Custodians missing in the Cold-chain

Looking ahead into 2013, the expectations from market and service providers are quite obvious to conclude. The Previous year has established that manufacturers and marketers will continue to push to outsource both critical and non-critical areas in logistics to ease working capital pressure on their company.

Yet, are the LSPs prepared and professional enough to match this opportunity? It will require innovative organisational leadership in finance and operations. The typical response though, is to reduce head count and fixed warehouse & transportation assets while maintaining service (exactly what their client company did by outsourcing their own requirement). LSPs need to respond otherwise and not play in tandem. Besides, maintaining service with lowered asset base means opening up to risk, or alternately requires another kind of asset – technology! The smart ones will manage; there will be intelligent contingency plans, back-haul network redesigning, productivity realignments and a move from transactional to strategic management and control.

India’s logistics sector usually has a limited outlook when projecting into the future. This is largely because of the gap in associated infrastructure and matching processes, thereby never allowing them to be truly ahead of the development curve.

Sorry State of Market studies

“What goes wrong with Market Studies”

Frequently I am asked to vet and assess market studies, business plans and DPRs (Detailed Project Reports) on the topic of supply chain, albeit specific to the Indian backdrop. This, after the document owner has, in all earnest, already paid a hefty amount to the researcher for the study and evaluation. 

These impulses to seek second opinions are retrospective in nature... One understands this reaching out, since no matter how big the hospital, one's personal physician is still a trusted referral!

Where I get utterly flummoxed, is the lack of quality & authenticity in the documents I am provided. Whereas, one ought to be barely dotting an odd alphabet (or none, preferably), the entire diagnosis and the conclusions suggested are often suspect. Especially when it comes to those on the topic of cold chain... I fail to grasp what is passed off as a study sometimes. Recently, there was once again a spate of annual releases on the cold chain sector, focus India. I was provided a couple to assess and confirm upon. I repeat, I failed to understand...

Cold-chain Investment requirements (India)

Total investment projected in cold chains over the next 5/10 years

As per estimates by the National Centre for Cold-chain Development (NCCD), the total investment expected in India’s cold chain in the next 5 years is approximately USD 6 to 10 billion. These estimates are based on the following, basis current costing norms (and could be higher). This investment estimate does not include cost of land and added cold-chain ancillary requirements -

• Current gap in cold storage infrastructure estimated about 36 million metric tonnes
• Estimated investment of $ 5 billion in storage infrastructure alone; at average cost of $ 127 per ton capacity for multi-product storage other ancillary infrastructure. The land and other infrastructure would require further $ 5 billion investment.
• Specialised storage systems like Controlled Atmosphere cold stores would involve a higher investment cost of $ 580 per ton capacity.
• Further investment would be needed for upgrading technology of existing cold storages, which is estimated at $ 27 per ton capacity. Such upgradation involves thermal integrity, refrigeration installation, handling systems, etc.
• These cost estimates are linked to norms for minimum design standards as established by the government.
• In refrigerated transport, the capacity is required to grow 3 fold to fully service the existing and more for growing storage capacity. Current estimate of refrigerated transport indicates an available on road capacity of only 3.6 million MT.
• An estimated $ 1 billion investment will be required for long haul refrigerated transportation. A refrigerated vehicle of 10 ton capacity currently costs $ 44,000/.

Wall Street Jousts (?)

Queries raised by Wall Street Journal

- What are the hurdles for the development of cold chain in India? 

Lack of domain skills and associated expertise is a primary hurdle. We have the fuel, we have the technology... it is what lies between that is missing. The newly initiated NCCD as well as privately run organisations and universities will help disseminate knowledge and attract more professionals and skilled workers to this industry. Another hurdle is minimal manifestation of the produce owner business model in India.

A producer owned supply chain is the common cold chain worldwide. Mostly because the producer has the most vested interests. Also the cold chain is the only supply chain that directly impacts the producer's price realisation because of its inherent impact on product quality and shelf life. Branded agri-produce players should be made welcome and promoted as by virtue of owning the brand, they promote best practices and quality norms.

- What are the missing links and can FDI help?

War in the Indian Ocean

Enrica Lexie: Have we asked all the relevant questions?

Any modern merchant ship is a well trained and disciplined organisation – not because sailors are necessarily more enlightened, but because their survival depends on it (between PSCs and Audits and Drills and Logs and Mother nature).

By very definition, discipline is a qualitative phrase but that quality to it is refined by repetitive enforced recurrence. Further, there is one phrase drilled into the psyche of a seagoing professional – “Call the captain” and represents the hierarchical nature of the merchantship order. There is no action, diversion, role play, ever.... without the ship’s master being informed (as goes the concept). [The exceptions (even if it be an extended drinking party or fixing a fused nav light) are always with the ‘trepidation’ that the captain oughta've been informed.]

Enrica Lexie is an Italian merchant tanker ship and in Feb 2012 allegedly fired upon and killed two Indian fishermen off the coast of Kerala. This incident has caused much international debate and has raised various concerns on armed gumen on foreign going ships. This case is discussed in highlights in the following paragraphs.

See Figure: White arrow depicts typical ship route from Singapore towards Red Sea, entering from the Gulf of Aden. The red cross is ~20 miles off the sea side town of Alappuzha where the killing occurred on 15-Feb-2012; and ~200 miles off the typical route.

Future Direction Cold-chain In India

The cold chain industry is understood differently by various pronouncers of the trade. So at first, let us dispel a few notions in line with the intent of this article. Most people, including some of those driving this from within the government, presume the “cold chain” implies solely temperature controlled storage or carriage of goods. This automatically pre-supposes that the application of refrigeration is the singular differentiator.

The cold-chain is a much bandied about business proposition in India, attracting ever burgeoning attention over the past decade. It has typically been associated with securing national food supply, reducing wastage and with an energy intensive technology. Despite fetching increasing focus driven by the government, its ground manifestation stays limited.

In reality, the cold chain is a misnomer derived from “cold SUPPLY CHAIN”; and like any supply chain, the production process, packaging criteria and delivery & distribution mechanism is particular to the cold chain. Hence the benefits perceived from the cold chain are not just limited to those derived through application of cooling, but additionally those due to inherent procedural changes it enforces across the entire supply chain process.