A solution to supply chain disruptions

With the lockdowns across major port cities in China a few months ago, businesses across the world once again witnessed disruptions in the supply chain. Fresh concerns emerged as the closure of ports affected outbound shipments and freight rates, triggering apprehensions of a supply crunch.

The disruptions globally led countries to shift their focus to other supply chain options in Asia, and India has gained popularity as a logistics hub. With manufacturing activities including pharmaceuticals gaining strength in the latter half of 2021 and a flourishing e-commerce industry growing at a steady rate, much of these sectors’ success depends on the smooth functioning of supply chains. As a global pharmaceutical hub, India has responded to the supply chain challenges with resilience. It had to run the biggest vaccination drive globally to immunise a population of 138 crore twice.

Besides vaccines, the demand for fresh produce and perishable food items in India has also increased over the last two years, escalating the need for cold chain transportation like reefer trucks to supply the products to a broad section of the country. The industry also largely follows a fragmented approach, which is a cause for concern. This sector needs to curb the shortening of infrastructure and resources to enable efficiency.

With the prices of a vast array of goods still rising, India is absorbing a troubling realization: time cannot resolve the supply chain disruptions but restructuring the cold chain industry would be a start.

A peek at India’s cold chain industry

India is the largest global producer of several agricultural commodities. It generates more than 400 million MT of perishables every year. It is also the world’s largest producer and consumer of dairy products, with more than one-fifth share in global milk production.

About 3500 service providers in the country provide transportation and distribution services for the agricultural sector. Unfortunately, more than 8100 cold storage facilities, with a combined capacity of over 30 million MT (August 2020), can meet only one-fifth of the national requirement.

The private sector operates 92% of these cold storage facilities at an average capacity utilization of 75%. Still, approximately 16% of fruits and vegetables get wasted due to poor infrastructure and lack of collaboration within the industry.

Currently, West Bengal, UP, and Bihar host almost two-thirds of the country’s cold storage capacity. On the other hand, semi-organized players hold around 80% of the installed capacity. Establishing a national cold chain network could change the scattered distribution that the industry follows.

The logistics industry has moved from rapid one-day deliveries to 10-minute drop-offs in the past few months. Grocery and food delivery start-ups have set up dark stores to facilitate superfast transportation and delivery of orders. Companies delivering medicines and related products via one-day delivery are not far behind. The growth of at-home blood tests has furthered the need for a robust cold chain logistics network that could facilitate processes within the industry and reduce turnover rates.

Why cold chain practices need to change

Restructuring the cold chain practices within the industry and reassessing the systems based on the requirements could prove beneficial to the establishments within the sector. As the third-largest pharmaceutical industry, India serves more than half the global demand for pharmaceuticals and vaccines, around 40% calls for generic medicines in the US and around one-fourth of the total demand for drugs in the UK. Cold chain restructuring could support the industry in exports and maintain quality standards internationally.

It is predicted that the industry may add an extra 1.5 to 2 lakh pallet capacity for frozen and chilled commodities in the coming years. But that may not be enough. The assets employed in running and maintaining the sector cost 2.5 times more than their counterparts in the dry logistics sector. On the other hand, the Indian pharma sector is expected to grow from $ 41.7 billion to $ 120 billion by 2030. Although the Indian government has permitted 100% FDI in pharma, the parched cold chain sector needs a boost in infrastructure to support rampant growth of the industry.

Solution: Cold chain restructuring

The Indian government has backed many supply chain and logistics projects with subsidies and waivers ever since the onset of the pandemic. The implementation of the National Logistics Policy (NLP) will enable the Indian logistics and warehousing sector to become better connected and transparent.

Private investment would also support the industry’s restructuring efforts. Daily operational interruptions need more cost-effective and practical solutions as well. Incorporating AI, Machine Learning, and IoT can benefit pack-houses, reefer vehicles and cool chambers and introduce technological advancements within the sector. Technological adoption can help optimize and reduce wastage in the long run.

The profit margins in the cold chain industry have escalated in the past five years, attracting global investors. Moreover, the Ministries of Agriculture, Commerce and Food Processing have introduced schemes and subsidies towards cold chain restructuring in the past two years. As a result, the Indian Cool Chain Logistics is looking forward to the forecast of 20% CAGR by 2025. The global supply chain crisis has called for quick implementation of reforms. In India, the government has laid down the foundations for the long-term growth of Indian trade. Consumer preferences, population growth, and global demands drive the expansion in the cold storage capacity, development, and automation in the sector. For a nation that serves as the world’s pharmaceutical hub and enjoys massive investor interest, having a solid backbone of cold chain infrastructure is critical.



Views expressed above are the author’s own.



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