A warehouse in India is usually a shed with four walls, no ventilation, no temperature controls and total lack of hygiene. According to Value Notes Strategic Consultants, a warehouse management system is essentially a man with a notebook keeping track of the inventory that comes in and leaves the premises. Lack of modern warehousing facilities has led to heavy losses. “Even today, a large part of warehousing continues to be unorganised with mostly sheds for storage. Due to the slow pace of modernisation, the industry is now facing a huge gap between demand and supply. Our estimates reveal that a deficit of 120 million sq ft exists in the sector. And this gap will continue to widen. This is mainly because demand for warehousing is expected to grow at a CAGR of 18% in the next 5 years”.
The implementation of GST is expected to change the face of the warehousing business in the country. Consolidation and modernisation of warehousing has already started gathering pace. With rising domestic and international freight movement, increasing organised retail outlets, and investments in infrastructure, modern warehousing may emerge as a sunrise industry. It has not realised its full potential as 29 states in India have been taxing goods which move across their borders and at different rates, resulting in goods being taxed multiple times. Interstate checkpoints cause long delays as the authorities review and examine the freight. These delays make trucks wait five-to-seven hours at all checkpoints. More than 65% of the freight moves by road. According to World Bank estimates, delays caused by roadblocks, checkpoints and other stoppages increases logistics costs by 30 to 40%.
According to P Sai Venkat Prasad, a Chennai based developer of logistics parks, the city is emerging as a major warehousing, logistics hub. “Small warehouses in multiple locations will slowly disappear as customers are becoming more demanding”. He feels optimistic about Chennai because it is a major consumption centre and also a port city. “You can distribute to other states from a single large warehouse from Chennai. Vessel traffic plays a major role in warehousing and distribution. The port has to deal with both imports and import ships which come from other ports have to be reloaded. There are ongoing exports (automobiles, textiles, leather to name a few) from the Chennai port. For truck operators, too, it is important to be competitive and Chennai works for them as they have two way business. Connectivity to all the highways is almost complete. Most FMCG goods are tried and tested in Chennai first, and they are distributed from here.”
Prasad’s family which was into manufacturing of PVC pipes under the brand name Trubore, sold out to the Chemplast Sanmar group in 2006. Prasad’s father and his partners decided to invest in warehouses as they had acquired a land bank of 120 acres, 34 km from Chennai on NH205 which is a good logistics point. They first built independent warehouses for Reliance and Britannia. Both companies wanted more space. “We decided to set up Sun Logistics Park which is a sustainable green technology centre. SLP has its own professional and technical teams. We are driven by our customers.” This was launched before the concept of logistics parks caught on.
The Park has dedicated as well as shared warehouses of varying sizes, to fit the customer needs. “We have some open spaces to accommodate ‘built to suit warehouses’ against specific customer requirements.” The Park, now, has customers such as Honda, Toll India, PN Writers ,Hindustan Unilever Limited and Yusen Logistics. It is a modern warehousing space with landscaped gardens ,solar lighting, all weather concrete roads, storm water drains which will avoid flooding during monsoon season and fire hydrant systems as per the individual need of the customer. Adequate toilet facilities and truck parking area has also been provided as per customer requirement. The Park has a 1,000 KVA sub-station to enable the customers to draw adequate power as and when required. “We collaborate and align to each customer’s unique logistic requirements. We work on providing realistic and cost effective designs,” says Prasad. SLP has a built up area of more than 1.1 million sq ft space for its clients.
With GST becoming a reality, the demand for larger warehouses is going to increase. The warehousing sector has remained under developed because of high entry costs. Real estate can be prohibitively expensive. Land cost varies vastly between regions leading to unequal development of warehousing across the country. “Finance for logistics and warehousing will be available now. Banks will start funding against future lease rentals. Logistic parks are now being looked at as alternative asset class. Rental income from warehouses is higher than from commercial and residential buildings. What is going to make a difference is size.” Prasad adds.
Foreign investors have also started looking at this sector seriously. Everstone Capital, an India-focused private equity funding group with $1.5 billion (about R8,300 crore) of assets under management across four funds, is understood to be aggressively looking to expand its portfolio in logistics. Investments are being made near manufacturing hubs like Oragadam in Chennai.
Is Prasad worried about completion? Not really. “We can add another 1.1 million sq feet as we have 60 more acres we can develop. Our existing clients themselves are expanding year on year,” he says.