Indian e-commerce has grown and evolved significantly, especially during the covid period and brands too are turning towards alternative online selling channels such as D2C and Social commerce. Thereby, the role of 3PL providers too has increased for offering end-to-end logistics process solutions.
According to Shyam Arumugam, Managing Director, Industrial & Logistics Services, Colliers, the warehousing market showed resilience throughout the pandemic and demand for high-quality warehousing space was steered by 3PL (Third party logistics) players with a 33% share, followed by e-commerce companies with a share of 29% in total leasing. Various Performance Linked Incentive (PLI) schemes approved by the government across the manufacturing have also led to increased demand for warehousing spaces.
Aditya Sikri, President, IndoSpace shared some statistics, “By 2024 the smartphone penetration is going to reach 60% and about 900 million people in India are going to be making online purchases. Moreover, almost 99% of Zip codes have been tapped as delivery destinations by the E commerce players. I believe in the next seven or eight years, ecommerce will make 25% of the total organized retail market in India. Given these forecasts, India is playing catch up with the rest of the world, but the scope and the scale is very different for us. So, as a developer we will have to think of different strategies for not only fulfillment centers like that of Amazon but also modernized in-city centers that are nearer to customer base.”
N Sridhar, CEO - Greenbase Industrial and Logistics Park said, “The recently seen supply chain disruption and the digital transformation across industries has influenced the warehousing & logistics segment as well. The location continues to be a very critical factor for the E-commerce fulfilment centers as well as the manufacturing bases. However, the logistics cost in India is about 13% of GDP vis-à-vis 8% of GDP across USA, Europe. And this is even higher than the GST benefit that the sector gets. Therefore, proximity to a transportation hub becomes critical. Also, companies consider the lowest cost of market (LCM) and want to be near consumption centres through hub and spoke model, but that too is ow undergoing realignment.”
Rajat Garg, Head of Investments - ESR India pointed out that customer wants their good faster and therefore near city locations are being preferred even though that means 5% - 20% premium on land. “You don't want your product sitting in the warehouse for a long period of time requiring an algorithm which will ensure that the inventory moves fast. Interestingly, propensity to consume is a lot higher in tier two cities and new emerging residential locations near metro cities. Therefore, many ecommerce players want to be in new locations. So you need to be very careful about know which customer are you targeting when you choose locations. At ESR, we want to be within 45 minutes of a large consumption hub.”
Rahul Pandit, CEO, Horizon Industrial Parks shared his perspective, “India is in its infancy and there is a big runway ahead to grow. India has a huge domestic consumption market and GST and Covid have been a big accelerator for the warehousing market. The Grade A absorption across key cities stood at 22 million sft in 2021 and is poised to grow at a CAGR of 9.1% during 2021- 2026. But, the unavailability of feasible land parcels, and the cumbersome process of land acquisition remain the biggest challenge for the sector.”
Richard Theknath, Chairman & MD, JetFrieght Logistics sharing his opinion on the logistics end of the warehousing market conceded that the high fuel costs and limited air freight are the short term challenges. The bigger challenge is that logistics sector is fragmented. “Given the rise of e-commerce in India and internationally, India has the potential to be the logistics and the warehousing hub of the world. What we need is the modernization of the sector and favorable government policies.”
THE EXPERTS WERE BULLISH ON THE INVESTMENTS IN THE WAREHOUSING SECTOR FROM BOTH DOMESTIC AND FOREIGN INVESTORS AND PREDICTED THAT AT LEAST USD $3 BILLION OF CAPITAL IS WAITING TO BE DEPLOYED BY FOREIGN INSTITUTIONAL INVESTORS IN THE INDIAN LOGISTICS & WAREHOUSING SPACE. “BUT THE CHALLENGE IS THE SCALE AT WHICH WE CAN EXECUTE IRRESPECTIVE OF MARGIN,’ THEY EXPRESSED.
