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Cushman & Wakefield: Vietnam‘s cold chain market is expected to boom

Xuan Pham • 10/03/2022
Vietnam's cold storage market is expected to grow rapidly, reaching $US295 million in 2025.

Cold storage logistics is a sector that has gained traction in recent years due to the growing opportunities for pharmaceuticals and vaccines imports and exports, coupled with the spike in online retail and food delivery services. This sector is expected to reach $US15 billion globally by 2025, according to the e-Conomy report by Google and Temasek. The growing middle class with disposable income has more demand and access to quality and fresh organic products. As a result, the demand for cold storage increases, creating investment trends in cold supply chains and new development opportunities.

According to a Cushman & Wakefield report, there is already a large number of liquid assets in emerging and developed markets in Asia. Wise investors are still eager to find opportunities to enter this niche, through new investment projects or mergers and acquisitions.

Cold storage is the process of storing products at low temperatures throughout the supply chain from production to consumption. Refrigeration involves the use of cold storage facilities and insulated transport vehicles for the distribution of goods. These means of transport include trucks, trains, ships, and airplanes with refrigerated compartments.

The main cold storage unit types are freezer, chiller, and cooler, which have varying temperature ranges:

      – Freezer unit temperature requirements usually vary between -40C to -10C
      – Chiller unit temperature is usually between -5C to + 10C
      – Cooler storage units temperature varies from +3C to + 15C
The supply side of the cold chain for agriculture consists of three main channels. They are namely the imports of the finished food, seafood products, and chilled fruits & vegetables in the domestic market. Unlike conventional dry storage, cold storage requires additional insulation and mechanical components to maintain a low temperature and humidity in the warehouse. That means that cold storage needs a stable power supply to prevent goods from being damaged.

Trang Bui, General Manager of Cushman & Wakefield, commented: “The cold chain market in Vietnam is still nascent and fragmented.” The cold chain market in Vietnam accounted for about US$169 million in 2019. Given the boom in the sector in anticipation of the vaccine delivery, growth in seafood processing and consumer demand, it is expected to reach a value of US$295 million by 2025, which translates to about 12% growth on an annual basis, according to Cushman & Wakefield.

Cold storage is generally concentrated in clusters, mostly in industrial parks or in rivers and seaports. The two main branches of the domestic market are commercial and self-operated cold storage. The cold storage sector is more developed in the Southern region, mostly due to the development of seafood and agriculture industries. Amongst which, Long An Province has such a high concentration of Cold storage as it is well-linked linked to Mekong Delta as a food source, in addition, the province is near Ho Chi Minh City which provides a huge population catchment.

Cold storage has a much higher rental price than conventional dry warehouses. Depending on the type of cold storage equipment (chillers or freezers), rental rates can range from 50% to 100% or even higher. Warehouse rental rates for chilled and frozen products range from $US45-90 per square meter. The rent for pharmaceutical storage is from $US45-$US160 per square meter. Pallet rentals range from VND16,000 to 30,000 per sheet per day, as reported by Cushman & Wakefield. Companies compete on various parameters including warehouse capacity, number of pallets, fleet with modified and professional trucks, temperature range, network coverage and locations.

“Due to the scarcity of each type of specialized cold storage, demand is likely to exceed supply, so the possibility of price increases will be higher. Although the investment cost in cold storage equipment is increasingly expensive due to the cost of installing insulation materials and machinery, the high rental price is a strong motivation for investors to be willing to build new projects. cold storage project. Investors and property owners can also consider converting ordinary warehouses into cold storage to exploit the difference in rental fees,” shared Ms. Trang Bui. Cushman & Wakefield also forecast that many M&A deals will take place, with investors who enter the market at the early stage before this asset class becomes popular receiving higher capital returns.

However, Vietnam's cold supply chain still faces many challenges in order to move to the next stage in industrial logistics development, becoming more competitive and even ahead of other countries. In the medium and long term, infrastructure development is key to increasing cold chain supply, including specialized logistics hubs, intermodal connectivity. In the southern key area, Ring Road 3 & 4, highway to Moc Bai border gate and Cai Mep port project, Long Thanh international airport together with Hiep Phuoc port city to serve the supply of high-end goods is being implemented and will support the growth of the industry in the coming years.

Besides, Vietnam's cross-border trade procedures, including time and cost, still need significant improvements. Cross-border transaction costs, such as compliance costs and import/export costs, are still less competitive than most countries in the region.

“The cold storage market is expected to experience explosive growth alongside the latest advancements in vaccine development. Even after the pandemic is over, this growth rate will continue to be sustained by several factors including increasing consumer demand for perishable foods and the advent of new and more advanced pharmaceuticals. While the industry is nascent and still considered a niche market, perhaps that will change in the next few years and will become a key sector,” concludes Cushman & Wakefield.


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