The logistics infrastructure has evolved on the back of Retail & E-Commerce growth. It is now time for Big Box and Mega Box to be embraced by other industry verticals. Occupiers are showing a marked preference for Grade A sustainable properties due to inherent operational efficiencies, adherence to safety standards and better contingency planning for global events. Our panel discussion on Warehousing Infrastructure unveiled interesting insights on the changing paradigms of warehousing infrastructure in the country and brought forth the opportunities that developers and occupiers in unison can leverage to develop state-of-the-art warehouses and harness tangible gains. While the road to success seems long and complex, the initial steps are already proving worthwhile for the segment’s all-encompassing development and the government’s recent policy measures and the concerned thrust on bringing standardisation is further amplifying the speed of development. Here’s a special report that translates the India Growth Story on the back of a Sound Warehousing Infrastructure…
A Knight Frank report revealed that the investments in logistics and industrial segments witnessed a robust growth in 2021 on the back of strong demand for this asset class supported by rise in automation, and increased demand led by third-party logistics. The annual investment volume increased by 55% YoY to US$1.3 bn compared to US$848 mn received in 2020.
This transformation has resulted in the increase in average size of Grade A warehouse by 2x and volume by 3x in India. According to JLL India research, the warehouse real estate market in India is witnessing a steady growth and expansion from ~170 mn sqft. in 2018 to 307 mn sqft in H1 2022 and this is likely to continue in the upcoming years. The Grade A share in the stock has also increased from 39% in 2018 to 48% in H1 2022 showing increased interest from developers and institutional investors for quality spaces with higher storage handling capacity as well as shift in occupiers’ preference towards compliant spaces. The warehousing market is expected to record the highest ever absorption this year. The report states that the net absorption in 2022 will grow to a record 42.5 million sqft – up 17% from the pre-Covid highs of 36.3 million sqft. in 2019. Remarkably, the sector has established itself as one of the most resilient asset classes.
In addition to the increase in quality warehouse spaces, there have been other notable trends in the Indian warehousing market:
Increase in global investors in India’s evolving logistics and industrial sector
Warehousing demand from 3PL and e-commerce sectors shifting towards larger storage space with advancement of technology and automation
Urban logistics sector emerging as attractive sector in tier I cities as the market is shifting towards ondemand solutions
Omni-channel retailing transforming traditional warehousing into fulfillment centers with higher optimisation.
The strong institutional interest in logistics, warehousing development and operations in recent years has transformed the sector from being just a large storage space into a facility with value addition in terms of inventory management, packaging, product extraction, etc. This transformation is happening on the back of advancing technology and automation infrastructure, focus on efficient last-mile deliveries, resulting in a growing demand for urban logistics, the rise of omni-channel retailing, etc. Furthermore, India’s position in various indices has improved from the previous years due to various initiatives by the Government such as Make in India, Digital India, infrastructure upgrades as well as rising skilled professionals under Skill India campaign.
Arif Siddiqui
Talking about the changing warehousing infrastructure paradigms, Arif Siddiqui, Founder & Director, Coign Consulting, elaborated, “It's been very inspiring to witness the pace at which our country is growing and especially not only because of the pandemic but I think overall we had already seen an acceleration in the overall economy in the country and not only acceleration by spend but acceleration by manufacturing, acceleration by the supply chain and the way supply chain has evolved over the years, thanks to all the great supply chain leaders – the transport managers, the warehouse managers, the warehouse executives and the IT support system who has been a bedrock to this entire supply chain evolution. To me, the pandemic was only a way to show our CEOs our CFOs, what supply chain managers actually are capable of doing. We've been able to make a very strong position and a very strong case of the department and the importance of the department especially when it comes to connecting customers.”
He adds, “Infrastructure plays an equally important role in the overall delivery experience to the customer and here I'm not talking about delivery experience only from an e-commerce point of view, it could be a B2B or B2C or D2C. The warehousing and distribution infrastructure has evolved over time on the back of especially the industrial and the retail or e-commerce growth that we have seen in the past 10 years wherein customers are served while riding on the B2B and the B2C channel.
Retail and e-commerce have been the catalyst to the development of the new age infrastructure and the buildings that are sprouting all around the place. The occupiers and service providers are showing a marked preference for fit to purpose or fit for purpose quality and sustainable properties due to the inherent operational efficiencies, adherence to safety standards, compliances, and better contingency planning for global events. From connected infrastructure or smart infrastructure or smart factories to the mobile workforce, organisations are applying technology to solve the complex problems that stand in the way of sustainable and efficient operations.”
