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The Drivers of Warehousing Change
India expects the Warehousing industry to grow by 10 percent this year. We can segment the warehousing industry into Industrial, Agricultural, Cold stores, and CFS/ICDs. Of this, Industrial sector accounts for more than half of Warehousing demand in India. CFS and ICD have a share of 15 percent, Agri Warehousing account for 15 percent share and cold storage around another 15 percent share. Dr. Rakesh Singh, Chairman ISCM, looks at the macro and geopolitical demand drivers that will shape the evolution and growth of Warehousing industry in India.
According to a CII-EY report, the warehousing industry structure is fragmented and needs a complete overhaul. The quality of value added services provided by the industry is poor compared to global standards, though there are green shoots of improvements witnessed in the last few years. Industry faces the lack of /absence of appropriate scale and quality of warehousing infrastructure and services, low capital and operating efficiencies (i.e., lower utilization and poor throughput/ unit space), limited capacity (and ability) for handling multi-modal interfaces. This is compounded by limited value addition specific to the user industry, which stems from a weak understanding of the user’s supply chain. Inappropriate level of automation, inappropriate measurement of “total” logistics costs by end users, create an illusion that the only way to drive value in warehousing is by cutting piecemeal logistics (warehousing, transport, handling) costs.
All these inefficiencies associated with the warehousing sector may become the thing of the past. Numerous Fiscal, Macroeconomic, and geopolitical changes are reshaping the logistics industry and warehousing in particular.
The first and foremost change that has disrupted the warehousing industry is GST implementation in India. The old dynamics of warehouse location based on tax efficiency is now giving way to business efficient locations of the warehouses. An FMCG Company, which had around 54 warehouses across country, can today more effectively serve its market through just about 5 to 6 warehouses. This will lead to building up the appropriate scale and quality of warehousing infrastructure and services. In fact, we will see more and more Investment into 3PL as well as Indian industry through FDI. The greater presence of MNCs and maturity in end-user industries (such as food, textile, pharmaceuticals, automotive and engineering goods), is already creating new storage space requirements. The more investment we will see coming more will be the rationalization of warehousing location as well as size and design.
India lives in villages the current focus of the Budget on agriculture through emphasis on National agricultural market and farmer’s cooperative would provide opportunity of setting up cold chains. Indian Pharma industry, especially generics have a huge competitive advantage in the world market and needs world class Pharma cold chains and effective storage facilities at terminals and rural interiors. The National health scheme for Rural India will aid this. Public Private Partnership for mother cold chains can help transform India’s rural health scenario.
What is also not recognized is the Indian government’s determination to build logistics infrastructure in terms of developing economic corridors for helping trade to take place between different states by building connectivity and multi modal logistics facilities may create new logistics clusters which needs to act as hub for warehousing and logistics services to be provided to the user industry.
In this regards it’s worth mentioning the Bharatmala project. Bharatmala includes economic corridors of around 9,000 km, inter-corridor and feeder routes of around 6,000 km, 5,000 km roads under the National Corridors Efficiency Program, Border and international connectivity roads of around 2,000 km, coastal and port connectivity roads of around 2,000 km, expressways of around 800 km and 10,000 km of NHDP roads. This will start in Gujarat and Rajasthan, followed by Punjab and subsequently traversing the Himalayan belt through Jammu and Kashmir, Himachal Pradesh, Uttarakhand, parts of Uttar Pradesh, Bihar, West Bengal, Sikkim, Assam, Arunachal Pradesh.
Bharatmala is supported by Sagarmala, which connects the Eastern Coast to a dozen ports. Sagarmala will help India meets its goal of Look East policy through creation of special production clusters around the ports and attract investments from global Majors. Asian subcontinent is the future of commerce and trade and India needs to capitalize on this taking some lessons from china.
To support India as a major global trade Major India is open to being a partner in One Belt One Road Initiative of china and is also building its own Initiative in Partnership with Iran, Afghanistan, Bangladesh, Nepal, Bhutan and other partner state in Indian Ocean. All these would require logistics and warehousing overhaul and consolidation.
This is the right time for Indian warehousing industry to be prepared for being a global player as this disruption provides opportunity for global 3PL majors to take India seriously and create a share in the future opportunities.