The Transforming Landscape of Indian Warehousing

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 Advance - The Transforming Landscape of Indian Warehousing

Advance - The Transforming Landscape of Indian Warehousing 

Executive Summary
The Index of Industrial Production (IIP) recorded a compound annual growth rate (CAGR) of 6.0% during the past decade. The y-o-y double-digit growth witnessed in the industrial production of the mining, manufacturing and electricity sectors during August 009 reinforces the industrial revival and the countrys economic recovery. In a survey conducted by the World Bank in 007, India was ranked 9th in the Logistics Performance Index (LPI) and was identified as a comprehensive reformer in the process of transitioning from being a logistics-unfriendly state to being a logistics-friendly one. According to the Jones Lang LaSalle Meghraj Confederation of Indian Industries warehousing survey, the retail goods sector was identified by the industry as the top demand generator during 009. Going forward, the warehousing demand from the agriculture sector is likely to grow more than any other sector by 011. With major roadways and railways projects such as Golden Quadrilateral highway network, North-South and East-West road corridors and Diamond Rail Corridor, inter-modal logistics is expected to gain prominence in the future. In order to study the warehousing attractiveness of various cities in India, Jones Lang LaSalle Meghraj has initiated a study to assess the potential and gaps for organised warehousing across 7 cities, aggregating to a total population of 14 million. The rankings have been formulated through an analytic hierarchy process (AHP) covering nearly 5 city-level and state-level parameters to segment the Indian warehousing landscape in to primary, secondary and tertiary hubs. With excellent multi-modal connectivity to other regions of the country, six of the seven primary hubs lie on the Golden Quadrilateral, the most expansive network of expressways in the country. As the administrative capital of their

respective states, they are the most urbanised locations in their region and have a large population. Well connected by primary infrastructure arterials, a majority of secondary hubs are situated in the western and southern zone of India. With sizeable catchments of urban and rural population, they are attractive emerging locations for warehousing. Agriculture accounts for a significant share of warehousing demand at the tertiary hubs. With plenty of labour and land available at rational costs, good infrastructural connectivity can propel some of these locations to become attractive warehousing hubs in the future. Retail goods contribute a significant share of the warehousing demand at all the primary hubs due to their sizeable demographics and consumption. EXIM cargo contributes considerable demand for warehousing at the port cities of Mumbai, Kolkata and Chennai. Several major logistics parks are currently under development across the country around the major logistics hubs of Mumbai, Bangalore, Chennai, Hyderabad and NCR. Speciality logistics parks catering to industries such as agriculture, automotive, electronic hardware and aerospace industry are under various phases of construction across the country. Various raillinked and multi-modal logistics parks are also being developed. The growth of organised warehousing towards an intelligent future will heavily rely on how effectively industry players and the government can work together to address key challenges such as the availability of affordable land at desired locations, integration of various modes of logistics, taxation and regulatory policies, standardisation of warehouse specifications across geographies, adequate infrastructure and availability of professional manpower.

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Advance - The Transforming Landscape of Indian Warehousing 5

Introduction
The Indian economy has witnessed remarkable growth in recent years supported by market reforms, inflows of foreign direct investment (FDI), information technology and real estate booms, and an expanding capital market. With a population of more than a billion people, the country has witnessed a phenomenal increase in consumption and tremendous opportunities for organised retailing and manufacturing industries. The Index of Industrial Production (IIP), which recorded a CAGR of 6.0% during the past decade, started witnessing declining growth rates during the global slowdown in 2008-09 (Figure 1). However, with improved market sentiment in the first half of the current fiscal year, the IIP improved its growth rate in July 009 to 7.% from the 6.8% estimated earlier. Buoyed by the slew of measures taken by the government, the indices of industrial production for the mining, manufacturing and electricity sectors for August 009 recorded growth rates of 1.9%, 10.% and 10.6%, respectively, as compared to August 008. The double-digit growth of the industry during August 009 reinforces the industrial revival and the countrys economic recovery. According to United Nations Conference on Trade and Development (UNCTAD) in a new report on world investment prospects titled, World Investment Prospects Survey 009-011, India has ranked third in terms of global foreign direct investments in 009, and will continue to remain among the top five attractive destinations for international investors over the next two years. The McKinsey Global Institute expects India to become the fifth-largest consumer market in the world by 01, rising from twelfth in 005. Aggregate Indian consumer spending is likewise estimated to more than quadruple to approximately USD 1.5 trillion by 05.

Indian Logistics Industry Against this backdrop of tremendous expansion across sectors, the logistics industry assumes a pivotal role in reducing costs by improving efficiencies and increasing competitiveness. In a survey conducted by the World Bank in 007, India was ranked 9th in the Logistics Performance Index (LPI), with Singapore topping the survey and China ranking 30th (Figure 2). According to the World Bank, India is identified to be a comprehensive reformer1 in the process of transitioning from being a logisticsunfriendly state to being a logistics-friendly one. Significant improvements can be witnessed in the governments approach to the sector. Putting greater emphasis on road infrastructure & dedicated freight corridors, simplifying tax policies and notifying free-trade warehousing zones are some of the recent measures that were taken. In the recent downturn, the emphasis to reduce costs and improve efficiencies across sectors has put the spotlight on the supply chain, where there are ample opportunities to value-engineer processes. Logistics costs equate to about 1% of Indias GDP, which is significantly higher than those of the developed nations of Europe and the US, where they equate to only about 10% (Figure 3). The emergence of outsourcing along with the consolidation of PL players would result in improving efficiencies and lowering costs in the supply chain. Critically, only about 6% of the Indian logistics industry is organised, while the rest is riddled with inefficiencies and low levels of innovation (Figure 4). However, organised logistics market share is expected to grow to about 14% of the total Indian logistics industry by 011. Despite this, the advance concepts of customer support, inbound logistics and reverse logistics have yet to gain traction in this fragmented and technicallychallenged environment. India is currently in the midst of a first wave of logistics outsourcing with a fragmented market of PL players.

