What is Cold Storage Business – A Layman’s Guide to Get into Cold storage Warehousing Business

In recent years the demand and supply for various products such as fruits, vegetables medicines etc., have drastically increased and this has created an opportunity for the storage and logistics business sector. Especially, the cold storage business has gained a lot of popularity in recent times. If you are also interested in starting a cold storage or looking to use cold storage for your business, then you should definitely take a look at time article

What is a Cold Storage?

A cold storage is an insulated structure where the temperatures are maintained at lower levels such that products that are known to easily perish such as vegetables, fruits, seeds, medicines, and vaccines can withstand for a longer period of time. Storing products in cold storage helps protect the shelf life so that the products can be ready to use even after longer durations.

What is Cold Storage Business and How Does it Work?

Unlike the normal warehouses that you see, a cold storage business comprises a wide variety of storage solutions that enable one to store, pack and transport temperature-sensitive perishable products. This includes large cold storage warehouses, freezer trucks, industrial cool rooms, walk-in cold store, and refrigerated containers. Cold storage business runs by, leasing out a certain amount of space or providing cold chain logistics support to other businesses that require space to store their temperature-sensitive products

Who requires a Cold Storage Warehouse?

A cold storage is an important requirement for various businesses such as Food and Beverage Industry, Pharmaceutical and Biologicals Industry, Fruits and vegetables supply businesses, meat and poultry business, and chemical and hazardous materials, etc., Most of the products that are produced under these categories are known to perish quickly if they are not maintained under a controlled temperature. Hence these businesses usually have an inbuilt cold storage warehouse or lease out third-party cold storage solutions

How Profitable is Starting a Cold Storage Business?

Starting a cold storage business is definitively a lucrative one. Unlike other warehouse leasing businesses, a cold storage business involves use of high-end infrastructure, skilled workers, stringent safety measures, and many more., Due to such things leasing a cold storage or even renting just a pallet can cost around $30 – $ 150 per month. Making it a source of sustainable income for the cold storage warehouse owner

To put it in simply, a cold storage warehouse offers 20-25% more return on income when compared to running a normal warehouse

Moreover, if cold storage is located within the vicinity of large metropolitan cities the rates of leasing such warehouse can be very high

Analyzing the Market Potential of Cold Storage Warehouse

In recent years, the demand for cold storage warehouse has drastically increased. According to a report the cold storage warehouse industry in U.S has experienced a 43% increase in capacity since 2000.

Not just United States, the demand for cold storage has significantly increased in several developing countries too such as India, China, Brazil, and Vietnam

According to a recent report, the global cold storage market is expected to reach USD 427.6 Billion by 2030

What’s more?

There has been a steady increase in big investors turning up to the cold storage business. for example, according to Wall Street Journal, Lineage Logistics, a global leader in the temperature-controlled industry raised $1.9 billion in fundraising to expand its market potential

According to Colliers report, cold storage has recently emerged as one of the lucrative asset classes in Hong Kong. Due to pandemic COVID-19, Hong Kong has seen a 49% increase in the demand for imported frozen food over the last three years.

Why is Cold Storage Business gaining popularity these days?

There are 5 main reasons cold storages are constantly increasing now a days. Here are top 5 reasons

1. Increased consumption of frozen food

Although, frozen foods are not new; their demand has significantly increased in several developing nations like India, China, Vietnam, and Brazil as well as many African countries. With an increase in the consumption of frozen food; the demand for cold storage warehouses as well as other cold storage supply units had increased

2. Population Growth

Growing population means there are more people to feed and to do that food production had to be increased. This means, that any government should not only focus on simply producing food but also try to increase the storage capacity such that it is self-sustained and balances its economy

3. Globalization and e-Commerce Growth

The 21st century is experiencing an enormous globalization. This has created an opportunity for several e-commerce companies to come up with new ideas, especially in the FMCG industry. Due to this there is a steep increase in demand for groceries, ready-to-cook foods, frozen foods, cosmetics nutraceuticals etc., which essentially require cold storage services

4. Urbanization

With globalization, several nations are now opening up trade routes and also welcoming new businesses to establish. This is creating an enormous job opportunity in cities, attracting people from the countryside, and small towns to live in cities – due to this lifestyle habits are changing where the customer has to definitely spend on an item at least once a day that requires cold storage. For example, milk packets, curd, yogurt, soft drinks and beverages, etc.,

5. Demand for Medicines

Several life-saving drugs and vaccines require cold storage to ensure they are safely stored and ready to be sold to the consumer. Moreover, there has been an increase in several diseases due to life style changes and environmental changes; which had created an opportunity to produce several healthcare products and medicines that are imported and exported globally at a staggering rate. This is also another factor due to which cold storage demands are increasing

So, How Does a Cold Storage Functions?