Gopinath Deshpande
Seconding his thoughts, Gopinath Deshpande, SCM Infrastructure Head, Reliance Retail, shared, “Infrastructure definitely is a very key function in the entire supply chain. Within the company, there are many infrastructure opportunities to develop. External infrastructure is something, which is beyond the control of the company like the logistics related infrastructure. At Reliance, the focus has been to improve the infrastructure and build a state-of-art warehouses and we have been spending lot of time to understand the requirements. When I moved to supply chain in the infrastructure division in 2018, at that time, all the Reliance formats were having their own supply chain function and were managing the infrastructure coordination activities by themselves. They did not have specific requirements of the specifications.
When we moved into a Central Supply Chain platform, the focus shifted to building state-of-art-infrastructures, to operationalise our warehouses in a quick time and also improve efficiencies. We have got several connected functions within supply chain of Reliance. Our role starts at the network planning itself. Every department has got its own requirements and we try to consolidate the requirements by developing the network plan. We have engaged several consultants to do a network planning and we are reviewing the locations where we want to put all the formats into that location so that we get an advantage in co-locating and consolidating those spaces. We have also reviewed various processes with a view to improvise our operational efficiencies. We are having separate designing team who are looking deep into refining the processes. We have done various template designs and have formalised the designs, which is more optimum to us in improving the efficiency of our warehouses. We are looking at defining specifications for large, automated warehouses. We have also started working on the various infrastructure equipment like storage system, MHEs, etc. Earlier we had limited vendors and they were giving the storage equipment as per their availability and their own designs. We have standardised our designs such as racking and shelving designs with all the suppliers and now we are able to really get our storage system as per our requirements, which has helped us improve our efficiencies and turnaround time of setting up the infrastructure. With all these measures in place, we have moved ahead in last three years by having developed large state of the warehouse and by the end of 2022, we have huge target to meet the business requirement. It's an exciting period for us.”
Prashant Bopardikar
Reminiscing his stint at Future Supply Chains, Prashant Bopardikar, Head – SCM & Warehousing, Bestseller India, highlighted, “I remember in 2008 when the company was formed, we had 150 warehouses across India in every city. In whichever city, Central used to open, there used to be two warehouses. After some time, we realised that we need to consolidate the warehouses and bring in efficiencies into the system. By 2010, from 160 warehouses, we brought the number down to about 25 warehouses. In 2011, we decided to further reduce it, so we created a Mihan, which served as the mother DC and with Mihan, we realised the kind of technology and processes we need to adopt to bring in efficiencies into the system. With Mihan, we used to churn out almost five lakh pieces per day and the costs reduced from 4% to 3% for the group.”
“Coming back to my current organisation, Bestseller, my prior experience helped me devise an efficient strategy. With the company growing at a CAGR of 30% having five warehouses across different parts of the country, we decided to invest into new age technological solutions because the primitive processes and technologies could no longer support the growth graph that company has been registering year-on-year. We decided to develop a worldclass warehouse with an investment of over Rs25 crore. While designing this warehouse, we have taken into consideration even the minutest details that add to the efficient operations of warehouses, be it shelvings, docking space, height, flooring specifications, so on and so forth. Then we have deployed an advanced WMS system at the warehouse to enhance visibility. To tell you instance, before the pandemic, our market share through e-commerce was just about 5-6%. During the pandemic, it went up to 15-16%. Our channel partners such as Myntra started demanding reduced fulfilment timeline. From 48 hours, they reduced it to 12 hours and now they ask fulfilment to happen every two hours to their LSPs. This is where automation plays a key role. We have also implemented Labor Management System (LMS), which informs us about the real-time activity taking place at the warehouse against the set timelines. If in case, we see any deviations in the benchmarks, we are able to immediately take corrective actions. The particular department is notified about the lapses, which enables them to correct the processes at the earliest,” he added.
According to Prashant Bopardikar, customisation is the key in implementing any such big bang automation tools. “For instance, after the implementation of WMS at our warehouses, we have brought in over 55 customisations into the processes to enable efficient operations. We are continuing on this path because we believe that all these incremental changes only bring transformational benefits for the organisation in the long run and ultimately improve productivity, which eventually results in significant cost savings in the supply chain. This is how infrastructure whether it is physical or informational, plays a major role in companies’ profitability,” he explained.
Balbirsingh Khalsa
According to Balbirsingh Khalsa, Executive Director – Industrial & Logistics and Branch Director, Ahmedabad, Knight Frank India, the government has given Infrastructure status to Warehousing and logistics sector and this has helped in availing cheaper finance at longer tenures from Banks/FIs. This has been the most important support provided by the government post introduction of the GST. Many states like Haryana, UP, etc., have announced their independent Warehousing and Logistics policies while some states have given Industrial status to Warehousing properties so that warehousing developments can avail benefits accrued by the manufacturing/ industrial developments post the introduction of GST. Like Grade A specification of PEB warehouses, incity standard specifications also need to be defined. e.g Minimum land size, Floor height of 5-6 m, G+3/4 floors, Lift number and size, Floor strength of 7-ton, slab strength of 1.5-2-ton, Fire sprinklers, fire protection, Fire hydrants and other safety measures, etc. All these will enhance efficiencies and productivity for logistics of goods to and from these urban warehouses.
BRINGING WAREHOUSING AT THE FULCRUM OF CHANGES
Warehousing and related assets are an important segment of the overall logistics sector in the country. In the past two decades, warehousing has started becoming a very prominent activity in the overall supply chain, which organisations started feeling it to be make or break proposition. With the warehousing industry becoming a multi-billion-dollar investment market, especially with the growing interest from foreign equity players and private equity players, the quality of warehouses needs to be top-notch. There needs to be a sharp focus on the industry from all the stakeholders. Warehouses are not about aesthetic appeals; they need to deliver functional supremacy.
Highlighting the challenges faced in finalising the warehouse, Prashant Bopardikar, informed, “I was recently scouting warehouses for my North distribution center and we were looking for A-Grade properties. Because we have built A-grade warehouse in Bhiwandi on our own built-to-suit system, we realised that developers are not looking into small aspects such as docking space, flooring specifications, air changes, and the list is endless. The basic design parameters are being compromised in all these warehouses. We believe that the built-to-suit design specifications have to be very clean & clear, and developers need to be educated on these aspects because the moment you enter inside the building and realise something is amiss, you can't do anything about it. I think the first feedback should be given to the people who help us hire these warehouses.”
Arif Siddiqui agreed that there have been various challenges facing the warehousing industry, including land parcel approvals from various authorities starting with the local municipalities, which warrants warehouse developers run from one authority to another to receive the desired approvals, which is a highly time-consuming process. That’s why small developers shun away from building such warehouses as they don’t have the wherewithal and the ability to lock-in huge capital for long time. If the same scenario continues, then the private equity players will get disinterested one day. Additionally, as the industry is getting huge traction from international players, there needs to be a greater thrust on adopting global warehousing standards right from thedevelopment stage, which makes it even more challenging. Moreover, once the warehousing infrastructure quality goes up, we are able to attract better talent into the system, which further enables efficient operations. Currently, there are numerous standards for warehousing and related assets.
Industry veterans and specialists have been in constant dialogues with the government in making them understand the crucial importance of warehousing industry, its economic impact and formulating a coherent regulatory policy. Earlier the government considered warehousing activity as a miniscule part of the logistics ocean, but the constant discussions have finally started fructifying, though we have miles to go before we achieve the desired results, stated Arif Siddiqui.
THE NEED GAPS
DK Rai
Sharing important stats necessitating the need for standardisation in warehousing infrastructure, DK Rai, Director, CHEP India, informed, “We have about 20+ government agencies, 40+ partner government agencies, 37 export promotion councils, around 500+ certifications, 1000+ commodities, over 200 – 300 billion dollar market size, 200 shipping agencies, 36 well-defined logistics services, 129 Inland Container Depots (ICDs), 168 CFS, 50 IT ecosystems and various Banking and Insurance agencies and over 25 million people employed into the logistics services of the country. These figures themselves make up for a complex maze and if we don’t have standards defined, one can imagine the kind of chaos we will need to manage every time we talk about delivering goods to customers. In that sense, material handling becomes very crucial for overall supply chain. We are trying to promote at least some level of customisations, which are least conflicting in nature and because packaging is the very basic unit of supply chain, if you can have some sort of alignment on that standard, you can further standardise rest of the operations. I think, this itself brings lot of sustainability and lot of environmental benefits and also cost efficiency.”
