Challenges & Opportunities in Transport Refrigeration Services in India
Chai Point is one of India's largest organized Chai retailer offering perfectly brewed Tea made with fresh, natural ingredients to offices and working professionals around the country. The cold chain industry in India has been on an upswing due to the emergence of large industry segments that depend on it. According to estimates, this segment is expected to touch $235 billion by 2020. The favourable market conditions, increase in demand of refrigerated transport services and acceptance by end-consumer present a promising future of the cold chain industry. On the other hand, the absence of necessary infrastructure and lack of policy make this a challenging business opportunity.
Refrigerated transport services are used by mainly two industries, which form the bulk of business for these services’ providers – Agriculture and Pharma. India is one of the largest agriculture-producing nations in the World and even a pharma powerhouse globally, especially on the consumption side. In spite of ripe market conditions, for decades, cold chain industry has been marred with challenges, thus unable to grow at its full potential to service the sectors that depend on it.
To quantify the loss of opportunity, every year, we lose up to $15 billion in the agriculture produce alone due to improper transport service available for the perishable items. Industry estimates suggest that every year, around 104 MMT perishable produce is transported between cities, of which 100 MMT moves in ambivalent condition, thus resulting in high wastage.
Estimates from NCCD suggest that there are more than 3,500 players, with most of them being in the unorganized sector. Companies who are in the business to transport frozen foods are either left to work with highly unorganized players with little control over quality or invest heavily in building their own cold chain and warehouse infrastructure.
While large consumer brand companies have been investing in building their own cold chain infrastructure and also working with other players, startups entering the consumer space don’t have that luxury. They have to evaluate and find the right partner who they can entrust with their products to be moved at the correct temperature at all times on the route.
Many of us use technology to help us maintain high standards when our products are in transit. It is paramount to maintain a certain temperature when transporting goods in refrigerated trucks. We depend on technology and appropriate equipments to achieve that. Companies across industries use temperature sensors and GPS to self-reporting alerts, which help them monitor the temperature of the produce at any given point during the entire transit period. There are highly equipped vans that allow temperature monitoring, location, humidity and speed of the van in real time.
Such advanced tracking capabilities help companies to receive warnings in time to be able to react to the situation and control it before any damage can be done to the products. There is no doubt that all the industry players–small and large–on both sides –companies and cold chain–are doing their bit to grow the industry on the whole, but there continues to be challenges that are slowing down the growth of the industry.
"While the environment is conducive policy wise, we are yet to see large investments from domestic as well as international players entering the cold chain segment"
Challenges in Refrigerated Transportation:
• Unorganized Sector: The supply chain in India continues to be a highly unorganized market, with numerous small time operators. There isn’t efficient back-end logistics that businesses are getting from companies, simply because there aren’t enough large and standardized players available in the segment.
Sample this: 75 percent of the truck owners have a fleet of five vehicles or less.
• Capital Intensive Business: Setting-up of specialized warehouses, packaging & processing centers, and cold chain trucks demand a multi-crore investment, which only large organized players can afford, who have pan India operations scale. Such players only contribute upto 10 percent of the entire goods moved using the cold chain infrastructure nationally.
• Roads Network: On the supply side, while there is a shortage of international standard cold chain players, on the support factors side, lack of good roads network also compounds the problem. 60 percent of the produce moved using India’s roads network; but if you look beyond the high network beyond the top 10 cities, the trucks use less than five percent of national highways, which slows down the movement of the produce, thus increasing chances of its deterioration. Lack of good roads particularly in the rural areas also hit the sector, as this is where the produce is first picked up. A delay at the source can hit the entire chain with its ripple effect.
With challenges come opportunities.
• Government’s Interest: The good news is that the Government has realized the importance of developing a robust cold chain infra for the economy growth and even job generation perspective. At the policy level, a string of initiatives have either been announced or are already in progress to give a much-needed fillip to this industry. The Government is working with private players and is setting-up cold storages and distribution centers. They have opted for a subsidy driven models where companies making investment in the cold chain and allied infrastructure become eligible for grants from the Central Government. In addition to this, India has also opened up 100 percent FDI participation in the sector through the automatic route. While the environment is conducive policy wise, we are yet to see large investments from domestic as well as international players entering the cold chain segment here.
