LOGISTICS - On the Wings of Change

Disruptive technologies have revolutionized the logistics ecosystem and the supply chain management through improvements in efficiency and a prime focus on customer-centricity, while the pandemic has re-emphasized tech-integration, an imperative. Agith G Antony tracks the fast-changing trends in Industrial and Logistics Sector.

The warehousing, logistics and the industrial real estate sector has shown stupendous progress in the past few years.  While Covid 19 has globally impacted manufacturing and warehousing sector, in India, this pandemic has also catalyzed the growth of the sector in a route which is much sturdier and more sustainable. There has been substantial support from the union and the state governments in terms of policy reforms and initiatives to boost the infrastructure development across the country thereby streamlining the logistics cost. The introduction of GST and the classification of warehousing sector as 'Infrastructure' has also played an important role in the growth of the sector in India.

The warehousing segment is also seeing a conscious shift towards technological advancement, modernization and optimization along with increased affinity to Grade-A facilities and infrastructure. The growth prospects are being seen in the standardization of the logistics parks along with the optimum utilization of robotics and artificial intelligence. Standardization in warehousing across sectors be it in pallet sizes, contracting and documentation standards, will also go a long way in significantly reducing cost of logistics and improve efficiencies.

Changing consumer behaviour / e-commerce penetration, consolidation and necessity to adopt technology has reflected in strong demand for quality warehousing spaces. Faster last mile delivery focus of e-commerce boosts the in-city / urban logistics sector where conventional retails, sheds, banquets, single screen theatres are being considered for alternative usage for in-city warehousing across top cities. Greater spread to reach maximum people is taking warehousing beyond Tier 1 cities.

On the demand / absorption front, India's warehousing sector has shown substantial growth with absorption moving up to 36 mn sq. ft. in 2019 from 20mn sq. ft. in 2017. Steep growth of Grade A absorptions / demand clearly defines that the sector going through a transformation to move to efficient infrastructure and greater efficiencies. Further, automation will fasten and smoothen the logistics process within multi-level spaces and robotics and AI will enhance it with zero defect to achieve high level of productivity.

Tech-Driven & Integrated SCM 

Emerging trends in the logistics space due to the increasing dependence on technology and e-commerce has led to the transformation of supply chain. Warehousing is in the midst of a tech-driven revolution as companies race to identify and adopt emerging technologies that cut costs, optimize operations and improve overall supply chain efficiency. Major trends that are redefining logistics ecosystem are automated guided vehicles, robotics, big data, IoT, and sorting systems. While linear supply chains concentrated on cost, speed, reliability and connectivity, the new supply chain ecosystem that has emerged from the pandemic is expected to lay equal emphasis on resilience, near-shoring capability, sustainability and agility. As a result, most occupiers are now putting in place a 'modern' supply chain ecosystem that enables timely and transparent data flow among stakeholders, with a greater focus on establishing fulfillment centres.

Says Ram Chandnani, Managing Director, Advisory & Transaction Services, CBRE India, “Going forward, a digitally enabled supply chain ecosystem is likely to come at the forefront that integrates end-to-end tech solutions, thereby ensuring higher transparency and efficiency. Tech would pervade all stages of the lifecycle of a warehouse, thereby improving the quality of upcoming supply. Further, the use of fleet management software for live tracking of goods and automated pallet storage has been growing quickly. Occupiers from e-commerce and 3PL sectors have already begun to automate their facilities - a trend that is expected to gain momentum in the coming years. The widespread deployment of IoT is expected to create 'smarter' warehouses that would significantly improve supply chain efficiencies.

According Naveen Rawat, Director & Co-Founder, Holisol Logistics, companies that rely on digitization and automation can create significant competitive advantages by reducing their costs and at the same time increase customer satisfaction by delivering better in terms of 'Speed, Accuracy and Reliability.' However, he was quick to point out a major bottleneck - the disintegrated view of supply chain digitalization. “The real value of the digitalization will accrue if all partners in the supply chain ecosystem are digitally enabled. Hence the digitalization focus has to be both on internal and external processes in order to coordinate material and information flows from raw material suppliers to the end customers more efficiently. We will need to create a digital supply chain not only for individual companies but also to make various values and supply chains networked compatibly, says Rawat.

Liquidity Infusion on the Rise

With the increase in demand for quality warehousing space, the industrial and logistic segment has attracted huge investments in the recent years, backed by several government reforms. In 2019, the I&L sector witnessed an investment of more than USD 200 million, that majorly included high-volume deals of USD 50-100 million each and the trend is expected to continue, according to Ram Chandnani.