Arif Siddiqui also highlighted that the increasing demand for warehousing space has resulted in massive growth of new logistics parks and single unit warehouses led by large and medium sized developers, self-users, and manufacturers who have developed their specifications as per market or self-requirement and constructed as per their understanding. In the past decade, development of built-to-suit warehouses and large logistics parks has become increasingly common since the advent of domestic, multi-national companies, e-commerce companies and the increasing flow of FDI by international developers in the warehouse infrastructure sector. This also helped improve the warehousing standards in the country since a lot of end users and developers adopted these standards when specifying their warehousing requirements to build or lease. Despite the improvement in the standards and specifications, a need was felt by the logistics and supply chain industry and developers to have a set of guidelines and standards for warehousing space development, which were suitable for India and were written considering the occupiers requirements for storage and efficient operations, local conditions, economic feasibility and regulatory compliance. In the warehousing value chains, ‘standardisation’ is becoming essential for reducing costs, improving efficiency, and ensuring global compatibility as well as competitiveness.
In view of the growing logistics sector, technology advancements and globalisation, the Logistics Division in the Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry, Government of India took up the task of assessing the adequacy of these existing standards and to fill the gaps with additional standards and guidelines. They entrusted Warehousing Association of India (WAI) to update and publish the e-handbook on Warehousing Standards, which was officially released during the Launch of The National Logistics Policy recently. In consultation with experts and various stakeholders, including industry, users, interest groups, standards organisation and governments, the present draft guidelines for standardisation of warehousing and related assets for seamless and efficient logistics are issued.
The E-handbook defines the best practices in Warehouse construction & maintenance, Palletisation & Racking Standards, Standards for material Handling, transportation, Product Specific standards as well as trends in Warehouse Automation and Artificial intelligence. “We firmly believe that this e-handbook will benefit all the stakeholders of the industry and go a long way toward standardisation and facilitate the development of worldclass warehousing infrastructure in India. Modern Warehouses that deploy automation and mechanisation will achieve improved productivity and throughput, thereby helping reduce the warehousing and logistics costs. We will continue to update this document annually and it will be our endeavour to include the latest developments, practices, and technologies in the Warehousing Industry from time to time,” affirmed Arif Siddiqui.
TRANSFORMING THE URBAN LOGISTICS SECTOR
The constant need to reduce delivery timelines had always made the entry of in-city warehousing in the Indian market just a matter of time. With the pandemic vaulting the e-commerce sector on a high growth trajectory and the entry of players such as the Tata Group and the Reliance Group in this highly competitive space, multi-storey warehouses could become mainstream phenomena much earlier than expected.
Besides facilitating optimum land utilisation in congested cities such as Mumbai, multi-storey warehousing will effectively reduce delivery timelines and transportation costs. Such solutions are already in place in Asian markets such as Singapore, Hong Kong and Tokyo. 3PL players have been scouting for incity development opportunities across Mumbai, Delhi and Bengaluru. The high real estate costs in these cities, however, make it a challenging venture, and turnkey opportunities such as defunct mills, factory units or shuttered malls are also being considered.
Urban Logistics Sector is highly attractive in tier I cities primarily in grocery & agricultural products, pharmacy, fashion & retail (clothes and garments) and FMCD. The market is shifting more towards on-demand solutions, which has further increased the demand for faster delivery. Hence, the last mile distribution of goods and urban logistics spaces attain critical importance by developing warehouses close to cities. A more recent format within the ambit of in-city warehousing that has been gaining prominence is the dark store. As highlighted in a recent Knight Frank report, a dark store is generally a warehouse that can either be used to facilitate a “click-and-collect” service such as that provided by D-Mart Ready, where a customer collects an item, they have ordered online, or as an order fulfilment platform for online sales, generally in the grocery segment. These could be shuttered retail stores or basement premises that can be effectively converted into last-mile order fulfilment centres.
Dark stores have risen in prominence in the past two years especially in the grocery segment, with e-commerce players such as Instamart, Dunzo, Blinkit and Zepto maintaining these premises at urban consumption centres. These businesses could take up good properties in urban centres as the retail industry has been under significant stress during this period. The dark stores have been instrumental in pushing sales and claiming market share from traditional retail formats with their unique proposition of delivering groceries within the hour at discounted prices. While the discounts are a focused customer acquisition strategy, the rapidly increasing customer demand for this format is expected to continue to push demand for dark stores. The growth of dark stores in international markets fuelled by the fast growing demand for online fulfilment and increasingly favourable unit economics also support the growth of this format in Indian markets.