Figure 2: Logistics Performance Index of Bric Nations

Customs 5.0 Timeline 4.0 .0 .0 1.0 0.0 Domestic Logistic Costs Tracking & Tracing International Shipments Infrastructure
LPI Rank Countries 1 Singapore

0 China 9 India 61 Brazil 99 Russian Federation

Logistics Competence

Source: World Bank Survey Connecting to Compete, 007

Figure 3: Logistics Costs and Growth of 3PL

0.9 Share Of PL In Overall Logistics 0.7 0.6 0.5 0.4 0. 0. 0.1 0 0.08 0.1 China, India 0.1 US Europe 7PL 0.8 Japan China, India 4PL/5PL US Europe Japan PL 0.14

Figure 1: Macro-economic Indicators of the Indian Economy

Index of Industrial Production (IIP) 00 50 00 150 100 50 1999-00 000-01 001-0 00-0 00-04 004-05 005-06 006-07 007-08 008-09 0 1 10 8 6 4  0 GDP Growth (%)

Estimated Logistics Costs Equated To % Of GDP Source: Logistics in India, SSKI

Figure 4: Projected Growth of Organised Logistics in India

14% 6% 007 007 94% 86%
Source: SSKI, Accenture

2011F

Organised Unorganised

Gross Domestic Product (GDP) Source: Central Statistical Organisation, Global Insight

Index of Industrial Production

1 Comprehensive reformers have a strong coalition for change implementing core reforms (customs, infrastructure and services), affinity to work across administrative silos to consistently implement the reforms and favour a competitive service industry by lowering barriers to entry. (Source: Connecting to Compete 007, World Bank)  Logistics Costs include transportation costs, inventory carrying costs and logistics administration. (Source: US Department of Transportation) Logistics in India, SSKI

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Advance - The Transforming Landscape of Indian Warehousing 7

With the growth of organised warehousing and an expected simplification of existing tax structure, warehousing in India is witnessing a paradigm shift towards large logistics parks with state-of-the-art facilities.

Warehousing in India Modern warehousing forms an integral part of the supply chain where goods are not only stored for safekeeping, but several value-advance processes are implemented to process inventories, thereby minimising obsolescence and reducing wastage. Warehouses are being used for critical functions such as stockpiling, product mixing, value addition, distribution and customer service. Traditionally, warehousing in India has featured small unit sizes. Although indigenous constraintbased innovation has taken place at various levels, the lack of world class standards and specifications poses a significant challenge to other growth sectors that rely on logistics and warehousing. An indirect tax structure has incentivised companies in India to maintain separate warehouses in different states.

Growth of the Warehousing Industry

With the growth of organised warehousing and an expected simplification of existing tax structure, warehousing in India is witnessing a paradigm shift towards large logistics parks with state-of-theart facilities. In this paper, we establish the major demand generators and facilitators of the industry as India continues to position itself on the world logistics map. Further, we present the transforming landscape of the warehousing industry by analysing various locations within the large Indian geography for their attractiveness towards organised warehousing. The challenges posed to the growth of the industry are critically examined in the current context and elaborates on to probable future growth patterns in the warehousing sector. The growth of the Indian warehousing sector is primarily driven by the industrial growth of the country. While the Indian economy is predominantly driven by the service-based industry, manufacturing also acts as a key growth driver for economic activity. Both services and manufacturing have thus far been the key demand generators for warehousing space in India. While export/import (EXIM) cargo, agriculture and manufacturing (textile and auto / auto ancillary) have been identified as traditional growth drivers that have contributed to the demand for warehouse space in India, new growth drivers such as organised retail, information technology, telecommunications and healthcare are the sunshine industries that have been identified with huge growth potential after economic liberalisation. With the growth of the above mentioned industries and advent of technological advancements, the demand for organised and automated warehouses is likely to be the future of warehousing in India. (Figure 5) Key Demand Generators A survey of top logistics service providers was conducted by Jones Lang LaSalle Meghraj and the Confederation of Indian Industry in September 0094. Each respondent was asked to rate individual demand drivers on a scale of 1 to 5, with 1 indicating the lowest level of demand and 5 indicating the highest. While the survey successfully captured the industrys perspective on key demand generators as of 2009, the findings also highlighted the industrys forward-looking perspective on the relative importance of these sectors in driving the warehousing industry in 2011(Figure 6).

The growth of the Indian warehousing sector is primarily driven by the industrial growth of the country. While the Indian economy is predominantly driven by the service-based industry, manufacturing also acts as a key growth driver for economic activity. Both services and manufacturing have thus far been the key demand generators for warehousing space in India.

Figure 5. Drivers of the Warehousing Industry

5th largest consumer market in the world by 05 (McKinsey) Retail market to grow to USD 419.9 billion by 015 (McKinsey) 18.5% of Indias GDP Agri-exports grew by 5% in 008-09; expected to double in next five years to USD 18 billion (Apeda) Approval to 60 agri-export zones Top 1 producers of manufacturing value added - MVA (UNIDO) Investment opportunity of USD 180 bn in next 5 years (Investment Commission)
Source: As Mentioned
AGRICULTURE INFRASTRUCTURE

Demand Generators

Containerised traffic to grow by average rate of 18% annually over the next decade (SCI)
EXIM CARGO

ORGANISED RETAIL

Governments Investment target of USD 0.8 billion over the next two years in the infrastructure sector

LOGISTICS & WAREHOUSING

Expected phase out of Central Sales Tax and implementation of Goods and Services Tax (GST)
POLICY SUPPORT

Facilitators
MANUFACTURING

Free Trade and Warehousing Zones (FTWZs)

4 Jones Lang LaSalle Meghraj (JLLM) and Confederation of Indian Industries (CII) conducted a warehousing survey of 6 major logistics players in India including owners, occupiers and developers. The results of the survey have been published in the relevant sections.

