The Way Forward
Equipment

The Way Forward

As an industry, warehousing in India has become more modern and competitive, with a host of domestic and international players realising the immense potential at hand.

lthough the warehousing industry in India has grown in the past few decades, it is still far from being fully developed. Today, we have three types of set-ups: traditional storage facilities commonly known as godowns; modern multi-purpose logistic centres; and government-owned agencies. While godowns largely belong to small players from the unorganised sector, accounting for about 90 per cent of the warehousing industry, logistic centres are provided by players from the organised sector.

In addition, we have government-owned and controlled units; such as The Food Corporation of India with a network of storage depots for distribution of food grains, Central Warehousing Corporation with warehouses across the country for agricultural produce and industrial products, and state warehousing corporations.

Traditionally, warehouses classified into public-private, bonded, government and cooperative segments have only been providing in-house services. Lately, the concepts of cold chains, container freight stations and inland container depots have gained importance. And so has the trend of providing customised services and outsourcing to specialised players resulting in the concept of third-party logistics (3PL). The entry of international players with modern storage systems and material handling devices has also intensified the competition for domestic players. In addition to increasing demand for warehousing space, customers are also demanding more efficient solutions with value-added services at optimal costs.

Growth drivers
The growth rate of the warehousing industry, pegged at 10 per cent per annum today, is expected to rise in the next few years owing to various factors including increasing urbanisation, expansion of organised retail and emerging new markets in smaller cities and towns. "The warehousing market in India is estimated to be Rs 27,000-28,500 crore, wherein industrial warehousing is about 85-90 per cent and the balance is agri-warehousing.

This market is expected to grow at a CAGR of 16-18 per cent over the next five years," reveals Anjan Brahma, Associate Director-Transportation & Logistics Strategy, Management Consulting, KPMG India. "Demand for modern warehousing, especially from sectors like automotive, pharma, engineering goods, and retail, rising domestic and EXIM freight volumes, increased outsourcing to 3PL players, rising share of organised retail and e-commerce, and expected rollout of GST (Goods & Services Tax) will be strong drivers for growth."

Captain Anand Chopra, Director-Liner & NVOCC, Doehle Danautic India, echoes this, saying, "Major driving factors include growing manufacturing activity, rising domestic consumption, increasing international trade, emergence of organised retail, global 3PLs, increasing private and foreign investment in infrastructure and easing of government regulations."

Government initiatives
The Indian Government has no doubt played a role in fostering the growth of the warehousing industry. Encouraging 100 per cent FDI in some categories of warehousing, allowing private participation in the development of logistics parks and Free Trade Warehousing Zones (FTWZ), enactment of the Warehousing and Development Act 2007 and constituting the Warehousing Development and Regulatory Authority in 2010 for the development and regulation of warehouses are some notable measures.

The government's plan to roll out GST is expected to further revitalise the warehousing sector. As Vikas Anand, Managing Director, DHL Supply Chain India, tells us, "The impending introduction of the GST will result in simplification of distribution networks and merging of smaller warehouses to regional centres. The locations of warehouses need not be based on CST (Central Sales Tax) constraints but on demand and supply patterns, centre of gravity, long-term logistical and real-estate considerations; in short, on a cost-to-serve basis. GST will make large regional warehouses economically viable as opposed to the multiple small ones set up to deal with the current tax structure." DHL Supply Chain has over 100 warehouses in more than 40 cities including many build-to-suit warehouses. While controlling the specification, quality and delivery of warehouses, DHL prefers to lease them out on a long-term basis, as it provides the flexibility to respond swiftly to market needs.

Game changers
The warehousing sector, hitherto dominated by the public sector and small players, has begun to attract several reputed national and international players in the past decade owing to the immense opportunities envisaged. "India is a rapidly growing economy and there is a strong underlying demand for warehouse space," says Brian Oravec, Managing Partner, IndoSpace Development Management. "There is tremendous scope for development in this sector as warehouses in India, typically seen as traditional godowns, have been poorly constructed, lacking in basic infrastructure like proper roads, lighting and fire suppression."