Occupiers are moving towards dark stores because higher space optimization and stock management can be achieved with lower delivery times and reduced shipping costs. FMCG/ FMCD sector have higher requirement of Stock- Keeping Units (SKUs). Dark stores focus primarily on click-and-collect functionality, thereby optimizing SKU management. Dark stores are efficient as they do not require dedicated space or cost for the shopping experience. They cater to multiple online retailerssimultaneously, facilitating retailers to save real estate expenditures.
Offering the nuances into the urban logistics infrastructure, Balbirsingh Khalsa averred, “Urban infrastructure has been grabbing eyeballs post pandemic because pandemic warranted people to order from home. But if you see the urban centers, it is a very complex structure because the cities are getting massively congested with no scope of futuristic development. This is where the government has to play its part of defining the development plan and drive the change. Big urban cities simply can’t afford to have godowns spanning over 2000 to 50000 sqft and serve each and every PINCODE in the shortest timelines of 10-30 minutes delivery. This will only add to the complexities and prove to be logistical mess.”
“Logically, I feel we can just have 6-7 pockets within each big city where you can create such warehouse Parks, which are fully compliant in nature. Additionally, it also remains to be seen how sustainable these constricted delivery timelines are in long run. As cost of labour increases and service cost for delivery within city increased this model may not be profitable,” he added.
To create a good in-city warehouse, developers need least 5-6 acres of land, that too inside the city where residential and commercial development will likely prove to be more viable. The land itself will be worth Rs100-200 cr and it is unlikely that prevailing business dynamics in the warehousing market will support viability of such a project. “Realistically, I believe some industrial clusters within cities will get converted into warehousing formats and the industries may get shifted outside city limits for cheaper rentals,” expressed Balbirsingh Khalsa.
More and more retailers are now providing home delivery to neighbourhood societies with 3-5 kms radius to compete with these emerging e-commerce platforms. Over a period of time, these retail stores will have both models of offline shopping and online shopping within radius of 0-5 kms from the shops, only dark store model may not be sustainable in long run as it’s currently burning money model and not on profit model to grab market share from others unless they have some unique products and proposition to sustain for longer period, Balbirsingh Khalsa emphasised.
Regarding in-city multi-tier distribution center, Gopinath Deshpande avowed, “The movement of vehicles becomes an important criterion to consider. Layout of such in-city warehouses needs to be factored into before arriving at the specifications. We are seeing a greater compromise on the height, the floor loading capacities of such warehouses, load bearing capacities of mezzanine floor, which really needs a thorough think-through from the developers’ and our design requirements’ side. Currently, we are not focusing on multi-tier warehouses because we take large warehouses little away from cities. But going ahead, we would definitely like to consider this option considering its proximity to the city and it will give added value to us provided we are able to design the right specification for this.”
DEVELOPERS’ APPROACH TOWARDS IN-CITY WAREHOUSES/DARK STORES
Although urban logistics is gaining popularity in the Indian market, it has a relatively higher cost component for the e-commerce player to develop multiple in-city warehousing or dark stores in the city neighbourhoods. Moreover, the size of these spaces ranges from 5,000 to 25,000 sqft. for which availability of land is difficult in the city area. Developers are now reinventing and repositioning usage of their existing assets in the city. Developers are more aware of the real estate market than the e-commerce players in tier I as well as the under explored tier II cities. They facilitate the players to carve out spaces in the city.
E-commerce players also could explore the defunct, stressed assets as well as alternate use of the existing assets of the developers. These types of assets also help in reducing the rents and hence, overall cost of the in-city warehouses. To reduce the cost component of dark stores and address the seasonality of the demand, new models such as temporary lease of 6 months are being adopted. The delivery time is reducing from 1-day delivery to 1 hour to 30 minutes. This reduction in delivery time from days to hours to minutes demand for multiple warehouses near to the consumption hubs (in-city).
