Warehousing industry to see reorganisation HOW THE INDUSTRY WILL LOOK

The 1.2 billing sq ft domestic warehousing industry will see consolidation with the roll-out of the goods and services tax. Facilities will relocate to consumer-driven and transportation network areas from the current tax-friendly locations.

“We expect the warehousing space around consumption-driven areas comprising the four metros and mini-metros — Mumbai, Delhi, Kolkata, Chennai, Ahmedabad, Bengaluru, Hyderabad and Pune — to double after GST implementation from the current 600 million sq ft,” said Balaji V, chief executive officer at CCI Logistics.

“Till last year, logistics companies were not sure, but now many have already devised strategies to create large format warehouses in these areas,” he added. The Avashya group company will invest ~300 crore this year to add another 2.5 million sq ft of warehousing at port-based logistic parks near metros and mini-metros, taking its total capacity to 5.5 million sq ft. The unlisted company aims to take its total capacity to over 10 million sq ft over the next four years. | | Warehouses will move to consumption-andtransportation network areas Metros, mini-metros to see warehouse space double in coming quarters

Factors such as the main area of consumption, how frequently customers demanded dynamic changes and how long a customer was willing to wait for a product would decide the location of relocated warehouses, said industry executives. Currently, warehouses across India are divided equally between the consumptiontransportation network and tax-advantage regions.

“Relocation of warehouses will lead to idling of facilities at tax-advantage areas and this | | It is expected to grow at 10-12 per cent annually Agriculture, retail sections to see strong growth where fluctuation in capacity utilisation levels is low due will impact the balance sheet of logistic companies. However, the extent will vary from company to company as some firms also take warehouses on lease, in which case there will be an exit cost,” said Hitesh Avchat, manager, corporate ratings, at CARE Ratings.

Further, there will be a change in the sectoral composition. Currently, the industry is broadly divided into industrial/retail, agri/cold store and CFS/ICD (container freight station/inland container depot). Of the three, about 60 per cent of the capacity is under the industrial/retail segment, another 30 per cent in the agri/cold store section and the balance at CFS/ICD (located mainly outside ports).

Post consolidation, industry executives see strong growth in the agri and retail warehousing segments where fluctuation in capacity utilisation levels is low due to high demand round the year. The retail warehousing division usually witnesses 100 per cent utilisation level in peak seasons.

“The warehousing industry has been witnessing 10-12 per cent growth annually and this momentum is expected to continue. However, the agri section alone could witness rapid growth of about 16 per cent going ahead,” said an analyst with a ratings agency.

Most industry executives expect cost restructuring to take place within the warehousing and transportation section. “There will possibly be a reduction in primary transportation costs (from manufacturing unit to a warehouse) post consolidation, and a likely increase in secondary and tertiary transportation (warehouse to customer),” said Pirojshaw Sarkari, chief executive officer at Mahindra Logistics.