LOGIC

OF LOGISTICS
Thomas Friedman
 India's growing foot - prints on the world map,
primarily after liberalization, have positively altered its
economic landscape by opening up a number of
avenues for progress and development. With the
beginning of the twenty first century, the country

Foreword witnessed a phenomenal growth in sunrise sectors;

undoubtedly the front runner being IT/ITES sector.
This sector is not only propelling the nation's
economy significantly but also showcasing the progress
of India in front of the world. The next wave for the
country's growth is in the manufacturing and retail
sectors. With the weak investment environment
prevalent across the globe, these two segments are also
facing the heat; however they are expected to
contribute to the GDP significantly in the long run.
The back-end operation in the form of an efficient
logistics support is imperative for the organized
development of the two. Unfortunately logistics
operations in the country are largely fragmented and
un-organized putting brakes on the growth of retail
and manufacturing sector. With a number of foreign
players entering the Indian Logistics segment and the
domestic giants responding favorably to the
competition, a much awaited change is round the
corner.
Among other Logistics components, Warehousing is
very vital for the country from a real estate investment
perspective as well. While giving a sneak preview of
the current scenario in India, the paper attempts to
inform the stakeholders that if they play their cards
right, Logistics and Warehousing could be one of the
most promising sector of Indian Real Estate.

Colliers International - Logic of Logistics 01

 LOGIC
OF LOGISTICS

purchasing. inventory.

warehousing.

transportation. distribution.
 Contents

ONE I Logistics - Joining the Dots for Business Page 4

TWO I Logistics Supply Chain Scenario - Where We Stand Today Page 6

THREE I Scope for Logistics Companies in the Indian Market Page 8

FOUR I Emerging Logistics Hubs in India Page 10

FIVE I Warehousing - An Integral Part of Logistics Page 14

SIX I Where We are in Terms of Space Creation Page 16

SEVEN I Options for Warehousing Development Companies Page 18

EIGHT I Precondition for Viability of Warehousing Page 21

NINE I Pestle Analysis of Logistics and Warehousing Sector Page 22

TEN I Challenges in the Indian Market for Investors Page 24

ELEVEN I Conclusion Page 25

Logistics
- Joining
the Dots
for Business

Colliers International - Logic of Logistics 04

 According to
various estimates,
approximately 10-15
percent of a product's
cost represents logistics-
related costs, a reduction
in which can lead to
significant cost savings
for manufacturers
as well
as consumers.
Logistics is an integral part of almost all the industries, such
as agricultural products, FMCG, food processing, general
retailing and all manufacturing industries including
automobiles & automotive components, engineering &
electronics, steel & steel products, cement, courier &
parcel services and hydrocarbons among others. According
to various estimates, approximately 10-15 percent of a
product's cost represents logistics-related costs, a reduction
in which can lead to significant cost savings for
manufacturers as well as consumers. The fact that India
spends around INR 4 trillion on logistics shows that this
sector is of paramount importance in improving an
organisation's ability to manage an effective supply chain
process and in turn, its logistics network and delivery
capabilities. However, India is still lagging behind as
compared to developed countries that spend more than
INR 90 trillion on logistics. To date, logistics has not
received adequate attention as an independent sector and
does not fall into a priority sector. However, by taking
lessons from other economies, India is realising the
importance of this neglected sector and is taking a number
of initiatives in the form of various incentives,
infrastructure development projects, and the establishment
of dedicated logistics parks and Foreign Trade Warehousing
Zones (FTWZ) among others.

Colliers International - Logic of Logistics 05

 Growing at a rate of 30-40 percent per annum, the Indian

Logistics logistics industry is capturing both domestic and

international players which holds tremendous growth
potential for the growing Indian economy. Efficient

Supply logistics implies the ability to make available merchandise

to the consumer at the right time, in the right place, in the

Chain right quantity and at the lowest cost. The domino effect of
efficient logistics results in increased customer satisfaction
(demand side) and better economics of business for

Scenario manufacturers (supply side). This entire process is known

as the supply chain and its complexity depends mainly on

-Where We the size of the business and the number of stakeholders

involved. The major elements of a supply chain include
Stand Today transportation, warehousing, inventory management and
other value-added services vital to the final distribution of
the product. The effectiveness of a supply chain depends
on various parameters such as the estimation of customer
demand, efficient and effective delivery, integration and
collaboration throughout the supply chain, sharing of
vision and information using formal and informal methods,

