WAREHOUSING & SUPPLY CHAIN GROWING BY LEAPS AND BOUNDS
With the growth of organised warehousing, an expected simplification of existing tax structure coupled with technology and efficient transportation system, warehousing in India is witnessing a paradigm shift to more modern and optimized warehouses, with the support of the government and foray of private players.
Today in the Indian logistics industry, the warehousing sector is witnessing a great boom. Warehousing companies in India are increasing their capacity, expanding their network, adapting new concepts to match up with international standards. This is what was on display even at the recent India Warehousing Show held in Delhi.
When industry players present at the show were asked about the reasons for the boom, they mentioned that the steady growth in India’s economy and globalisation, increase in FDI, the awaited GST, government initiatives in terms of economic reforms and infrastructure, and, growth in the different sectors like retail is gaining momentum, pharma and cold storage is soaring high, manufacturing and automotive sector are growing – these are some of the reasons.
Until a decade ago, warehousing in India was a synonym for basic four-walled structures with sub-optimal sizes, inadequate ventilation and lighting, lack of racking system, poor hygiene conditions and lack of inventory management or technology solutions such as Warehouse management Systems (WMS). But with the changing business dynamics and the foray of third party logistics in the sector, the growth story has begun and is still continuing.
India’s warehousing requirement is expected to grow at an annual average rate of nine per cent to 1,439 million sq ft in 2019 from 919 million sq ft in 2014, according to global property consultancy Knight Frank.
Kruti Jobanputra, Director, JWC Logistics Park, said, “Warehouses are an integral part of any supply chain and logistics industry. The Indian warehousing sector is progressively getting redefined from the traditional concept of ‘godowns’ to modern day automated set-ups. On the demand and supply side of the warehousing sector, recognising the need for better services and mass customisation, logistics companies look towards modern techniques and data management systems to attain more efficiency and smarter fulfilment.”
Ashok Goyal, Managing Director, BLR Logistiks, said, “Today, the warehousing sector is growing at a rate of 35-45 per cent every year and is expected to grow more than $20 billion by 2015. Modern warehousing forms an integral part of the supply chain where goods are not only stored for safekeeping, but several value-advance processes are implemented to process inventories, thereby minimising obsolescence and reducing wastage.”
With the growth of organised warehousing and an expected simplification of existing tax structure, warehousing in India is witnessing a paradigm shift towards large logistics parks with state-of-the art facilities. Dinesh Rai, Chairman, Warehousing Development and Regulatory Authority (WDRA) suggested that the government needs to facilitate logistic parks in the country and should give concessions on land for the setting up of these parks. Adoption and integration of modern successful systems needs to be introduced to reduce the cost of supply chains.
Infrastructure is one of the most important components of the warehousing sector. “An efficient warehousing operation hinges critically on high-quality supporting infrastructure that includes a good national highway network, interstate roads and congestion-free city roads. The total share of organised warehousing space is less than eight per cent of the total warehousing space in India. The industry is fragmented and largely unorganised and is dominated by small players with small capacities, not well-linked with the national highway network and interstate roads,” added Rai.
Several major logistics parks have been developed and some are currently under development across the country around the major logistics hubs of Mumbai, Bangalore, Chennai, Hyderabad and NCR. Speciality logistics parks catering to industries such as agriculture, automotive, electronic hardware and aero-industry are under various phases of development across the country. Various rail-linked and multi-modal logistics parks are also being constructed. About 861 acres of land have been identified as Free Trade Warehousing Zones (FTWZs) in India, which have been envisaged as global trading hubs in the international supply chain. Principally governed by the Special Economic Zone (SEZ) Act 2005 and SEZ Rules 2006, 100 per cent foreign direct investment has been permitted into FTWZs.
Jobanputra is of the opinion that the developments in the infrastructure and information technology (IT) sector have brought in big transformation in the functioning of the logistics and supply chain sectors in the country. “A lot of improvements have been seen, but it’s a long way to go. Challenges are still prevalent and there are few things which need to be managed carefully to keep up with the current win-win situation. This includes infrastructure, connectivity, tax structures, lack of skilled manpower, proper public-private partnership, to name a few. The government has a big role to play to uplift the sector,” she expressed.
Though a lot have been done by the three public sector agencies – Food Corporation of India, Central Warehousing Corporation and 17 State Warehousing Corporations – which are involved in building large-scale storage and warehousing capacities in the country, but thre is still a lot that is expected to be done in infrastructure and tax structures.