Currently in most cities, in-city warehousing is being carried out through existing retail, commercial or industrial properties retrofitted for warehousing. Warehousing / Logistics is not well defined in most Urban Development Plans across India as it is across developed and dense markets such as Singapore and Japan. According to Balbirsingh Khalsa, currently demand should be approx. 3-5% of total absorption of each city, which can go up to 8-10% in next five years. Talking about the complexities of the same, he added that the typical cost of construction for in-city warehouse is Rs3000 to 4000 per sqft for international specifications. Additionally, there are high approval cost within city and high land cost. Rent typically is from Rs.50 to Rs.200 per sqft. based on city, location, and specifications. The near prohibitive costs can only be reduced if the government recognises the need of the urban consumer and makes adequate allowances in the DP for this purpose.
Putting it bluntly, Arif Siddiqui stated that for a long time, it will remain a challenge. “There are two aspects to it – one is on the demand side and the other is the supply side. Firstly, the demand for quick commerce or instant delivery is consistently going up. We have already moved from 4-5 days delivery to 15 minutes delivery window. This creates a huge challenge to the infrastructure and when we especially talk about major markets such Mumbai, Delhi NCR, and Bengaluru as it might be easier to manage such delivery promises in cities such as Indore, Jaipur or Surat. Now as far as the supply side is concerned, the biggest challenge is of occupying space for developing warehouses as it might not be a financially viable option at first to invest such a huge sum on land and even occupying land of such a size is a far-greater challenge. Currently these quick commerce companies are operating from a backyard with just about 200- 300 sqft space, which is not a great proposition either. The extra low margin game also doesn’t add up to the initial investment required. The cost viability is a greater question mark before arriving at a tangible solution,” he avowed.
He further stated, “If the governmentauthorities decide to allot land parcel in old industrial areas of these major cities, the problem of huge land acquisition cost gets solved to an extent. Additionally, having just one of such clusters in a big city like Mumbai or Delhi also doesn’t justify the 15-minute delivery promise. In short, companies need to thoroughly figure out the best possible alternative to strike demand-supply equilibrium while fulfilling all the regulatory requirements of developing a new age warehouse. I believe in-city warehouses are a matter of intense discussions between municipal corporations, government bodies and the private players. Government will need to specify rules & regulations for in-city distribution centers. They need to assign planning regulators for such centers, else operational viability will be amiss. Special rules need to be laid out for multi-tier warehouses as they can’t just be the same as any other commercial building.”
THE BALANCING ACT
Explaining the economics of building a warehouse, Balbirsingh Khalsa stated that on one acre of land where you can make maximum leasable 24000 to 25000 sqft, with typically 55% of ground coverage, the land cost per square feet is approximately Rs800-1000 and the construction cost for a grade A warehousing park would be around Rs1800- 2000 per sqft including 18% GST, which comes down to about Rs 2600-3000 per sqft. If a developer targets a 10% ROI, he needs to rent out the Grade A warehouse at around Rs 24-25 per sqft per month on rent. The only way to make things cheaper is to go farther from city limits to find cheaper land parcels.
Having said that, rentals in India are still very low compared to the top 10 countries of the world. The typical rentals are $15-25 per annum that boils down to around Rs 100 – Rs 170 per sqft per month. We are still hovering around Rs15 to 25. Only some clusters like Bhiwandi and Taloja in Mumbai, Chakan in Pune, Oragadam in Chennai command Rs25-30 psf.
Hence developers are reluctant to invest in better specifications and amenities as they cannot be reasonably sure of the property fetching higher rentals. “I believe as companies grow and are able to quantify the value that an efficient and high-quality warehousing setup brings in, they will be able to justify investing greater amounts in their warehouses. Developers will then be eager to develop Grade-A warehouses as per their customers’ specifications. Going forward, things will evolve over a period of time. One thing we need to understand that there is constant demand for upscaling of specifications from tenants to improve on efficiencies and productivity and additional specifications will cost more money for construction,” Balbirsingh Khalsaexpressed.