Warehousing Owners, Real Estate

Consultants, Brokers and Man Power

Activities Involved
Inventory/Weighing
Un-loading
Storage

A ir Warehousing Pre
do
nd mi
il a na
nt
, Ra ly
ad Ro
Ro a
d,
ly
nt

Ra il
na

,C
mi
do

arg
Pre

o and
Air

Man Power, Transporters,

Firm/Company Government Bodies
Transporters Distribution Transportation
Product (Border and Custom
Clearance)

Activities Involved Activities Involved

Inventory/Weighing Inventory/Weighing
Un-loading Packaging/Labelling
Storage Loading

"Supply Chain starts at the point when a consumer decides to purchase a product and ends with the fulfilment of his/her
requirement from the supply end."
Source : Colliers International India Research

Colliers International - Logic of Logistics 06

along with the use of information and communication
technologies. With a spurt in the growth of the economy,
Growing at a
the overall trade, domestic as well as international, has
increased exponentially in various sectors such as rate of 30-40
automotive, FMCG, electronics and pharmaceutical among percent per annum,
others. Increased trade leads to the requirement for
the Indian logistics
specialised logistics service providers that can offer a range
of services such as transportation, material handling,
industry is capturing a both
storage, warehousing, supply chain management (SCM), domestic and international
information technology (IT) and inventory management. player which holds
Until recently, most industries managed their own logistics
tremendous growth
functions such as Warehousing and Management
Information Systems (MIS) in-house as a part of their non-
potential for the
core activities. However, for industries operating cross- growing Indian
border, the huge diversity in geographic conditions, economy.
changing consumer habits and infrastructure conditions
posed a major challenge for logistics players to efficiently
manage their supply chain in order to reach all parts of the
country and the rest of the world. The fragmentation of the
supply chain led to a trend where companies started The logistics industry has witnessed decent growth in
outsourcing various logistics functions such as recent times and has tremendous potential as it facilitates
transportation, packaging etc., while retaining the overall significant cost reduction and offers manufacturers/retailers
in-house control of logistics, despite the fact that this costs the ability to focus on core activities. However, the use of
the company a considerable amount of money. This non- other value-added advance services such as customer
core activity becomes more difficult when coupled with the support, inbound logistics and reverse logistics, is still very
fact that infrastructure is not able to keep up with the limited in the Indian context.
country's economic development.
Market size and penetration
Multinational companies (MNCs) habitually employ
sophisticated logistics functions and find it difficult to cope
3rd Wave Outsourcing - Global
and demand for high quality services

with the inefficient supply chain process in India.

Complexity in distribution network

SC Management (7 PL Model)

Moreover, due to increasing competition the profit margins 2nd Wave Outsourcing - Organised
Contract Logistics (4 PL Model)
are narrowing, which has resulted in a growing need for
efficient logistics networks and supply chains. Today, 1st Wave Outsourcing Fragmented (3 PL Model)

companies have started looking at logistics and the supply

In-Source
chain strategically, which will enhance the scope for
specialised service providers to carry out these non-core
activities. The trend started with the Indian subsidiaries of "Inspired by the success of these MNC's Indian companies
MNCs which started outsourcing a share of their logistics have also started outsourcing their basic and important
functions to specialist service providers such as logistics functions"

transportation and warehousing. Source : Colliers International India Research

Colliers International - Logic of Logistics 07

Scope
for Logistics
Companies
in the Indian
Market

After real estate, the manufacturing and retail sectors are compelled global businesses to search for a new destination
expected to bring the next boom in India. The rapidly for their manufacturing and logistics needs to avoid
growing market-driven emerging economy with plentiful country-specific risks.
labour, a booming retail industry, improving logistics India, with its growing economy, has the potential to
infrastructure and relaxed regulatory norms will provide become the next destination for these global logistics
ample opportunity for logistics and transportation service players as it can provide all the ingredients for a successful
providers to grow. logistics operation, with the additional advantage of
According to the World Bank Survey, India is at 39th diversification from country-specific risks. In addition,
position in the logistics performance index, with Singapore India has not only proven its efficiency in terms of
on top, and the UK, the USA and China at 9th, 14th and expertise in the biotech, finance, accounting and medical
30th positions, respectively. When global consumer care sectors, but also is growing by leaps and bound in
product manufacturers initially started outsourcing to other other industries such as engineering goods, chemicals, and
countries, such as China, production costs were reduced gems & jewellery.
considerably, making transportation and logistics costs to Currently, logistics costs in India are higher in comparison
be no major concern for these players. Later, China to other countries, however, the Government's proactive
invested substantially in infrastructure to provide a niche approach to the infrastructure and transportation sectors
for logistics businesses in the country. However, high will bring down logistics costs and, in turn, attract the
demand and infrastructure development considerably interest of developed countries in expanding activities in
increased real estate prices for setting up facilities thus manufacturing and distribution. Moreover, with the world's
making manufacturing and logistics activities expensive. In second-largest population and labour force, and consistent
addition, other factors, such as over dependence on one GDP growth, India will provide much-needed comfort to
economy and monopolisation by any one country, have foreign investors in Indian logistics.

