Warehousing – The Sunrise Sector

While no sector has been immune to the pandemic crisis, few sectors like FMCG, agriculture and pharmaceuticals remained functional and e-commerce facilitated logistics ensured availability of essentials like food, vegetables and fruits, etc. across the length and breadth of the  country. The logistics and warehousing sector thus played an instrumental role in combatting the crisis by ensuring adequate supply of essentials.

The Industrial & Logistics sector together contributed 23% to the overall GVA during fiscal 2019 and is thus an important contributor to the Indian economy. Meanwhile, India’s logistics ranking also improved significantly during the past few years – from 54^th in 2014 to 44^th in 2018. Physical infrastructure development of roads, and enhanced connectivity via rail, road, and sea has improved the country’s logistics performance index over the years.  With an average logistics cost of 14% (of GDP), India fares well compared to China which has 15% and EU which has 13%. The policy reforms undertaken by the government aims to reduce it to 9-10% making India highly competitive across the world. As India flagged off an ambitious goal of Atmanirbhar Bharatat – a self-reliant approach, it is imperative to rebuild the robust domestic supply chain and logistics ecosystem in par excellence of global supply chain models.

The introduction of the Goods and Services Tax (GST) in 2017 had a positive effect on the E-Commerce logistics industry as it eased the movement of goods across state borders. In 2018, the Indian government amended E-Commerce regulations, and foreign ownership in subsidiaries of E-Commerce companies was capped at 25% of equity for the inventory-based model. However, 100% foreign ownership of equity was permitted for the market place model. Policy reforms by the government, like the National Investment Grid, Central single-window clearance (industrial and warehousing) and Production-Linked Incentive schemes (PLIs) are likely to attract manufacturing players. Import reduction by boosting domestic manufacturing can be a significant driver. The much awaited National Logistics Policy is in the pipeline which is the most sought-after policy reform awaited to streamline the complexity of the sector.

The surge in E-commerce business in backdrop of Covid has given huge impetus to the warehousing industry in order to restore the disrupted supply-chain management globally. Covid 19 Pandemic has resulted a radical shift in consumer habits which has changed the supply chain, storage and distribution model. Contactless activities at the retail outlets have paved the way for multi-distribution channels. The brewing demand from E-commerce, FMCG, Pharma, and manufacturing companies will garner pent up demand for warehousing in 2021. Remote work culture has also led to reverse migration of workforce which encourages demand for decentralized warehousing hubs in regional locations.

FMCG, e-commerce, electronics and home appliances, cold storage, pharma and 3PL (third-party logistics), engineering and manufacturing are the go-to sectors which are expected to grow and be the beneficiaries of stimulus package from the government. There will be greater focus on industrial and manufacturing sector and government should further come out with policy incentives and bigger stimulus package to attract investment and for overall revival of the economy. This will have a cascading effect and will likely to create huge demand for space in both manufacturing and warehousing sectors.

The primary focus continues to remain on urban areas where the robust infrastructure and connectivity plays a crucial role in its exponential growth. The forced change brought about due to the pandemic has resulted in corporates relooking at the consolidation and hub and spoke model leading to development of new warehousing clusters in tier 2 and 3 cities. The overview of major warehousing and logistics destinations and how government policies augment the development of new industrial corridors leading to the rise to new warehousing clusters in the country is also noteworthy.  While at this juncture, the world is reeling  under the crisis brought in by the COVID-  19 outbreak, the future is likely to be  transformed significantly as the sector is  positioned to change the course and is set  on a new growth trajectory. The possible  move out  by companies from China may  also be a blessing in disguise and has the potential for India to emerge as a  global manufacturing hub for India leading to a surge in the entry of  manufacturing businesses which will result in further demand for warehousing space. Digitization is yet another crucial aspect to factor in the warehousing sector with AI, Machine learning, IOT and Blockchain technologies to build modern and technologically advanced Grade A spaces which will be high in demand.

In a nutshell, use of automation and mechanization of warehousing operations, standardization and design innovation, digital transformation, multi-modality, logistics infrastructure, skilled human resources, green & clean logistics will be the new norm to reduce processes, timelines and overheads as we enter into a new era post the pandemic. India continues to be one of the biggest consumer markets, which makes its investment and growth quotient more attractive. The growth path of Indian warehousing industry is multi-dimensional as it spreads its footprint across the length and breadth of the country making it an end-to-end service provider for the consumer. Growth expansion of MSME’s and SME’s possess excellent growth potential to enhance multifold production with set up of multiple manufacturing hubs which in turn will create a huge demand for warehousing hubs simultaneously across geographies.