E-commerce has brought a logistics boom even before COVID-19 but the pandemic has further pushed the business ahead. Eminent speakers put forward their views on how this boom is an opportunity for warehousing players and not a challenge and what could be the way forward for a better future.
With social distancing becoming crucial due to the COVID-19 pandemic, people across the world are diverting to e-commerce for their regular supplies. The pandemic has created new business boundaries and has pushed e-commerce ahead by a few years. And, warehousing being an essential element for management of e-commerce, supply and demand is experiencing a bigger boom. Warehousing is proving to be a resilient sector amidst the pandemic, however the moot question remains, can warehousing withstand the e-commerce boom? The second session of CargoTalk’s digital conclave discusses if warehouses need to change too with the changed stakes for e-commerce due to COVID-19 and the readiness of warehousing industry to meet the surge in demand. The session aimed at brainstorming ideas with three eminent speakers; John Thomas, Group Director, Realistic Realtors & Reach Promoters and Director at CIRIL (Commercial Real Estate Advisors); Naveen Rawat, Director & Co-founder, Holisol Logistics; and Amit Malakar, Chief Customer Officer, Welspun One.
COVID-19 & challenges
Talking about the impact of COVID-19 on warehousing, Thomas says, “Warehousing industry was booming and escalating by leaps and bounds before COVID-19. The virus brought disruption but for a very short time.” He continues, “By the end of this year or early 2021, the industry will bounce back. It has already started and there are certain arenas where the warehousing sector remained positive even during the COVID times as well depending upon the industry.”
Sharing the challenging times given by COVID-19, Rawat says, “Things have started looking better especially on the e-commerce side. For many of our customers for whom e-commerce was just a secondary channel and their primary channel was selling from their stores, have now realised that e-commerce is not a filler but a very important part of their business. In the last four to six weeks the business has gone up to 50 per cent from a single digit market share of e-commerce.”
Commenting on the possibility whether the figure would go back once things go back to normal, Rawat is sure that this change is not only a temporary measure but even as and when things go back to normal, e-commerce would still be an important kind of channel for them. “The growth percentage might not stay at 50 per cent but it will not go into single digit and will definitely not go back to pre-COVID level,” he adds.
Stressing on the technology side, Malakar says, “COVID-19 has taught us few things, such as, how important it is to be digital in our business, consumer’s direct connection to brand, and having multiple stock points rather than one to fulfil the demand quicker, to name a few. We have realised that industry players with robust supply chains and those who were well stocked and well replenished were the ones who survived.”
Coming to the limitations, Thomas says, “The limitations of warehousing industry was and still is infrastructure; mostly an A-grade warehouse. Though it has improvised a lot; the share of A-grade warehouse would rather be approximately 40 per cent as of now and has increased by 20-25 per cent. The other limitation is the process of constructing and making an A-grade warehouse, from land cause to overall construction it includes various laws and implied approvals which take their own time and cost. We are growing and getting towards a more organised way of doing things and I am sure the government agency will definitely support this entire cause and make it more friendly for developers.”
How important is a location?
Talking about the importance of location while building a warehouse, Thomas highlights, “One can create a location hub and build an A-grade warehouse in order to seek good returns out of that. However, when any institution fund buys a land, the overall infrastructure surrounding it, the overall transportation facility and reachability of a particular place from across the region is very important. So, by location, unlike retail or residential, it means more of accessibility from each and every standpoint; entire logistics has to move around on a 24×7 basis. If that is served, the location can be made to the best benefit. And, for that matter A-grade warehouse is very important because even if the location is slightly off but if a developer tends to make an A-grade facility, it is still workable.”
COVID-19 has changed e-commerce for the better and warehousing plays a very important role. Sharing his expectations from warehouse developers, Rawat says, “In the prevailing condition, gradually people have started getting an omni-channel ready or at least started experimenting at a smaller level, but a number of issues need to be figured out and the first is Grade-A warehousing space. With lot of private equity investment coming in, the total share is 40 per cent presently and growing. Hence, there is going to be sufficient availability of Grade-A quality warehousing space.
However, on the e-commerce side, we are getting the requirement of being able to be as close to the customer as possible. Land cost is important, therefore, these large hubs have to be located on the outskirts of the city because firstly land would not be available in the city and secondly it would be costly to do that. While the e-commerce company wants to do a 90-minutes delivery promise to the customer, location has to be taken care of with small space within the city that has to be optimally managed. There is going to be a lot of demand of smaller fulfilment centres with some sort of automation to still be productive and efficient and being closer to the city. This is one area where we feel a lot of warehousing space is going to be required from within the city in addition to large big boxes Grade-A quality spaces which would be required on the outskirts of the city.”