Says Chandranath Dey, Head - Industrial Operations, Business Development, Industrial Consulting, JLL, “In the pandemic, industrial asset class has emerged to be the 'dark horse' by many Private Equity Funds or Sovereign Wealth Funds or Pension Funds primarily because of the strong demand growth fundamentals of the sector, longer lease tenures of tenants for assured long term returns, fast construction timelines that helps in rent flow sooner than most asset classes.” Dey adds, “Fund flow in the industrial asset class has been very consistent in the past few years with close to $7-8 billion committed in the form of platform deals or otherwise. However, on ground / project investments or deployments of such funds has been low ~ $1-2 billion due to some bottlenecks. Recent policy level and structural measures to remove such bottlenecks at state and central Government level like Infrastructure Status, declassification of industrial from commercial zoning, National logistics policy and others is expected to help in deployment of fund in the medium to long term.”

Says Pratyush Pandey, Warehousing Industrial Logistics, Anarock Property Consultants, “In terms of funding, as per Anrock research, PE funds have pumped in more than USD 1.5 billion into logistics and warehousing sectors between 2017 and Q1 2020 and USD 7 billion worth platforms have been created in the warehousing sector since 2015. In June 2020, Singapore-based Mapletree Investments invested USD 41 million in KSH Infra Ltd's logistics park in Pune. Going forward, we may see a rise in interest from investors with logistics and warehousing sector entering into a high-growth mode in India.

FarEye, a leading logistics SaaS platform for predictive visibility, recently announced that it has raised an additional USD 13 million as an extension to its Series D investment.  “We are seeing a surge in the need for real-time visibility in logistics for businesses to build customer-centric supply chains. With recently raised funds, we will continue to invest in the best talent in the Americas, Europe, and APAC to support our hyper-growth in these regions. With a vision to make FarEye one of the most customer-centric organizations globally, we aim to make every delivery delightful for the consumers.” said Kushal Nahata, CEO, FarEye.

Shift Towards Grade A Spaces

According to Abhijit Malkani, Country Head, ESR India logistics industry witnessed the shift from B grade warehouses to Grade A spaces even before the lockdown, and the pandemic has pushed the demand for Grade A spaces even further. “Modern tech-powered warehouses will rule the roost, pushing inferior grade properties down the demand pyramid. The sector has witnessed liquidity infusion by global investors as well as changing occupier demand for better quality space from E-commerce, 3PL, retail and engineering sectors, which has also prompted the market to develop more Grade A warehousing space,” states Malkani. “Customers are looking at safer, well managed parks with features such as better floor load and quality standards, higher ceiling height, adaptability to implement automation, better surface finishing, increased air changes for natural ventilation and advanced dock doors and docking systems,” adds Malkani.

“Grade A warehouses are infrastructurally better equipped for efficient material handling along with access to latest technology. The facilities have ample clear height, optimized column spacing, flat and super-flat floors designed to support high cube racking, high dock-door ratio and extensive concrete truck courts. These warehouses allow abundant creativity in laying out the plant and equipment and they also provide for easier movement within the buildings resulting in optimized turn-around time and lower logistics cost, states Rajesh Jaggi, Vice Chairman - Real Estate, Everstone Group. According to him in the times of Covid, warehousing players have started to invest in more automation and mechanization for contactless operations. Additionally, stringent standard operating procedures (SOPs) are being adopted in logistics parks for the safety of the workers. “We are witnessing an increased focus on efficient warehousing design for ensuring workers' safety and social distancing. Such requirements, in addition to quick movement of goods, have also necessitated the shift from Grade B to Grade A warehouses,” Jaggi adds. 

The formalization of the I&L sector in India, coupled with increasing demand for quality space, would lead developers to build compliant, large-sized spaces. Mainstream domestic / global developers such as Hiranandani, Embassy, Puravankara, etc. are also venturing into this sector, according to Ram Chandnani.

Impact of Tech-Trends on Storage Solutions 

Relevant automation and technology adoptions have significantly transformed the logistics sectors in the last few years. According to Afzal Hussain, Director, Racks & Rollers the industry is moving towards automation. The trend was expected to come in a couple of years from now. But due to the Covid pandemic situation the trend has come early. Hussain says, “We have seen a major growth in organizations requesting for automation, and structural designs that support those automation processes. We are receiving multiple requests for rack clad warehouses / rack supported warehouses, which are known to be the best structure for automation solutions.”  “Another major trend, according to Hussain is vertical storage systems. “As the real estate prices have gone so high many of our   clients throughout the globe has started opting for vertical storage systems.  Most companies that are using shelving solutions are going for multi-level storages now. This helps them decrease the amount of real estate required, which decreases the investment required or rental expenses, and helps increase the storage capacities. In short multi-level solutions, help them 'get the most out of their buck,” Hussain adds.

