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Shift to modern logistics helping F&B retailers cut costs & up quality
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Saturday, 22 October, 2016, 08 : 00 AM [IST]
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Nandita Vijay, Bengaluru
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fiogf49gjkf0d fiogf49gjkf0d The Indian food and beverage sector’s supply chain has been witnessing a rapid transformation. There is a shift towards the use of modern logistics, which is helping food retailers cut transaction costs, increase consistency of quality and meet global safety standards and regulations. A number of modern logistics firms have started backward integration of their services to big retailers.
Modern retail sales are growing at 49 per cent per year due to the rapid penetration into the urban food markets and a growing rural market. This has resulted in the growth of food logistics, distribution and wholesale companies in India. Policies that enable and provide encouragement to the sector to invest further will decide the future of food logistics.
India’s integrated cold chain industry - a combination of surface storage and refrigerated transport - has been growing at a compound annual growth rate of 20 per cent for the last three years. The cold chain market in India is expected to reach $10 billion by 2017. Warehousing, which forms 20 per cent of the total logistics market, is expected to grow at a rate of 35 to 40 per cent annually, displaying high potential for growth over the next few years.
The establishment of the National Centre for Cold Chain Development (NCCD), fiscal incentives for investment in cold chain systems like concessional custom duty at five per cent, exemption of excise duty on refrigeration machinery, 100 per cent tax holiday for the first five years, financial aid upto 50 per cent on purchase of plant and machinery of cold chain system, etc., outlays the emphasis given to this sector by the government of India.
Logistics in India, especially in the food and beverage sector, is almost in line with the global practices, barring a few differences. The food and beverage sector is a very high-volume sector. Earlier, nine-ton trucks were used for primary transportation in India. These have given way to 15-ton trucks and, in some cases, 21-ton trucks. In contrast to this, in most of the western markets, food and beverage transportation is done in 28-40-ton vehicles. If that were done in India, the cost would reduce further.
“Another difference is in storage. In some evolved markets, a lot of warehousing and handling is done in pallets, whereas in India, we operate in smaller pack sizes in the supply chain. Handling 750-1,000kg at a time in a pallet would change the operating costs if the same were to be done in India. The key difference is our different retail model,” said Anil Syal, chief executive officer and director, Flywheel Logistics.
According to BlackBuck, a Bengaluru-based online B2B marketplace for logistics transactions, “Technology is redefining the logistics landscape of India, making it reliable and efficient. We bring truckers and customers on a platform to execute the transaction using intelligent auction engines equipped with smart mobile interfaces.”
“Integration of technology with on-ground execution helps manage execution in the most effect manner. Given the low technology penetration in this industry, the scope for innovation is immense. This will add value not only to the stakeholders, but help redefine the logistics paradigm for India. The logistics industry is long due for a transformation,” it added.
Snowman Frozen Foods Limited, a Bengaluru-based pioneer in storage and transportation of perishables in the country, sees tremendous demand for cold chain in India, and only a small part of this market is currently being catered to by the organised players. “With increasing awareness on food safety and hygiene, customers have been moving to the organised players,” it added.
The company’s official stated that the need of the hour was an economically viable cold chain solution that would create total integration of the food supply linkages from the production centres to the consumption centres, thereby reducing physical wastages and loss of perishable commodities,and, in turn, leading to the development of the processed food industry.
The chain needs to start at the farm level and go to the consumer level, or at least the retail level. The Indian fruit and vegetable (F&V) supply chain is characterised by a large number of intermediates, where farmers mostly do not use TCL services, because of poor economies of scale.
Aggregators refrain from it due to the lack of sufficient volume. While traders and wholesalers mainly use TCL services for high-value produce, the sub-wholesalers and small retailers do not use the same.
Another hurdle is the last-mile distribution where multiple product handling due to the lack of cold chain facilities is degrading quality at the retail store end. Thus less intermediates and efficient cold chain use will maintain product temperature and quality. This is where seminars should be arranged to create awareness among retailers to use cold chain at the grassroot level so that people know the advantages of using these facilities.
Mumbai-based Coldman Logistics is a leading cold chain, warehousing and logistics solutions provider is the western region of India. It plans to construct a large cold chain warehouse in a plot of five acres at an investment of Rs 60 crore.
The logistics infrastructure requires a temperature-controlled supply chain. There should be flexible pick-ups and just-in-time delivery, advanced tracking and delivery coordination. E-commerce, growth is driving the logistics industry, which is looking to store and transport a wider variety of product choices.
Vargese Abraham, vice-president, business development, Total Group, said, “We need to develop alternatives for the storages that the agricultural land after harvesting can be used as storages which can even be foldable temporary structures.”
“The adoption of such technology can only be used if the technology is affordable. The use of such technology can avoid the food wastage at both the stages - at the post-harvest and once the goods are stored as finished goods,” he added.
“Even the technology for cooling on rail can be utilised with energy-efficient solutions could prove a boon to the sector. If an airport in India can operate on solar panels, even a storage system can function using the same technology,” Abraham stated.
Anil Choudhery, founder and chief executive officer, National Bulk Handling Corporation (NBHC), said, “A positive trend in the logistics sector is that warehousing has shown a good growth of private equity holding, which accounts for about Rs 2,500 crore.”
Sarat Mulukutla, chief commercial segment, National Commodity and Derivatives Exchange Limited (NCDEX), said, “The Warehousing Development and Regulatory Authority (WDRA) norms, which include recording online details of all commodities stored, maintaining the quality of the commodities, and ensuring the fumigation process is followed, all the above norms are mandatory to be followed under the Securities and Exchange Board of India (SEBI) guidelines for all commodity exchanges like us, but is not the case with other warehouses which are not a part of exchanges.”
“There is a need to streamline complex regulations, which includes state and local regulations, which pose as a hindrance to operate. A positive indicator in this regard would be that the banks today have gained trust in the industry players, as the private sector participation in the logistics as warehousing, cold storages and reefer transport has risen to a compound annual growth rate (CAGR) if about 15-20 per cent,” said Sameer Shah, managing director and chief executive officer, NCDEX.
Suresh Khatanhar, executive director, IDBI Bank, said, “The logistics sector accounts for one lakh private warehouses. Public sector undertakings (PSU) have played a vital role in the development of logistics and storage, but now the private players can speed up the process.”
“Banks like us have a major role to play in the near future, as the extending capital to set up infrastructure is the need of the hour. Also, there is a need for large warehouses to be built, as one has to take into account that in the peak season invites more pressure on storing these commodities and goods,” he added.
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