New Warehousing Policy

By

Divya Gupta, PGDRM Jan’22-23

A warehouse acts as an integral part of logistics that stores products between the point of origin and the point of consumption. Basically, production and consumption do not take place simultaneously, there is a gap between the two. Warehousing bridges this gap by storing goods between these two processes and further creates times utility. It is when warehousing contributes to reduced costs and improved service, flexibility, and responsiveness that warehouses become more valued to the organization and supply chain as a whole. If a warehouse is eliminated from the supply chain, the entire logistics industry would come to a standstill. They form the spine of the supply chain. The warehousing segment has proven itself to be one of the quickest asset classes to recover from the pandemic.

What is Warehousing?

Warehousing is a set of activities that are involved in receiving and storing goods and preparing them for reshipment. It involves getting products ready for reshipment with an ultimate objective to maintain the uninterrupted flow of goods. A warehouse is a building for storing goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, etc. Currently, the segment has evolved from providing not only custody for goods but also offering value-added services such as sorting, packing, blending, and processing.

TYPES OF WAREHOUSES

1. PRIVATE WAREHOUSES: They are constructed and owned by the business enterprises themselves.
2. PUBLIC WAREHOUSES: These warehouses are owned by the government and semi-government bodies and are made available to private firms to store goods on payment of rent.
3. BONDED WAREHOUSES: These warehouses are licensed by the government to accept imported goods for storage until the payment of customs duty. They are located near ports. The goods are held in bonds and cannot be withdrawn without paying the customs duty.
4. OTHERS: Special commodity warehouses, cold storage, and institutional warehouses.

Functions of Warehouses

Benefits of warehouses

Warehousing Operations

RECEIVING: Receiving begins with an advance notice regarding the arrival of goods. It allows warehouses to schedule receipts and unloading in order to ensure coordination.

PUTTING AWAY: This involves managing the second inventory of storage locations, where the product is going to be placed before storage.

STORAGE: The basic function of a warehouse is to store goods and bridge the gap between the production and consumption of goods.

ORDER PICKING: Process of taking and collecting items in a certain quantity prior to shipment to deliver the order.

PACKING AND SHIPPING: It is important to ensure that each order is complete and accurate according to the needs of customers.

Comparison of warehousing markets

Source: Knight Frank Research

Indian Warehousing Sector Overview 

Image Source: Care Ratings Report

• The warehousing space per capita in India remains low compared to developed economies. 
• Warehousing constitutes only 15%-35% of the total logistics costs but its importance is significant with respect to the role it plays in the smooth functioning of supply chain networks.
• The domestic warehousing market is highly fragmented with most of the warehouses having an area of fewer than 10,000 sq. ft.
• Approximately 90% of the warehousing space in the country is controlled by unorganized players which manage small-sized warehouses with limited mechanization.
• The sectoral end-users of warehouses can be broadly classified as 3PL (Third Party Logistics), e-Commerce, Manufacturing, FMCG, Retail, and Consumer Durables.

Examples of major players in warehousing segments in India

Retail Warehousing

DHL, SAFE EXPRESS, NIPPON EXPRESS, INDO ARYA, MJ LOGISTICS Etc.

Liquid Bulk Storage

VOPAK INDIA, INDIAN OIL TANKING, AEGIS LOGISTICS, IMC Ltd. Etc.

Agri Warehousing

FCI, CWC, STATE WAREHOUSING CORPORATIONS

Cold Storages

KELVIN COLDCHAIN, COLD STAR, DEV BHOOMI COLD CHAIN Etc.

Container handling and Storage

CONTAINER CORPORATION OF INDIA

Challenges faced by Indian Warehousing Sector

1. FRAGMENTED MARKET: The warehousing sector is in a fragmented structure with maximum share occupied by unorganized players
2. LACK OF IT PENETRATION: Limited real-time visibility with manual inventory management, warehousing management, documentation, billing, and reporting
3. LACK OF EXPERTISE IN WAREHOUSING TECHNOLOGIES: A majority of the Indian warehousing players today have inefficient methods of storing, handling, and monitoring goods.
4. PROCESS INEFFICIENCIES: There is an absence of standardized operating processes and procedures at warehouses.
5. UNAVAILABILITY OF SKILLED WORKFORCE: The industry lacks trained personnel who can operate sophisticated material handling systems and warehouse management systems
6. LAND AVAILABILITY ISSUES: Procurement of land for warehousing is a difficult task, with the increase in real estate prices of land in and around major cities.

Indian Warehouse Market

E-Commerce and Warehousing Market

E-Commerce in numbers

1. The E-Commerce sector has been the biggest driver of warehousing across developed markets globally. The share of online sales in the UK had in fact spiked from 19.2% in 2019 to a steep 33.4% in May 2020, showing the dominance and scalability of the online marketplace even in a mature market.
2. With only a 4.7% penetration in India (2019 estimations), the Indian e-commerce market is on the cusp of its next phase of growth.
3. This sector’s share in transactions has grown from 18% in FY17 to 31% in FY21. Amazon Inc. and Walmart Inc.-backed Flipkart have driven the market.
4. Knight Frank Research estimates the e-commerce sector to occupy the most warehousing space in the next five-year period of FY 2022 -2026 at 165% more than the preceding period of FY 2017 -2021.