Kesavan K, Head - Marketing, Godrej Storage Solutions is on the same page. According to him automation and digitization are here to stay and they are certainly the way forward. “Earlier, the storage system was the primary article of interest in any warehouse and other systems used to be built around it. Today, KPIs like throughput drive decisions and automation and digitization are the major solutions with storage systems becoming just a part of overall solutions,” opines Kesavan. He highlights on two main trends. “Palletized storage is becoming standardized with each passing day, and multi-tier / shelving systems are becoming highly technology oriented with plenty of embedded technology like IoT. We are seeing the evolution of multi million square feet multi-tier storage systems with a high degree of integration with technology.

Robotics

Greater automation (touchless logistics) with robots working in warehouses could be the way forward in the long term. The whole process of shifting to entirely automated warehouses may take some time considering the cost and time required for implementation. In fact, the trends is already there. The forecast numbers for warehouse robotics are certainly encouraging. Based on numerous market reports, the global market for warehouse robotics is expected to cross USD 6 billion by 2025, with a CAGR of 11%.

Says Rohit Dashrathi, Founder, Yantra LLP, a major player in this space in India, “I am highly optimistic about the warehouse robotics market. There is a rising demand due to the rise in the e-commerce industry; one of the high costs is warehouse management. For other sectors, there is an increasing need to automate the distribution centers to attain efficiency, reduce turnaround times, and reduce labor-intensive tasks. Additionally, the pandemic, too, has thrown new challenges at companies concerning finances and managing huge workforce. They will undoubtedly look to adopt robots to address such challenges from now on. I am positive about the Indian market, particularly given the government’s rising focus on digital revolution and next-gen technologies.”

Robotic Process Automation (RPA) is disrupting many industries by automating processes, reducing costs, and increasing efficiency. Some of the major areas of applications include inventory control, predictive and preventive maintenance, internal or external logistics management, etc. ERP systems, too, are being equipped with intelligent RPA to automate repetitive tasks requiring huge man-hours. With AI and Deep Learning as the backbone, RPAs today are becoming excellent decision-makers,” he adds.

Greener Spaces in Demand

Major players in developing logistics parks have well understood the increasing demand for greener and sustainable facilities and have already shifted gear developing and providing what the client demands. The time has come for the warehousing sector to integrate sustainability in their standard operating procedures. Designs needs to be adopted which reduce carbon footprint and sustainable technology needs to be incorporated for businesses to operate more efficiently. “Our green infrastructure is designed to reduce carbon footprint. From rooftop solar panels to natural ventilation designs to green material selection to water-saving -we are incorporating the latest sustainable technology and design into our facilities to help businesses operate more efficiently. As a testament to our 'green' design thinking, our parks have been awarded the esteemed EDGE certification,” state Jaggi. 

Recently IndoSpace Core, the largest industrial and logistics core real estate vehicle in India announced the closing of an INR 1,000 crore green loan facility provided by The Hongkong and Shanghai Banking Corporation Limited (HSBC). The debt facility is the largest portfolio financing seen in the logistics and warehousing space in India, covering 14 projects located in prime warehousing hubs of Pune, Chennai, Bangalore and Delhi - NCR. Proceeds from the debut green loan will be used towards the financing or refinancing of certified green projects. According to Jaggi, this deal is the first of its kind in the organized warehousing space in India and it reinforces IndoSpace as a leader in this segment.

“Sustainability has been a key feature in modern developments. It helps increase productivity, reduces environmental impact, and increases cost efficiency,” avers Malkani. He adds, “At ESR India we continue to integrate ESG (Economic, Social & Governance) considerations into all aspects of our business. ESR parks are digitally managed by the ESR Smart App that helps in reducing carbon footprint by enabling efficient traffic movement leading to reduction in fuel consumption. One of ESR's sustainability goals is to develop and manage energy and resource-efficient buildings. Through innovations like energy-efficient lighting, waste water management, recycling programs and roof-mounted solar panels, thereby reducing operating costs for suppliers as well as impact on the environment and optimizing the use of natural lights.”

