Warehousing on an upswing

Warehouses, from being called godowns many decades ago, have today emerged to be the backbone of the manufacturing and burgeoning e-commerce industry. The warehousing space is continuing to evolve at a rapid speed to keep pace with the changes in the industries it serves. The Indian warehousing and logistics sector is estimated to attract nearly $10 billion investments over the next 4-5 years. With the addition of around 200 million sq. ft warehousing space across India, total supply is expected to nearly double by 2022 (source: JLL).

Factors driving growth

  • Rapid rise of ecommerce – FlipKartWalmart, Amazon and the likes. The $35 billion e-commerce market is projected to grow 25 percent a year for the next five years and exceed $100 billion by 2022, according to a report by tech industry body NASSCOM and PricewaterhouseCoopers.
  • GST (Goods and Services Tax) implementation – This uniform national tax has unified India’s 29 states into a single market. With this, the logistics, distribution and warehouse locations have been driven primarily by business and efficiency considerations vis a vis taxation. Thus, the earlier fragmented chains are now consolidated into large distribution chains with centralized hubs and networks.
  • Infrastructure status to the logistics industry – This allows developers to access lower-cost funding for development. This coupled with the decline in the residential housing market has encouraged some developers to consider warehousing. E.g. Panchshil Realty which is concentrating on logistics facilities, among other new investments rather than residential. Other developers / potential developers include Lodha Group Hiranandani, etc.

The Market

According to a report by Ernst & Young and the CII Institute of Logistics, the size of the Indian warehousing industry is estimated to be around Rs 560 billion. The sector is growing at an average 10% per annum. This consists of warehouses for:

  • agricultural and horticulture products – 15%
  • cold storages – 16%
  • industrial and retail players – 55%
  • Inland Container Depots (ICDs) and Container Freight Stations (CFSs) – 14%

Developments in the Sector

A key trend emerging now is the growing demand for warehousing and logistics space from tier II cities like Coimbatore, Guwahati, Lucknow, Jaipur & Ludhiana in addition to Tier I cities like Delhi NCR, Mumbai, Pune, Bengaluru and Chennai.

There is a rapid increase in the number of large organised players in the market, from barely three or four to at least eight or ten in the last couple of years. They are investing and building warehouses faster and with higher quality. This includes a number of private Indian developers like Musaddilal, Panchshil, GWC, FWS, Hiranandani, Lodha Group, Jalan Group, Srijan, Apeejay, AllCargo to established and newer foreign funds-managed developers who have also entered this segment by way of joint ventures, joint developments and acquisition of existing portfolio. This includes Altico Capital, Ascendas FirstSpace, ESR, IndoSpace, Embassy, LOGOS India, Morgan Stanley and Proprium. Marquee global players such as Warburg Pincus, Blackstone and KKR have also entered the segment. Hindustan Infralog (DP World + NIIF) bought a controlling stake in KRIBCO Infrastructure and acquired CWC, Morgan Stanley Real Estate Investing bought a majority stake in KSH Infra, a Pune-based warehousing and industrial logistics park developer; Warburg Pincus formed a platform with Embassy Group for development and management of warehousing assets in the country; CPPIB has backed warehousing developer IndoSpace. Logistics players in India have typically followed an asset-light model under which they lease warehouses instead of owning them. But the recent infrastructure status encouraged them to chart out plans of having a mix of owned and leased warehouses. Firms mix their warehouse use (split between multiple companies to maximize utilization) and improve their earnings.

Among sectors, third-party logistics (3PL) companies, ecommerce, auto & ancillary, retail and fast moving consumer goods (FMCG) companies accounted for around 60% of the absorption during the year. Dozens of companies and logistics players such as DHL, Amazon, Future Group and FedEx have all rushed to set up warehousing spaces.

The Road Ahead & Talent Trends

The industry will witness a structural shift in the next three or four years. Warehouses are getting larger and better equipped (technology, robotics and even advanced fire-fighting systems).

The new entrants in this business will either be disruptors who can leverage the use of technology and differentiate the product offering or forward integrators who do not only wish to use their supply chain but also be providers in the industry.

Borrowing would have its own challenges as banks are concerned with the current destabilization in the banking sector due to compromises made in certain sectors, frauds reported, NPAs shooting up, etc.

The warehousing industry which was a source of jobs for the local population, will perhaps see a decline over the long term with AI and robotics. Till manual operations exist, locals will continue to get manual jobs. At the leadership level, there has been an increase in the need for talent to manage the P&L and drive growth, customer orientation, ability to manage operations in a highly competitive market by providing value is in demand.

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Source: The Hunt Report Vol.14

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