and risk sharing will be key issues at this stage. If the idea of the investment and its analysis is adopted by one or more parties, a way forward can be determined. 6.5 Pilot set-up

Pilot The activities of this project can first be done on a small and experimental scale in a pilot, before being scaled up to industry level. Such a pilot could encompass all chain levels, but not all industry members. Since problems are very different for the Cape region (deciduous) and Durban-oriented flows (citrus), a representative chain of companies from both flows could participate. In all meetings sufficient enthousiasm was encountered to indicate that such a pilot consortium can be formed. The participants in a feasibility study would be those parties within the primary process who have a direct interest in the investment (fruit growers, exporters, terminals, shippers). These would have a focus on the economic feasibility of the system. Also, potentially new service providers and builders of the system would need to be involved from the perspective of technical feasibility. As mentioned above, it would be important to include chain actors on both sides of the ocean, both in South Africa and the Netherlands, not only for the validity of conclusions, but also to consider financial viability. Preferably, the pilot participants would support all three activities within the proposed project. In addition, partners in the project would be those who have been involved in the completion of this pre-feasibility study (see Annexure 2 for the list).

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7 CONCLUSIONS AND RECOMMENDATIONS

This study prepared an inventory of bottlenecks for the logistical performance of the supply chain for fresh citrus and deciduous fruit. Possible solutions to these bottlenecks were identified and evaluated with the support of interviews and a workshop with professionals in the sector. Alternative solutions were evaluated and compared, leading to recommendations for follow-up actions. The fruit-growing sector in South Africa is experiencing difficult times. The deregulation of the production environment and a poor season have affected the country’s position on the world export markets both in terms of quality and price leadership. The potential gains of improving the efficiency (lower costs) and effectiveness (higher reliability) of the logistics processes, therefore, are high. A rough first mapping of the chain indicates that there is potential for improvement, in particular on the South African side. Opportunities for improvement were identified through a series of interviews with logistics and senior managers of various agents along the chain. They concern the following: • management of cooling the products • accuracy of tally and documentation • capacity of cold stores • capacity of the refrigerated truck fleet • capacity of transshipment terminals • traceability of products • information availability and quality • mixed pallet and container-based transport. The following actions were identified as possible solutions: • investments in inland storage and terminal capacity • extension of tracing systems • certification of exporters • moving ID-capture and labelling activities towards specification points • raising of chain awareness • data acquisition and data exchange • flexible application of containers • introduction of logistics communication systems. The screening of these alternative courses of action resulted in the following prioritisation:

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• Optimising the use of existing capacity is seen as at least as important as investments in new storage and terminal capacity.

• The highest potential improvement would come from improved communication systems and the acquisition and exchange of operational data. In terms of chain-wide investments, these actions have top priority.

• Moving the ID-capture upstream and the mixed container/pallet system are promising ideas that need to be explored further; however, they involve a re-design of at least parts of the chain and would therefore follow after the above action.

• Improvements in tracing facilities, quality and training are also important but are already dealt with in existing programmes and information systems.

The following actions are recommended to work towards improvements in the supply chain: • A more detailed look at the feasibility of supply chain information systems in order to allow a

proper investment decision to be made. • The benefits of data exchange need to be demonstrated to achieve support for chain co-operation

at the operational level. • Data acquisition will be needed to supply the above studies with quantitative material.

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8 REFERENCES

Bouwer, K. 2000. Memo to authors, 4 December. Capespan, Cape Town. Bowersox, D.J., D.J. Closs, T.P. Stank. 1999. 21st Century Logistics: making supply chain integration

reality, Council of Logistics Management. Burnett, J. 1999. Belangrike oorwegings vir die toekoms van die vrugtebedryf. Deciduous Fruit

Grower. September. Cape Argus. 2000. Portnet call for proposals. November 3. Cartwright, A.P. 1977. Outspan golden harvest. Cape Town: Purnell. CSIR. 1999. Proposed expansion of the container terminal stacking area at the Port of Cape Town:

scooping report. Report No. ENV-S-C 99048B. Stellenbosch. DFTP (Deciduous Fruit Producers’ Trust) website [http://www.deciduous.co.za] Dole n.d. Fresh from South Africa (brochure). Cape Town. EAN International. 2000. Fresh produce traceability guidelines (draft). Brussels. Finance Week. 2000. Fruit in a squeeze. November 10. Gariep SDI (Spatial Development Initiative). 2000. Orange River table grape logistics management

strategy – terms of reference. Upington. GPB Consulting. 1996. First phase of report on ship loading delays caused by wind for International

harbour Services, Table Bay Harbour. Somerset-West. Goor, A.R. van, M.J. Ploos van Amstel, W. Ploos van Amstel. 1999. Fysieke Distributie: denken in

toegevoegde waarde. 4th ed. Educatieve Partners Nederland, Houten Gütschow, M. 2000. Cooling trail for 2000/2001 season. Stellenbosch: Hortec. Jones, L. 1997. Unifruco fights to stay on top in free market. Cape Argus. June 30. Meintjes, F. 2000. Answers in response to request by Dr M.G. Rathogwa, Chairperson of the National

Marketing Council. Cape Town: Capespan.

