Royal Flora Holland – temperature-control logistics on a royal scale

The Royal Flora Holland, located in the Dutch town of Aalsmeer, close to Schiphol Airport (not coincidentally the world’s largest flower airport) and relatively close to Amsterdam, is the site of the largest auction site for flowers and plants in the world. The Aalsmeer auction house (there are also auction houses in Naaldwijk, Rijinsburg, Eelde and Veiling Rhein-Mass, a joint venture in Germany) is reputed to be the world’s largest building, by footprint and by virtue of the fact the facility is also the world’s largest temperature-controlled warehouse complex. The complex is 518,000 sq/m (5.57 million sq/ft or 128 acres) with refrigerated cells of 131,000 sq/m (5,575,705 sq/ft). To put it in perspective, the Aalsmeer auction house is about the size of lower Manhattan.

Edwin Wenink, Royal Flora Holland’s program director of supply chain (FLOW), says the cooperative’s “main objective is to facilitate a marketplace that is [both] physical and in the cloud [virtual auctioning]… We facilitate [horticultural] trade between companies.” Royal Flora Holland itself is a 4,000 member cooperative, meaning that the “auction” is to benefit the membership by providing a global marketplace for their horticultural products. To understand the structure both as an auction house and as a remarkable link in a complex temperature-control supply chain, it’s necessary to get up early, very early. The IT team’s checks on systems begin at 4:00 am and the actual flowers and plants are already in the facility ready for the 7:00 am (generally to 11:00 am) auction, which is reflected on a large clock (actually 36 clocks throughout). The auction price for a specific product is set high (rather than bidding up) and items are sold at a furious clip. Members commit their entire product line to the cooperative auction and what is not sold – which is a very small percentage – is destroyed at the end of the day. (Albeit, they try to extract any commercial value possible, like insecticides, from the essence of the plants and flowers.) This helps retain price and quality for the members’ products. There are an average of 115,000 commercial transactions each day, which means buyers must react in a sliver of time. In all fairness, many buyers already have predetermined picks and price points, enabling them to make split second decisions. Often by 8:30 am the auction has run its course, which is only a small part of what is happening. The logistics leading up to the auction and to the delivery are unique in scale and complexity. On a busy day, some 34,000 trolleys of flowers and plants race across the floors, like bees around a beehive. These movements on the Royal Flora Holland floor can turn into 10,000 truck movements per day or roughly one in every ten truck movements for the region overall. The facility has almost 1,500 loading bays to accommodate trucks. Taken from an annual perspective there are some 50 million shipments per year with imports from sixty countries and exports to 140 countries. Put another way, 12.5 billion flowers and plants of 20,000 different varieties are handled yearly. This activity translates into Euro 4.6 billion in turnover (2015) annually.

RFH Horticultural Exports
	2015	% Share	2014	% Share
Germany	1,557	27.90%	1,619	30.00%
United Kingdom	925	16.60%	809	15.00%
France	753	13.50%	687	12.70%
other countries	484	8.70%	430	8.00%
Italy	304	5.50%	283	5.30%
Belgium	232	4.20%	225	4.20%
Switzerland	183	3.30%	176	3.30%
Sweden	176	3.20%	173	3.20%
Poland	174	3.10%	153	2.80%
Russia	169	3.00%	227	4.20%
Austria	130	2.30%	149	2.80%
Denmark	113	2.00%	111	2.10%
Euro/mn

Market Challenges to a Long Cold Chain Currently, the top export destinations for RFH products are Germany, the United Kingdom, France, Italy, Belgium and Russia, also an important player. The U.S. market by comparison is small at only Euro 200-million annually. On the import side of the equation of the sixty sourcing nations, Kenya, Ethiopia, Israel, Belgium and Germany are the primary supply side nations. But the world is changing and how RFH adjusts to the new supply and demand dynamics will greatly influence the cooperative’s bottom line going forward. In recent years there have already been some notable shifts in markets. As Wenink remarked (at a briefing organized by NFIA [Netherlands Foreign Investment Agency]), “Brexit is for our purposes not positive.” The exit of the United Kingdom from the EU (European Union) stands to put a significant damper of flower sales to the Netherlands largest non-continental European trade partner. Wenink said while the immediate “impact [of Brexit] is not huge,” and the real separation is still likely “two and half years away”, it is a worrying development for RFH and the Netherlands itself. He pointed out that the rise of the Euro against the Pound is already begun to impact the competitive position of Holland’s horticultural exports against other sources, such as Latin America and East Africa.

Brexit isn’t the only geopolitical event taking the bloom off flower sales. The relationship of Holland (and indeed the EU) with Russia has chilled over the last two years. Events in the Ukraine, and especially the shooting down of Malaysia Air 17 over Ukraine air space on July 17, 2014 killing all 283 aboard, including 198 Dutch passengers, has depressed sales to Russia, with no real improvement in sight (see chart). Although these two events may represent the most obvious vicissitudes in supply and demand, plotting the future of the flower trade is part of the cooperative’s long-term strategy. Mattijs Smith, head of Strategy and Commercial Development at RFH, noted in response to changing global economic trends the cooperative is shifting its global strategy in sourcing and selling horticultural products. He explained the changing dynamic, “Our buyers, which are our customers, are responsible for distributing these flowers all over the world…with the majority sold in Holland and the countries around it.” “It is a question for us as a marketplace balancing supply and demand. Originally the supply was Dutch and demand was Dutch, later the supply Dutch and demand European.” This model changed as Dutch growers moved to East Africa (Ethiopia and Kenya) and the supply became global. However, even with the change in supply the constant remained that the customers were the ones looking for new opportunities to sell the flowers. Smith says “We [RFH] are now at a point we have to look more at the demand side…We are looking at what we have to do strategically to evolve ourselves [in the global marketplace].” From the RFH perspective there are three types of markets: exporting countries like the Netherlands itself; self-sufficient like Mexico, Spain or even the U.S. which can supply their own needs; and importing markets like the United Kingdom, Germany or Japan. As Smith explained, for a sourcing country like Ecuador, which supplies 80% of its flowers to the U.S. market, it is not a good value proposition for a grower to commit 100% of the crop to the RFH, as is the cooperative’s rules. Thus growing market share involves developing greater efficiencies and being competitive within export markets that RFH might not have intrinsic advantages.

FLOW Chart Innovation in the temperature controlled supply chain is viewed as critical to the long-term success of RFH. The Netherlands generally ranks first or second in World Bank’s LPI (Logistical Performance Index) and leveraging this logistics advantage into market share in horticultural exports is a key strategy for RFH. Among the programs utilizing this strategy is FLOW. FLOW (Floricultural Logistics Optimization Worldwide) is a collaboration to create synergy in the horticultural supply chain. The FLOW program provides insight into the supply chain of the horticultural sector by collecting knowledge about the logistical processes together with the various chain partners. The Holland Flower Alliance (HFLA) between Royal Dutch Airlines (KLM), Schiphol Airport and RFH is an example of such. The information is assembled through collaboration to innovate the logistical flows for flowers and plants and make their design more efficient and effective. Ultimately, improving the competitive strength of the sector for the cooperative and their buyers. According to Wenink, the immediate aim is to “improve the margins for our chain partners” and realize a 15% savings in costs throughout the supply chain. This is comparable to a drop of €64 million in the cost of the supply chain.