Colliers International - Logic of Logistics 08

< Globally, the logistics
industry is valued at US$3.5 trillion
and the Indian logistics industry is
currently estimated at US$90 billion (CII).

< The industry has generated employment for

Interesting
Facts
45 million people in the country in comparison with
the IT and ITES sector, which employs approximately 4.3
million people.

< As per the World Bank Survey, India ranks 39th in terms of the
logistics performance index and indicators, with Singapore on top, the UK,
the USA and China in 9th, 14th and 30th positions, respectively. India spends
US$1,148 in handling costs to import one cargo container and US$820 to export a
container. In comparison, Singapore spends US$367 per imported container, while
China spends US$390 per exported container, according to a World Bank study.

< India spends 13% of its GDP on logistics compared to an average of 10% in developed
countries, while the US spends just 8%. Better supply chain management has reduced logistics costs by
nearly 1% in 10 years.

< The Indian government plans to spend US$24 billion over the coming eight years on supply chain
infrastructure.

< The total warehousing capacity in the country was pegged at around 60 million MT in 2007,
of which the total storage capacity contributed by SWC and CWC collectively is 35.3 million MT
and FCI is 25.2 million MT.

< Third Party Logistics (3PL) Solutions is slated to grow at a compound annual growth
rate (CAGR) of over 16% from 2007-2010. Consequently, 3PL service providers
are expected to corner an increased share of the Indian logistics pie, from
6% in FY06 to 13% in FY11, at a CAGR of 25% (CII).

< The RREEF projects that the logistics sector will

add around 125 million sq ft by 2010, almost
the same amount in the development
pipeline as retail.

Colliers International - Logic of Logistics 09

 Organised logistics facilities are developing in the country
primarily in two forms- Logistics Parks and Free trade

Emerging
Warehousing Zones (FTWZ) apart from the individual
development of these premises. As per the approval details
from Central and State Governments, a number of

Logistics Logistics Parks and FTWZs are in their various

development stages albeit the infrastructure is not up to the

Hubs
desired level. To date, there are 12 FTWZs in the various
stages - in principle approval, notified and finally approved.
Southern region has maximum of 6 FTWZs followed by

in India Western and Northern regions with 4 and 2 such zones

respectively. More than 50 Logistics Parks are also in their
various phases of development across the country with
Western region at the top comprising approximately 20
such parks followed by Southern, Eastern and Northern
regions, respectively.

Northen Region
Gurgaon, Faridabad, Kundli, Kanpur
and Ghaziabad. Some of the emerging
locations are Jharsa, Bilaspur, Tawdu,
Sonipat and Panipat.

Eastern Region
Kolkata, Durgapur,
Western Region Muzzaffarpur-Hajipur
Mumbai, Pune, Nashik, Nagpur and Darjeeling.
Ahmedabad, Kandla Port, Bhavnagar,
Porbandar, Jaipur and Indore.

Southern Region
Chennai, Coimbatore, Madurai,
Hyderabad,Vishakhapatanam.
Vijaywada, Bangalore,
Mysore and Kochi.

"Mumbai, Chennai and Kolkata are the three prime cities that are considered as the hub of Logistics and Warehousing activities
due to the association of inherent advantage in the form of their location with respect to the major ports of the country."
Source : Colliers International India Research

Colliers International - Logic of Logistics 10

At the regional level, the Western and Southern regions of
the country are the home to a number of established and
emerging Logistics and Warehousing hubs. Cities such as More than
Pune, Hyderabad, Visakhapatanam, Nagpur and 50 Logistics
Ahmedabad are on the high growth trajectory path in
Parks are in their
developing the Logistics segment. However, cities in the
other two regions, Northern and Eastern, such as Gurgaon,
various phases of
Kanpur, Muzaffarpur, Durgapur and Jamshedpur among development across the
others are also gearing up to join this bandwagon in the country with the Western
near future.
region at the top comprising
Considering few of the prominent established or strongly
emerging Logistics locations in the country, Mumbai,
approximately 20 such
Chennai, Pune, Bangalore and a few small cities/towns of parks followed by
Haryana together among others are best suited case studies Southern, Eastern
with respect to the Logistics sector.
and Northern
region.

Pune, the other emerging location of the West, is primarily

driven by Auto and Pharma industries. Chakan, Wagholi
and Shikrapur are the three main destinations for Logistics/
Warehousing activities. The warehouses in these locations
fetch rentals anywhere between INR 8-25 per sq ft per
month depending on the type and location of the facility.
In the National Capital Region, few of the small cities/
towns of Haryana State collectively are emerging as the
prime locations for Logistics activities. Gurgaon, Manesar,
Kundli, Panipat, Sonipat, Faridabad, Rewari along with
In the Western India, Mumbai Metropolitan Region's some smaller towns such as Pataudi, Bilaspur and Tawdu
Thane, Bhiwandi, Wagle Estate, Ambernath, Taloja, are the few such locations. Owing to the high land costs in
Panvel, Rasayani and a few others are prime Logistics Delhi's Okhla area the warehousing facilities were not
locations. The key drivers in the region for this segment are feasible to continue over there hence a shift was seen
FMCG, Auto, Pharma and White Goods industries among towards these areas. The facilities available in these areas
others. Warehouses at Wagle Estate fetch the highest rental fetch rental and capital values in a very wide range on
values among other locations followed by Taloja and account of the location (new/existing) and infrastructure
Panvel; while the facilities at Rasayani and Bhiwandi could availability. For instance, the facility at Manesar would be
be taken at comparatively lower rental values. almost ten times costlier than that at Pataudi.

Colliers International - Logic of Logistics 11

Lower operational cost,
availability of land and low
cost of accommodation has
been the major attracting factors
for many domestic and multinational
companies to operate from Chennai.
The rentals for warehouses
in Chennai vary between
INR 16 -24 per square
feet per month.

Chennai is located on the coast of the Bay of Bengal and excellent accessibility to upcoming Industrial belts is
its Port handles a number of cargo viz., Iron ore, Coal, making Orgadam a favourable destination.
Granite, Fertilisers, Petroleum products, Automobiles, Bangalore, the heart of Indian Information Technology
Food items and several other general cargo items. Lower Industry, has put India on the world map of IT. The
operational cost, availability of land and low cost of contributions to the world of technology from "The
accommodation has been the major attracting factors for Electronic City" have become the benchmark in the
many domestic and multinational companies to operate industry. The Industrial area is spread around Tumkur
from the city. Chennai has all the ingredients needed for a Road, Old Madras Road, Hosur and Bidadi. Existing
successful logistic and warehousing location such as - land prominent logistics and warehousing location includes
is comparatively cheaper because of the availability of large Peenya, Dobbaspet, Doddaballapur and Neelmangala on
tracts of land, labour costs are cheaper by 20 to 30 percent Tumkur Road and Hosakote, Whitefield and Mahadevpura
compared to other mega cities, talent is available and at Old Madras Road. However, the area in the proximity of
attrition level is also low. The prominent logistic activities New International Airport such as Devanhalli at NH-7
in Chennai have taken place in and around areas such as (Bellary Road) is an upcoming logistics and warehousing
Sriperumbudur, Chromepet, Maraimalinagar, Manali, location. The rentals for warehouses in Bangalore vary
Madhavaram, Poonamalli among others. While some between INR 10-18 per sq ft per month. In Mahadevpura
other locations such as Singaperumal Kovil-Oragadam and Hoodi rentals are approx INR 12 per sq ft per month,
Road and Kancheepuram are the two upcoming locations Hoskote yields approx INR 10-11 per sq ft per month
for these activities. The close proximity to GST road and however Peenya and Nelamangla fetch the rentals in the
connectivity to NH 4, abundance of land options and range of INR 12-15 per sq ft per month.