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Mordant, N. 1996. Who will reap free-market benefits? Business Report. November. PPECB (Perishable Products Export Control Board) website [http://www.ppecb.com] Pienaar, R. 2000. Personal communication, 27 November. Unifrutti, Somerset-West. Portnet. 2000. Port of Cape Town Development Framework (draft). Cape Town. Rawborne-Viljoen, A.G. 1999. Market firmly buyer driven. Deciduous Fruit Grower. November. Safexport Corporation. 2000. A basket of development initiatives – specific recommendations.

Johannesburg. Speedy, A. 2000. Personal communication, 1 December. The Logistics Bureau, Johannesburg. Treptow, B. 2000a. Personal communication, 10 November. Deciduous Fruit Producers’ Trust, Paarl. Treptow, B. 2000b. Vision 2010: The way forward. Deciduous Fruit Grower. November. US Department of Agriculture, Foreign Agricultural Service. 2000. South Africa, Republic of – Fresh

Deciduous fruit, Semi-Annual 2000. GAIN Report No. SF0028. Washington. US Department of Agriculture, Foreign Agricultural Service. 2000. South Africa, Republic of –

Citrus, Semi-Annual 2000. GAIN Report No. SF0037. Washington. Wenhold, H. 1997. Single-channel exports finally over after 50 years. Deciduous Fruit Grower.

October. West, E. 2000. Citrus exports to be co-ordinated. Business Report. November 29.

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ANNEXURE 1: WORKSHOP CONCLUSIONS

Conclusions of the workshop on

“Logistics performance in the fruit chain between South Africa and the Netherlands”

Mount Nelson Hotel, Cape Town

19/10/2000

Attended by Philip de Jong (-15:00) Dutch Embassy, Agricultural Delegate PJ Jan van Roekel KLICT & ACC (NL) JR Jan van den Heuvel (-16:00) Hagé (NL) JH Steven Janssen SAFT (SA) SJ Herman de Knijf Seabrex/SAFT (NL) HK Hannes de Waal Durban Export Terminal (SA) HW Koos Bouwer IHS & Capespan (SA) KB Johan Strydom PS Logistics (SA) JS Delena Engelbrecht Dole (SA) DE Gerrit Booyens ORPA (SA) GB Max van Min (16:00-17:00) Cebeco (NL/SA) MM Esbeth van Dyk CSIR Transportek ED Douwe-Frits Broens TNO Inro DB Lóri Tavasszy TNO Inro LT Introduction The objective of the workshop was to agree on main bottlenecks in the logistics chain and their causes, and also on possible solutions to these bottlenecks. Before the workshop all attendants were interviewed separately about these issues. The workshop brings the results of these interviews together and builds conclusions and recommendations. ED and DB briefly reiterated the background and the purpose of this workshop. DB gave an overview of the results until now. Bottlenecks within the system seem to centre around seven key issues or themes, namely Quality, Accuracy, Cold Storage Capacity, Terminal Capacity, Transport, Traceability and Information Systems. Due to time constraints, only four themes were discussed explicitly.

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Below we list the comments that were made around the four respective themes Capacity, Quality, Accuracy and Information systems.

Capacity JS explains that congestion does not necessarily imply a need for new infrastructure. Utilisation of existing facilities can be improved further, especially by means of supply chain management. Much better utilisation is possible if volumes or orders are monitored and distributed to partners in the chain. HW asserts that storage space is sufficient. There are behavioural and planning matters (e.g. the number of suppliers, storage times) that indicate that better utilisation of existing space is achievable. A generic discussion of capacity availability can be misleading, as flows are region- and season- specific. Costs are not pooled anymore (as in the old days of regulation) and each individual terminal should therefore be designed to be cost-efficient for its own specific market. At times of seasonal peaks near-capacity volumes are reached. The Durban Export Terminal moves 90% of the annual volume in a period of 140 days. HK says some short-term peaks are known beforehand (public holidays, Mondays) but are unavoidable and uncontrollable. Others however come in unexpectedly, due to unforeseen market movements (‘hot’ market). Many peaks can simply be anticipated or even avoided by timely notification by parties up- or downstream. He observes that other competing regions (Chile) are able to realise short lead times despite similar circumstances to those in SA. However, the constraints for building or technological re-organisation are high in SA (DE). A possible step to improvement is the exchange and sharing of information (not data) on volumes and orders through an information system.

