Strong and enhanced warehousing in 2021

The recent JLL report says that the warehousing demand is expected to grow around 160 per cent to reach 35 million sq. ft. in 2021. CARGOTALK speaks to industry experts and discovers the industry’s readiness to the growing demand and sectors which will be contributing to this growth.

Kalpana Lohumi

Rajesh Jaggi, Vice Chairman – Real Estate, Everstone Group

The government’s priority is to make India a global manufacturing hub, which has led warehousing clusters to expand rapidly beyond Tier-I cities and capitalise on the potential of demand in Tier-II and III cities. The automobile sector is expected to grow; it is already relying on specialised warehousing for the final assembly of parts and is paving the way for this sector to evolve into a major support infrastructure for manufacturing. Electronics and pharmaceuticals companies are likely to focus on Bengaluru and Hyderabad, while the automotive segment’s focus is likely to be on Pune and Chennai. Some of the other sectors that will drive growth are retail, 3PL and FMCG.

One of the significant growth drivers is the need for temperature-controlled storage facilities, especially in the pharmaceuticals space owing to COVID-19 inoculation programmes. India is a major manufacturer and global distributor of vaccines and other pharma products. Its role is expected to expand further, which requires associated infrastructure to support a temperature-controlled supply chain.

Shift to Internet of Things

Warehousing players have started to invest more in automation and mechanisation for contactless operations. Some of these warehouse technologies are smart analytics, warehouse management system, warehouse mobility solutions amongst others.

For efficient operations, the Indian warehousing sector is gradually shifting to Internet of Things (IoT). The industry has also started integrating sustainability into its standard operating procedures. Companies are adopting designs and practices that reduce their carbon footprint and operating costs.

Manufacturing companies are focusing on reducing inefficiencies in the supply chain, which happened due to the pandemic, by increasing availability of their products closer to consumption points.

Smarter, Speedier, Sustainable (3S) warehouses

Smarter: For a modern warehouse, the association between technology and people is important. The advantage of technology is it being real-time regardless of environment and location.

Speedier: Robotics and other automated solutions are decreasing the amount of time personnel spend on travel within warehouses. These reductions naturally lead to a boost in efficiency, simplification of manual tasks and lower costs.

Sustainable: The sector is integrating sustainability in its standard operating procedures. Designs are being adopted to reduce carbon footprints and sustainable technology needs are being incorporated for businesses to operate more efficiently.

Redesign warehouses to protect workers

Companies are focusing on redesigning warehouse facilities to protect workers while ensuring that picking, shipping and delivery are carried out smoothly. To this end, warehouse operators are introducing a variety of measures such as dividing operating hours into distinct shifts, separate picking and packing zones, reducing movement of workers within the warehouse.

In-city warehouses

As organisations compete to make faster and more frequent B2C deliveries throughout the day for select time-sensitive SKUs, the demand for Grade A, compliant, multi-storey warehouses will see a spike in the near future. While only about 15 per cent of total warehouse inventory in India is Grade A, the need for fully compliant properties that increase the efficiency of the supply chain continues to gain momentum. With improved road connectivity and the ‘Make in India’ initiative, the need for modern, large, best-in-class logistics and Grade-A warehousing facilities will increase.

Faster delivery promise

Growing urbanisation and e-commerce penetration has resulted in customers demanding faster and timely fulfilments. In populous and urban locations, the e-commerce sector is rapidly transforming from a two-day to a two-hour delivery model for select SKUs. Presently, this is mostly popular for grocery /FMCG and other time-sensitive SKUs.

Anshul Singhal, Managing Director, Welspun One Logistics Parks

The warehousing and logistics sector has emerged as the most crucial lifeline for industries at large, as the pandemic changed the way businesses were functioning. Social distancing, restricted movement and general fear of stepping out of home pushed the needle towards online shopping, leading to an exponential adoption of e-commerce, thus making warehousing an obvious beneficiary. The spike in online shopping in metros as well as in Tier-II and III cities has led to a huge demand for warehousing to come from e-commerce players.

Additional warehousing demand drivers are 3PL and express logistics companies which are growing at a massive pace with a focus on Tier-II and III cities. Online grocery players have also been one of the biggest beneficiaries of the digital shift as focus moves towards hyperlocal deliveries. When it comes to cold chain demand, since grocery players have switched to e-commerce, there is an increased need along with the rising e-pharma cold chain needs as well.

