Logistics Companies to Build and Own Warehouses in India

In late 2017, the Ministry of Finance’s Department of Economic Affairs made a significant move. It widened the scope of transport and logistics from being a ‘sub-head’ of transport to a ‘sub-sector’ of infrastructure. This recent infrastructure status accorded to logistics resulted in many logistics companies planning to build their own warehouse facilities instead of following the earlier practice of leasing them out because of the newfound ease in funding the process.

The replacement of the earlier asset-light model was made possible by simplification of paperwork and much easier access to credit than before. The result is an increased mix of owned and leased warehouses in the market.

According to industry estimates, the sector will see around 6 to 7 billion $ investment flowing in, in the next 3 to 4 years. By the end of the financial year 2021, the modern warehousing facility in India will go up to 400 to 450 million square feet.

But what exactly comes under logistics infrastructure?

According to the Department of Economic Affairs, Multimodal Logistics Parks with Inland Container Depot (ICD) and a minimum investment of Rs 50 crore and a minimum area of 10 acres come under this category
A cold chain facility worth at least Rs 15 crores and a warehouse facility worth Rs 25 crores come under logistics infrastructure

The move has already led to quite a few changes in the logistics strategy followed by both old and new players in the e-retail space. A case in point is Flipkart which had earlier announced setting up its own mega-size logistics hub in Bangalore. In addition to that, there is news of Flipkart setting up similar mega logistics hubs along with small-scale fulfillment centers, which could also be owned by it instead of being leased out. Each of these mega hubs is estimated to be worth Rs 600 crores in investments.

Let us look at some of the benefits for e-commerce companies that will build and own warehouses in India:

Cost efficiency
Reduction in time taken to transport goods and services
These factors add up in helping companies gain a significant competitive edge over others in the Indian e-retail space

Looking closely at the Indian market, there has been a steady rise in warehouse space demands in the eastern states of India. While Kolkata continues to be an active market with an average requirement between 50,000 to 1,00,000 square feet, Guwahati is an upcoming location with an average requirement ranging between 30,000 and 60,000 square feet. Guwahati also holds a strategic position in terms of connectivity to the northeastern states. Patna, Ranchi, and Bhubaneswar have also become active markets in terms of warehouse demands. Looking at it from the perspective of the type of industry, consumer packaged goods, logistics, healthcare, and consumer electronics are active warehousing markets with large transaction sizes.

With so much activity within the sector, it will be interesting to see the dynamics that play out while more and more logistics companies in India start building their own warehouses.

Logistics Companies to Build and Own Warehouses in India

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