Colliers International - Logic of Logistics 12

 Virar
Prime Industrial/Warehousing Panchkula

Bhiwandi Vasai
Locations In India Ambala Yamunanagar

Thane, Bhiwandi
Kalyan
Dombivali Kurukshetra
Mira Bhayandar
Wagle Thane
Kaithal
Panipat
Ambernath
Ambarnath
Sirsa Fatehabad Karnal
Kundli
Ulhasnagar
Taloja
Taloja Mumbai
Jind
Panipat
Suburban Navi
Mumbai Hisar
Sonipat Sonipat
Panvel Rohtak

Panvel, Mumbai Rohtak

Rasayani Karjat
JAMMU
&
KASHMIR
Bhiwani
Jhajjar
Jhajjar
Uran Khalapur

Khopoli HIMACHAL
PRADESH Rewari
Gurgaon
Faridabad
Gurgaon,
MUMBAI Pen
PUNJAB UTTARKHAND
Mahendragarh
Mewat
Manesar, Bilaspur
Alibag

SUBURBAN
HARYANA
SIKKIM
ARUNACHAL
PRADESH Faridabad
Rewari
UTTAR PRADESH
ASSAM NAGALAND
RAJASTHAN

BIHAR MEGHALAYA
MANIPUR

Ghatghar Otur
To Bote
GUJARAT MADHYA PRADESH
JHARKHAND
WEST
BENGAL
TRIPURA MIZORAM
HARYANA
THANE Junnar
Pur
Shivneri Aleo CHHATTISGARH
Ambegaon Ojhar Rajuri
Narayangaon
Belhe ORISSA
Bhimashankar Ghod Kalamb
Kurvandi Mancharo MAHARASHTRA
Wada

Chakan, Ambhu

Nethersole Dam
Rajgurunagar
Chas Ausari
Malegaon
S.S. Ghatti
Chik
Ballapur
TUMKUR Nandi Hills
Wagholi
Malthan
Karli
Takwa Pabal
Sirur Sidlaghatt
Wadgaon AHMADNAGAR ANDHRA
Chakan
Dod Ballapur
Lonavale Bedsa Talegaon PRADESH
Vijayapura

NH-7 (Bellary Road)

Bhaja Dabhade Shikrapur Khondhapuri
RAIGARH Koragaon Talegaon Thymagondal Devanhalli
Chinchvao
Kolvan Pimpri
Khadki Dodbele

Shikhrapur
Loni Kand Rahu Dobbasapete Gadigarpa
Devanhalli
Bhambourda
Waki Mandavgaon Pharata Dodjala
Paud PUNE
Mulshi
Hadapsar
Loni Kaibhor
KARNATAKA Shivganga Dasarahalli
Alandi Chorachi
Kharakvasla Alandi Kudur Nelamangala Yelahanka
Daund Solur
Dasave Malhargarh
Singhgarh
Sasvad Hoskote
Welhe Supa
Ravangaon

Old Madras Road

TAMIL NADU
Torna
Rajgarh
Purandhar Jejuri Morgaon
Bhigvan Malleswaram
Narsapur
KERALA Kodugad
Kumbhargaon
BANGALORE Devanakund

Hosakote, Whitefield
Shirwal
Lasurne
Magadi
Apli Bhor Wadgaon
Baramati
Ambaode Malegaon Nimbgaon Ketki
Vichitragarh To Surul Indapur To Tombhurni
Bidadi
and Mahadevapura
Sarjapur
SATARA PUNE Huliyurdurga Chandapura
Narsingpur

PUNE
SOLAPUR Baura
Ramanagaram Attibele Hosur
Byramangala
Bevooru Anekal
Harohalli
Kathivakkam Channapatna

Manali Honganuru
Kanakapura
Tumkur Road
Peenya, Dobaspet,
Thiruvottiyur Kodamballi Kadashivana

Pozhal
Halli
Pozhal Manali

Doddaballapur and
Sathnur
Madhavaram Halaguru
Malavalli
Madhavram Avadi
Ambathur Shimshapura
Mekedala Mullahalli

Sangam Nelamangala
CHENNAI
Poonamalli Poonamallee
Thiruverkadu
Madhuravoyal

Valasaravakkam

Sriperumbudur Alandur
BANGALORE
Anakaputhur
Chromepet Chromepet
Tambaram Pallavaram CHENNAI
Maraimalinagar Mambakkam Solinganallur
Semmaneherry