• Access To Credit: Cold chain infrastructure has been classified by the Ministry of Food Processing as a 'Priority Sector Lending', which has surely opened doors for business to get loans for setting up cold chain warehouses, distribution centers and trucks.
• Taxation Relief: The Finance Ministry has done away with GST like earlier from VAT or Service Tax on handling, transporting, storage and marketing of agricultural produce, as cold chain is merely used to transport the produce; and since there is no actual value addition but a safe guarding of the produce to maintain a certain quality, the additional tax burden has also been removed. While this is a big relief for the companies in the sector, it also enhances viability of cold chain projects, encouraging more to invest and launch businesses in the segment.
• Improvement In Roads: The Ministry of Road Transport and Highways(MORTH) has laid-out plans for constructions or upgrade of 45,000 kms of roads, especially in remote areas to ensure improved connectivity for the industry.
• Priority To Perishables: In addition to the initiatives mentioned above, which have been undertaken over the last few years, it would also be advisable to introduce a fast lane for perishables at check points PAN-India. This would cut down the waiting time at tollbooths dramatically and improve delivery time.
We estimate an investment of $100 billion is needed in this sector over the next 10 years to make cold chain sector a real business opportunity for entrepreneurs.
"While the environment is conducive policy wise, we are yet to see large investments from domestic as well as international players entering the cold chain segment"
Challenges in Refrigerated Transportation:
• Unorganized Sector: The supply chain in India continues to be a highly unorganized market, with numerous small time operators. There isn’t efficient back-end logistics that businesses are getting from companies, simply because there aren’t enough large and standardized players available in the segment.
Sample this: 75 percent of the truck owners have a fleet of five vehicles or less.
• Capital Intensive Business: Setting-up of specialized warehouses, packaging & processing centers, and cold chain trucks demand a multi-crore investment, which only large organized players can afford, who have pan India operations scale. Such players only contribute upto 10 percent of the entire goods moved using the cold chain infrastructure nationally.
• Roads Network: On the supply side, while there is a shortage of international standard cold chain players, on the support factors side, lack of good roads network also compounds the problem. 60 percent of the produce moved using India’s roads network; but if you look beyond the high network beyond the top 10 cities, the trucks use less than five percent of national highways, which slows down the movement of the produce, thus increasing chances of its deterioration. Lack of good roads particularly in the rural areas also hit the sector, as this is where the produce is first picked up. A delay at the source can hit the entire chain with its ripple effect.
With challenges come opportunities.
• Government’s Interest: The good news is that the Government has realized the importance of developing a robust cold chain infra for the economy growth and even job generation perspective. At the policy level, a string of initiatives have either been announced or are already in progress to give a much-needed fillip to this industry. The Government is working with private players and is setting-up cold storages and distribution centers. They have opted for a subsidy driven models where companies making investment in the cold chain and allied infrastructure become eligible for grants from the Central Government. In addition to this, India has also opened up 100 percent FDI participation in the sector through the automatic route. While the environment is conducive policy wise, we are yet to see large investments from domestic as well as international players entering the cold chain segment here.
• Access To Credit: Cold chain infrastructure has been classified by the Ministry of Food Processing as a 'Priority Sector Lending', which has surely opened doors for business to get loans for setting up cold chain warehouses, distribution centers and trucks.
• Taxation Relief: The Finance Ministry has done away with GST like earlier from VAT or Service Tax on handling, transporting, storage and marketing of agricultural produce, as cold chain is merely used to transport the produce; and since there is no actual value addition but a safe guarding of the produce to maintain a certain quality, the additional tax burden has also been removed. While this is a big relief for the companies in the sector, it also enhances viability of cold chain projects, encouraging more to invest and launch businesses in the segment.
• Improvement In Roads: The Ministry of Road Transport and Highways(MORTH) has laid-out plans for constructions or upgrade of 45,000 kms of roads, especially in remote areas to ensure improved connectivity for the industry.
• Priority To Perishables: In addition to the initiatives mentioned above, which have been undertaken over the last few years, it would also be advisable to introduce a fast lane for perishables at check points PAN-India. This would cut down the waiting time at tollbooths dramatically and improve delivery time.
We estimate an investment of $100 billion is needed in this sector over the next 10 years to make cold chain sector a real business opportunity for entrepreneurs.
