Logistics and Warehousing to emerge stronger than ever before

Warehousing is the new darling for investors

The logistics and warehousing sector is the backbone of the Indian economy. Driven by economic growth, urbanization and changing consumer preferences, the scope of this industry has widened from mere transportation of goods to end-to-end supply chain management. The focus will now shift from simple storage of goods to various processes such as packing, sorting, blending and much more. The sector has witnessed a surge in demand in the past three years due to the growth of manufacturing, retail, FMCG and e-commerce sectors.

The government has also undertaken a series of policy reforms to bolster the sector such as the implementation of the Warehousing Act 2007, the establishment of logistics parks as well as Free Trade Warehouse Zones (FTWZ) and introduction of Goods and Services Tax (GST) that further propelled the sector. The proposed National Logistics Policy and thrust to ‘Make in India’ will further lead to organized development and standardization of warehousing.

Nevertheless, the current COVID-19 pandemic has impacted almost every sector of the economy with logistics and warehousing being no exception. The demand is expected to soften in the near and medium-term in 2020. Occupiers are likely to seek short-term rental deferment and rent holidays to tide over the crisis of liquidity crunch. The current COVID-19 crisis underscores the significance of a robust supply chain for making essential services available to end consumers.

Experts suggest that logistics and warehousing will emerge as the most resilient sector in the wake of the lockdown. Supply contraction in the sector will lead to a dip in vacancies and better pricing. A JLL report has highlighted that the warehousing absorption stood at nearly 6 million sq. ft in the first quarter of 2020. With social distancing norms to continue and the reluctance of the consumer to venture out, the logistics and warehousing sector will witness increased patronage, leading to faster recovery among other asset classes with e-commerce and 3PL (Third party logistics) players driving the demand. With an increased emphasis on supply of fresh food, the cold chain logistics will be on a high growth trajectory.

A Welspun One Logistics Parks (WOLP) report also anticipates an increase in demand in the near future on account of global firms shifting their manufacturing operations to India to avoid disruption of supply chains. The report foresees the sector to grow by 35% in 2021 as compared to the earlier forecast of 21%. Union Finance Minister Nirmala Sitharaman has announced several initiatives to strengthen the agricultural and ancillary infrastructure in view of the COVID-19 crisis. This will also give a fillip to the demand for logistics and warehousing due to the requirement for procurement, storage, and distribution of agricultural produce.

However, certain challenges need to be addressed. Firstly, logistics accounts for a high cost of India’s GDP at 14 %. This is primarily due to the unorganized nature of the sector and skewed multi-modal mix. Another issue is the lack of a single-window clearance mechanism for approvals. Granting of industry status to the sector will enable access to various avenues of funding besides reducing the cost of operations, generating employment opportunities, and streamlining the sector. It is heartening to note that Uttar Pradesh has already made a beginning in this aspect.

The post-COVID-19 scenario promises immense prospects for the logistics and warehousing sector due to growing e-commerce models, change in consumption patterns and adoption of omnichannel distribution models. The growth in the sector will be accompanied by an increase in investment due to the assurance of high returns. The increase in demand is likely to lead to the renovation of empty retail and wholesale spaces as warehouses and logistics spaces. The establishment of logistics parks will lead to monetization of unused land banks.

As a practice, warehouses have been confined to the outskirts of cities and towns. With social distancing becoming the norm amidst the COVID-19 pandemic, consumers will be more inclined towards the e-commerce model of delivery. This will prompt e-retailers to shift their warehouses near the customer base to expedite deliveries. Hence the concept of micro-warehousing will be on the rise.

The post-COVID-19 scenario will also renew focus on facility management within warehouses due to consumers’ consciousness towards hygiene and wellness measures. One may also anticipate longer term and increased uptake of warehouses for storage by 3PL players. The huge pent- up demand and strong fundamentals of the sector are expected to reignite the spark in the fourth quarter of 2020.

This article has been authored by Ved Parkash Dudeja, Vice Chairman – Rail Land Development Authority.

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