Cold storage is an insulated space designed to maintain a specific temperature for the storage of food, medicines, and chemicals. These temperatures are controlled in an optimum level by using HVAC systems– Heat ventilation air conditioning systems

To understand the functioning of a typical cold storage, you need to know about some basic components that are used to run the cold storage such as…

Coolant

Also called a coolant or refrigerant is one of the important things in cold storage. Usually, coolant will be in liquid form (mostly anhydrous ammonia). This coolant circulates continuously via tubes, pipes and other components to maintain the optimum temperature in the cold storage

Compressor

A compressor is a mechanical component that helps to keep the coolant running throughout the system. It does this by compressing the coolant to high pressure and temperature and pumping it into the condenser

The Condenser

A condenser basically cools down the heated coolant by dissipating the heat into the atmosphere by using water spray, fans, and tubes. This leads to changing the state of the coolant from gas to liquid which then flows into the receiver.

Receiver

The receiver helps in storing the high-pressure liquid coolant condensate that is received from the condenser. This component helps in controlling the pressure of the whole system as well as providing a buffer when more cool air is required

When a load is increased or if the temperature needs to cool down more, the receiver releases the refrigerant into expansion value which controls the pressure, and temperature and also releases the coolant to the separator

Separator

This equipment works basically on the principle of centrifugal force. The refrigerant is spun at a high speed, leading to the separation of oil and coolant due to the difference in density. The oil is then collected at the casing of the separator and is returned to back to the compressor. Whereas the coolant continues to flow through the tubes

Evaporator

Like the other components evaporator plays a crucial role in the cooling system. It is also called with other names like freezer and chiller. Here the chilled coolant is flown through series of tubes; simultaneously warm air is circulated through the fins; Due to this contact a cooling environment is created, with the help of fans this cool air is circulated through the cold room

What are different Types of Cold Storages

There are four major types of cold storage according to their usage and functionality.

1. Frozen Cold Storage
2. Refrigerated Cold storage
3. Fresh Produce Cold storage
4. Blast Freezers and Chillers
5. Air conditioners

Let’s discuss each one of them

Frozen Cold Storage ( -16℃ to -26℃)

These are the highest-grade cold storage that is used to store frozen items that are to be stored at very low temperatures. This includes packaged chicken, peas, sugared fruits, beef, veal, lamb, turkey and fish.

The concept of frozen cold storage are the items are maintained at the lowest temperature to ensure they can be stored for longer periods of time without losing their quality

Not just food items, ultra-cold freezers are very important for storing biologics samples especially, Vaccines are stored in this type of cold storage to ensure their effectiveness and safety is not compromised

These types of cold storage uses air blast freezing technique to ensure the products are rapidly cooled in a short span

Refrigerated Cold Storage (-1℃ to  -4℃)

These are cold storage units similar to ultra freezers but with much lesser temperature capacity. Refrigerated cold storage is mainly used to store concentrated fruit juices, buffers used in manufacturing medicines, fresh meats, poultry, and seafood. These freezers are mainly preferred if the stored items need to be used as soon as possible

Fresh Produce Cold Storage ( 0℃ to 8℃)

This type of cold storage is commonly used to store fruits, vegetables, and Milk products. This type of storage doesn’t freeze the products. Instead, they maintain a temperature that can retard the activity of microorganisms

Cold storage units used to store potato’s, chilies and common food grains are mostly stored under this storage temperature

Blast Freezers (-10℃ to -120℃)

The most advanced and costliest equipment for cold storage are blast freezers these are special freezers that can reduce the temperature of the product to extremely low within hours. A blast freezer typically needs to reduce a temperature of +70℃ to -18℃ not more than 240 minutes. These types of freezers are highly used in the life sciences sector.