“My worry is that quick commerce companies shouldn’t get comfortable in managing their service from such extremely poor-quality infrastructure that they are currently operating from. Assuming that there is a demand, there are three factors that add up to the cost of the developer – land, cost of the building and the regulatory framework. If the cost of the building is low, but at the same if the developer has the low ground coverage approval from the government, then also it is not a feasible proposition. In another proposition, if all the government proposal are intact to build the distribution center the developer intends to build, but if the cost of development is going higher, then also it’s not a great idea. If these two things are in a developer’s favour, but the land cost is obnoxiously high, then also it’s not viable. First of all, companies need to devise balance of cost scenario. Secondly, developers will need to deliver the Unique Selling Proposition for the occupier, such as better capacity utilisation, optimised warehousing design that can equip occupiers with an ability to process orders and deliver goods in the shortest timeframe from the DC to the customer’s place. If the developer is able to deliver all of these aspects at a reasonable price point, the market is flooded with enthused occupiers,” Arif Siddiqui highlighted.
SETTING THE GOAL POST
Indian warehousing market has the potential to shift towards the multi-storey warehousing on back of the increasing demand from the e-commerce sector to be located close to their consumer base and to efficiently utilise the land area. This can kickstart the demand for tech-enabled multi-storey warehousing, which can facilitate maximum land utilisation in cities having limited land supply as well as help companies to reduce transportation costs and time. Cities such as Mumbai, Bengaluru and Kolkata have the potential to attract multi-storey warehouses as they have constrained land supply and higher land rates. The permissible FSI for warehousing is lower than the desired FSI for multi-storey warehousing in Indian cities. Lower permissible FSI restricts warehouses from going higher, which does not allow cost optimisation. But, with growing population, space constraints and increasing land prices, multi-storey warehousing system can emerge in the Indian warehousing market in the near future.
While policies are being put in place across some states, others are yet to tow the line and acknowledge the tremendous potential this market holds in terms of boosting local businesses and generating GST revenues for the state, ie., more warehouses, more stocks, more trade, more GST collection for the states. “If a state stock of warehouses grows from 10 mn sqft to 20 mn sqft., the state could well see a similar growth in GST revenues along with a significant boost to local supply chains, job opportunities and better access to a wider variety of products. Each 1L sqft of warehouse can add 100-500 direct/indirect jobs. It could prove to be a significant enabler for the states’ economy. If state wants to support manufacturing growth, they also need to develop more warehousing parks to support trade and logistics and this in turn supports growth of GDP of the state and the country. In many states, warehouses cannot be built on Industrial land, such a policy is hurting the development and growth of warehousing as a sector and overall growth of the state, highlighted Balbirsingh Khalsa.
He asserted, “On the national level, the focus on developing gamechanging infrastructure projects such as the Industrial and economic corridors connecting the length and breadth of the country, projects such as the Bharatmala and Sagarmala along with ambitious plans to create multi-modal logistics parks hold tremendous promise for the logistics and warehousing sector. With such massive infrastructure projects underway, the government’s intent and focus on the manufacturing and logistics/ warehousing sectors is apparent, and the market is closely watching these developments as they unfold. Investors are already poised to take advantage of these projects as they approach fruition.”
Stressing the crucial importance of warehousing infrastructure, Arif Siddiqui shared, “Implementing the right operations efficiency strategy will be crucial to maintain a competitive advantage. Supply chain strategies are increasingly including the significance of operational efficiencies and human productivity. The infrastructure piece in the business pie cannot be ignored as it makes or breaks the plan and we have seen in the recent pandemic that organisations have had to face huge challenges because they did not have an efficient infrastructure in place.”
“Increasing productivity, reducing waste, and driving sustainable performance has become the key performing index to any invested infrastructure. Optimising entire asset value and operational life cycle by contextualising asset performance will be the key for a very long time. Therefore, selecting the correct specification or writing the correct specifications in case you are hiring a facility or otherwise if you are building one, carefully designing your warehouse building, looking at the vehicles’ docks, aprons, yards, and roads determining the flows and Quantitative analysis of 3Ms – Material, Man and Machine movement – is going to be the bedrock of infrastructure logistics.”
“Designing processes that have optimum path, zero errors and integrated to the virtual process so as to automate the data collection will also remain increasingly the key to most of the success. Leveraging the right solutions, warehouse equipment, technology not only in terms of machine technology but also in terms of IT and the technologies that keep evolving, integrating WMS to WCS will also be the key driver to what we see in the future. Implementing a streamlined return process and today we see a lot of return management challenges that are taking place leaving a lot of cost to the operations and the capital that is invested in the business is also becoming one of the key success factors of making or breaking organisations and businesses. Collaborating to drive efficiency from suppliers’ supplier to customers’ customer has as has always been the key, will continue to be the key and will not diminish till the end of time,” he concluded.
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