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Figure 6: Key Demand Generators for Warehousing

Retail Goods Agriculture Automotive / Auto-Ancillary Telecommunications / IT EXIM Cargo Pharmaceutical / Medical Textiles 0 Low Demand Source: JLLM - CII Warehousing Survey, September 009 1 
2.3 2.4 0.4 0.7 2.8 3.2 0.2 3.3 3.0 0.8 4.0 1.5 0.8

009 Change in 011

5 High Demand

While retail goods was identified as the top demand generator in 009, the demand for warehousing services from agriculture is likely to grow more than any other sector by 011. The survey also revealed that while the demand from EXIM cargo will remain at 009 levels until 011, fast-expanding sectors such as automotive/autoancillary, telecommunications/IT, pharmaceutical/ medical and textiles will increasingly drive the demand for organised warehousing in India over the medium term. Growth of Infrastructure Infrastructure serves as a key facilitator for the growth of warehousing industry in India. Rising industry challenges owing to the lack of world class infrastructure have exerted tremendous pressure on the Indian government, and hence, infrastructure has remained the key area of focus during the union budget 2009-10. For the transport sector, funding earmarked for the national highways development program increased by %, while funding for railways has increased by close to 45%. In the power sector, allocations for the power development program have increased by 160%. According to the Planning Commission, USD 494 billion of investments are proposed for the Eleventh Plan period (007-1), which would significantly increase the share invested in infrastructure. Apart from the increase in government funding for infrastructure projects,

the Indian government also initiated public private partnerships (PPPs) to drive fresh investments in infrastructure projects. Road Infrastructure Since a major portion of freight movement in India is transported via roadways, road infrastructure plays a crucial role in the growth of logistics and warehousing industry. The Indian government has recently initiated a project to connect the North-South and East-West Corridors through world class road infrastructure. As this project will significantly bring down the logistics costs, it is likely to act as one of the key growth facilitator for the logistics and warehousing sectors. The project would consist of a 7,00-km-long corridor connecting Kashmir to Kanyakumari and Silchar to Porbandhar. While the North-South expressway will go from Jammu to Kanyakumari through Delhi, Bhopal, Hyderabad, Bangalore and Coimbatore, the East-West expressway will run from Silchar to Somnath through Kolkata. Apart from the above-mentioned projects, the National Highway Authority of India (NHAI), under its national highway development program (NHDP), has undertaken a major and challenging project to connect the major ports of India. This initiative will act as a key driver for the multi-modal and inter-modal connectivity.

Retail goods was identified as the top demand generator in 2009 followed by agriculture which is likely to grow more than any other sector by 2011. Other key sectors that would generate demand for organized warehousing in India include EXIM Cargo, automotive/auto-ancillary, telecommunications/IT, pharmaceutical/medical and textiles.

According to the Planning Commission, USD 494 billion of investments are proposed for the Eleventh Plan period (2007-12), which would significantly increase the share invested in infrastructure. The Indian government has also initiated public private partnerships (PPPs) to drive fresh investment in the infrastructure sector.

Port Infrastructure The Indian coastline contributes to the freight movements in and out of the country through 1 major ports and 187 minor ports. According to the Indian Ports Association, the cargo traffic handled by these major ports was recorded at 519. million tonnes (MT) in 007-08, which was 1% above 006-07 levels. It is noted that in 008-09, cargo traffic at major ports increased to 530.4 MT, which is a marginal % y-o-y increase. Although the percentage increase in the amount of cargo traffic handled by major ports during 2008-09 has declined since the previous year, demand is expected to bounce back as global markets recovery. According to the Planning Commission, there is an investment opportunity of USD 5 billion by 0111 in Indias shipping and ports sectors as the country seeks to double its ports capacity to 1,500 million tonnes. Aimed at increasing port traffic efficiency, the Indian government has identified 76 projects entailing an investment of USD 1 billion. The following are some of the initiatives taken by the Indian government to improve port infrastructure, which in turn is likely to drive the growth of logistics and warehousing sectors as a whole in the long term. The Indian government has set up the National Maritime Development Plan (NMDP) to improve

the facilities at Indias 1 major ports through a planned expenditure of USD 1.4 billion. The Ministry of Shipping will launch ten major expansion projects in 008-09 at an estimated investment of USD 1.06 billion. 100.0% of foreign direct investment (FDI) under the automatic route will be permitted for port development projects. Air Infrastructure According to Airports Authority of India (AAI), the Indian air cargo in terms of volume is expected to grow at a CAGR of 11.5% from 007-08 to 011-1. Of this, the CAGR of international air cargo is expected to be 1.% while domestic air cargo would be 10.15%.The total air freight traffic (international and domestic) in India handled as of June 009 has increased by 4% over June 008. However, the total air freight handled worldwide in June 009 dropped by 14% compared to June 008 with international and domestic freights dropping significantly by 16.5% and 5.8%, respectively. Although the decline in international freight was mainly attributed to the collapse of the global export trade, it was interesting to note that there was an increase in Indian freight traffic, which indicates a higher growth after the economic recovery. As Indias airports are finding it increasingly difficult to cope with the rising volume of air cargo, the civil aviation ministry is working to achieve significant

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In order to promote rail infrastructure in the country, the Indian government has tied up with the government of Japan which has recently committed an amount of INR 1.3 billion as an engineering services loan for phase I of the Dedicated Freight Corridor project.