Air Conditioners (10℃ to 25℃)

These are the most economical freezers used in supermarkets, stores, and shops. They basically do not freeze the product, instead, they just pass a cool breeze to the surroundings. For example, fruits such as bananas, citrus, cucumber, onions and squash are stored and transported under these conditions

Cold Storage Business Plan – Investment, Profit Margin and Resources

Let us look into the business plan to start a cold storage business which covers all the important aspects from Investment to Profit Margin

In general, the business plan for a cold storage is little complicated to understand. Hence, we are trying to put it in simple words without going into too much details. So you can get a basic idea on the topic first

Investment requirement for cold storage

Although cold storage business is usually regarded as high investment business; You still have several ways where you can run this business economically

For example, you can start a small chain of refrigerated trucks logistics business and act as a logistics partner for transporting the products. For this type of business, you need an investment of $100,000 to $200,000

Or, you can work as a supplier for renting mobile cold freezers which are used to store ice cream, fresh produce to supermarkets or stores. For this type of business, you need a capital of $50,000 to $100,000

On other hand, the cost of starting a large cold storage warehouse is something that requires lot of research and groundwork due to the scale of the construction plan, design, equipment, and services it can offer.

For example, a cold storage facility of 15,000 to 25,000 cubic meters needs an investment of Approx $500,000 to $2,500,000 (50 Lakhs to 1.5 Crore) These types of cold storage warehouses are usually very large in size and has high storage capacity and infrastructure

Here are some major factors that influence the investment of cold storage business

Location of the Business

Location plays an important role in the cold storage business, if your business is located within the city, you have a high chance to deliver and run the business quickly and has better chance to acquire new customers

If you are looking to establish a large cold storage warehouse facility especially like storing fruits and vegetables then, you may have to look for a location in countryside where high agricultural activity is observed

If your business is closely associated with shipping industry then you must look for a location near to shipyard so that you can, transport the products easily to the shipping containers

Type of Product Stored

The cold storage business is highly dependent on the products that you store. For example, cold storage that stores vaccines, lifesaving drugs, and blood samples is generally costlier when compared to other types of cold storage such as plants, fruits, vegetables, and dairy products

Basically, your investment goes up if you are storing a product that needs utmost care and is extremely prone to minor fluctuations in temperature (such as Vaccines)

Size of the Cold Storage Facility

Cold storages are available in different sizes, and one must know that size of the cold storage plays a crucial role in deciding the investment as well as calculating the price for leasing.

The calculation of cold storages capacity usually comprises two important things

• Calculate the Actual space of the cold storage
• Weight of the items stored per cubic meter.

Calculation of storage capacity of cold room = Internal volume of cold storage room X Volume utilization factor X Product unit weight

A customer who is looking for a cold storage space usually go through this calculation to get the final price for leasing a space

Different Types of Cold Storage Facilities

Here are different types of cold storage facilities popular throughout the globe

Cold storage containers

Most of the cold storage containers are available in three sizes 10ft, 20ft and 40ft. This type of container are mostly used for cargo shipments and refrigerated storage trailers

Cold storage room

They basically look like a single room encapsulated in an insulation material. They are available in different sizes. These are also commonly called as Walk-in coolers or walk-in chiller

• 20 X 10 X 10 FT
• 10 x 10 x 10 FT
• 6 X 6 X 8 FT

Most of the cold storage rooms have a capacity of 500 Kg to 2 Ton capacity with a 2 – 3 phase power supply and mobile cooling system.

These are common choices for the pharmaceutical industry and supermarket stores

Controlled Atmosphere Cold Store

These are typical large cold storage facilities that you see in countryside, towns or urban outskirts. They are mostly used for storing fruits and vegetables. These are also commonly called chillers.

In CA storage, items are not frozen. Instead, the food items are maintained at a controlled temperature such that they can be stored for long term usage.

Foods such as Chilies, Apples, pears, Kiwis, and processed foods extensively use controlled atmosphere storage units. Moreover, these are highly expensive storage units that require a lot of investment, manpower, logistics operation, and security measures

Frozen Cold Storage Facility

This type of storage facility stores the items at ultra-low temperatures and requires a high amount of energy. They are best used for storing vaccines, pharmaceutical drugs, and Seafood.

A frozen cold storage facility usually stores the items at temperatures ranging from -15℃ to -25℃. At this temperature, any molecular level activity inside the cells is seized and completely slowed down. This ensures the products remain intact without loss of quality

Services Being Offered

The investment of cold storage business highly depends upon the services being offered. A cold storage is capable of offering different services that can increase its value and business. Here are few services that can be offered

• Packing and Labelling services
• Inventory management for the customer
• Direct shipping and receiving

Resources Required for Cold Storage

A full-fledged Cold storage ware houses requires several resources to operate such as

Electricity

Refrigerated warehouses require a high amount of electricity to run the unit efficiently. When compared to normal warehouses, cold storage warehouses consume high amount of electricity. The electricity consumption ranges 40 to 60 Kw-hours per square foot per year. Out of which 70% is utilized by the refrigeration system. Hence one must make sure to set aside budget for power consumption while starting a cold storage facility