Image Source: Knight Frank Research

Trends to watch for

Image Source: Knight Frank Research

It is estimated that the e-commerce sector will consume the most space in the next five-year block of FY 2022 –2026, 165% more than the preceding period of FY 2017 -2021.

Similarly, 3PL and Other Sector companies are expected to take up 56% and 43% more space in the next five years compared to the preceding period.

These three occupier groups are expected to account for 86% of the total transacted space in the next five years.

New Warehousing Policy

What is the Policy?

To help ease transportation and logistics costs, the government is planning to introduce a warehousing policy, which will lay the roadmap for developing exclusive warehousing zones through public-private partnerships. The proposed warehousing zones are part of the government’s initiatives to reform the transport sector that accounts for the majority of goods movement across India.

Who will frame the policy?

The policy will be framed by NATIONAL HIGHWAYS AUTHORITY OF INDIA (NHAI) and it will also be the implementing agency.

How?

Through LAND BANKS AND PPP MODE

1. LAND BANKS: There are landbanks along the highways and expressways of the country with the NHAI.
2. PPP MODE: Inviting private players to develop warehousing zones in PPP mode on a revenue-sharing basis or for a fixed fee.

Objectives of the Policy

Logistics boost: The new policy is aimed at improving logistics throughout the country.

Supply chain management: The modern warehouses will house cold-storage chains and will be able to store all kinds of cargo—wet and dry. it will enhance holding capacity and improve organized supply.

De congesting cities: These facilities are expected to come up outside city centers so that large trucks carrying the cargo do not need to enter the city to unload their goods.

Fuel efficiency: This will also help boost bulk carrying capacity and save fuel.

Curbing air pollution: The idea is to minimize pollution and traffic congestion in major cities.

Economic impact of the policy

Logistics cost living

• India’s logistics cost as a % of GDP stood at 13%-14% as compared to 10%-11% for Brazil, Russia, India, and China (BRIC) countries and 8%-9% for developed countries.
• A significant proportion of the higher cost can be attributed to the absence of efficient intermodal and multimodal transport systems, and poor road infrastructure. Further, higher warehousing costs are driven by a shortage of warehousing capacity in India, non-standardization of warehouses in terms of IT application, etc.
• The high cost of logistics impacts the competitiveness of domestic goods in the international market. Thus, reducing logistics costs from the present 14 percent of GDP to single digits will reduce costs and increase exports.

ESTABLISHMENT OF MULTI-MODAL LOGISTICS PARKS

In May’17, the union government announced its initiative to develop a network of 35 multi-modal logistics parks (MMLPs) across the country under the ‘Bharatmala’ programme. The MMLPs are aimed at fostering inter-modal connectivity through dedicated railway lines and access from highways to provide connectivity to an airport or a seaport or an inland waterway terminal.

MMLPs can help in better connectivity with the warehousing zones and in turn, better efficiency and movement of goods.

Economic impact of the policy

FMCG sector boost: This will help Fast-moving consumer goods (FMCG) firms, and steel and cement makers stock inventory near major hubs.

India as an investment destination: The sector witnessed investments exceeding $1.5 billion in 2021, making it the highest after the office sector to attract such investments. The market is likely to witness continued interest from investors in 2022 as well according to Savills India in a report. The policy will help attract foreign direct investment, in turn, boosting trade.

Growth in the e-commerce sector: The policy will further help the e-commerce sector grow.

Modernization of warehouses: More mechanization and automation will help generate more business and efficiency and thus economic growth.

Boost real estate activities in this segment.

Way forward

• In the industrial space, warehousing is expected to grow due to various factors such as the Make in India initiative, anticipated increase in global demand, organized retail, manufacturing activities, e-commerce, and growth in international trade.
• In the agricultural warehousing space, measures taken up by the government in order to curb post-harvest loss would initiate the demand for cold storage in the country. Significant demand is also seen coming for the storage from the pharmaceutical industry.
• The policy is expected to gradually improve the efficiency in the sector and bring down the cost structure, subject to overcoming challenges like IT penetration, operational inefficiencies, etc.
• The warehousing industry must evolve with time, to sustain market pressures and increasing competition.

Get the full research study here: NEW WAREHOUSING POLICY BY DIVYA GUPTA

Disclaimer

This report has been produced by students of Global Risk Management Institute for their own research, classroom discussions and general information purposes only. While care has been taken in gathering the data and preparing the report, the student’s or GRMI does not make any representations or warranties as to its accuracy or completeness and expressly excludes to the maximum extent permitted by law all those that might otherwise be implied. References to the information collected have been given where necessary.

GRMI or its students accepts no responsibility or liability for any loss or damage of any nature occasioned to any person as a result of acting or refraining from acting as a result of, or in reliance on, any statement, fact, figure or expression of opinion or belief contained in this report. This report does not constitute advice of any kind.

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