Please share an overview of the integrated temperature control logistics services in India?
The Cold Chain market is expected to increase around 17% including the Pharma industry, and if to loosely quantify it is guestimated to be somewhere around a 70-75 crore market sector, basis various research documents publicly available.
Talking about the Cold Chain logistics in the country, it is still largely dominated by the food industry and we are at par with most of the advanced technologies available around the world. But the volume which should be there and the application of this cold chain infrastructure in the country is still at a very nascent stage. When we talk about volume, we are not even 10% of what China does in the Cold Chain sector today.
But the indications are quite promising in terms of the next 5 to 7 years prediction, the volume is going up by 18 to 20 % yearly. But when we compare with other countries like China, Malaysia, Thailand, we are far behind in terms of the capacity creation that is there on the ground. After some major changes talked about in the FDA, many Pharma products may undergo distribution through Cold Chain network and the sector shall have greater visibility to the Pharma sector. The overall Pharma and food industry are still evolving in terms of world capacity. But in terms of technology and capability, we are already there and adopting latest technology and handling practices in India.
How do you benchmark the sector against some of the other countries? And in your view, which is one of the best models around the globe.
Comparing on the basis of Technology, we are already advanced with the latest cold storages, latest trucks in usage. Since most of the refrigeration equipment and material handling equipment are imported, they are usually the world renowned brands.
We face a lot of issues while dealing with inadequate and decentralized volume. Volumes are in different pockets and hence the overall network is not optimized.
For example, there are a lot of Pharma companies in Baddi, Himachal Pradesh. Many pharma products are being distributed all over the country, but they have limited inventory to take backhaul and hence the transportation is inefficient in the overall system. This is a challenge and should get addressed over a longer term.
In 2012, there was a new food safety law enacted called FSSA, this Act had consolidated seven different Acts and made it into one Act , that is stringent and effective. After the government changed, it took a couple of years to be enforced on the ground.
Earlier a brand would only be responsible if anything goes wrong with the product, but today even the distribution company is responsible if they have not handled the product properly. Distribution and logistics companies are bound to preserve the documents and records of storage and transportation for any scrutiny by FSSAI, if need arise.
This accountability on the distribution company demands better technology and visibility throughout the distribution network. At the same time, the brand orders are also now responsible to use a Cold Chain to distribute the product.
In the last 3-4 years, in the organized sector, there has been almost doubling of. The organized sector, in spite of so much of capacity addition, is clocking utilization close to 80%.
What are the gaps that need to be addressed when it comes to the situation and deliver the product?
I don’t see a gap when it comes to the supply side but it can be found on the demand side. As the demand is in pockets, you are manufacturing in one pocket, but you are consuming in another pocket, there are no return logistics and backhauling happening, hence your assets are highly underutilized and that increases your cost. This is not recognized by the customer because the customer is only using the resources on one-way distribution. It creates a lot of issues in terms of optimizing that cost. Hence it affects the logistics companies, there are no large logistics companies in the country.
To some extent, we could address this through our network of warehouses. Our warehouses helps us accumulate volume and offer return loads to the trucks.
The government will have to come up with some strategy where manufacturing and consumption are equally distributed around the country. A lot of strategic and speeding up of process should be executed to fill those gaps or the overall cost of the cold chain industry will remain inefficient.
How do companies like Snowman enhance their business model to optimize the cost to a certain extent?
Since we have the presence of Cold Storages across the country, we have some flexibility in terms of backhauling and using it for reverse transportation. But there are issues too. So if the size of the problem is 100 for other cold chain operators, we would have addressed only 50. However, with our IT technologies, we are trying to create more visibility on demand and supply, and deploy resources accordingly. This is on major agenda with us for now.
What are the steps that need to be taken to address the challenge?
Snowman has been establishing its footprint across the country which is very important for growth. Today we are present in 15 cities and in the coming months, it will be 17 cities and 28 cities in the coming few years, all based on strategic locations.
Our return Logistics in the backhauling is efficient to manage rise in volume and cold storage acting like hubs. Then we move towards a lot of inventory to consumption centers.
The government should also come forward and create a lot of manufacturing locations like they have for various industrial areas.
Tell us about your tie-up with Dr. Reddy’s for the vaccine distribution.
This is another example of how the overall distribution network should work and how the companies are looking at it now. We store their vaccine, we take orders, make invoices on behalf of them. We pack the vaccines and deliver them.
Dr. Reddey’s QA department in their office can see the temperature of each chamber in our warehouse. They can monitor the location of our trucks, speed, and temperature, leveraging digitalization very well.
Each chamber is biometric access controlled, they know who is stepping in and out of their chambers. We have created visibility to that extent. Our goal is to create a distribution system that is more robust, reliable and sustainable.
Contingency planning is quite essential. Like in our case, if there is a refrigeration temperature that goes beyond the stipulated range, an alert is generated in the respective people who are supposed to address the concern.
If my refrigeration system completely fails for some reason and you need some hours to bring it back, there is an ultimate parallel system to switch on, so that temperature is maintained.
What are available opportunities in the Cold Chain industry?
Cold Chain has huge potential in the future with the Pharma industry growing 18 to 20%.
The high CAPEX business model and the entry of new players is going to be minimal and it needs a particular scale for you to make a good business to model out of it and companies like Snowman who have already achieved scale, we are over 107450 pallet position today. As we double our capacity we can see our business model becoming a financially attractive model.
This is the best time to get into the Cold Chain for India as the last 15-20 years it has been on a slow track but it has fasttracked.
The whole world is looking at India, knowing that we are the first or second largest consumption centers in the world. Most of the multinationals that came in this country in the last 5-7 years have gained aggressive growth clients within the country, whether it is the food or Pharma manufacturing companies. In the next 4 to 5 years, the Cold Chain will get different recognition in the country and will be more visible with logistics.
What are the capacity expansion plans of Snowman Logistics?
So we have invested 70 crores this year, and we are going to invest 425 crores in the next three year’s time. We have earmarked 200 crores for Pharma infrastructure and the technology and the rest will be for Food. We are already present in 15 and will expand to 28 in the next three years’ time aiming to reach any part of the country in 24 hours’ time. Then we are ready for any company to come in or to launch their product. We’ll also be expanding our e-commerce verticals, to reach eCommerce companies who are into Food and Pharma-related products.
What kind of support is the Indian government offering to the Cold Chain industry and what do you expect?
The Indian government largely launches its Capex support and subsidies to farmers and post-harvest activities and not to independent Cold Chain companies. It is important that they extended it to complete Cold Chain whether it is Pharma or Processed Food.
Today it is only for Agri based for which there is hardly any investment coming in. So for the country’s Cold Chain expansion, they have to generalize it. Let the capacity get created first.
Once the capacity is there, I’m sure the Agri produce will start flowing through that network. But if you restrict now and only put Apple and Grapes in your warehouse and not processed foods, then who shall pay for it. Allow us to store everything and anything and keep that grant of subsidy whatever is possible. Once the capacity is created, the larger capacity, even the cost per unit will decrease. Even with lesser revenue per unit, cold storages would be able to accommodate fruits and vegetables.