Consequently, the avenue of opportunities has opened up for developers of warehousing facilities; more so, with customers looking for innovative yet cost-effective structures that cater to changing needs. In this context, pre-engineered building systems (PEBS) are in great demand, states PV Rao, Managing Director, Pennar Engineered Building Systems. "In the warehouse segment, the demand has been from retail, logistics and agri-based sectors," he says. "Currently, supply is more than demand and hence many PEB companies are unable to perform well owing to underutilisation of their capacities. But with the government initiating steps to expedite clearances and approvals for warehouse and other projects, there will be a huge demand for PEBS from the manufacturing, warehousing and infrastructure segments." Pennar has been involved in designing, manufacturing and installing several warehouses with PEBS in India.

The developmental cost of warehouses varies depending on several factors. "The average development cost for a finished goods warehouse is in the range of Rs 800-1,000 per sq ft," says Brahma. "This rate is not likely to change significantly across key warehousing clusters. The capex costs may, however, vary depending on factors like height, racking, additional facilities like multiple cross-docks, temperature or ambient control, extent of automation, IT development and integration."

The rates again will differ if the warehouse is being constructed with pre-engineered structures, as evinced by Rao: "The cost of a simple warehouse built with PEB systems will approximately be between Rs 300 and Rs 350 per sq ft. This includes just the superstructure excluding the foundation and other civil work. This price again might vary depending on the complexities like height, width, crane capacity, mezzanine, etc." IndoSpace, for instance, has built Chakan Industrial Park I, with 1.7 million sq ft of modern industrial warehouse space, at an estimated cost of Rs 400 crore. Its IndoSpace Logistics Park, Luhari, a 1.6 million sq ft development, is being built at an estimated cost of Rs 300 crore.

Growing concerns
Despite the momentum, the growth potential of the industry is limited by several constraints, such as lack of enabling infrastructure, land acquisition woes and accessibility to adequate and timely credit at a reasonable cost, rue industry pundits. "High price sensitivity among customers and infrastructure issues tend to limit the ability of service providers to offer world-class services," says Brahma. "High land prices or rentals near metro and Tier-I cities are another challenge that may hamper the warehousing sector's high growth potential. Availability of skilled manpower both management and operative will also be a constraint as the sector evolves rapidly. It is estimated that by 2015, India will need about 30,000-35,000 warehouse managers alone."

For his part, Captain Chopra has his own list of challenges faced by all stakeholders, including international warehousing service providers, "Lack of efficient infrastructure resulting in high transportation cost; lack of sufficient organised warehousing space; land acquisition hurdles; power outage; complex tax regime; lack of integration with complete supply chain; lack of standardisation of procedures; and inadequate use of technology."

The real-estate industry involved in warehouse development has its own challenges too, points out Oravec.

"The two major challenges are the dearth of experienced industrial real-estate development professionals and the difficulties associated with acquiring large tracts of land in India.

The country has an extremely limited supply of high-quality, logistics-related real estate."

Moving aheadIt is clear that several reforms are required to accelerate the development of the warehousing industry, including policy initiatives, improved infrastructure, skill development, IT adoption and increased investments in the sector.

"The crucial factors that will play a critical role in the success of efficient supply chains will be improvement of logistics infrastructure and competent, trained and certified employees," says Anand. "A significant reduction in logistics cost can be brought about by improving national logistics infrastructure mainly ports, roads, airports and railways, to facilitate smooth transfer of materials. Among the most urgent issues that need to be addressed are tax reforms, including implementation of GST."

Brahma believes service providers must also rise to the occasion. "In addition to selecting warehousing locations with the required diligence, service providers need to offer high-quality services tailored to suit industry-specific needs and value additions, both management and operational," he says. "Adoption of IT or technology solutions such as ERP, WMS (warehouse management solutions), OMS (order management solutions), TMS (transport management solutions), GPS, etc, is critical to meet the growing demand."

The Working Group on Warehousing Development and Regulation for the Twelfth Plan Period (2012-17) has also made its own recommendations. Simplifying the procedures for conversion of land use, capacity building programmes, registration of all warehouses, encouraging private participation in the construction of warehouses under the Viability Gap Funding Scheme and awarding full-fledged infrastructure status to the sector are some of its major recommendations.

