Feasibility_Studies_Location_Feasibility_O by Sutherland Global Services

Case Study and Sample Slides India: Supply Chain Process for Temperature-Sensitive Products

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Table of Contents

Scope and Deliverables of the Study

Study Approach and Methodology

Executive Summary

Background of Logistics and Cold Chain Market

Identification of Suitable Warehouse Locations in and around Mumbai

Custom Clearance and Security Screening Process at Mumbai International Airport

Tax Considerations

Company Profiles

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Scope and deliverables of the study Summary of Requirements • With an aim to foray into the warehousing and distribution of pharmaceutical products requiring cold-storage facilities, Client X approached XXX-XXX to commission a comprehensive study on Pharmaceutical Cold-storage Logistics Industry in Mumbai • Key objectives of the study are: – Overview of the Mumbai cold-chain landscape – Understanding customs clearance and security screening process for pharma supplies at the Mumbai international airport – Critical inputs that would assist the client to set up 2,000-4,000 sq mt of warehouse in Mumbai (preferably near air cargo complex)

Deliverables in the Presentation Modules

Details captured in the section

Overview of Warehousing and Logistics market

• Representation of the market size and identification of growth drivers, inhibitors & trends

Inputs related to warehouse location for the client

• Warehouse location across different formats using geographical mapping along with distinctive comparison for each format

Custom clearance process

• Detailed process for custom clearance and security screening at the Mumbai airport (entities involved)

Profiling of companies

• Detailed profiles of FTWZ & logistics parks, warehousing companies, and regional and national reefer transport companies

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Study approach and methodology Summary of Requirements • A mix of primary and secondary research approach was used to conduct the study • Primary research was conducted with leading industry stakeholders during March 25 to April 5, 2011

Research Subject

Approach

Information Sources

Overview of warehousing and logistics market

• SGS conducted a secondary research pertaining to the Indian logistics market; scrutinize the available set of numbers to arrive at the drivers and further analysis • Cold chain market data was extracted from various government and other news sources. Further, pros and cons for the market were considered along with key market trends

• DMI, Government of India • Express Pharma Online • Frost & Sullivan

Inputs related to warehouse location for the client

• Location of the warehouse was considered with respect to location of various sources such as existing logistics parks, FTWZs and private warehouses. Further, necessary connectivity through airports, ship ports, highway, and railway was considered apart from evaluating the financial and operation benefits of each location

• FTWZ • Logistics Park, Warehouse Owners’ website • PWC report

Custom clearance process

• SGS visited premises of the air cargo complex and interacted with various entities to physically verify the clearance and security screening process • Practical aspects and pain points were observed during the visit to the complex • Interviewed 4 custom house agents

• • • •

Profiling of companies

• SGS interacted with 12 players identified suitable as per the scope of the study • SGS interviewed 4 players involved in the pure-play warehousing business for perishable and temperature-sensitive products; 2 fright forwarders offering their own warehousing for pharma products; 1 regional reefer transport company; 3 national reefer transport companies; 1 free trade warehousing zone; and 1 logistics park

• Directors/ Partners • Western India Heads • General Managers and Senior Managers

MAIL Air India Custom department Custom house agents

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Glossary of Terms Abbreviation

Term

Abbreviation

Term

AAI

• Airports Authority of India

• Direct Delivery

EDI

• Electronic Data Interchange

• Delivery Order

AWB

• Air Waybill

MAWB

• Master Airway Bills

TSP

• Terminal Storage and Process Charges

HAWB

• House Airway Bills

• Assessing Officer

BOE

• Bill of Entry

E.G.M

• Export General Manifest

MIAL

• Mumbai International Airport Ltd.

I.G.M

• Import General Manifest

DIAL

• Delhi International Airport Ltd.

FTWZ

• Free Trade Warehousing Zone

WIC

• Walk-in-Coolers

MCGB

• Municipal Corporation of Greater Mumbai

WIF

• Walk-in-Freezers

GHIAL

• GMR Hyderabad International Airport Ltd.

MIAL

• Mumbai International Airport Pvt. Ltd.