improvements that will decongest traffic in this sector. This initiative would greatly enhance the quality of trade in the express and logistics industry. One such initiative is the proposed MIHAN (MultiModal International Hub Airport) project at Nagpur. As Nagpur is strategically located in the centre of the country, it is likely to act as an effective huband-spoke distribution centre of India. Rail Infrastructure Aimed at coping with the increase of freight transport demand in India by constructing a new dedicated freight railway system, the Indian railways has commissioned the Diamond Rail Corridor project, which is a dedicated freight corridor (DFC) to connect the western and eastern rail routes. This project is expected not only to facilitate efficient and cost-effective freight traffic in this corridor, but also would result in the improvement and modernisation of existing inter-modal logistic systems. The existing western rail corridor passes through Uttar Pradesh, Delhi, Haryana, Rajasthan, Gujarat and Maharashtra. The eastern rail corridor will run from Ludhiana to Kolkata via Dankuni, covering the states of Punjab, Uttar Pradesh, Bihar, Jharkhand and West Bengal. The commissioning of DFC is expected to reduce the transit time between Delhi and Mumbai from 60 to 6 hours, as well as reduce the cost of operations.

In order to promote rail infrastructure in the country, the Indian government has tied up with the government of Japan which has recently committed an amount of INR 1. billion as an engineering services loan for phase I of the Dedicated Freight Corridor project. Policy Support Free Trade Warehousing Zone (FTWZ) Act The government of India had announced in the Foreign Trade Policy 2004-09 that it will set up Free Trade and Warehousing Zones (FTWZ) to create trade-related infrastructure to facilitate the import and export of goods and services with freedom to carry out trade transactions in free currency. According to the Special Economic Zones Act 2005, a Free Trade and Warehousing Zone (FTWZ) is a special category of Special Economic Zone and is governed by the provisions of the SEZ Act and the Rules. With the minimum size of the warehousing space stipulated at 0.1 million sqm, the development of FTWZ is permitted by the government of India with 100% foreign direct investment (FDI). This strategic move by the Indian government is expected to generate more employment opportunities as a result of increase in competitiveness among respective industries, apart from promoting organised warehousing, which in turn is likely to boost the overall economic activity of the country. Warehousing Development and Regulation Act The Warehousing Development and Regulation Act (WDRA) is intended to make provisions for the development and regulation of warehouses, negotiability of warehouse receipts, establishment of a Warehousing Development and Regulatory Authority and for matters connected therewith or incidental thereto. The implementation of the WDRA has addressed a long-felt need of the industry. The act enables

farmers to use the warehousing receipts as a prime tool of trade to ensure safekeeping of farm goods in accredited warehouses. The provisions of the WDRA also lead to increased efficiencies in the lending portfolios of banks, as well as further enhance the interests of lending institutions in ensuring credit with reference to goods in warehouses. With the appointment of a warehousing regulator in the short term by the government of India, the above-mentioned act can be enforced as a law to ensure smooth functioning to fuel the growth of the organised warehouses in the future.

supply hubs, along with quality infrastructure, to be of paramount importance over other factors when selecting a warehousing location. Access to markets, suppliers and manufacturing units were considered extremely important, as were proximity to road, rail and air networks. Availability of skilled labour, manpower and warehousing space costs, and proximity to ports were considered less important. However, experts feel that going forward, as the industry becomes more organised and technology is extensively used in operations, the availability and costs of skilled labour would gain in importance. Warehousing Attractiveness Index India has a vast geographical spread covering about . million sq km with a coastline of 7,517 km. Due to the large expanse of landmass, there are geographical disparities that have shaped regional demographics and the development of various locations. There are infrastructural advantages and limitations that have also contributed to variations in regional growth, thereby creating a differential demand map for warehousing at various locations. The Jones Lang LaSalle Meghraj Warehousing Attractiveness Index maps various locations in India, assessing their potential and gaps for organised warehousing. Encompassing over 50 city-level and state-level parameters, the rankings have been formulated through an analytic hierarchy process

Policy initiatives such as Free Trade and Warehousing Zone (FTWZ) and Warehousing Development and Regulation Act (WDRA) aim to organise the industry through international best practices in a regional context.

The Landscape of Indian Warehousing

Locating a Warehouse As with the other real estate sectors, the maxim location, location, location still holds true for warehousing. Optimal warehousing locations depend on the proximity to major demand-supply hubs, quality of infrastructure, availability and quality of transport, geo-political stability and operational costs. In the Jones Lang LaSalle Meghraj - CII Warehousing Survey, respondents were also asked to rank various parameters that they would consider when selecting a warehouse (Figure 7). The results of the survey indicate that industry stakeholders perceive proximity to demand and

Figure 7: Factors Considered while Selecting a Warehouse Location

Access to Markets Proximity to Road Network Access to Suppliers Proximity to Rail Network Access to Manufacturing Units Proximity to Airports Warehousing Space Costs Proximity to Ports Availability of Skilled Labour Labour Costs 0 1 0 - Least Important Source: JLLM - CII Warehousing Survey, September 009 
2.4 3.5 3.3 3.1 3.0 3.7 3.8 3.8 4.1 4.0

4 5 5 - Most Important

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Advance - The Transforming Landscape of Indian Warehousing 1

Figure 8: Analytic Hierarchy Process (AHP) for Evaluating Warehousing Attractioness of Indian Cities

Figure 9: Warehousing Attractiveness Of Indian Cities Primary Hubs 1   4 5 6 7 8 9 10 11 1 1 14 15 16 NCR-Delhi Mumbai Chennai Bangalore Kolkata Hyderabad Pune Ahmedabad Surat Goa Chandigarh Kochi Visakhapatanam Nagpur Coimbatore Thiruvananthapuram Jaipur Vadodara Nashik Indore Mangalore Ludhiana Guwahati

