Sunday, July 25, 2021

Table of Contents for Event Focus-India Warehousing Show 2016





Event Focus-India Warehousing Show 2016

Changing Face of Indian Warehousing

 

The Indian warehousing sector is at the midst of a seismic shift in retail & manufacturing industry, e-commerce sector and government policy planning reports Shailaja Sharma.

Warehousing forms a critical link in the overall logistics value chain and constitutes around 15 per cent-35 per cent of the total logistics cost, subject to the type of product and markets served.

Several business models exist within this industry and the key segments include:

  • Industrial/Retail warehousing: accounts for approximately 55 per cent of the total market
  • CFS/ICD: Approximately 14 per cent share
  • Agriculture warehousing: Approximately 15 per cent share
  • Cold stores: Approximately 16 per cent share

Besides the conventional storing services, Indian warehouses now offer value-added services like consolidation and breaking up of cargo, packaging, labeling, bar coding, reverse logistics, etc.

 

SECTORIAL OVERVIEW

The size of the Indian warehousing industry is estimated to be around Rs.560 billion. This does not include the inventory carrying costs, which amounts to another Rs.4,340 billion – (Source: EY Analysis, Crisil Report on Warehousing)

The industry is growing at over 10 per cent annually.

According to property consultant Commercial Real Estate Services (CBRE), the demand for warehousing space rose by nearly 40 per cent during 2015 to an all-time high of about 10 million sq. ft.

“The total warehouse space absorbed in the last one year was close to 1.5 million square feet against 1 million sq. ft. in 2014," Rahul Baid, Head of CorporateTransactions, Champalall & Co., a Kolkata-based real estate company, added.

Geographically, Delhi-NCR and Mumbai witnessed bulk of the leasing activity and constituted close to 50 per cent of the total space absorption in 2015, followed by Bangalore and Chennai.

Key growth drivers included third-party logistics, FMCG, e-commerce and engineering & manufacturing firms.

 

MARKET DYNAMICS

With the gradual upswing in the economy, the warehousing sector is also witnessing a busy turnaround.

Most recently, private lender Lakshmi Vilas Bank BSE 0.84 per cent tied up with National Bulk Handling Corporation (NBHC) for collateral management and warehousing services. The services will allow the bank to provide financial flexibility to farmers, reducing the seasonal price fluctuations and distress sales during crop harvest season.

While on the online grocery front, BigBasket announced that it had raised $150 million in fresh funds. BigBasket, which claims to operate in 18 cities and delivers more than one million monthly orders, largely ships products directly from its warehouses.

E-commerce retail giants Amazon and Flipkart also had recently opened their largest warehouses in Telangana. While Amazon's fulfillment center is 280,000 sqft, Flipkart's covers 2.2 lakh sqft. Flipkart's total number of its warehouses in the country has risen to 17.

Last year, Walmart had announced seven new fulfillment centers (FCs) or warehouses in Ahmedabad, Delhi, Kolkata, Nagpur, Gurgaon, Pune, and Mumbai.

On the government front, State-run Central Warehousing Corporation (CWC) is planning to add 1.66 lakh tonnes of additional storage capacity with a financial outlay of Rs.181 crore this fiscal.

 

FACTORS DRIVING GROWTH

The growth in warehousing in India is primarily being driven by the following factors:

  • 'Make in India' initiative pushing up manufacturing activity
  • Expansion and improvement of road network enabling construction of warehouses in remote locations
  • Rising domestic consumption
  • Attractive investment opportunities for NRIs into domestic Alternative Investment Funds (AIF)
  • Increasing international trade
  • Emergence of organised retail & e-commerce
  • Increasing private and foreign investments in infrastructure
  • Easing of government regulations
  • Rising yields from commercial assets
  • The size and structure of the market has also witnessed a gradual shift over the past few years. According to JLL India, warehousing is seeing higher supply of organised Grade-A and B warehouses.

In 2015, the collective warehousing supply (grades A and B) across eight cities stood at about 97 million sq. ft. This supply is expected to reach 116 million sq. ft. in 2016.

This has evinced interest from real estate developers because such large warehouses would ensure a steady income at relatively low investments. Embassy, which formed a $250-million warehousing joint venture with global private equity player Warburg Pincus late last year, is looking to procure land parcels of 50-200 acres in Sanand near Ahmedabad, Chakan near Pune and Hoskote in Bengaluru for warehouses. Bengaluru-based Embassy Group, Assetz and Salarpuria Sattva are also expected to make an entry soon

 

KEY CHALLENGES

According to Piush Goyal, MD, Kelley Material HandlingEquipment India Pvt. Ltd., the material handling equipment industry in India is still at a nascent stage and there is hardly any global player in this field who is manufacturing latest technology products in India as yet.

“I am sure with PM’s “Make in India” initiative and “Ease of Doing Business”, the economy will rapidly gain momentum and MNCs like ours will start looking at setting up facilities here. The implementation of GST will take this industry to an entirely different level and I can see GOI’s seriousness on this front too.”, Goyal added

In spite of the bullish outlook, some of the critical challenges afflicting the sector include :