Water

In order to maintain the temperature and keep the heat at bay, Cold storage requires a high amount of water. On average a large-sized cold storage can consume around 50,000 to 60,000 gallons per day or even more

Due to such large consumption the cold storage company needs to obtain special permits from governments to utilize the high amounts of water

Inventory Management

Any warehouse to lead a sustainable business needs to have a proper inventory management system in place. It basically helps the warehouse track the space utilization, and movement of products and forecast the supply and demand

There are multiple methods to manage inventory such as using inventory management software tools and adapting to ASRS. Keeping a track of your logistics movement by using a TMS tool

Manpower

A significant number of workers as well as Technicians are necessary to operate the cold storage efficiently. On average at least 10 – 15 workers are necessary to operate a medium-large scale cold storage facility

Here’s a breakdown of employees basing on their tasks

2 No’s – To Handle office work, computer knowledge, and can operate the Inventory software.

3 No’s  – Janitorial services

3 No’s – Forklift operators

2 No’s – Technicians who can operate and troubleshoot cold storage machinery

Cold Storage Grade Equipment

Not all equipment is suitable for use in cold storage facilities. As the equipment within cold storage is continuously subjected to cold temperatures, they are prone to malfunction. Hence one must ensure equipments used in the facility meets the standards

For example, Toyota has forklifts for cold storge facility which are specially engineered to operate in cold and wet environments

On the other hand, it is common to have a barcode reader or hand-held mobile computer used in cold storage facilities in such cases you should look for a freezer grade hand held mobile computer

Profit Margin in Cold Storage Business – What You Need to Know?

The profit margin in Cold storage business depends on factors such as type of product stored, seasonal demand, storage facility services and market demand.

Usually cold storage business is considered as high investment business due to the number of resources required to start this business. Especially, if we consider large cold storage facilities they require huge amounts of land, workers, logistics services, machinery, water, and power supply. In addition to this, it must undergo a number of government regulations which take time for approval and investment

Construction of a cold storage facility cost 2X than a normal warehouse On average it costs upto $250 to $400 per sq. ft. So, a large Cold storage facility of around 50,000 sqft can cost around $1 to $2 Million

Moreover, the operating costs such as electricity, shipping, and packing considerably cost thousands of dollars every month

So the staggering investment may take at least 3-4 years to get the total ROI

However, the demand and market conditions for the cold storage business are constantly increasing in every part of the world. So, investment should not often look like a burden.

Moreover, there are several methods in the industry to increase the profitability of cold storage. One of them is, that instead of leasing out the entire cold storage to a single customer, the space will be divided into multiple smaller areas and will be leased at a higher price. Plus, the cold storage owner controls the inflow of multiple owners by hiring workers who do the inventory stocking for multiple customers. So the owner also charges for stocking and retrieval on each pallet or box

So How much does a Cold storage cost for storing Goods

The cost for storing the goods also impacts the profitability of cold storage. There are different ways a 3PL warehouse charge such as Pallet storage fees or cost per Square foot.

Most of the 3PLs often charge storage per pallet and is done mostly on monthly bases. However, some companies prefer to calculate daily or weekly basis too

Here’s a typical cost structure for pallet storage pricing

• Pallet Pricing – $20 – $25 Pallet Per month
• Handling charges for receiving or shipping per pallet – $10 – $20
• Value added services – $ 5 – $ 10

On an average a 3PL cold storage warehouse can charge approximately $40 – $60 per pallet per month. Moreover, the prices can vary depending on the region, availability, services, and the product being stored

Safety Measures to be Implemented in Cold Storage Facility

One must ensure the cold storage facility follows safety guidelines for its workers as well as the facility. Here are quick tips to ensure safety standards are in place.

1. Ensure the facility follows OSHA’s guidelines.
2. Ensure the workers are equipped with PPE.
3. Ensure fire safety equipment is monitored periodically.
4. Ensure all the refrigeration equipment are monitored periodically.
5. Keep safety sign boards.
6. Always have a contingency plan
7. Ensure Medical support is within reach in case of emergency

Conclusion

The cold storage business is a highly evolving business. There are a lot of opportunities and ideas one can leverage to make profits in this business. On the other hand, it is also a business that requires high investment.

Although a high investment doesn’t mean you will be successful at this business. It requires a thorough market research and a strong mindset to get into this business.

Today every nation requires the need of cold storage to make sure it has enough capacity to store food and medicines. Not only that, several FMCG industries are looking for 3PL Cold storage warehouses to store their products and help in reaching large customers.