GOAL

To rank cities on the basis of their potential for warehousing

Warehousing Attractiveness

locations in terms of access to markets and manufacturing units. With sizeable catchments of urban and rural population, they are attractive emerging locations for warehousing. Secondary hubs support tertiary hubs to some extent. Tertiary Hubs While some tertiary hubs are strong markets, the lack of quality infrastructure has hindered their development either as warehousing or industrial hubs. Agriculture forms a significant share of warehousing demand at some of these locations. With the expected growth of organised retail, warehousing space would be increasingly required at these locations, which also serve as important linkages to rural locations at the heart of India. With plenty of labour and land available at rational costs, good infrastructural connectivity can propel some of these locations to become attractive warehousing hubs in the future. Warehouses Managed by Public Sector Agencies Currently, a vast majority of the organised warehouses in India are maintained by public sector agencies - the Central Warehousing Corporation (CWC), State Warehousing Corporations (SWCs) and the Food Corporation of India (FCI). As of September 2009, FCI manages storage capacity of 7.7 million tonnes, while CWC manages 9.9 million tonnes (Figure 10). Figure 10: Storage Capacity of Warehouses Owned by FCI & CWC
5 Capacity (Million Tonnes) 1.7 0 5 0 15 10 10. 10. 9.8 5 0 9. 9. 9.9 9.9 009 Food Corporation of India Central Warehousing Coporation in India

CRITERIA

Facilitators Index

Demand Index

Roadways, Railways, Airways, Ports, Power

Infrastructure

Secondary Hubs

SUB-CRITERIA

Geo-political risk, Taxes, Investment climate

Policy Support

Industrial & Agricultural growth, Growth of trade

Economy

Labour Availability
Land costs, Rents, Labour costs

Population, Per capita income, Retail consumption

Demography

Costs

Source: Jones Lang LaSalle Meghraj Research

(AHP), wherein the final index is ascertained through several simpler independent sub-indices (Figure 8). The major factors that determine the potential of a location for its attractiveness for warehousing have been categorised into two indices - Facilitators Index and Demand Index. The primary facilitators identified for warehousing are infrastructure, policy support, labour availability and costs. The Demand Index is generated through several economic and demographic indicators. Economic indicators include several parameters for growth of agriculture and industries, and demographic parameters include the consumption and income demographics of the region. Current capabilities as well as possible development trajectory due to ongoing and proposed projects have been considered while creating the sub-indices. Our analysis covers 7major Indian cities, aggregating to a total population of 14 million. These cities were selected on the basis of their geo-political and demographic importance in the urban fabric of the country. On the basis of the analysis, the cities have been ranked and grouped into Primary,

Secondary and Tertiary hubs (Figure 9). Primary Hubs The primary hubs are the major metropolitan cities in India - three of which have the most active ports and airports of India. With excellent multi-modal connectivity to other regions of the country, six of the seven cities lie on the Golden Quadrilateral, the most expansive network of expressways in the country. As the administrative capital of their respective states, they are the most urbanised locations in their region and have a large resident population. With a huge labour pool and industrial districts in the periphery, these cities score as established locations for warehousing. Functioning as primary hubs in the supply chain, they also support the secondary hubs in vicinity. Availability and cost of land is a concern in these cities as massive urbanisation has resulted in expansion of city limits and escalation in land prices. Secondary Hubs Well connected by primary infrastructure arteries, a majority of secondary hubs are situated in the western and southern zone of India. They serve as regional industrial hubs and are important

17 18 19 0 1  
Tertiary Hubs

Agra Allahabad Amritsar Bhopal Bhubaneshwar Jalandhar Jodhpur Kanpur Lucknow Meerut Mysore Patna Varanasi Vijayawada
Source: Jones Lang LaSalle Meghraj Research

7.

6.0

5.6

5.

00

004

005

006

007

Source: Food Corporation of India, Department of Food and Public Administration Note: Figures for FCI Include Covered and Cap (Cover and Plinth) Storage Capacities. Figures for CWC Include Covered/Owned and Covered/Hired Storage Capacities. * Figures are as of September 2009

.9

008

7.7

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Advance - The Transforming Landscape of Indian Warehousing 15

Figure 11: Major Warehousing Hubs in India

Figure 12: Major Logistics Hubs in India

NCR Average Land Cost1 5 - 0 Average Rents 10 - 16 Palwal Jamalpur Lohari Dharuhera Major Warehousing Locations Mumbai 6 - 0 9 - 18 Bhiwandi Panvel Rasayani Chennai 5 - 14 1 - 14 Sriperumbudur Irungatukottai Oragadam Bangalore 8 - 0 9 - 1 Tumkur Rd Hoskote Mysore Rd Hosur Rd Kolkata 1 - 7 14 - 18 Dhulagarh Ankurhati Hyderabad 5 - 0 7 - 11 Kompally Pune 6 - 17 9 -18 Chakan Wagholi Shirval

JAMMU AND KASHMIR

Gundlapochampally Talegaon Patancheru Shamshabad

Amritsar Ludhiana

HIMACHAL PRADESH Jalandhar Chandigarh UTTRAKHAND Meerut UTTAR PRADESH Agra Lucknow Kanpur Varanasi Allahabad

The Landscape of Indian Warehousing

Bhorah Kalan Taloja

Hide Road Medchal Dankuni

Maraimalainagar Devanahalli Kona

Pathalganga Madavaram

PUNJAB HARYANA NCR

Source: Jones Lang LaSalle Meghraj Warehousing and Logistics Solutions Note: [1] Average Land Cost is in INR million per acre [] Average Rents are in INR per sq ft pm