OPPI

• Organization of Pharmaceutical Producers of India

DEPB

• Duty Entitlement Pass Book Scheme

DEEC

• Duty Exemption Entitlement Certificate Scheme

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Table of Contents

Scope and Deliverables of the Study

Study Approach and Methodology

Executive Summary

Background of Logistics and Cold Chain Market

Identification of Suitable Warehouse Locations in and around Mumbai

Custom Clearance and Security Screening Process at Mumbai International Airport

Tax Considerations

Company Profiles

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Executive Summary Key Findings (1) Cold Storage Warehouse Infrastructure • Cold storage infrastructure in Mumbai, in particular, and India, in general, remains underdeveloped. As per one estimate, close to 40% of agriculture produce in India is lost because of non-availability of storage or processing centers • Major problems that the cold chain logistics industry in India has been facing are power outages, fragmented market, and high costs because of long transit time among others. • Most of the cold chain providers in India are private players. There are very few players that can offer an end-to-end cold chain solution, leading to limited choices for outsourcing by corporate – There are about 162 registered cold storages in and around Mumbai with a capacity of ~152 K MT. Much of the capacity is currently dedicated to marine and dairy products – There are only about 5 small-sized units in and around the Mumbai airport that handle temperature-sensitive pharmaceuticals – Most of the pharmaceutical companies have set up their warehouses in dedicated warehousing areas such as Thane (Bhiwandi), Turbhe, Navi Mumbai (Vashi), etc. • A number of small-sized cold storages are located in South Mumbai, closer to the sea-port meant for exports of marine products. West Mumbai, a location closer to the Mumbai International airport has about ~15 cold storages Pharma Industry in India • Pharmaceutical industry in India has been growing at a healthy clip of 10-12%. The industry is expected to enter into an aggressive growth phase during this decade, and quadruple to $55 billion by 2020 from the present $13 billion (Source: McKinsey) • India, currently, has more than 2,400 registered Pharma producers and over 20,000 licensed Pharma companies. But the reins of the market remains in the hands of a few big Pharma logistics players and many unorganized players who run the show for the Pharma companies Pharma Temperature-sensitive Logistics • Transportation of temperature-sensitive pharmaceutical products has been receiving regulatory attention of late, owing to intense lobbying by pharmaceutical associations • Strong presence of a few of the regional players for temperature-sensitive pharma products, including Reema Transport, Sheetal Parivahan, Mahesh Transport and Crystal Logistic Cool Chain

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Executive Summary Key Findings (2) • Currently, India faces bottlenecks at most of its airports, which include authorities not being able to assure cold room space despite getting advance notices from companies about the possible unloading of large consignments of temperature-sensitive products • Some of the other problems include improper training and refresher courses for some of the handling staff who handles such products at an airport. Storage of pharmaceutical products along with meat and food products is against the GMP norms – Hyderabad airport has set up the first pharmaceutical zone in the country. The facility has 15-25 degree C and 2-8 degree C chambers both in nonbonded and bonded areas. It is meant to handle only pharma products like bulk drugs, formulations, vaccines, medicines and other drugs – The Mumbai International Airport Private Ltd. (MIAL) has installed four new cold rooms for pharma and has trained handling staff to ensure adherence to standard operating procedures • Apart from Government initiatives, a number of private players too have been investing in the area of pharmaceutical cold-chain logistics – Shine Logistics has recently set up its own temperature-controlled warehouse near the Mumbai international airport to offer exclusive services to pharmaceuticals and chemical clients. The company takes about 15-20 minutes to deliver shipments from the warehouse to airlines cargo terminal – Robinson Global Logistics has set up an ambient temperature-controlled warehouse in Bhiwandi near Mumbai, with an area of 60,000 sq. ft. – Cargo Services Center India set up a facility called the Perishable Cargo Center, which became operational at the Mumbai airport on November 1, 2010. Catering to only perishable and temperature-sensitive cargo, it will be able to process and handle 60,000 MT of cargo per annum • Pharmaceutical importers and exporters may also choose between a logistics park and FTWZ for warehousing needs. FTWZs would provide a huge cost advantage to companies in India through income and service tax benefits, deferred duty benefits, and hubbing opportunities. Logistics parks provide the right framework to bring about economies of scale, standardization and efficiency • The custom department typically clears most of temperature-sensitive pharma products within 3 to 4 hours of landing – Majority of such products fall under ‘direct delivery’, which are allowed to be cleared then and there with a manual procedure, while the detailed documentation process is carried out at a later stage – Majority of such cargo lands during night/early morning to avoid traffic issues and most of the companies do not store such products in the custodian’s premise. Often reefer transport companies are allowed to upload goods directly on the runway itself – To reach major warehousing locations such as Bhiwandi and Navi Mumbai, the cargo takes approx 1.5 to 2.5 hours – The security screening process is only for exports and not applicable for imports (taken care of by airlines/authorities at the boarding port)

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Key Players (1)

Name of the Company

Location and Proximity to Airport

Total Area in Sq Ft

Products/ Segment in which It Deals

Custom Bonded (Yes/No)

Temperature Maintained in Degree Celsius

Major Pharma Clients

Willingness for a Tie-up/ Business Arrangement

Warehousing only (not offering any forwarding or transportation services) • CSC India Pvt. Ltd.