"The growth of the warehousing industry can be expedited if all stakeholders join hands and address the challenges," affirms Captain Chopra. "It cannot be left to the government alone. With the changing industry scenario, the future growth of this sector is very promising." We are inclined to agree!
- Janaki krishnamoorthi

As an industry, warehousing in India has become more modern and competitive, with a host of domestic and international players realising the immense potential at hand. lthough the warehousing industry in India has grown in the past few decades, it is still far from being fully developed. Today, we have three types of set-ups: traditional storage facilities commonly known as godowns; modern multi-purpose logistic centres; and government-owned agencies. While godowns largely belong to small players from the unorganised sector, accounting for about 90 per cent of the warehousing industry, logistic centres are provided by players from the organised sector. In addition, we have government-owned and controlled units; such as The Food Corporation of India with a network of storage depots for distribution of food grains, Central Warehousing Corporation with warehouses across the country for agricultural produce and industrial products, and state warehousing corporations. Traditionally, warehouses classified into public-private, bonded, government and cooperative segments have only been providing in-house services. Lately, the concepts of cold chains, container freight stations and inland container depots have gained importance. And so has the trend of providing customised services and outsourcing to specialised players resulting in the concept of third-party logistics (3PL). The entry of international players with modern storage systems and material handling devices has also intensified the competition for domestic players. In addition to increasing demand for warehousing space, customers are also demanding more efficient solutions with value-added services at optimal costs. Growth drivers The growth rate of the warehousing industry, pegged at 10 per cent per annum today, is expected to rise in the next few years owing to various factors including increasing urbanisation, expansion of organised retail and emerging new markets in smaller cities and towns. The warehousing market in India is estimated to be Rs 27,000-28,500 crore, wherein industrial warehousing is about 85-90 per cent and the balance is agri-warehousing. This market is expected to grow at a CAGR of 16-18 per cent over the next five years, reveals Anjan Brahma, Associate Director-Transportation & Logistics Strategy, Management Consulting, KPMG India. Demand for modern warehousing, especially from sectors like automotive, pharma, engineering goods, and retail, rising domestic and EXIM freight volumes, increased outsourcing to 3PL players, rising share of organised retail and e-commerce, and expected rollout of GST (Goods & Services Tax) will be strong drivers for growth. Captain Anand Chopra, Director-Liner & NVOCC, Doehle Danautic India, echoes this, saying, Major driving factors include growing manufacturing activity, rising domestic consumption, increasing international trade, emergence of organised retail, global 3PLs, increasing private and foreign investment in infrastructure and easing of government regulations. Government initiatives The Indian Government has no doubt played a role in fostering the growth of the warehousing industry. Encouraging 100 per cent FDI in some categories of warehousing, allowing private participation in the development of logistics parks and Free Trade Warehousing Zones (FTWZ), enactment of the Warehousing and Development Act 2007 and constituting the Warehousing Development and Regulatory Authority in 2010 for the development and regulation of warehouses are some notable measures. The government's plan to roll out GST is expected to further revitalise the warehousing sector. As Vikas Anand, Managing Director, DHL Supply Chain India, tells us, The impending introduction of the GST will result in simplification of distribution networks and merging of smaller warehouses to regional centres. The locations of warehouses need not be based on CST (Central Sales Tax) constraints but on demand and supply patterns, centre of gravity, long-term logistical and real-estate considerations; in short, on a cost-to-serve basis. GST will make large regional warehouses economically viable as opposed to the multiple small ones set up to deal with the current tax structure. DHL Supply Chain has over 100 warehouses in more than 40 cities including many build-to-suit warehouses. While controlling the specification, quality and delivery of warehouses, DHL prefers to lease them out on a long-term basis, as it provides the flexibility to respond swiftly to market needs. Game changers The warehousing sector, hitherto dominated by the public sector and small players, has begun to attract several reputed national and international players in the past decade owing to the immense opportunities envisaged. India is a rapidly growing economy and there is a strong underlying demand for warehouse space, says Brian Oravec, Managing Partner, IndoSpace Development Management. There is tremendous scope for development in this sector as warehouses in India, typically seen as traditional godowns, have been poorly constructed, lacking in basic infrastructure like proper roads, lighting and fire suppression. Consequently, the avenue of opportunities has opened up for developers of warehousing facilities; more so, with customers looking for innovative yet cost-effective