1
Jodhpur RAJASTHAN Jaipur

NCR

ARUNACHAL PRADESH SIKKIM BIHAR Patna Guwahati MEGHALAYA MANIPUR TRIPURA MIZORAM ASSAM NAGALAND

While the Multi Commodity Exchange of India (MCX) owned National Bulk Handling Corporation (NBHC) manages 1.1 million tonnes of organised storage capacity in the country, NCDEX owned National Collateral Management Services manages 5.9 million tonnes. Regional Demand for Warehousing Retail goods contribute a significant share of the warehousing demand at all the primary hubs due to their sizeable demographics and consumption. EXIM cargo generates considerable demand for warehousing in the port cities of Mumbai, Kolkata and Chennai. NCR-Delhi also enjoys warehousing demand from a variety trade activities (Figure 13). Due to the location of automotive industries, warehousing demand for automobiles and auto-ancillary products is prominent in Chennai, NCR-Delhi, Mumbai, Pune and Ahmedabad. These cities are also sizable markets for automobile sales. Indias eastern region is rich in minerals, textile and agri-prodiucts. Having a large population, this region has strong consumption

Kandla

Ahmedabad Indore

Bhopal MADHYA PRADESH

JHARKHAND

activity, which further creates demand for warehousing space. A significant amount of cargo originates from Indias south and west regions due to a large number of established industrial hubs and sea ports. Hence, the flow of cargo traffic from Indias south and west regions to its east and north regions is much higher than in the reverse direction. Emergence of logistics parks Several major logistics parks are currently under development across the country around the major logistics hubs of Mumbai, Bangalore, Chennai, Hyderabad and NCR. Speciality logistics parks catering to industries such as agriculture, automotive, electronic hardware and aero-industry are under various phases of development across the country. Various rail-linked and multi-modal logistics parks are also being constructed. About 861 acres of land have been identified as Free Trade Warehousing Zones (FTWZs) in India, which have been envisaged as global trading hubs in the

Vadodara GUJARAT

Surat Nashik Nagpur

WEST BENGAL Kolkata Paradip

CHHATTISGARH ORISSA

Kolkata

Mumbai

Mumbai MAHARASHTRA Pune

Bhubaneshwar

6
Hyderabad

Hyderabad

Pune

Visakhapatnam

Vijayawada Goa GOA KARNATAKA Mangalore Golden Quadrilateral ANDHRA PRADESH

4 Bangalore Ennore
Bangalore Chennai TAMIL NADU

North-South Corridor East-West Corridor

Mysore KERALA Kochi

Chennai

Western DFC Line Eastern DFC Line International Airport D omestic Airport Major Sea Port

Figure 13: Major Demand Generators for Warehousing EXIM Cargo Ahmedabad Bangalore Chennai Hyderabad Kolkata Mumbai NCR-Delhi Pune P P P P P Retail Goods P P P P P P P P P P P P P P P P P P Automotive P Textiles P P P P Pharmaceuticals P IT and Telecom

Coimbatore Tuticorin

Thiruvananthapuram

Note: The proposed infrastructure developments including routes for various projects shown on the map are for illustration purposes only. Users of this information should review or consult the primary data and information sources to ascertain the usability of the information. Source: Jones Lang LaSalle Meghraj Research

Source: JLLM CII Warehousing Survey, September 009

16 Advance - The Transforming Landscape of Indian Warehousing

Advance - The Transforming Landscape of Indian Warehousing 17

Figure 14: Upcoming Free Trade and Warehousing Zones (FTWZs) in India Name of Developer Free Trade Warehousing Private Ltd (FTWPL) Balaji Infra Projects Ltd (BIPL) Jafza Chennai Business Parks Chiplun Infrastructure Pvt Ltd J.Matadee Eco Parks Pvt Ltd Jhunjhunwala Vanaspati Greater NOIDA Integrated Warehousing Pvt Ltd (Earlier FTWPL) Arshiya Internation Ltd (AIL) LMJ Warehousing DLF Universal Ltd Shipco Infrastructure Pvt Ltd (SIPL) Vibrant IL&FS Consortium Location Haldia Raigadh Thiruvallur Mumbai Kancheepuram Chandauli Greater NOIDA Panvel Kandla Amritsar Karnataka Naigaon State West Bengal Maharashtra Tamil Nadu Maharashtra Tamil Nadu Uttar Pradesh Uttar Pradesh Maharashtra Gujarat Punjab Karnataka Maharashtra Acres 45.7 100.0 16.4 40.0 40.6 10.6 80.0 68.0 40.0 40.0 10.0 46.9 Type FTWZ FTWZ FTWZ FTWZ FTWZ Multi-services SEZ with FTWZ FTWZ FTWZ FTWZ FTWZ FTWZ FTWZ Approval Status Formal Formal Formal Formal Formal Formal In-Principle In-Principle In-Principle In-Principle In-Principle In-Principle demand for warehousing space perishable Agriproducts. The growth of organised warehousing towards an intelligent future will heavily rely on how effectively industry players and government can work together to address challenges in the short term. Land Availability Procurement of land in a desirable location with clear title and proper approvals is a key for any new entrant who wants to set up a warehouse. Due to the lack of existing clear land classifications in Indian cities, reclassification of land is a major concern as far as developments of warehouse zones are concerned. With land values attaining their peaks during the past three to five years, the availability of affordable land is another concern for the industry. Multi-Modal Logistics Various modes of logistics and transport are preferred depending on the distance, destination, volume and type of goods to be delivered. The options available to ensure prudent delivery of goods include road, rail, air, sea or electronic delivery. Although all these modes of transport are independently viable for different business requirements, the key challenge is to integrate all these modes to ensure efficient delivery though cost-effective means. A multimodal transport system that would integrate different geographical scales is yet to evolve in India. The development of new modal and intermodal infrastructure would bridge the rural urban divide with improved cost-efficiency. Implementation of global best practices to integrate and offer world class modern warehousing facilities through the use of technological advancements is likely to be the future action plan for warehousing industry majors. Tax and Regulatory Policies The governments role to promote organised warehousing is crucial along with private sector participation. The government of Indias initiative to come up with clear-cut rules and regulations will not only curb illegal warehousing activities in the country but also act as a building block to enhance the logistic value chain. This will in turn facilitate deeper domestic and international penetration into the Indian warehousing landscape. The expected phase-out of Central Sales Tax and the implementation of Goods and Services Tax (GST) in the coming years would have a profound impact on the nature of the warehousing sector in India. It would remove the need for decentralised warehousing in multiple states, thereby increasing operational efficiencies. The net effect would be large warehousing spaces consolidated at primary locations serving a vast region through secondary and tertiary hubs. Transit time and costs would be reduced considerably due to improved efficiencies achieved such as the elimination of check-points at state borders. The imposition of GST would eliminate taxation as a factor in regulating the growth of industry and, instead, provide it with a much needed breathing room where industry stakeholders can focus on increasing efficiencies and reducing costs in the supply chain through other avenues. Standardisation of Specifications The demand for warehousing comes from a multitude of sources, which have specific needs. The lack of standards poses a significant challenge to the industry where quality and flexibility of available warehousing space is a major concern. As we go forward, the demand from occupiers is expected to pressure developers and owners to adopt the standards formulated by the policymakers. Best practices need to be incorporated in the standards to increase safety and minimise wastage. There is a dearth of quality temperature-controlled storage spaces across the country despite a huge demand from several industry verticals. This creates tremendous opportunities in this sector, where a substantial demand-supply mismatch is likely to continue through the medium term. Implementation of global best practices to integrate and offer world class modern warehousing facilities through the use of technological advancements is likely to be the future action plan for warehousing industry majors.

