Insight - Smart warehousing catches on as India’s logistics sector takes off
India’s A$278 billion logistics industry is changing fast. The Government is liberalising a number of industry sectors. Road and rail networks are being upgraded. Freight corridors are being built. Supply chain operators are radically up-grading warehousing standards, systems and design in response.
This insight surveys opportunities for Australian smart warehousing specialists as Indian logistics companies expand and upgrade their infrastructure. Opportunities include:
- warehouse design and construction
- automation, containerisation and smart devices
- energy-efficiency solutions.
For more information, please contact: Ashwini Shah, in Mumbai.
E-commerce, cold storage and Grade A standards drive warehousing demand in India
Smart warehousing is likely to be a key feature of India’s future logistics sector. According to the Asia Development Bank (ADB) India’s logistics sector will outpace GDP growth by 20% over the coming decade (Source: ADB, Developing Multimodal Parks in India, June 2020, accessed June 2021) (PDF 168 KB).
Rapid growth in Indian logistics is driving change in India’s warehousing sector. The number of ‘Grade A’ warehouses in India was estimated to be growing at 25% per year before the COVID-19 Pandemic.
(Source: Knight Frank, India Warehousing Market Report 2020, accessed June 2021) (PDF 8.6 MB). Growth estimates have now increased to 35%.
There is still a shortage of Grade A warehousing, however. The key demand drivers are:
- increased distribution requirements for e-commerce supply chains
- demand for cold storage warehousing for agri-foods and healthcare goods
- supply chain operators seeking to upgrade to modern Grade A warehouses
- increased demand for supply chains to cater to home-workers in Tier 2 cities
- companies that want to de-risk their supply chain and increase inventory stockpiling.
Opportunities for Australian smart warehousing specialists
There are a number of openings for Australian smart warehousing specialists as Indian companies upgrade warehousing infrastructure and operations. These include technology, design and operations:
- warehouse design, warehouse management, smart containerisation, smart logistics
- robotics, self-driving vehicles, AI, big data, logistics blockchain, IOT, augmented reality
- e-billing, smart marketplaces, super grids, energy management
- equipment for improved automation, digital wearables, bionic enhancements, 3D printing.
Smart warehousing may also be a high-growth market for investors.
Growth in Grade A warehousing stock in India
Commercial Real Estate company, JLL, estimates that demand for warehousing in India was rising at more than 25% per year just before the pandemic. (Source: JLL, India Warehousing and Logistics Update, 2019, accessed June 2021).
JLL also reports that the overall share of warehousing stock that conforms to Grade A standards is steadily rising, from approximately one-third in 2017 to almost half (forecast) by 2023.
- 2017: 47 million square feet (sq ft) of Grade A warehousing, out of a total of 138 million sq ft
- 2019: 88 million sq ft of Grade A warehousing, out of a total of 211 million sq ft
- 2021: 139 million sq ft of Grade A warehousing, out of a total of 296 million sq ft
- 2023: 188 million sq ft of Grade A warehousing, out of a total of 379 million sq ft.
Absorption rates – which measures the proportion of net warehousing space that is occupied – also show demand swinging towards Grade A-standard facilities. The proportion of overall absorption accounted for by Grade A sites has already exceeded 50%.
The report says that warehousing absorption is gradually increasing in the Tier 2 cities. The key cities include: Lucknow, Jaipur, Indore, Nagpur, Hosur, Coimbatore. Demand in these cities is primarily driven by e-commerce, 3PL and fast moving consumer goods.
E-commerce drives demand for ‘in-city’ warehouses
Logistics companies in India report rising demand for warehousing facilities in the middle of cities – or ‘in-city’ warehousing. According to reports, Logos Group plans to develop 20 million sq ft of in-city warehousing in India.
E-commerce is driving demand for in-city warehouses. Online food delivery (OFD) is also generating demand for cold storage (CS) facilities, according to the Economic Times of India. With OFD expected to rise by 60% by 2023, CS will likely be a core feature of growing in-city warehousing.
Smart warehousing the key to raising labour productivity
Corporate India recognises that e-commerce requires Grade A warehousing to work differently. Upgrades or redesigns include new equipment and devices to improve labour productivity, the ability to manage digital signatures and automatic e-billing.
Vice President and Head of Innovation DHL Asia-Pacific, Mei Yee Pang, commented at a technology conference organised by DHL in Singapore in 2019, that replacing humans with robots was unlikely in India (Source: DHL, Shaping the Future of Logistics, accessed June 2021).
Mei Yee suggested that smart warehousing and logistics strategies would improve labour productivity, rather than plans for automation. She commented that even in the US, smart warehouses outnumber fully automated warehouses by approximately 100:1.
Warehouse investment becomes an attractive asset class
Developers and investors have now emerged as separate stakeholders in the warehousing industry. While yields for commercial office space in the US are estimated to be 1.5ppts higher than for warehouse space, yields in India are reported to be comparable or higher.
Changes to India’s foreign investment rules are also impacting the sector. In 2017, warehousing was given ‘infrastructure’ status. This means that foreign direct investment (FDI) can now account for up to 100% of the value of warehousing assets.
According to reports, industrial real estate investment trusts (REITs) offer a viable route for investors to enter India’s warehouse and logistics industry.
Government initiatives trigger logistics upgrades across India
National and state-level policy changes have encouraged investment in new logistics infrastructure and systems. Examples include:
- The Indian Government’s Multimodal Logistics Parks (MMLP) policy
- A new warehousing policy in India’s National Capital Region (NCR) around Delhi (Source: The Government of Haryana: Logistics, Warehousing and Retail Policy – 2019, accessed June 2021) (PDF, 253KB).
The MMLP is a key policy initiative of the Government of India. The Government wants to reduce logistics costs in India by citing MMLPs at 35 locations around the country (Source: ADB: Developing Multi-modal Logistics Parks in India, accessed June 2021) (PDF, 168KB).
According to the ADB, the MMLP policy is expected to facilitate freight aggregation and distribution, multimodal freight transport, integrated storage and warehousing, technology support, and value-added services. MMLPs should thrive in line with rapid growth in India’s logistics sector, which is forecast to grow 20% faster than the economy.
How to find a partner in India’s logistics industry
Australian exporters typically enter the Indian market with the help of local partners. Business in India is reliant on relationships and is usually built on pre-existing contacts. A local partner can provide up-to-date in-market intelligence. A partner will also provide insights into the commercial and financial risk of performance guarantees.
Austrade can help Australian logistics partners find suitable partners in India. Austrade’s India-wide commercial networks can help generate introductions while commercial travel remains impractical.
Established logistics companies can also help identify smart warehousing opportunities. Several Australian logistics companies are already active in India, including Linfox, Toll Logistics, and LOGOS India.
In India, the principal state-owned logistics company is the Container Corporation of India. Private sector companies include Welspun, Mahindra Group, GATI, Central Warehousing, Transport Corporation of India, Snowman.
Austrade in India
Austrade can help Australian businesses craft a market-entry strategy, provide connections with key stakeholders, government, experts advisers and proposed partners.
Please contact Ashwini Shah to find out more about market-entry strategies for India.