Warehousing: The new organised market

Warehousing is set to enter a new phase of growth with the entire e-commerce concept picking up pace. CARGOTALK delves into emerging trends, opportunities, and government policies that have helped the industry grow and challenges that need to be overcome to make full use if its tremendous potential.

The warehousing industry, without a doubt, has transformed tremendously from a mere amenity-less storage space to the pillar of a thriving manufacturing and booming e-commerce industry in India. A warehouse is the fulcrum for procurement, manufacturing and distribution services, which collectively build robust economies. Introduction of Goods and Service Tax (GST), grant of infrastructure status to logistics (including warehousing), and the ‘Make in India’ campaign are changing the face of Indian warehousing. An ICRA report also states that the industrial warehousing segment has witnessed rapid growth in recent years due to healthy demand from occupants in sectors such as automotive manufacturing, third party logistics services, and e-commerce.

Commenting on emerging warehousing trends in the Indian market, Praveen Dadala, Managing Director, AWOT Global Logistics (India), says, “The warehousing business is emerging out of the shadows. The new e-commerce-driven economy along with increasing FMCG and other manufacturing bases are creating a big quantitative and qualitative shift in the Indian industry. The main thrust is in its ever-growing thirst for more space, and search for branded players who are well-versed in conducting world-class 3PL logistics. The industry is maturing at a rapid pace and it wants continuous efficiency in handling supply chains. In India, this is evidently clear with the induction of more capital, bettering of infrastructure, and availability of a range of quality offerings from both international and domestic players.”

Warehousing in India has travelled far, from glorified godowns to the modern, technically fitted floors with computerised specifications, shares Vikas Yadav, Director, Future Warehouse Solutions. He further adds, “The formerly concrete or low-grade steel godowns are now increasingly being replaced by pre-engineered, factory-produced steel structures which are often assembled at location. These modern warehouses are insulated, ventilated, and climate-proof with round-the-clock surveillance and standard quality and safety procedures. In keeping with the demand, warehousing-related sectors such as real estate and construction have resultantly seen an upward trend in cost, hence warehouses are now looking at optimum utilisation of space per square foot along with options of more economical, yet sturdier structures.”

Abhishek Bhardwaj, Chief Marketing Officer, Shristi Infrastructure Development Corporation, feels that warehouses have become a fundamental part of business infrastructure and one of the key enablers in the global supply chain. He says, “Over the years, the industry has come a long way and become an integral part of the manufacturing and e-commerce industry. Driven by the nature of the business and technology, warehousing is a fast-evolving sector today undergoing substantial changes from being just brick-and-mortar shelters for the purpose of storing goods to highly sophisticated and technologically advanced stockrooms with sorting, packing, blending, and processing facilities. Private players have sensed this opportunity and have ventured into the sector with a view to bridging the gap between cost and efficiency of operations.”

According to Aditya Virwani, COO, Embassy Group, the Indian warehousing sector is in a positive place this year. “This industry has been seeing steady growth since 2017, when the sector acquired infrastructure status. Easing of government regulations and structured reforms like implementation of GST, setting up of a logistics department in the ministry of commerce, and other policy changes have motivated further confidence in this segment. Growing manufacturing activity, rising domestic consumption, increasing international trade, emergence of organised retail in the country, increasing private and foreign investments in infrastructure along with e-commerce boom will keep this robust development active for the next few years to come,” he says.

Virwani also adds that apart from simply being conventional storing services, warehousing now provides many value-added services. “Warehousing and logistics players are increasingly partnering in adopting modern solutions to handle inventory management, usage of fleet management software, and RFID systems. A strategically placed and well-planned warehouse not only improves consumer services but also facilitates a competitive advantage through efficient supply chain economics. At this rate, the current warehousing space is said to double in three years, by 2022,” he explains.

Sharing his perspective on both structural and operational reforms, Ankur Minda, General Manager (Land & Leasing), Allcargo Logistics, says that the warehousing sector in India is going through a transformation. “From a fragmented sector to an organised one, consolidation of warehouses from smaller ones to a few larger ones, introduction of automation, transformation of warehouses from storage providers to value-added service providers, and increase in the number of institutional funds investing in this space are some of the emerging warehousing trends. Owing to all those developments, warehouse inventory turnover has increased, so has profitability. Automation has enhanced the quality of service and efficiency of warehouses in a big way,” says Minda.

To this, Yadav adds that riding on structured reforms, technological advancements and higher efficiencies, the logistics and warehousing sector is estimated to grow at a 9.5 per cent CAGR and attract nearly $10 billion investments over the next five years.

Zeroing in on location
Commenting on the present demand for setting up a warehouse, Bhardwaj says, “With occupiers now moving out of their smaller warehouses and consolidating their activities in larger facilities, the demand for large warehousing spaces has increased big time.

More than half the modern warehousing capacity in India is concentrated in the top six cities – Ahmedabad, Bengaluru, Chennai, Mumbai, Delhi-NCR and Pune – with Hyderabad and Kolkata being the other major markets. However, Tier-II cities like Asansol and Siliguri in West Bengal have come up with advanced and organised facilities of warehousing.”

On these lines, Dadala notes that there indeed has been a considerable percentage of growth in Tier-I locations like Mumbai, Delhi and Chennai, but what is even more heartening to see is that even Tier-II cities like Hyderabad, Pune, Kolkata, etc., are logging good growth figures due to the fact that GST is a unifying factor across states. These cities are located in strategic geo positions and enable quick storage and distribution to their end-customers.