Source: Free Trade and Warehousing Zones (www.ftwz.com)

international supply chain (Figure 14). Principally governed by the Special Economic Zone (SEZ) Act 005 and SEZ Rules 006, 100% foreign direct investment has been permitted into FTWZs. Temperature-Controlled Storage Temperature-controlled storage is used primarily for fruits and vegetables, meat and marine products, floriculture, dairy products, ice creams and confectionery. According to the KPMGAssocham report released in August 009, there is a shortage of 10 million tonnes of cold storage for agri-produce in India. India currently has around 1.7 million tonnes of cold storage against a requirement of over 1 million tonnes. As a result, more than 30% of agri-produce is lost in fields post harvesting. According to the study, the Indian cold chain market in 009 is worth USD .6 billion, which is expected to grow to USD 1.4 billion by 015. The agricultural-intensive states of Uttar Pradesh and West Bengal have 65.0% of the total installed capacity of cold storage in the country. The government of India has planned to create a capacity of 10 million tonnes of cold chains, pack

houses and ripening chambers by 01. Despite the announcement of various incentives for cold chains in the Union Budget 00910, investment in the sector has been lacking. High capital needs, fluctuating revenue cycles and relatively low subsidies have worked as impediments for the development of temperature-controlled warehousing in India.

Challenges and Road Ahead

As Indian warehousing is in an initial phase of life cycle development, the industry faces a significant amount of challenges amidst growth opportunities. While the lack of sufficient physical infrastructure is one of these challenges, the time lag between devising and implementing strategies due to the lack of international warehousing standards is another. With rising disposable incomes, changing lifestyles and focus on rural and agricultural related activities, the rural logistics sector has received special attention over the past few years. Although there are significant challenges, the huge potential for growth in rural logistics has put the development of cold chain warehousing infrastructure on the top of the governments priority list. This will not only provide rural employment opportunities but also meet the

18 Advance - The Transforming Landscape of Indian Warehousing

Advance - The Transforming Landscape of Indian Warehousing 19

Infrastructure The widening gap between the growth of infrastructure and that of demand for organised warehousing continues to remain a key challenge. The improvements on the road, rail, airways and port infrastructure combined with the increased roll-out of technology to drive growth of modern warehouses is the need of the hour in the India warehousing industry. While significant outlay has been done at a macro-level, infrastructure at the warehouse level also needs attention. The lack of adequate physical infrastructure to promote the use of new technologies such as radio frequency identification devices (RFID), new supply chain tools and e-commerce capabilities is acting as a major challenge to managing the movement and storage of goods. Trained and Professional Manpower Most of the warehouses in India today are managed by carry & forward (C&F) agents who have poor knowledge on the latest warehousing technologies. Having a skilled work force to manage the warehouses of tomorrow will not only mitigate the risks of high inventory levels and poor service offerings, but also help the industry to make a paradigm shift towards intelligent, automated and organised warehouses.

Authors Profile The Jones Lang LaSalle Meghraj - CII Warehousing Survey asked respondents to score major challenges faced by the industry on a scale of 1 to 5, where 1 and 5 indicate the lowest and the highest scores, respectively, on the criticality of the challenge. Along with the industrys perspective on key challenges as of 2009, the findings of the survey also highlighted the industrys perspective on the expected criticality of these challenges in 2011 (Figure 15). The availability of land at desired locations and multi-modal logistics are highly critical challenges for the industry today, and are expected to remain so in the future. Although taxation policies are currently a significant challenge and would continue to remain critical for the next two to three years, the survey reveals that its expected simplification should reduce its criticality. Surprisingly, respondents did not perceive infrastructure to be a major challenge, most likely due to the massive focus on the issue from both the public and private sectors. The availability of trained and professional manpower was deemed as the least critical of the challenges faced by the industry today. However, with the growth of the organised sector and the increasing use of technology, skilled labour is expected to be employed in larger numbers by the industry. Its availability may pose a greater challenge in the future. Hariharan Ganesan Assistant Manager, Research and REIS Jones Lang LaSalle Meghraj Hariharan Ganesan joined the Jones Lang LaSalle Meghraj Research team in April 008 and is responsible for the Indian Real Estate Intelligence Service (REIS) publications. Based in Chennai, he contributes to research deliverables on industrial, commercial, retail and residential real estate markets in the country. Prior to joining the firm, Hariharan worked on research in different fields for two years in India. He holds a dual degree from Bits Pilani and an MBA from IIPM, Delhi.

