Decoding the present scenario of the Indian logistics sector
Indian businesses for long have ignored the significance of the logistics sector that continues to remain one of the most under invested sectors in the country. While logistics undertakes the critical role of connecting the production centers with consumption markets, inefficiencies in managing it could lead to severe disruption in the entire supply chain network. In India, the experience with regards to this sector has not been very encouraging, thus leading to colossal losses during transportation, distribution and storage of goods. In order to attract fresh investment, an in-depth study is needed on the various intricacies of this sector with special emphasis on the demand, feasibility and investor return aspects. The logistics sector can be broadly classified into three areas- transportation, distribution and storage. While in India, the transportation and distribution sectors have traditionally been a part of many studies with numerous reports and findings affiliated with the sectors, it is the storage and warehousing sectors that have mainly remained under-researched. Although the warehousing segment constitutes only 15%-35% of the total logistics costs, its importance cannot be ignored with respect to the role it plays in the smooth functioning of a supply chain network. The need to quantify the size of the warehousing market in India has led us to estimate the total requirement for warehousing space from the period of 2014 to 2019. Moreover, the total warehousing space requirement is expected to grow at a compounded annual growth rate (CAGR) of 9 percent from 919 million.sq.ft. in 2014 to 1,439 million.sq.ft. by 2019. Manufacturing sector will continue to remain one of the biggest demand driver with an annual requirement of 61 million.sq.ft. of incremental space between 2014 and 2019. Mumbai Warehousing Market: The Mumbai Metropolitan Region (MMR) is identified as an urban agglomeration spread over an area of 4,355 sq.km. that comprises 468 sq.km. of Mumbai city along with certain parts of Thane and Raigad district, that constitute the remaining 3,887 sq.km. With Mumbai and the twin cities of Thane and Navi Mumbai, the MMR boasts of a population of 23.51 million. On the back of a robust ecosystem for trade and commerce, Mumbai is considered as the commercial capital of the country. Mumbai has been the country’s commercial capital for a long time. However, the structure of its economy has witnessed a rapid transformation during the last 2-3 decades. The government has now renewed focus on incentivizing the manufacturing sector and the logistics market will reap the benefits in the coming years. Investment in warehouse can provide an opportunity of realizing returns in the range of 12%-20% per annum to investors willing to explore this sector. The biggest challenge though for manufacturers is the present Central Sales Tax structure which is forcing companies to locate warehouses in all the states they operate in, resulting in an inefficient supply chain. Manufacturing will continue to remain one of the biggest demand drivers of the warehousing sector with an annual requirement of 61 mn sq. ft. of incremental space between 2014 and 2019. As an overall outlook we see an increase in capacity of JNPT from 3.8 million TEUs to 10 million TEUs by 2016 will lead to a surge in warehousing activities in the Panvel cluster. Locations like Rayalsani-Patalganga, NadhalKhalapur stretch on the NH-4 and the Khopoli-Pen Road will witness maximum amount of new development in the coming years. Pune Warehousing Market: Pune, being the second largest city in Maharashtra. The twin cities of Pune and Pimpri-Chinchwad are host to one of the largest manufacturing bases in India with sectors such as automobile, engineering, consumer durables and food processing dominating the industrial landscape of the city. Warehousing activities in Pune are heavily skewed towards industrial warehousing due to the presence of a large number of manufacturing units in and around the city. Exim related warehousing, especially Inland Container Depots (ICD) have not made inroads into this market as they are largely concentrated near JNPT. Since Pune is only 138 km. from the port with a travel time of 3-4 hours, the absence of such warehouses is understandable. Similarly, the close proximity to Mumbai city has resulted in companies preferring to locate their retail distribution centres in Mumbai rather than Pune as the former is a relatively larger market. Such a strategy of servicing the Pune market through the Mumbai distribution centre has restricted the growth of large warehouses (catering to retail segment) in Pune. Land availability is the biggest challenge in Chakan as the real estate cost has already shot up drastically during the Talegaon-Chakan Highway already breaching 22 million/acre, the viability of warehousing activity within this cluster is questionable. Land cost above 20 million/acre could render warehousing activity sq.ft./ month. Although the official rate for industrial plots in Chakan MIDC is 3,325/ sq.mt., there are very few vacant plots available. The market rate for similar plots is anywhere in the range of 5,400– 8,600/ sq.mt. Such a trend could help to shift to alternative locations within the industrial hub. Warehouses are expected to gradually move towards the periphery of the Talegaon-Chakan Highway due to rising land rates, unaffordable rentals and competition from manufacturers for leasable space. The Chakan-Shikrapur Road on the east is expected to emerge as alternate cluster for warehousing activities. Proposed Pune International Airport near Chakan could lead to a sharp appreciation of land prices in the adjoining localities and will continue to consolidate its position as the preferred auto and auto ancillary manufacturing hub.
(The author is the Chief Economist & Head of Research, Knight Frank India)