Source : Colliers International India Research

Location Zoning Land Rate INR Mn/Acre* Built Up Space

Rentals INR
Sq Ft/Month#
2006 2007 2008 Proj 2009 2008 Proj 2009

NCR - Manesar Industrial 32 45 60 60 16-20 16-20

NCR - Bhiwadi Industrial 15 2 30 30 10-12 8-10
NCR - Bilaspur-Tawdu Agricultural (Convertible to Industrial) 5 12 15 13 15-18 13-16
NCR - Sonepat Agricultural (Convertible to Industrial) 3 3 6 5 8-10 8-10
Chennai - Sriperambudur Agricultural (Convertible to Industrial) 6 9 12 9 20-24 18-22
Chennai - Red Hills-Madhavaram Agricultural (Convertible to Industrial) 5 8 12 10 16-20 14-18
Pune - Chakan Talegaon Agricultural (Convertible to Industrial) 9 12 14 12.5 20-28 18-25
Pune - Nagar Road Agricultural (Convertible to Industrial) 6 10 12 10 18-24 16-22
Bangalore - Nelamangala Agricultural (Convertible to Industrial) 6 8 12 10 8-12 08-12
Bangalore - Devenhalli Agricultural (Convertible to Industrial) 10 11 8 7 NA 15-25
Ahmedabad - Aslali Agricultural (Convertible to Industrial) 2.5 3.5 5 4 10-12 10-12
Hyderabad - Medchal Agricultural (Convertible to Industrial) 5 8 12 10 10-15 10-15
Mumbai - Ahmedabad Highway Agricultural (Urbanisable zone) 4 6.5 9 7.5 12-16 10-14
Mumbai - Bhiwandi Agricultural (Urbanisable zone) 5.5 7.5 10 9 16-20 14-18
Nagpur - Amravati Road Agricultural (Convertible to Industrial) 2 3.5 5 4 10-13 10-13
Nagpur - Vardha Road Agricultural (Convertible to Industrial) 3 5 7 6 12-15 12-15
Mumbai - Panvel Agricultural (Urbanisable zone) 7 12.5 17.5 13 18-22 16-20

Source : Colliers International India Research

Colliers International - Logic of Logistics 13

Warehousing
- An Integral Part
of Logistics

Colliers International - Logic of Logistics 14

Warehousing is an age-old concept used by almost all With the
manufacturers, importers, exporters, wholesalers, transport
modernisation
businesses, customs, etc. for storage purposes. With the
modernisation of the logistics supply chain, warehousing of the logistics
became a critical function and today, warehouses not only supply chain,
provide safe custody for goods, but also offer value-added
warehousing became a
services such as sorting, packing, blending and processing.
The key economic benefit of good warehousing is storage of
critical function and today,
excess stocks, which in turn results in regular supply and warehouses not only provide
prevents a supply-demand mismatch. In addition, they safe custody for goods, but
prevent the manufacturer from distress sale. However, most
also offer value-added
of these units do not provide state-of-the-art facilities and
infrastructure.
services such as
Warehousing, despite being the most critical element of sorting, packing,
the supply chain accounts for 9 percent of total logistics blending and
costs in the country and continues to face ignorance from
Indian logistics players. To date, in the absence of large
processing.
warehousing facilities, small warehousing units with the
primary function of storage are prevalent in India. There is
no system to measure the performance of these facilities,
although, in developed countries such as the US, there are
more than 20 parameters to measure a warehouse's
efficiency.

The current paucity of modern warehouses is resulting in

the colossal waste of farm produce, reckoned at between
20- 40 percent of the harvest, as well as a constraint on the
growth of futures trading in farm commodities. This
shortage shows that there is huge potential for a large
amount of quality warehousing space. With the rapid
growth of organised retail and industrial sectors, the need
for warehousing is increasing.
For instance, retail giants such as Wal-Mart, Carrefour and
Tesco are marking their entry into the Indian retail sector
with a major focus on wholesale trading as they have
entered the country via 100 percent FDI using Cash &
Carry route. Thus, their back-end operations specifically
warehousing will play a key role. In addition, ordinary
warehousing facilities will not serve their purpose and
hence the demand for warehouses with world-class
standards and specifications will rise.

Colliers International - Logic of Logistics 15

Where
We Are In
Terms of
Space
Creation

Warehousing is an integral part of the logistics industry and warehousing/storage capacities in the country.The
is mostly a disorganised business in India. According to the Government established Central and State Warehousing
KPMG-CII 2007 report, India has a total warehousing Corporations under the Warehousing Corporation Act,
space of approx 1,800 million sq ft, of which only 8 percent 1962. In addition, the MCX-owned National Bulk
(144 million sq ft) is in the organised sector. Until now, the Handling Corporation is becoming a serious player in the
public sector has played a prominent role in providing industry, followed by the NCDEX-managed National
warehousing facilities across the country as the Collateral Management Services. FCI manages storage
development of these facilities were considered very costly capacity of 25.2 million tonnes, while the CWC manages
due to high initial investment and low returns. Further, 10.3 million tonnes. The CWC also has a 50 per cent stake
there were very few growth drivers to generate lucrative in State warehousing corporations that manage 25 million
demand. Due to this, the private sector was not keen to tonnes. However, with the growing importance of
develop these facilities and hence, in order to cater warehouses in logistics, the Indian Government has also
demand from agro-based industries and others, the public taken various initiatives in the form of infrastructure
sector had to intervene in this segment. The organised development and investment in this specific component.
warehousing industry has been driven primarily by the The Government is emphasising construction and the
Government in the form of public sector units. Three renovation of rural godowns. Not only the Government,
public sector agencies the Central Warehousing but also banking institutions are slowly recognising the
Corporation (CWC), the Food Corporation of India (FCI) importance of this industry and have started giving credit
and State Warehousing Corporations (SWCs) are to warehouse receipt-based finance.
responsible for building and maintaining large-scale

