Decoding the growth factors driving the transformation of warehousing in India

Warehousing is an important component of the logistics value chain and plays a significant role in quality storage of goods and merchandise during the varying stages of transportation.

Until a few decades ago, warehouses were mere ‘holding’ areas in dilapidated buildings with poor light or ventilation. Since then, warehousing in India has evolved manifold, with low-grade godowns being replaced by pre-engineered structures that are insulated, ventilated, and climate-proof with round-the-clock surveillance and standard quality and safety procedures. Traditionally one of the most ignored sectors in logistics, warehouses have now developed into sophisticated stockrooms with advanced, real-time tracking mechanisms and other state-of-the-art facilities, which have been instrumental in shaping the modern economy.

The Indian warehousing industry was estimated to be worth Rs561 billion (excluding inventory carrying costs, which amount to another Rs 4,340 billion) in 2017 and is estimated to grow at 9.5 percent CAGR to reach Rs 968 billion by 2024. Riding high on structured reforms wave, including the recent infrastructure status granted to logistics, and the implementation of GST, the Indian warehousing and logistics sector is estimated to attract nearly $10 billion investmentover the next four-five years. With the addition of around 200 million sq ft warehousing space across India, total supply is expected to nearly double by 2022, estimated JLL India. It accounts for 5 percent of the Indian logistics market (excluding inventory carrying costs, which amount to another 30 percent).

The growth drivers

Apart from conventional storing services, warehouses in India are now equipped to provide value-added services like consolidation and breaking up of cargo, packaging, labelling, bar coding, reverse logistics,kitting, etc. The growth in warehousing in India is primarily being driven by the following factors:

• MakeinIndia: With the government thrust, there has been an accelerated growth in the manufacturing sector, particularly in areas like textiles, pharmaceuticals, telecommunications, automobiles, and food and beverages. This has not only given a push to internal trade but to the larger economy, by means of increased potential for exports.

• Enhanced trade: Apart from manufacturing, sectors like organised retail, information technology, telecommunications, and healthcare have evolved dramatically over the last few years, driving a growth in demand for warehousing. Further, these newer, younger players entering the marketseek out leaner operational structures. This contributes to the rise of 3PL practices, boosting the warehousing industry.

• Superior technology and Digital India:With wider internet penetration, technology-enabled growth drivers like automation, real-time tracking, RFID for automated data collection, and stock identification are becoming increasingly popular, even in warehouses in Tier II cities. Further, modern Warehouse Management Systems (WMS) and other IT-driven solutions help create a sophisticated and efficient warehousing network that provides integration with automatic material handling equipment, cross-docking, yard management, labour management, billing and invoicing, etc.

• Government policies: With the grantof infrastructure status to the logistics segment, there has been a significant rise in investments in the warehousing sector, especially for free trade warehousing, zones (FTWZs), and logistic parks. The government policies on relaxed international trade, and implementation of superior and reformed tax structures like GST have further led to the fast growth of the sector. E-way bills and sanctions on logistic parks that can be developed in close proximity to ports and airports, especially in Tier II segments, are further contributing to the organised approach to logistics and warehousing in India.

The way forward

This paradigm shift in warehousing has two sides, customers and logistics providers. It is driving innovation and digitalisation is imminent and prevalent with technological advances. With the introduction of robotics and complex algorithms in software used in warehouses, complexities have increased and traditional inventory management without real-time tracking is a thing of the past. It is an exciting time to be a part of the industry. And even though we aren’t comparable to our colleagues in the West, the gap is lessening, and the talent pool is also getting better with a large investment in education making this segment ‘sexy’.

While the warehousing industry in India is still at a nascent stage, leveraging the fast-evolving trade, infrastructure, technology, and human resources can make warehousing the backbone of logistics and modern trade in India.

(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)