Lessons to be learnt from South Africa’s Cold Storage Boom

In phase one of any cold store development, consider the installation of mobile rails. The mobile bases can be added later with minimal disruption to double the practical storage capacity-James Cunningham, Managing Director, Barpro Storage SA (Pty) Ltd

Having spent most of my career in the South African cold storage industry I was interested to read a recent article, “Cold Storage Story”, on the frustrations being experienced in India around a perceived shortage of cold storage space. Participating as I have in another developing economy, which is now closely aligned to India through the BRICS grouping, I would like to share some cold storage experiences which may be of interest.

Prior to our peaceful revolution in 1994, there had been a small but profitable South African cold storage industry, which catered for the export of frozen and chilled foods, mainly fruit, and frozen foods such as meat and fish. The internal market was limited to the relatively affluent, approximately 12%, whose housing had electricity for domestic freezers.

In the immediate aftermath of 1994, very little happened and the economy remained depressed. This however started to change in late 1999 to early 2000 when ESKOM’s (the state run electricity generator)’s initiative to electrify the townships gathered speed and the economy started to expand at around 3% creating jobs and some surplus income.

The previously disadvantaged population embraced chilled and frozen foods and rushed to buy fridges and freezers. This in turn put pressure on the cold chain leading quickly to the construction of more chilled and freezer space. In the last 17 years cold storage space has continued to expand nationally in what can be called a “staircase” profile. Initially, available cold storage space fills and nobody builds so expansion is flat. Then a cold storage opportunity is identified and several projects are started, until the market feels that there is now an oversupply leading to the number of new projects falling off until the next opportunity for expansion occurs in approximately 18 months. This particular timing was due to our market growing strongly.

In India it might be different.

Another important factor was transport. Originally, refrigerated goods tended to be moved by rail in refrigerated wagons due to Government restrictions on the movement of cargo to support the state run rail service. The general standard of roads in South Africa being good, once such restrictions were removed, refrigerated freight moved quickly to road.

There are a number of factors which will affect the speed at which cold storage expands in India.

  1. Consumer demand for chilled and frozen foods initially depends on a cheap and reliable domestic electricity supply. Once fridges and freezers have been purchased and people have embraced such foods, power outages and rising electricity costs will not force consumers to revert to old eating habits. They would rather eat less frozen and chilled foods.
  2. Social pressure in South Africa to consume chilled and frozen foods (derived mainly from TV advertising and sitcoms), has changed lifestyle perceptions. (it is not unknown for female visitors to quickly check the contents of the fridge/ freezer to assess a host’s “status”). Indian traditions in this area may be different and restrict the spread of frozen and chilled foods.
  3. Roads need to be of a standard to allow large refrigerated vehicles to move quickly and reliably between the main cities, ports and production areas. If India’s extensive rail network can accommodate new cold chain requirements, it could capture a percentage of this new business. In South Africa, rail service levels were considered inadequate and the business swiftly moved to road.
  4. In the initial expansion of South Africa’s cold storage industry, the emphasis was on “space”, as the volumes requiring storage were equal to or greater than the space available. Service levels were of secondary importance and storage costs rose. After 17 years of expansion, South Africa is beginning to see the emphasis move to service levels and pricing as an economic downturn has decreased storage volumes and created free space. Electricity costs, which have tripled since 2000, are also driving efficiencies. That said, several stores have been visited recently where freezer doors remain open for long periods without even strip curtains.
  5.  In recessionary cycles, initially cold stores fill as retail sales decline although throughput volumes, another major revenue stream, decline. After eight to twelve months, if growth is still stagnant, processing plants close, which cuts the demand for cold storage on a more permanent basis.  
  6. Likewise, there is now emphasis on the use of high quality cold store protective clothing, motivated more by improved productivity than health, real time warehouse management systems and racking systems to increase capacity and accessibility.

If you intend to build a chilled or freezer store in India, the following should be considered.

  1. Make your chambers as high as possible. The South African norm is now between 12 and 14 metres.
  2. Always make sure your property is at least spacious enough to double if not triple cold storage capacity in the future.
  3. Build your store 1.3 to 1.35 metres off the ground to keep your freezer and airlock at truck level. This significantly increases throughput volumes.
  4. Build your store from fire resistant panel and spend money on fire prevention systems while avoiding the use of sprinklers especially inside the freezer chambers. Oxygen reduction systems are worth considering.
  5. Consider racking systems which combine high practical capacity with immediate pallet accessibility. My company advises on the design and installation of mobile racking. In phase one of any cold store development, consider the installation of mobile rails. The mobile bases can be added later with minimal disruption to double the practical storage capacity. Mobile racking doubles pallet throughput when compared to a block stacked store as well as minimising stock losses, product damage and poor stock rotation.
  6. Design the roof structure to carry the additional weight imposed by PV panels. You may not install them immediately, but in five years they will be standard.
  7. Don’t buy a refrigeration system solely on capital cost. Ammonia systems are more expensive than Freon ones but for rooms of over 900 frozen pallet capacity Ammonia systems are more efficient and last longer.
  8. Always harvest rain form your cold store roof. You can install a generator to cope with power outages, but cold stores need approximately 65 to 70 Litres of condenser water annually per cubic metre of freezer space. A 1000 hectolitres of water storage at a 10,000 pallet freezer store will last perhaps four months in a drought.  
  9. If your business combines bulk storage with case picking, don’t case pick in the airlock. Look for imaginative ways of doing this inside the freezer store while preserving storage space and increasing picking productivity.                     

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