Colliers International - Logic of Logistics 16

In order to encourage large warehousing facilities, the
Government has taken various measures, such as phasing
Warehousing is
out the Central Sales Tax (CST), incorporating Value
Added Tax (VAT), and creating free trade warehousing
mostly a disorganised
and logistics parks, among others. According to a recent business in India.
report by brokerage firm Macquarie Research, the Indian According to the KPMG-
Government has plans to spend US$24 billion over the
CII 2007 report, India has a
coming eight years on supply chain infrastructure.
Private investment in warehousing is currently limited to total warehousing space of
port areas. However, with the emergence of the 3PL approx1,800 million sq ft, of
industry, many international players have started taking an
which only 8 percent (144
interest in developing warehousing projects in India.
Various players, such as TATA, K. Raheja Corp and
million sq ft) is in the
Reliance among others are entering this sector aggressively. organised sector.
A few examples of which are as follows.
Tata Realty and Infrastructure Ltd (TRIL) has signed a
50:50 joint venture (JV) agreement with Jebel Ali Free
Zone (Jafza) International of Dubai to develop 27 business

pan-India level. The 50:50 JV aims to start developing

these facilities from West Bengal with an investment of
INR 2,300 Crore. After this, the JV plans to develop
facilities in Karnataka, Tamil Nadu and Maharashtra. The
company is planning to acquire land parcels of 50-140 acres
for proposed projects in cities such as Bangalore, Chennai,
Kolkata and Mumbai. For the development of facilities in
Kolkata, the company has also signed a Memorandum of
Understanding (MoU) with the West Bengal Industrial
Infrastructure Development Corporation (WBIIDC).
Allcargo Global Logistics is in line to make an investment
of INR 340 Crore to set up ten logistics parks across the
country. These parks are likely to be in cities such as
and logistics parks across India, with an estimated Mumbai, Hyderabad, Kolkata, Bangalore, Ahmedabad,
investment of INR 10,000 Crore. According to their plans, Nagpur and Delhi.
the parks will be developed on huge tracts of land and in Reliance Logistics Ltd (RLL) is planning to set up logistics
various phases, with each park likely to take six to seven parks in all its forthcoming SEZs in Navi Mumbai, Haryana
years to complete. K. Raheja Corp has joined hands with and Jamnagar, among others. The parks will serve the
the US-headquartered industrial real estate developer requirements of companies in the SEZ.
ProLogis to develop warehousing and infrastructure at the

Colliers International - Logic of Logistics 17

 There are basically two ways to fulfil the needs of
warehousing, first is to own a facility and the second is to
lease one. The choice of occupancy-ownership or leasing
depends on a number of parameters, such as cost of land,

Options type of lease, legal framework in the form of taxes,

Development Control Rules (DCRs) and other applicable

for Warehousing restrictions/ regulations.

One can own a warehouse in various ways, such as

Development purchasing build-to-suit (BTS) premises

development company or buying land and developing a
from a

Companies
warehousing facility. The preferred option prevailing in the
Indian market is to buy land and develop the facility as this
offers flexibility in operations and the freedom to develop
the facility according to one's own preferences. Secondly,
in a booming real estate industry, this method provides
higher yields in the long term due to the escalation in land
prices. However, this option suffers from the prime
challenge of acquisition of land and its consolidation.
Further, the ability to make a change in land use (if the
current use is not warehousing) is critical. Thus, to avoid
practical difficulties in land acquisition and development,
logistics companies have been forced to go for a
regional/national tie-up with developers that can bring
expertise in handling local issues.

