Logistics and warehousing constitute a critical link in the chain that connects the manufacturer to the eventual consumer. It is the efficiency of a business’ logistics and distribution machinery that dictates their reach, time to market and cost efficiencies which prove to be a big factor enabling businesses to stay relevant in today’s ultra-competitive environment. This is especially true in the internet age where businesses are forced to constantly cut costs to acquire or retain consumers.
The Government of India recently released the draft framework of its first ever logistics policy. The primary aim of this policy is to enable integrated development of the logistics sector in India. Despite being a key economic driver, the industry suffers from inefficiencies and wastages leading to high costs. Logistics cost in India, as a percentage of GDP, is as high as 13%-14% while its global counterparts stand at 8%-10% of GDP. The primary reason for such high costs is the highly unorganized nature of this industry and the highly skewed multi-modal mix. Approximately, 60% of freight movement in India happens via road which is significantly higher than most developed economies. Globally, the share of rail cargo in the multi-modal mix is higher. Further, different parts of the logistics value chain are currently being managed by numerous
departments and ministries. The result of these multiple hurdles is increased inefficiencies in the logistics industry. The Center has begun to address this issue; first, it granted infrastructure status to the logistics and warehousing industry in 2017, and second, it has advocated an independent policy framework for this sector. The final policy is expected to be notified soon and the national act will serve as a guideline in terms of laying down a common national outlook for states to draft their respective policies. Following are the key takeaways from the national document
At a time when the Indian real estate industry has been facing headwinds on account of a difficult residential market, the warehousing property segment has emerged as a promising investment opportunity for institutional investors. Since 2014, the sector has propelled into a different trajectory. The implementation of GST, the continued government focus on building industrial corridors, the ‘Make in India’ thrust on manufacturing and the promise of the Indian consumption market has whipped up the investment prospects of the country’s warehouse property sector. Investors had started taking cognizance of the opportunities in the warehousing sector much before the government began toimplement the reforms, such as GST, and granting infrastructure status to the logistics industry, including warehousing.
The sector has witnessed massive participation from institutional investors, as well as developers, who have collectively invested over USD 6.8 billion since 2014, with an average investment per deal of USD 282 million.
In Ahmedabad City Most of the warehousing activity is concentrated on the Ahmedabad-Kheda highway and Ahmedabad-Rajkot highway. Additionally, Sanand – Viramgam and Vithalapur – Becharjai Belt has also been attracting interest from warehouse developers over the last few years, but is still a relatively smaller market compared to the other two locations. Before the National Expressway-1 (NE-1) was constructed, the Ahmedabad-Vadodara highway used to be the primary access road between Ahmedabad and cities like Vadodara, Surat and Mumbai. Aslali, which is located on this highway just before entering Ahmedabad city from the south, was a major transit point for all transporters and logistics players. With increased urbanisation and rising land prices, warehousing development started shifting southwards on this highway towards Jetalpur and Bareja. The Vithalapur–Becharaji cluster has been the latest entrant in the warehousing market in the city. The primary reason for the boom of the warehousing sector in this area is the entry of automobile giants in the Mandal Becharaji Special Investment Region (SIR). It is generally believed that the Mandal Becharaji SIR will become the largest automobile hub, in the country, going forward, which will further boost demand for warehouses in the area. The growing importance of this belt can be gauged from the fact that even though it has been a late entrant, of the total transacted space in 2018, this area accounted for one-third of the space.
The annual transaction volumes of warehousing space for the Ahmedabad warehousing market in 2017-18 was 3.30 mn. In 2018-19 warehousing market was 4.9 mn which transaction volumes recorded 51% YoY growth over 2017-18. 2018 saw a substantial 77% growth to 4.3 mn sq m (46.2 mn sq ft) in the total area transacted in the top eight warehousing markets in the country. This follows an even more significant 87% year-on-year (YoY) growth seen during the previous period and depicts a strong growth trend.