• Airport premises

• 19,848

• All kind of perishable goods

• Yes

• Savla Foods & Cold Storage Pvt. Ltd.

• Navi Mumbai • 30 km

• 156,076

• Dry and cold storage for pharma, dairy products, fruits, vegetables

• A.A. Cold Storage Pvt. Ltd.

• Turbhe, Navi Mumbai • 30 km

• 62,500

• Pharma, dairy products, fruits, vegetables

• Sood Enterprises

• MIDC, Andheri East, Mumbai • 3 km

• 40,000

• Chemical products • No such as methyl and other formulations, pharma vaccines

• –10° to +10° • 18° to 20°

• NA

• Yes 16,000 • -30 to 0 sq ft • 0 to 25

• Wockhardt

• Yes

• No

• -2 to 10 • 10 to 20

• Pfizer • Hindustan Latex

• Yes

• 2 to 8 • -10 to 2

• SanofiAventis

• Yes, (in the long run)

Warehousing and Logistics Companies (offering freight forwarding and custom clearance services as well) • Shine Travels and Cargo Pvt. Ltd.

• Chandiwali, Mumbai • 4 km

• 3,000

• Pharma vaccines and biological products

• No

• 10 to 25

• Ranbaxy • Cadila • Cipla

• Yes

• Eastern Cargo Carriers (I) Pvt. Ltd.

• Chakala • 4 km

• 2,000

• Pharma vaccines and biological products

• No

• 10 to 15

• Wanbury • Unimarck • Cipla

• No

Source: SGS Compilation

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Key Players (2)

Name of the Company

Number of Vehicles

Location

Total Area in Sq Ft if Warehousing Available

Products/ Segment in which It Deals

Network and Reach

Temperature Maintained in Reefers (Degree Celsius)

Major Pharma Clients

Willingness for a Tie-up/ Business Arrangement

Reefer transport companies • Reema Transport Pvt. Ltd.

• 70

• Mumbai

• NA

• All kind of • Network in perishable goods Goa, • Specialize in Maharashtra, pharma Gujarat, and transport Madhya Pradesh

• –10° to +10°

• GlaxoSmit hKline • Lupin • Wyeth • Cipla

• Yes

• Crystal Logistic • 130 (Cool Chain) Pvt. Ltd.

• Mumbai

• NA

• Specialize in FMGC perishable products and pharma

• Pan India network

• 2 to 8

• Ranbaxy

• Yes

• Snowman India

• 70 owned • 100 leased vehicles

• Taloja and Shivadi (Mumbai)

• 11,905 (Taloja)

• Dairy products, fruits, vegetables, pharma

• Pan India network

• All temperature ranges

• Sun Pharma • Shantha Biotech • Glochem

• Yes

• Transport Corporation of India Ltd.

• 7,000

• Mumbai

• NA

• Dairy products, fruits, vegetables, pharma

• Pan India network

• -25 to 25

• NA

• Yes

Source: SGS Compilation

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Pharma cold chain logistics is receiving significant impetus in India (2/2) Dedicated Port for Pharma Export-Import in Goa • Official sources revealed that the Mormugao Port in Goa would be notified as a designated port for import and export of pharmaceutical products manufactured in the state (Sept 2010) • This could be a big boost to around 50 pharma units in Goa, which export products worth USD667mn, as they would be saved from the hassles of transporting their products to Mumbai and later exporting them from the Navasheva port in Mumbai, thereby incurring an additional cost of USD670 • Apart from lowering trade cost, the dedicated port might simplify procedures for Goan manufacturers

Upcoming Air Cargo Projects to Boost the Overall Cargo Handling Capacity • The upcoming international airport at Navi Mumbai, which is expected to be operational by 2014, is proposed to have cargo handling facility of 1,00,000 sq mt • MIHAN - Multi-modal International Cargo Hub and Airport at Nagpur, expected to be fully operational by 2035, is the biggest economical development project currently underway in India in terms of investment – The Cargo hub is expected to handle 0.87 million tonnes of cargo – A new SEZ of 2,086 hectares, the largest multi-product SEZ in India, would be built along side the airport. Major sections of SEZ would include manufacturing industry units from various sectors including pharmaceuticals

Source: News Articles

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Table of Contents

Scope and Deliverables of the Study

Study Approach and Methodology

Executive Summary

Background of Logistics and Cold Chain Market

Identification of Suitable Warehouse Locations in and around Mumbai Details on FTWZs Details on Logistics Parks Details on Independent Private Warehouses

Custom Clearance and Security Screening Process at Mumbai International Airport

Tax Considerations

Company Profiles

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Several options exist for storage / warehousing of pharmaceuticals in Mumbai and India Parameters

Private Warehouse

Logistics Park*

FTWZ

• No tax benefits unless the space is custom bonded

• Custom-bonded warehouse: Custom duty deferment for 90 days • However, no exemption of service tax on services availed inside custom-bonded area • Tax benefits only to developers 22% Income tax exemption for continuous operation of 10 years

• Custom duty deferment for 2 years • Exemption on SAD, VAT & CST on imports through FTWZ • Exports: Local Tax Exemption (e.g. CST, Sales Tax, Excise & VAT) on all activities conducted inside the FTWZ • Tax benefits to developers and tenants

• No specification laid out on minimum built-up area • No minimum lease period- Rented on per year/month/day basis with security deposit

• No specification laid out on minimum built-up area • No minimum lease period- Rented on per month basis with security deposit

• Minimum size of warehousing is stipulated at 1 lakh sq mt • Minimum lease period of 5 years to avail tax exemption

Location

• Primarily located outside Octroi limit & clustered in warehousing/ industrial zones

• Majority of logistics parks are located around SEZ for ensuring efficient domestic supply chain

• Focused to facilitate cross-border trade, FTWZs are established in areas proximate to seaports, airports or dry ports

Value Added Services

• Typically, not integrated and absence of services such as testing & QC, software support, custom office, etc.

• Limited scope for value additions inside custom-bonded warehouse

• Value-added services such as packaging, labelling, re-invoicing, CKD & SKD assembly, etc. are allowed in FTWZ

• Savla Foods & Cold Storage Pvt. Ltd.- Navi Mumbai

• JWC Logistics Park- Panvel • Shree Rajlaxmi Logistics ParkBhiwandi

• Arshiya FTWZ- Panvel • Vibrant IL&FS Consortium FTWZNaigaon

Fiscal Benefits

Minimum Requirements

Major Players In & Around Mumbai

* Logistics Park has both custom bonded as well as non-custom bonded areas Source: FTWZ website, News Articles, Player Websites

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FTWZ represents an attractive option for entities involved in the import and export of pharmaceuticals Free Trade Warehousing Zone (FTWZ) • FTWZ: Envisaged to be an Integrated Zone that can be used as an ‘International Trading Hub’, a FTWZ is a deemed foreign territory integrated with state-of-the-art warehouses and special storage infrastructure, container freight stations, handling equipment, commercial office complexes, etc. • Relevant Laws: – 100% Foreign Direct Investment is permitted in development and establishment of FTWZ – Minimum size of the warehousing stipulated at 1 lakh sq mt – All benefits available to SEZs shall be applicable to FTWZs

Benefits of FTWZ

Operating Models within FTWZ

Fiscal & Regulatory Benefits

Other Benefits

• Tax Benefits: Income tax (section 80IA) and service tax exemptions for developers and users of the zone (including primary transportation) • Duty Deferment Benefits: Custom duty deferment benefits for products requiring longer storage time • Excise Duty Exemptions: Excise duty exemption for products sourced from the domestic markets, including goods, spares, DG sets, packing materials, etc. • Exemption on SAD, VAT & CST on imports through FTWZ

• Single Product Storage & Shared Warehousing Facilities within FTWZ • Shared Equipment: Ability of users to save on capital investments by leasing equipment provided by the zone • Delivery Time: Reduction in custom clearance time and better logistics connectivity, leading to improved delivery time • Provision of efficient management services support facilities such as banking, insurance, etc.