Consolidation or de-consolidation
Calling logistics industry an important contributor to our economy, Malakar says, “There has been a lot of talk about warehouse consolidation over the last five years and now the government is also keen and trying to reduce some cost of supply chain. The warehousing industry has also got infrastructure status. Hence, things are moving in the positive direction in this industry.”
On this Rawat adds, “With GST, the idea was to merge all the warehouses into two or three hubs and serve the entire country because the speed to market was not even a differentiator at that point of time. The emergence of e-commerce has done that today though GST allows you to consolidate all into one, the key business differentiator is to serve your customer faster than your competitor. Consolidation is a long-term process and at the same time the market is evolving and going towards two-hour delivery or 90-minutes delivery and hence more stock points are required.”
“Organised fulfilment centres within the city and Grade-A warehousing space gradually need to expand into larger cities because right now they are probably happening in the top 10 geographies but, moving forward, if we have to give a consistent experience to the end customer we would be requiring that kind of high-grade infrastructure across India or may be across 50 cities,” he continues.
Sharing his thoughts on micro fulfilment centres, Malakar says, “Considering the speed to market factor, micro fulfilment centres are mushrooming already to serve 90-minutes express delivery.”
Technology is the only way to go
Commenting on should we be investing more on technology to sustain in business, Malakar says, “Technology is going to be a very important part of our lives. Everyone needs to be digitally savvy and make sure that their supply chain is resilient enough to reach the market through their warehouses. We have seen FMCG companies who were never on the e-commerce platform are now looking at digital distribution strategy in a big way.
With e-commerce coming in centre, COVID-19 has given rise to the need to have Grade-A warehouses which are fully compliant and can process lot of orders faster. We need people in warehouses who understand basic technology and automation. Hence, people need to be multi-skilled. Taking this forward to the next level since business will move to tier-2 and tier-3 cities, people do not need to migrate to metro cities. With good technology, automation and talent all coming together, growth can be seen in India.”
Is disruptive technology good for the industry?
Explaining why technology cannot be disruptive for the industry, Malakar shares, “With disruptive technology coming in the picture, we have come a long way from godowns to warehouse with cubic capacity. The next level of disruption probably came in where the goods started coming to us and we did not need to go to pick the goods with the help of Automated Storage & Retrieval System (ASRS). The next level is now we could manage everything sitting at home with few people at the site but technology is helping us to manage lot of things remotely. With technology we are able to do things much more efficiently.”
Continuing on the land cost, whether it is really a determinant, Malakar adds, “India is a high-population density country and we need a lot of space for agriculture and for other industries too. We have also seen warehouses setting up in those lands and violating the norms to maximise the space utilisation. But this is not right, every time when there is a violation of statutory compliances, it will affect us in the future. The next disruptive thing in warehousing is going to be utilising the same floor and go high. If we have bought a good and compliant piece of land with all the rights and approvals in place, we can maximise the usage without violating the single rule of the law and try to build multi-storeyed buildings which are as good as building on the floor but with a ramp and with a truck which goes up, and being absolutely compliant. So, there are disruptions at multiple levels; it’s all in the mind. If you are open to new ideas and disrupting known trends then there is lot to be done.”
“Rental upside is another way to look at; a developer is spending a good time and amount of money in building a Grade-A warehouse. But is that recoverable in terms of rental? Government needs to be in hand-to-hand along with us to ensure that warehousing industry booms the way we are aspiring it,” stresses Thomas.
Future is bright
“Warehousing has always been a centre of many sectors, whether it is FMCG, retail, fashion or 3PL companies. Warehouse will not go anywhere, it’s here to stay and become stronger. This entire COVID-19 disruption has made us think on various innovations, initiatives which we should do for our better future such as Grade-A warehouses with better facility and automation for more supplies. Today, we are facing a difficulty of getting a good and ready Grade-A warehouse in a decent location. In Delhi, we don’t have a legally compliant warehouse, the government needs to get in line and give that support and make it smoother for a warehouse to get legally compliant,” says Thomas.
According to Rawat, “Whatever is happening on the e-commerce side is not a challenge to the warehousing players, but it is a huge opportunity and I think together we will all grow and move forward.”