According to Yadav, implementation of GST and the rapid growth of e-commerce have created a significant growth prospect in warehousing, necessitating the building of large-scale warehouses across various locations.

Adding to that, Minda says, “Apart from these eight key cities, a key trend emerging now is the growing demand for warehousing and logistics space from Tier-II cities like Coimbatore, Guwahati, Lucknow, Jaipur, and Ambala.”

Providing another angle to the emergence of Tier-II and III cities as a major focus area for warehousing, Vaibhav Rathi, Executive Director, Satvik Logistics, says that though he agrees with the trend, these cities are primarily driven by e-commerce demand alone. Other buyers have demand close to the metro cities.

“The current government’s focus on boosting the infrastructure of the country has acted as a catalyst for investment in warehousing,” says Yadav, adding that Tier-II and III cities would continue to provide a huge potential for the warehousing industry. Development of airports, shift of the manufacturing base to these cities, growth in demand for consumption and industrial use, and development of the road network are factors that provide huge potential for growth of warehousing.”

He also shares that as compared to these eight Tier-I cities in India, there are as many as 3133 Tier-II and III cities with one-third of India’s population residing there. This implies that e-tailers and the anufacturing sector cannot ignore the potential, resultantly leading to a higher demand of warehousing services.

Friendly policies
The warehousing sector is getting the desired attention from the government. Commenting on the role the government has played in boosting the sector, Virwani says, “The Indian government has implemented investor-friendly policies. GST and Make in India have benefitted infrastructure growth, especially for the logistics business. The government looks forward to launching multimodal logistics parks and will introduce a host of policy-level changes that allow ease of doing business. There is an ongoing change in the documentation process and time taken for procedures. With complete consolidation, the future looks extremely bright.”

Dadala also shares a similar opinion and says that the government’s main thrust on improving road infrastructure and aiding or setting up of multimodal logistics parks is a key encouragement driver for industry aspirants and existing players.

“A 100 per cent Foreign Direct Investment (FDI) in the storage and warehousing sector under the automatic route has been permitted since several years. In addition to this, the recently-announced infrastructure status to the logistics industry will enable companies in the logistics and warehousing sector to access funds at a lower cost, for longer tenure, and with enhanced limits,” notes Yadav.

Highlighting another positive move of the government, Minda points, “Development of industrial corridors like the Delhi-Mumbai and Delhi-Kolkata network has created demand for warehousing.”

Praising the government initiative of granting infrastructure status to the logistics industry (including warehousing), Rathi says, “This initiative has eased loans and borrowings from the banks.”

Concerns and challenges
Despite offering huge growth potential and undergoing drastic change, there are challenges that still remain in the warehousing industry. Listing the top two challenges and how the industry is trying to overcome them, but in vain, Virwani says, “Land laws in India are very complicated. Buying a big tract of land in this country is always a big challenge. The multiplicity of laws and government agencies make this process tedious and expensive. Another big challenge we foresee is solar roofing. State laws show disparity and do not encourage it, hence, despite our willingness to incorporate solar roofing and provide green energy to our clients, we are unable to do so.”

Rathi also foresees an oversupply of warehousing facilities in the next five years. According to him, the industry is heading towards a bubble.

Bhardwaj adds that the lack of integration in transport networks, information technology, and warehousing and distribution facilities are hurdles to growth. He feels that rules and regulations are different at different stages. “There is a dearth of trained manpower that is necessary for the third party logistics sector. Poorly managed facilities are the reason for heavy losses. We often see damage to and deterioration of stock, mainly in the perishables sector. Proper refrigerated cold storage, containers, and maintenance are a must,” he shares.

“India’s logistics industry has been adversely affected by the lower standardisation of cargo and containerisation of logistics traffic, hampering the overall speed and thus increasing cost of storage and movement,” feels Yadav, adding that the need for large capital investment and issues related to land acquisition have also hampered the growth of the sector. “However, with expected increase in investment by international players, the gap in funding requirements is expected to be addressed in the future,” he adds optimistically.

Minda says, “Real-time analysis of data is a challenge, however, Big Data analytics can help by identifying patterns. Also, underdeveloped material handling infrastructure is a key issue, but this can be sorted by technology infusion. Since land acquisition in strategic locations and proper approvals are key challenges, single-window clearance will accelerate the process.”

Opportunities remain
Yadav strongly believes that the industry is on the cusp of a turnaround and the current environment is likely to accelerate progress, considering the interest from government as well as private enterprises. He says, “The changing business and regulatory scenario has created a need for eliminating the excess flab in the logistics chain, thereby bringing in efficiencies at all levels. A boost to the warehousing industry has been provided by various factors which include steady growth in India’s economy, globalisation, economic reforms such as gradual rationalisation of tax systems, better connectivity, and improved communication infrastructure.”

Minda is of the opinion that organised retail, information technology, telecommunications, and healthcare generate a strong warehousing demand, and that free trade warehousing zones (FTWZs) and logistics parks attract investments.

Dadala also feels that as India moves forward as a strong economy, the warehousing industry is bound to see strong growth.

Yadav stresses, “The freight-only corridors and waterways will play a vital role in this industry as this will reduce the time in transportation and movement of goods can be faster, which will make it cheaper and more reliable to move goods between industrial heartlands in the North and ports on the eastern and western coasts. A lot of infrastructure investment is required to develop these dedicated corridors and waterways for boosting the warehousing industry.”

“Growth in consumption, organised retail, logistics outsourcing, regulatory interventions, private investments in logistics, and other infrastructure developments such as dedicated freight corridors will improve prospects of the organised professional warehousing segment.” concludes Virwani.