Going Ahead

The Indian logistics industry is growing at an 8% CAGR (2016 -2020) and the market size will grow to approximately US$215 billion by 2020. Demand for strategic locations is gaining prominence occupier groups and sectors like e-commerce, retail, FMCG, manufacturing etc. Organizations are willing to pay higher rents to move into Grade A logistics infrastructure with integrated sustainable features and better amenities that helps to increase efficiency. Rising demand from 3PLs, pharma, e-commerce players is the key growth driver of consolidated, efficient and strategically located warehouses. There has also been a spike in global interest to invest in India and we should see an increase in demand for industrial spaces in the long term as companies plan supply chain diversification. Contactless and digitally managed spaces will be in demand post the pandemic. Companies are looking for ready to move automated spaces with better safety initiatives and integrated sustainability features to increase their efficiency, consolidate their businesses, and increase contactless business processes.

CS BOXES

CS lead BOX - 1

TRENDS TO SHAPE THE FUTURE OF LOGISTICS

• Modern and Digitised Supply Chain Ecosystem - Integration of end-to-end tech solutions would ensure higher transparency and efficiency and enable timely and transparent data flow among stakeholders. Further, fulfilment and last-mile logistics centres are likely to play a key role
• Increased Demand for Quality Spaces and Lease Flexibility - Quality projects, well-connected assets, especially those developed by prominent players, are expected to see a traction in demand. In addition, emphasis on improving efficiencies in last-mile delivery is expected to drive demand for assets located closer to the city. Occupiers are also likely to seek flexibility in leasing terms - reduced lock-in period in long-term leases and more short-term leases.
• E-grocery Sector to Boost Cold Storage Requirements - The online grocery segment is witnessing increased consumer interest, boosting demand for cold storage facilities and temperature-controlled warehouses.
• Data Centre (DC) Demand to Surge - Increased use of tech, social media and online streaming, coupled with a burgeoning population, is likely to boost DC demand, resulting in India becoming one of the largest DC destinations across APAC over the next decade. The adoption of 5G, particularly, would give a fillip to the OTT industry, thereby spurring the demand for edge computing.

Courtesy: CBRE

BOX 2

TRENDS IN SPACE INTAKE

India's warehousing sector is continuously evolving along with the market. A combined share of 3PL, white goods, FMCG and specialized retail shows warehousing space intake of almost 80% of total demand during 2019 first nine months and relatively at a strong level than 2016. While ecommerce has placed itself as a major retail platform for Indian customers, it has also been a major contributor to the significant surge from 3PL's demand.

Courtesy: JLL Industrial Services

BOX 3

TRENDS IN INTEGRATED SCM

• Transformation of work from hard manual work to a tech-enabled environment
• Machines working alongside humans to bring in more flexibility and reliability
• Warehouse building, infrastructure and processes becoming more and more environment friendly
• Use of Big Data & AI to improve warehouse planning and performance. 

Courtesy: Holisol 

BOX 4

TRENDS IN BUILD MANUFACTUREING SPACES

• Higher CAPEX Savings: Conversion of CAPEX (land & building) to OPEX (rent) | Rented factories for lease tenure of 9 years and above
• Ready Built Factories on Rent - Ready- to- occupy built industrial space for faster entry.
• Higher Specifications: 13 Mts + height | 6 MT/sqm floor strength | Plinth - 1.2 Mts | Provision for mounting cranes.
• Built-to-Suit: As per tenant specifications in 6 - 9 months. Many organized developers in the country can provide global quality space.
• Ultra-fast Approvals: Pre-approved for most industrial investments | Non-polluting industries relaxed from several permissions.

Courtesy: JLL

BOX 5

TECH-TRENDS IN LOGISTICS

• Blockchain is making a considerable difference especially since documentation and its verification has been one of the biggest hurdles for the logistics companies. This includes cases such as transportation management, procurement, order tracking and customs collaboration.
• AI & Machine Learning for Optimising Supply Chain: ML is being used by logistics players to automate, optimize and streamline the entire supply chain and gather insights from data that are directly or indirectly related to tracking, internal functions, etc. It is not just cost-effective and time-efficient but also helps to enhance consumer experience.
• IoT for Tracking - RFID tags, GPS, and specialized sensors help to monitor packages. Other features like geo-fencing, geo-tagging, and proximity alert are also helping to eliminate issues within the supply chain.
• Augmented Reality (facial-recognition technology) is also paving the way for secured deliveries within logistics operations. Last-mile delivery is also improving with building-recognition and indoor navigation. 

Courtesy: Anarock

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