In-city & multi-storey warehousing

With the introduction of same-day/next day deliveries, shrinking timelines owing to easy return policies, overall shorter supply chains and the rising popularity of daily online orders, there is a need for in-city and multi-storey warehousing requirements. The emergence of many online-only brands in Tier-II and III markets, which need warehouse space but no retail space, has led to the growth of demand for Grade-A warehousing, even in the hinterland.

Companies focusing on last-mile or express delivery such as grocery players like D’Mart are also using spare real estate like malls or their retail stores as dark warehouses, to concentrate on 2-4 hours or same-day delivery to end customers. Players like Amazon are not only acquiring large automated warehouses on lease, but have also globally started acquiring a fleet of airplanes, multi-billion-dollar warehousing robotic companies, and are experimenting with drone deliveries just to be able to reach customers faster. Warehouse automation is being preferred as it aids in streamlining operations, increasing efficiency and reducing costs. Smart, Grade-A warehouses are therefore becoming an obvious choice as they seamlessly integrate technology with operations.

India faces a fundamental lack of Grade-A warehousing with only approximately 100 million square feet of modern warehousing stock. Spurred by COVID-19, Grade-A warehouse demand has taken precedence in India and with an emphasis on compliance, speed and quality. These Grade-A facilities will become commonplace and replace the older, less-efficient vestiges of the erstwhile godowns.

Praveen Vashistha, Founder & Director, Gxpress

The COVID-19 pandemic had an unprecedented effect on the global economy as most of the countries were shut due to lockdowns. But in Q4, the market started gaining momentum with the increasing supply and absorption in 2020 post lockdowns. According to the recent JLL report, industrial spaces witnessed a 13 per cent Y-o-Y growth in total stock in Grade A & B warehousing space in top eight cities. As digitalisation is booming, consumer behaviour is changing and people are turning to online channels. As a result of which many e-commerce sellers are expected to do well, 3PL has become one of the fastest growing segments in the warehousing space, contributing about 35 per cent of the total net absorption in 2020. COVID-19 has accelerated the e-commerce adoption rates by 42 per cent during the lockdown period, leading to an upsurge in the demand for online delivery of essential and non-essential items. Also, post COVID-19 many end users and tenants have looked for new and innovative ways to take up spaces on short-term or temporary leases for a tenure of 9-12 months for leasing of ‘white spaces or unused spaces’ in existing leased warehouses on sub-lease. This has also led to an increase in the warehousing demand which is expected to grow by 160 per cent in 2021.

Supportive government policies

Warehousing demand has been increasing in 2021 due to an upsurge in the demand of pharmaceutical warehouses, cold chain, growth in e-commerce and organised retail. Furthermore, supportive government policies such as establishment of logistic parks and free trade warehouse zones are expected to spur the market growth through 2025. Also, introduction of GST has led to reduction in inventory and turnaround time, which has led to the removal of check points thereby diminishing state boundaries. Also, the government is introducing export benefit schemes so that India can increase its export share in the global share. Industries are introducing new strategies to meet the demands of warehousing, one of the best examples being the introduction of Seller Flex by the online channels which allows the building owners or the factory owners to lease their unused space for a fixed time contract.

Based on usage patterns, the market can be split into single and co-warehousing segments. The co-warehousing segment is expected to witness significant growth in the market through 2025. This can be ascribed to the increasing demand for last-mile distribution and growing preference for co-warehousing among manufacturers, suppliers, logistic companies as well as start-ups. Additionally, co-warehousing provides flexible storage that can help businesses meet their needs and give them a better control over their budgets. Co-warehousing provides scalability and helps in reducing overall operational costs.

Lancy Barboza, Managing Director, Flomic Global

The projected growth in warehousing demand is an indicator of the confidence that industry players have on Indian economy. Post lockdown growth and increase in demand seen across sectors in India has surprised many who had painted a pessimistic view of the Indian economy during the lockdown.

The warehousing demand will be driven by e-commerce sector, FMCG and infrastructure related sectors. More and more customers are now looking at pallet wise costing from 3PL service providers and are no more interested to lease warehouse themselves on long-term basis.

Therefore, to an extent we can say that 3PL logistics service providers who give comprehensive pallet wise storage solutions and costing will drive the warehousing demand. Automation, mechanised handling, cloud based software solutions will be the key to reduce inefficiency in the sector.

Making non-agricultural land available for construction of large warehousing parks,  better road and rail connectivity to these warehouse parks will eventually help to reduce the overall logistics cost in India.