• Model 1: The company will become a Unit holder inside the zone, and can carry out authorized operations and avail all the fiscal and other incentives and benefits, including the income tax exemption • The developer will also act as the service provider for various services like 4PL, IT, 3PL, etc. • Model 2: FTWZ developer will be the Unit holder and will hold the goods on behalf of Foreign as well as India suppliers and buyers and provide various services (warehouse management, labor, etc.) • In this case, the income tax benefit will not be available for the client company • Lease Arrangement: The minimum lease period between the Unit holder and the FTWZ developer, which has to be complied with to get the Unit holder registration, is 5 years • Approval Time: Up to 45 days from the date of submitting the proposal to the approval committee

Source: FTWZ website

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There are three FTWZs in & around Mumbai, at present

FTWZs

 Vibrant IL&FS Consortium FTWZ Naigaon, Maharashtra  Area - 47 Hectares  Status - In-Principle Approval

 Arshiya International – Panvel, Navi Mumbai

 Area - 68 Acres  Status - Operational

 * Chiplun Infrastructure Pvt. Ltd. (M/s FTWZ Ltd.) - Mumbai

 Area - 40 Hectares  Status - Formal Approval • Chiplun Infrastructure's location has not been declared officially Source: Cushman & Wakefield Report, FTWZ website

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Logistics parks too are an attractive option for bonded warehousing of pharmaceuticals •

Shree Rajlaxmi Logistics Park: Operates 4 parks in Bhiwandi

•

Total Area: 0.8 Mn Sq Ft (Partially under construction) but space available

•

No custom-bonded or ambient space available yet (hence, not profiled)

•

CCI Logistics Park

•

Area: Up to 51,000 sq mt of dry storage space & 9,200 sq mt open storage space

•

Up to 4,700 sq mt of ambient warehouse for pharma companies

•

Existing Logistics parks

•

Upcoming Logistics Parks

Custom-bonded warehouse available

Existing / Upcoming / Notified SEZs

Mumbai has, for long, been an established logistical hub with parks such as JWC Logistic Park, CWC Logistic park, CCI Logistic park, etc. By 2012, eight logistics parks spread across 600 acres of land are expected to come up around Mumbai at an estimated cost of around US$200 million. Logistics parks are typically domestic market-oriented unlike FTWZ

Source: Cushman & Wakefield Report, FTWZ website

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Pharmaceutical products can also be stored in the 162 coldstorages in and around the Mumbai International Airport Breakdown by Type of Players

Breakdown by Location

As of 2009

Thane 17%

Private 86%

Taloja 10% Vashi 8%

Central Mumbai 6% Mumbai Suburbs 2%

West Mumbai 15%

Co-operative 6%

As of 2009

North Mumbai 2%

Public 8% South Mumbai 19% Total Cold Storage units: 162

East Mumbai Turbhe 1% 20%

Total Cold Storage units: 162

Key Observations • Cold storage industry in Mumbai is dominated by small- and medium-size private players who account for the majority of the market • Cold storages are scattered across city and suburbs. However, majority of them are located outside the city limit – Thane, Vashi, Taloja, and Turbhe are prominent areas, which together account for 55% of the overall players in Mumbai

Source: Directorate of Marketing & Inspection (DMI), Ministry of Agriculture, Government of India

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Units dominated by small cold storages having less than 500MT of capacity Breakdown by Capacity in MTs < 100 MT 25%

Breakdown by Type of Products As of 2009

Dairy Products 18%

2,000-5,000 MT 13%

500-2,000 MT 25%

Marine Products 22%

Fruit & Vegetable 2%

> 5,000 MT 2% 100-500 MT 35%

As of 2009 Others (Hotel) 15% Frozen Veg, Meat & Seafoods 9%

Multipurpose 34%

Installed capacity: 152,438 MTs

Total Cold Storage units: 162

Key Observations • Majority of large cold storages (capacity above 2000MT) are located on the outskirts of the Mumbai city due to high land price in city limits – Also, customers prefer to store their goods in dedicated warehousing zones at the outskirts to avoid Octroi tax, which is applicable if goods are not meant to be consumed in the area covered under the municipal corporation (city of Mumbai) – Majority of hotel cold storage units are located in the city of Mumbai • 34% units are multi-purpose setups that can store pharmaceuticals Source: Directorate of Marketing & Inspection (DMI), Ministry of Agriculture, Government of India

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