Adequate storage capacity and strategic location of the warehouse enables efficient functioning of supply and distribution network and also provides strategic competitive advantage to the business. “Proper material handling, storage conditions and timely movement of goods are necessary as improper handling and prolonged storage can deteriorate the quality of the stored product. The growth of the Indian warehousing sector is primarily driven by the industrial growth of the country. While the Indian economy is predominantly driven by the service-based industry, manufacturing also acts as a key growth driver for economic activity. Both services and manufacturing have thus far been the key demand generators for warehousing space in India,” Dushyant Arya, Director, Indo Arya said.
Goyal outlines things which need to be done to augment the storage capacity:
Availability of large contiguous land parcels near major industrial hubs
Adoption of modern systems and technologies in warehouses for better space utilization
Single window clearance norm in getting the permission from the local government body to set-up and operate the warehouses.
Speedy process in land acquisition and bank loan at low interest rate for construction of warehouses.
Think supply chain of cargo storage in warehousing without transportation! Can you imagine supply chain management without transportation? Timely delivery, meeting demands, maintaining quality, all these aspects which create value for the customers, can be possible only through proper transportation system or route management.
Vineet Agarwal, Managing Director at Transport Corporation of India said, “Transportation plays a connectivity role that results in the conversion of resources into useful product in the name of ultimate consumer. Today, the customer is regarded as the ‘king’ and we have always strived to become a single-point-of-contact service provider handling all the major logistics issues that our customers face. By means of well handled transport system, goods could be sent to the right place at the right time to satisfy consumer demand.”
Making use of the opportunities presented by the market, transport companies have achieved tremendous growth in the last decade. Mahendra Shah, Managing Director, V-Trans (India), shares, “We have grown at a healthy rate of 30 per cent year on year.” Talking about the key drivers, Shah said that the company has focused on operational efficiency taking quality as a focal point toward achieving customer delight.
While export/import cargo, agriculture and manufacturing (textile and auto/ auto ancillary) have been identified as traditional growth drivers that have contributed to the demand for warehouse space in India, new growth drivers such as organised retail, information technology, telecommunications and healthcare are the sunshine industries that have been identified with huge growth potential. Retail goods contribute a significant share of the warehousing demand at all the primary hubs due to their sizeable demographics and consumption.
A study by KPMG stated that EXIM cargo generates considerable demand for warehousing in the port cities of Mumbai, Kolkata and Chennai. NCR-Delhi also enjoys warehousing demand from a variety of trade activities. Due to the location of automotive industries, warehousing demand for automobiles and auto-ancillary products is prominent in Chennai, NCR-Delhi, Mumbai, Pune and Ahmedabad. These cities are also sizable markets for automobile sales. India’s eastern region is rich in minerals, textile and agri-products. Having a large population, this region has strong consumption activity, which further creates demand for warehousing space. A significant amount of cargo originates from India’s south and west regions due to a large number of established industrial hubs and sea ports. Hence, the flow of cargo traffic from India’s south and west regions to its east and north regions is much higher than in the reverse direction.
In the Budget 2014, new Finance Minister Arun Jaitley strongly signalled that the NDA government will roll out the proposed goods and service tax or GST next year, reassuring states that all their concerns will be addressed. “The introduction of GST is likely to provide an impetus to the sector, leading to logistically optimal networks with larger footprint of single facilities. Warehouses have extended their services from just staging and loading to packaging, bundling, labelling, cross-docking, etc. Large third party logistics (3PL) firms are investing ahead of demand into modern warehouses that are customer and category agnostic. Investment in the cold chain logistics which was perceived as a non-profitable venture in the past is making a comeback,” added Arya.
“The planned implementation of GST, which would bring a uniform tax regime in the entire nation, is likely to provide significant stimulus to logistics and warehousing industry. This would be a move towards breaking tax barriers amongst the states, thus contributing to integrate India as a single market,” Goyal added.
“The implementation of GST is bound to take the logistics sector to the next level. Infrastructure projects under progress such as improved network of roads and highways, upcoming freight corridors, creation of logistic hubs and warehouses, technology upgradation, foreign investment will fuel further growth in this sector,” said Shah, adding, “Single window solution will become the need of the hour with endless opportunities for customs clearance (CHA servicing), freight forwarding and 3PL solutions.”
The sustainable growth and development of warehousing sector’s manpower requires collaborative effort and commitment from industry leaders as well as the government of India. Goyal urged, “The government is required to support warehousing players in their initiatives and provide for a more conducive environment by providing tax havens, funding facilities, upgrading infrastructure and accelerating the consolidation of the industry. The PPP model can also be developed for building dedicated training institutes for the logistics industry. Increase in IT adoption and knowledge infrastructure can provide a boost to the growth and maturity of warehousing players in India.”
“With positive growth in the warehousing sector, Indian logistics companies need to modernise and optimize their warehouses.
The companies should start from basic modernisation and optimization techniques to make a place in the global market. Also, they are required to follow the trends with a more futuristic and modern outlook,” said Rai.