Himadri Mayank Senior Analyst, Research and REIS Jones Lang LaSalle Meghraj Himadri Mayank joined Jones Lang LaSalle Meghraj Research team in July 008 and is responsible for tracking and monitoring market activity and trends in office, retail and residential property sectors for Indian cities. Based out of Mumbai, he also contributes towards regional and local research publications covering economy, sector analyses, market forecasts and investment strategies. He holds a degree of B.Arch. from Indian Institute of Technology Kharagpur and has two years of experience in the field of construction and architecture.

Figure 15: Critical Challenges Faced by Warehousing Industry

Affordable land at desired locations Integration of various modes of logistics Tax and Regulatory Policies Standardization of warehouse specifications across locations Infrastructure (Rail/Road/Port/ Airport/Power) Trained and professional manpower 0 Less Critical Source: JLLM CII Warehousing Survey, September 009 1
2.0 2.2 3.0 3.0 3.2 3.2 3.4 3.8 4.4 4.3 4.2 4.5

Avinash Mirchandani Assistant Vice President, Research and REIS Jones Lang LaSalle Meghraj Avinash Mirchandani supports the Jones Lang LaSalle Meghraj India Research & REIS team. Based in Mumbai, he provides guidance and oversight on all of the teams research outputs and bespoke client projects. Avinash originally joined Jones Lang LaSalle in 007 as the programme manager for the World Winning Cities Research Programme, a multi-year research initiative conducted by our Global Research team. Prior to that, he worked in a variety of consulting and research roles across the biotech, aerospace and IT industries in the United States. Avinash holds a bachelors degree in Economics from UCLA and an MBA from the Indian School of Business.

009 011

Abhishek Kiran Gupta Associate Director, Research and REIS Jones Lang LaSalle Meghraj Abhishek Kiran Gupta leads the Jones Lang LaSalle Meghraj India Research team and is based in Mumbai. He manages research operations on a Pan-India level and is responsible for the teams outputs, including research reports such as topical white papers, property market digests and bespoke research projects based on specific client requirements. Prior to joining Jones Lang LaSalle, he had seven years of experience in market research, business analysis and market strategy consulting, servicing diversified industries including pharmaceutical, software publishing and insurance.

5 More Critical

Acknowledgements We would like to acknowledge the invaluable guidance by Tushar Jani, Chairman, CII Logistics Western India, and the support from CII representatives. Extensive contributions were also made from the Jones Lang LaSalle Warehousing and Logistics Solutions team who shared their knowledge and expertise during our research and analysis. Rahul Singh and Nisha Poddar from Jones Lang LaSalle Meghraj Research also contributed significantly to this project.

About Jones Lang LaSalle

Jones Lang LaSalle (NYSE:JLL) is a professional services firm specializing in real estate. The firm offers integrated services delivered by expert teams worldwide to clients seeking increased value by owning, occupying or investing in real estate. With 008 global revenue of USD.7 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locations worldwide, including 180 corporate offices. The firm is an industry leader in property and corporate facility management services, with a portfolio of approximately 1.4 billion square feet worldwide. LaSalle Investment Management, the companys investment management business, is one of the worlds largest and most diverse in real estate with more than USD37 billion of assets under management. For further information, please visit our website, www.joneslanglasalle.com. Jones Lang LaSalle has over 50 years of experience in Asia Pacific, with over 17,200 employees operating in 79 offices in 13 countries across the region.

About Jones Lang LaSalle Meghraj

Jones Lang LaSalle Meghraj, the Indian operations of Jones Lang LaSalle, is the premiere and largest real estate professional services firm in India. With an extensive geographic footprint across ten cities (Delhi, Mumbai, Bangalore, Pune, Chennai, Hyderabad, Kolkata, Kochi, Chandigarh and Coimbatore) and a staff strength of over 2900, the firm provides investors, developers, local corporates and multinational companies with a comprehensive range of services including research, consultancy, transactions, project and development services, integrated facility management, property and asset management, capital markets, residential, hotels and retail advisory. For further information, please visit www.jllm.co.in To know more about our warehousing and logistics solutions, please contact the following:
Anuj Puri Chairman and Country Head Jones Lang LaSalle Meghraj +91  48 8400 Anuj.Puri@jllm.co.in Chennai Jerry Kingsley +91 98846 19 Jerry.Kingsley@jllm.co.in Bangalore N Srinivas +91 98454 45495 N.Srinivas@jllm.co.in Ramesh Nair Managing Director Warehousing & Logistics Solutions +91 98844 11100 Ramesh.Nair@jllm.co.in Mumbai Vilas Chabukswar +91 981 1977 Vilas.Chabukswar@jllm.co.in Nation Capital Region Himanshu Dhingra +91 98108 661 Himanshu.Dhingra@jllm.co.in N Srinivas Vice President Warehousing & Logistics Solutions +91 98454 45495 N.Srinivas@jllm.co.in Hyderabad Vinay Kumar +91 99850 0955 Vinay.Kumar@jllm.co.in Pune Dhruv Agarwal +91 980 8048 Dhruv.Agarwal@jllm.co.in Kolkata Niladri Basu +91 9860 00097 Niladri.Basu@jllm.co.in

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