Quality SJ remarks that there is an important difference between citrus and deciduous fruit storage. Minimum standards for storage and transport temperatures and handling procedures are strictly regulated and monitored by the PPECB. The individual parties in the chain determine the quality standards above the minimum level. The maintained minimum standards for deciduous fruit in SA are quite high, for citrus fruit they are rather loose. Citrus is often loaded warm into the ship. Stronger cooling down of citrus would improve customer quality level but would probably not be cost-effective (yet). DE describes the general perception that the quality of SA fruit has gone down since deregulation. This is realistic as certain technologies, procedures, and their (centralised) enforcement disappeared during the period of change (SJ). The power within the chain now rests more and more with the retailer (JR).

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Also, class II fruit was exported more than generally during the recent difficult season, influencing the perception of customers (JH). Improved cooling and better product selection could change this perception (DE). For such improvements traceability is an important requirement. An important factor behind quality is the level of knowledge and experience of exporters; since deregulation and due to the newcomers in the market, this level has suffered (JS). However, the accreditation of exporters and suppliers is now progressing (GB). Containerisation is also mentioned as a transport substitute that could improve quality. However, it increases costs considerably due to the cost of the container, lower space utilisation, etc. The amount of additional transport needed in case of bad planning (airfreight for emergency transport) gives an idea of the opportunity costs of new solutions.

Accuracy Accuracy is aimed at removing the human error element. Technology sometimes removes errors by removing humans from the workplace and therefore is not always the preferred solution (SJ). Simple educational solutions may prove effective (e.g. process supervision, data capture). Also, certain tasks may be moved upstream, especially concerning the product ID-capturing. This is not the core business nor the preferred side-business of terminals, and should be done at the source (SJ). At present data capture activities at terminals worsen congestion and result in data inaccuracy, especially during peak times (HW). One solution for inaccuracy may lie in removing the complexity of tasks by reducing their dimensionality; e.g. do packing for fewer exporters (HW) and do not record all cultivars individually. Another issue concerns accountability (DE). Not only must business partners measure the service levels that they achieved (throughput, turnaround times, etc.) and compare them to what was agreed upon, but there must also be a widely accepted (fair but strict) idea that everyone is accountable for his/her own actions. To this end, all chain actors should understand the consequences (including the costs to other parties) of non-conforming actions.

Information (and communication) systems JB suggests that the poor integrity and the limited amount of information throughout the chain are key underlying causes for many if not all the bottlenecks identified. (This was the main thread through the discussion as it supported all the other themes.) DE mentions specific software packages for exchange of information (e.g. Paltrack, Wisdom). Paltrack is in use, but covers just a small part of the system. SJ says any system should be exporter driven. HK says that the data are there; facilitating the communication of the data should be the main task of the system.

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GB proposes to distinguish between hard and soft factors related to the information and communication technology (ICT) systems. The hard factors have to do with infrastructure and with actual data transfer. The soft factors concern the deeper understanding of responsibilities in the chain and the actual use of ICT. DB mentions the Chain Simulator as a possible tool for raising chain awareness and training.

Conclusion All attendants agree that a case study is needed to prove to public and private parties that improved information and communication technology does indeed make a difference. Retail and transport operators should also be involved in such a case study. The next and final stage of the current project will involve the definition of the ‘showcase’ project, which will form a new project. This project should result in insight into the logistical advantages of improved communication, and the use and feasibility of particular systems.

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ANNEXURE 2: LIST OF INDUSTRY PARTICIPANTS

Name Affiliation Derick Burger Africa Logistics Jan Rozenberg Albert Heijn Anton du Preez Anlin Dr Dawie Ferreira Capespan Fred Meintjies Capespan Hannes de Waal Capespan Koos Bouwer Capespan Max van Min Cebeco Jean Boshoff Del Monte Anton Rabe DFPT Bernard Treptow DFPT Lindi Benic DFPT Delena Engelbrecht Dole Willie Messerschmidt Dole Gerhard Potgieter GPB Consulting Marnix van Fraassen Hagé Isaak Havenaar Haluco BV Gerrit Booyens ORPA Cor Janmaat Plantenziektekundige Dienst Martin Bouma Plantenziektekundige Dienst Dr Gawie Eksteen PPECB Johan Strydom PS Logistics Steve Janssen SAFT Theo Cilliers SAFT Herman de Knijf Seabrex Gerhard de Kock Somerlus Adnaan Abrahams Synchrony Logistics Vonnie Thalwitzer Thalwitzer Group Andrew Speedy TLB Kobus Conradie Two-a-Day Reine Dalton Two-a-Day Roelf Pienaar Unifrutti