  • Low adoption of IT technology and absence of efficient communication –For example, nearly all warehouses in the USA have Warehouse Management Systems (WMS) as well as tools for automatic data collection such as RFID, barcode and scanner among others, enabling them to forecast and plan movement of goods accurately.
  • Aggregation of land & delay in getting development permissions. Since warehousing is primarily allowed in urban zones, the cost of land is prohibitive. For example in Wagholi, Pune, residential development has pushed land prices beyond the threshold of operating a feasible warehouse at the on-going rentals.
  • Lack of adequate space - In the Indian context, the government had proposed Global Multi Modal Logistic Hubs (MMLHs). But these hubs are less than 1,000 acres in size as availability of large tracts of vacant land at feasible cost is a major hurdle in developing larger parks. Moreover the levy of Central Sales Tax (CST) on interstate sales has discouraged businesses to consolidate their warehousing activity thereby compelling them to operate separate warehouses for each state.
  • Paucity of Trained Manpower - Most of the employees in warehousing sector lack the required expertise leading to operational inefficiencies.
  • Low capital and operating efficiencies (i.e., lower utilisation and poor throughput/unit space)
  • Limited value addition specific to the user industry, due to poor understanding of the user’s supply chain
  • Low perceived value of logistics by end users, which leads to poor valuation of services.
  • Lack of configuration of capacity with cargo flows
  • Inadequate scale and quality of warehousing infrastructure and services required to enable value-based pricing
  • Limited capacity (and ability) for handling multi-modal interfaces

 

GOING FORWARD

Going forward, the total warehousing space requirement is expected to grow at a compounded annual growth rate (CAGR) of 9 per cent from 919 mn.sq.ft. in 2014 to 1,439 mn.sq.ft. by 2019.

The integration of the Indian economy with the global economy, entry of multi-national companies, the evolving retail sector is helping to bring in the global best practices to the domestic market.

The Government of India through the Delhi Mumbai Industrial Corridor Development Corporation (DMICDC) has shortlisted 4 locations that are to be developed as Leading Global Multi Modal Logistic Hubs ( MMLHs). The proposed MMLHs are located in Dadri & Rewari near the National Capital Region (NCR), Pithampur in Madhya Pradesh and Karla near Pune in Maharashtra. The shift from multiple logistic parks scattered across the country towards fewer large sized MMLHs will help in reducing the inefficiencies in the system.

 

KEY PLAYERS ON THE ANVIL

The ongoing policy changes including 100 per cent FDI in warehouses, food storage facilities under the automatic route (where manufacturers can sell their products online directly), declaration of certain free trade warehousing zones or FTWZs, and strengthening of the e-commerce logistics platform, possible implementation of the goods and services tax (GST) has drawn attention from the foreign PE investment sector. Institutional players are expecting an internal rate of return (IRR) of about 16-20 per cent from a warehouse development project.

Private equity funds including IL&FS (Tara India Fund III), Fidelity International, Milestone Capital Advisors, Standard Chartered Private Equity, Everstone Capital and Kohlberg Kravis Roberts (KKR) are eyeing the sector with interest.

Global private equity firm Warburg Pincus had entered into a joint venture with Embassy Group to invest Rs.650 crore for setting up warehouses across major cities in the country.

While Warburg Pincus-backed logistics firm Continental Warehousing Corporation (Nhava Seva) Ltd is planning an initial public offering (IPO) to raise as much as Rs.1,000 crore, according to two persons aware of the development. The flagship company of Chennai-based NDR Group, owns and operates cargo-handling facilities such as container freight stations (CFSs) and multimodal cargo handling terminals (MMTs) and private freight stations.

While the trucking giant, Transport Corporation of India is entering into the cold chain logistics business to tap into rapidly growing demand for refrigerated cargo services in the country. The company had also opened a 250,000-square-foot temperature-controlled warehouse and distribution center at Gurgaon and announced plans to develop a chain of cold storage facilities across the country over the next five years.

Allcargo Logistics, the parent of global non-vessel-operating common carrier ECU Line, plans to more than double annual revenue to $2 billion in the next five years as it continues to diversify its service offerings and expand operations globally. Together with the NVOCC business, Allcargo owns a large amount of land across India, on which it operates container freight stations. In addition, it provides domestic coastal and short-sea shipping services on owned and chartered vessels.

 

FORTHCOMING GLOBAL TRENDS

As countries strive to remain agile in an increasingly competitive setup, these are some of the global trends affecting the global warehousing industry.

In spite of the nascent stage of the warehousing industry in India, the country will have to factor in these trends while designing the warehousing function to stay nimble and productive.

  • Standardised Warehousing Facility: Intuitive design in warehousing infrastructure, adoption of industry leading, uniform storage practices are critical in ensuring reduction in losses, faster movement of goods & price stabilisation.
  • Single window approach: Warehousing companies, especially across the retail sector are increasingly aiming towards providing a single, unified & real-time customer experience across all channels forcing the way for inventory optimisation and timely fulfillment of orders.
  • Advent of Big data analytics: This can significantly improve demand planning and inventory optimisation by creating lean and balanced supply chains with sophisticated inventory systems. These tools will maximise workflow, increase efficiencies, and directly impact revenue by optimising warehouse inventory and floor space utilisation.
  • Mobile continues to dominate: Warehouse management continues to move away from conventional tools to tablets and smartphones. Also operators are using barcode scanners, RFID readers and other types of handheld devices to better streamline the shipping and inventory process.
  • Labor looms as a challenge and cost-cutting target: Being able to track productivity and forecast where labor is going to be needed and how it is going to perform is going to be a critical need.
  • Real time Delivery tracking: With e-commerce assuming increasing scope, there is a growing need for tracking chain of custody that flows with the product in real time, rather than just what is in the plant.
  • Collaborative set-up: End-clients are now expecting to partner with their vendors to integrate all systems to function as a unified single service touch point for the customer. This “collaborative orientation” will drive more people toward Platform as a Service (PaaS) offerings, where they have pieces of a platform rather than dealing with systems as separate entities.
  • Improved Protocol for Product Recalls: With the advent of online sales, enhanced protocols regarding product recall procedures and compliance with audit requirements requires the upkeep of accurate databases.
  • Unique Warehouse Management Systems for Multichannel Solutions: An efficient warehouse management system (WMS) application has become vital for warehouses to stay on track with their inventory and help stores improve their overall product delivery times.



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