structures that cater to changing needs. In this context, pre-engineered building systems (PEBS) are in great demand, states PV Rao, Managing Director, Pennar Engineered Building Systems. In the warehouse segment, the demand has been from retail, logistics and agri-based sectors, he says. Currently, supply is more than demand and hence many PEB companies are unable to perform well owing to underutilisation of their capacities. But with the government initiating steps to expedite clearances and approvals for warehouse and other projects, there will be a huge demand for PEBS from the manufacturing, warehousing and infrastructure segments. Pennar has been involved in designing, manufacturing and installing several warehouses with PEBS in India. The developmental cost of warehouses varies depending on several factors. The average development cost for a finished goods warehouse is in the range of Rs 800-1,000 per sq ft, says Brahma. This rate is not likely to change significantly across key warehousing clusters. The capex costs may, however, vary depending on factors like height, racking, additional facilities like multiple cross-docks, temperature or ambient control, extent of automation, IT development and integration. The rates again will differ if the warehouse is being constructed with pre-engineered structures, as evinced by Rao: The cost of a simple warehouse built with PEB systems will approximately be between Rs 300 and Rs 350 per sq ft. This includes just the superstructure excluding the foundation and other civil work. This price again might vary depending on the complexities like height, width, crane capacity, mezzanine, etc. IndoSpace, for instance, has built Chakan Industrial Park I, with 1.7 million sq ft of modern industrial warehouse space, at an estimated cost of Rs 400 crore. Its IndoSpace Logistics Park, Luhari, a 1.6 million sq ft development, is being built at an estimated cost of Rs 300 crore. Growing concerns Despite the momentum, the growth potential of the industry is limited by several constraints, such as lack of enabling infrastructure, land acquisition woes and accessibility to adequate and timely credit at a reasonable cost, rue industry pundits. High price sensitivity among customers and infrastructure issues tend to limit the ability of service providers to offer world-class services, says Brahma. High land prices or rentals near metro and Tier-I cities are another challenge that may hamper the warehousing sector's high growth potential. Availability of skilled manpower both management and operative will also be a constraint as the sector evolves rapidly. It is estimated that by 2015, India will need about 30,000-35,000 warehouse managers alone. For his part, Captain Chopra has his own list of challenges faced by all stakeholders, including international warehousing service providers, Lack of efficient infrastructure resulting in high transportation cost; lack of sufficient organised warehousing space; land acquisition hurdles; power outage; complex tax regime; lack of integration with complete supply chain; lack of standardisation of procedures; and inadequate use of technology. The real-estate industry involved in warehouse development has its own challenges too, points out Oravec. The two major challenges are the dearth of experienced industrial real-estate development professionals and the difficulties associated with acquiring large tracts of land in India. The country has an extremely limited supply of high-quality, logistics-related real estate. Moving aheadIt is clear that several reforms are required to accelerate the development of the warehousing industry, including policy initiatives, improved infrastructure, skill development, IT adoption and increased investments in the sector. The crucial factors that will play a critical role in the success of efficient supply chains will be improvement of logistics infrastructure and competent, trained and certified employees, says Anand. A significant reduction in logistics cost can be brought about by improving national logistics infrastructure mainly ports, roads, airports and railways, to facilitate smooth transfer of materials. Among the most urgent issues that need to be addressed are tax reforms, including implementation of GST. Brahma believes service providers must also rise to the occasion. In addition to selecting warehousing locations with the required diligence, service providers need to offer high-quality services tailored to suit industry-specific needs and value additions, both management and operational, he says. Adoption of IT or technology solutions such as ERP, WMS (warehouse management solutions), OMS (order management solutions), TMS (transport management solutions), GPS, etc, is critical to meet the growing demand. The Working Group on Warehousing Development and Regulation for the Twelfth Plan Period (2012-17) has also made its own recommendations. Simplifying the procedures for conversion of land use, capacity building programmes, registration of all warehouses, encouraging private participation in the construction of warehouses under the Viability Gap Funding Scheme and awarding full-fledged infrastructure status to the sector are some of its major recommendations. The growth of the warehousing industry can be expedited if all stakeholders join hands and address the challenges, affirms Captain Chopra. It cannot be left to the government alone. With the changing industry scenario, the future growth of this sector is very promising. We are inclined to agree! - Janaki krishnamoorthi

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