Transportation, warehousing and administration represent a tripartite of critical nodes in Indian logistics. The steady buildup of global private equity and real estate funds clamouring to place high-value bets on India’s warehousing sector specifically has reached an audible fever pitch. This soaring optimism has in turn driven momentous ripple effects, eliciting billions of dollars in committed medium term investments from global 3PL Titans, real estate moguls and e-tail giants. The gold rush for go-downs and fulfilment centres reflect the gaping dearth of organised warehousing systems and echo the onset of a brave new world for Indian logistics.
1. Demand growth despite inefficient logistics value chains
Suspended between meteoric economic growth and infrastructural shortcomings, India’s weak links and consequent commercial opportunities are instantly and increasingly visible. Accounting for 13% of the nation’s GDP or USD 260 billion, logistics at large is rife with inefficiencies that inflate costs progressively across the administration, warehousing and transportation – the triumvirate of India’s logistics value chain. Despite these bottlenecks, however, India continues to grow at exponential rates fueled by e-commerce expansions as well as broader tech-driven exposure and access – a signal that first-movers to acquire better-equipped supply chains will soon capitalise on billions in latent demand.
2. Warehouses linchpin consolidated supply webs
As the economy matures the nation progresses beyond 1PL (manufacturing and retailing) and 2PL (transportation and warehousing) solutions to a greater dependency on comprehensive logistics operations and supply chain management. This transition segues an increase in organised logistics players supplying rapidly soaring demand at economies of scale.
Warehouses, constituting the second-largest component of overall logistics costs, are a central axle to modern supply chains. As strategic consolidations of both transport and administration, they influence delivery routes, inventory fulfilment and market reach to become foundational proponents of 3PL – 7PL value chains.
Therefore, investments in warehouses seek to optimise a central notch of the supply chain to not only capture untapped high volume demand but simultaneously increase margins and continue scaling production in the medium and long-term.
3. Smart warehouses deliver higher ROI
Investments in warehouses not only fund bigger warehouses but intelligent ones – a feature that is already permeating Indian logistics at large – to scale capacity as well as unit efficiencies. Tech enabled solutions will, therefore, underlie the framework of all mega logistics hubs synthesising storage spaces, transport neurals, containers, cargo and the numerous administrative variables syphoned to move through these mammoth networks.
Digital systems will optimise storage models with temperature, pressure and humidity sensors, control inventory through self-organised digital databases, trace cargo movement patterns and employ analytics to forecast demand. Ultimately, these incremental credits will increase utilisation to service emerging supply chain models such as on-demand freight marketplaces and hyperlocal deliveries.
Although technology will inevitably transform all three key segments of the logistics value chain, its presence in warehousing will further allow smart fleets and administrators to seamlessly sync operations with consolidated nodes across the logistics network.
According to JLL data, institutional investors expect an IRR of 16-20% from warehouse development projects. While the sheer momentum of consumer demand justifies ambitious expansion, at every degree of expansion operational inefficiency proves increasingly costly. Optimising internal operations within the mega-storehouses will accelerate and sustain economies of scale to secure higher long-term returns on investment.
Big investors in Indian warehousing (2016-2017)
- Amazon commits to open 41 new warehouses this year at a total investment of $5 billion
- DP World, a Dubai based maritime container handler, pledges $1 billion to improve infrastructure and storage facilities in India
- Indospace, a storage facility developer, budgets $1 billion to accommodate soaring demand
- Warburg Pincus, New York based private equity firm, has set up a $12 billion global fund, allocating $500 million to investments in India. Last year, the firm entered a joint venture with Embassy Group, investing $250 million to develop industrial parks and warehouses in the country
- Ascendas-Singbridge, a Singapore based real estate firm with over $10 billion in AUM exploits its two-decade presence in India to float a fund to raise $150 million to finance warehouses
If you’d like to learn more about how your transport or fleet operating business can prepare to serve an economy increasingly dependent on consolidated supply chains, contact Numadic. We realise that change is imminent and can be profitable. We build smart sensors that pair with analytical dashboards that improve operational visibility to reduce costs, navigate risk and improve returns on investment.Related articles: