Huge capital flows from marquee investors are driving the shift towards a more formal way of working.
Up until a couple of decades before, they were not called warehouses. They were known as godowns. Over the years, it is not just the change in name, but much about godowns has changed, and how. Over the last three year particularly, investors have taken a fancy to and are packing funds into warehousing. Touted as the next big thing since the rollout of the Goods and Services Tax (GST), the sector has attracted big capital flows and more is expected.
Along with GST, which has created a unified tax code, quick growth in e-commerce is now dictating the requirement for large-scale warehousing in multiple strategic locations. New towns and cities are expected to benefit from this next wave of warehousing growth. Storage facilities for retail and consumer goods, cold storage, agricultural warehousing, and container storage are all attracting investors, real estate developers, third-party logistics (3PL) operators, and other related stakeholders. In e-commerce, the ever-shortening turnaround time of deliveries is further fuelling growth in the construction of warehouses. Aside from e-commerce, rising consumer demand for electronic and white goods too is beginning to command significant warehousing spaces.
The big question that remains though is whether warehousing and logistics are growing fast enough to support the growth the Indian economy is trying to achieve? Industry professionals certainly sound a note of optimism. Lauding the government for changes in rules and procedures, Naresh Sharma, Managing Director, Avvashya CCI Logistics believes there has been a huge change in approach, especially over the last two or three year.
“The government has recognised that logistics and warehousing have a huge role to play in increasing the pace of economic growth of the country. Steps have been taken to provide an impetus,” he said, pointing to the single-window clearance introduced by the Customs, direct port delivery (DPD) mechanism introduced at major ports, and the concept of authorised economic operators (AEOs).
That being said, India has a fair bit of catching up to do. Elsewhere across the world, logistics and warehousing are given out as a single end-to-end supply chain contract. This is not something that companies want to do in segments any more, Sharma adds.
He explains: “They are looking to outsource their entire supplychain, although distribution and warehousing are more localised functions, of course. Our company deals with large players and we take care of their international logistics requirements, end-to-end.”
Ditto for Gati. Bala Aghoramurthy, Deputy Managing Director, Gati, says companies have to increasingly offer a composite solution. He says: “We have to move from being only an express distribution player to an end-to-end logistics solutions powerhouse. This means being present in distribution and warehousing as well as in transportation,” he told INFRASTRUCTURE TODAY.
According to real estate investment advisory firm, JLL India, the country is set to receive investments close to Rs 500 billion for the creation of warehousing facilities between 2018 and 2020. Different categories of warehousing are expected to create around 20,000 jobs during these three year at different levels of specialisation. This investment is on the back of nearly Rs 100 billion that was invested in 2017 alone.
The report also estimates the potential of various locations as strong warehousing nodes in future other than metropolitan cities. Places such as Surat, Kanpur, Lucknow, Ranchi, Madurai, Coimbatore, Ludhiana, Ambala, Tiruchirappalli, Nasik, and Jaipur have emerged as the top destinations for major warehousing locations, says JLL. Niranjan Hiranandani, Chairman and Managing Director, Hiranandani Communities, concurs. “Everything in logistics will change in the next few years. The old centres may not remain. New centres will definitely come up. Whether they will be in the old locations or in new ones, only time will tell. We think this is an opportunity, because until now the buildings were not really up to the mark,” he says.
The real estate mogul is betting big on this space. Setting aside over 400 acre for warehousing, Hiranandani is particularly bullish on contract manufacturing. He explains, “Smaller units will start coming up where they will do assembly jobs for various manufacturers. They will be regular sheds that are pre-built structures which one can take for five or ten years and, when required, close it down and move to a new location.” (Turn page 48 to know more on Hiranandani’s future plans)
In fact, auto majors may already be looking to set up such an arrangement.. Pirojshaw Sarkari, Chief Executive Officer, Mahindra Logistics, says, the company has plans to start contract manufacturing for auto companies. He said, “We will need to set up a stockyard with an assembly shed. We are in the process of doing this activity and area aiming at starting operations very soon. The sheds would be located at three-four different places, possibly in UP, Bihar, to start with. We will need to give a design order to construct these pre-fabricated facilities.”
He adds: “The shed would be located at three or four different places, possibly in Uttar Pradesh and Bihar to start with. We will need to give a design order to construct these pre-fabricated facilities.” (Turn page 50 to know more on what brings Mahindra Logistics in warehousing space)
With auto manufacturers no longer needing to pay long-haul excise duty after the rollout of GST, auto manufacturing hubs such as Pune, National Capital Region (NCR), and Chennai are likely to see rapid growth in contract manufacturing, which may emerge as a niche space within warehousing. JLL report states that many such towns and cities have shown strong growth characteristics which may allow them to emerge as warehousing hubs in a hub-and-spoke model. Strategically located, in proximity to major markets, these places also provide favourable policies for setting up businesses and have high manufacturing potential.
The platform proposes to invest in key warehousing and manufacturing hubs in Mumbai, NCR, Pune, Chennai, Bangalore, and Ahmedabad, among others. Such investments are indicative of the interest among funds and institutions with longer investment horizons. In fact, investors the world over are showing interest, whether they be Canadian pension funds or European sovereign funds. From United Arab Emirates too, a number of project opportunities are currently being evaluated.
In an exclusive conversation, Abdul Salam, Director General, UAE-India Business Council (UIBC) tells INFRASTRUCTURE TODAY, “UAE companies like DP World are seeking opportunities to develop multimodal logistics parks, port-led special economic zones (SEZs), free trade zones (FTZs), and inland container depots (ICDs), in order to provide cost-effective logistics and warehousing solutions to India’s growing export and import trade.” For both private equity funds as well as long-term overseas investors with patient capital, warehousing may fit in very well as it offers regular yield income, along with capital appreciation on account of increase in the underlying land values. In conclusion, it is no exaggeration to say that warehouse and logistics are the biggest growth areas that have emerged in recent times. The sector is rapidly transitioning through a revolutionary phase.