Colliers International - Logic of Logistics 18

The long-term players are now starting to experiment with
vacant land, converting it into warehouses as this can The option
prove to be a cash cow over the long term, given the prevailing in the
booming logistics sector and the escalation in land prices
Indian market is to buy
over a period of time. Short-term players avoid this option
as the initial investment is very high and the payback
land and develop the
period is long. facility as this offers flexibility
Developing a BTS option for sale is not common among in operations and the
large real estate developers, although this option is
catching up fast among small developers. However, the
freedom to develop the
constraints with small developers are in the form of the size facility according to
of the facility. In anticipation of demand in the near future, one's own
this option might gain impetus among large players as well.
preferences.
In fact, this option is more favourable in a practical sense,
but unavailability is compelling logistics players to opt for
developing a warehouse from scratch.
OWNING
Location Identification

Forming JV/SPV With Land

Purchase of BTS Facility Purchase of Selected Land
Owner/Real Estate Developers

If land use other

Land Owner Real Estate
than industrial

The facility can be developed

CLU on Fixed Rent /Revenue Sharing/
Profit Sharing Basis

Construction of facility
if land use is industrial

PROS PROS PROS

1. Flexibility in Operations 1. Flexibility in Operations 1. Responsibility for land acquisition/
2. No worry for lease renewal/termination 2. No worry for lease renewal/termination consolidation and CLU, building license
3. Fetch higher yield over long term due to 3. Fetch higher yield over long term due to etc. will be with the other party
escalation in land prices escalation in land prices 2. Construction will be facilitated by the
4. Time saving as there is no need of land 4. Advantageous for large players with long developer in JV/SPV with realty player
consolidation term plans 3. Fetch higher yield over long term due to
CONS 5. Freedom to develop facility as per own escalation in land prices
1. High initial Investment preferences CONS
2. Difficulty in getting large size facility CONS 1. Choosing and convincing a reliable
3. Payback period is high 1. Prime challenge is to acquire and partner is a concern
consolidate the large land parcels 2. Difficult to form a SPV/JV until/unless
2. Land Use conversion is critical due to logistic player is big and reputed
uncertainty 3. Payback period is high
3. High Initial Investment
4. Payback period is high

Source : Colliers International India Research

Colliers International - Logic of Logistics 19

As with leasing option, The option to own a warehouse involves high initial
investment so a number of companies prefer to lease to
one can select either
meet their warehousing needs. As with leasing option, one
leasing a BTS premises can select either a BTS premises from a development
from a development company on a long-term lease or leasing land on a long-

company on a long-term term basis and develop a facility. However, the option to
lease land and build a facility is the least preferred option as
or lease land on the construction of a large facility for leasing is not feasible
long term basis in the Indian context and there are no assets remaining at

and develop the end of the lease period. Moreover, land consolidation
for lease is a difficult task, especially for small owners. This
a facility.
option is, however, feasible and advantageous for large
logistics players who want to set up large facilities with
lease terms of at least 15-30 years.

LEASING
Location Identification

Leasing BTS Facility Leasing Selected Land

Lease period
of 15-30 years

Construction of Facility

Own Contract

PROS PROS
1. Low initial Investment 1. Can develop facility as per requirement
2. Easy relocation 2. Low Maintenance Cost
3. Less liabilities 3. Incorporation of sophisticated
4. Lower Risk technologies
5. Infrastructure availability 4. Due to long term land lease no eviction
CONS worry
1. Condition of the facility CONS
2. Rentals might be high 1. Difficult to get land on long term lease
3. Size constraints due to non availability of specially from small land owners
bigger BTS facility 2. Land Consolidation problem
4. High maintenance cost 3. Construction ( limited/no expertise in
5. Absence of high-tech facilities construction)

Source : Colliers International India Research

Colliers International - Logic of Logistics 20

Location and physical infrastructure are the two main
components for making a warehousing facility successful.
In addition, resource availability complements the overall
development in a comprehensive manner.
Warehousing facilities should preferably be located close to
major roads, highways and bypass roads, and offer good Preconditions
connectivity to railway stations. Export/import-oriented
warehouses should be close to ports and airports. Approach
roads to the facility should be wide enough to
for Viability of
accommodate heavy vehicles, preferably at least 18 metres
wide. Along with this the land should have favourable
Warehousing
topography to support loading and unloading i.e the terrain
should be flat with minimal undulations. The facility does
not require a huge amount of labour but the required
manpower should be skilled and technically equipped. An
uninterrupted power supply is also required, with no or
minimal power shut downs. However, the other two key
components of physical infrastructure viz. water supply and
sewerage are not extensively required.

Colliers International - Logic of Logistics 21

 The viability of Logistics and Warehousing does not
depend only on location, infrastructure and resource
availability but also depends on other factors which are
beyond the control or influence of a business, but are very

PESTLE
important to be aware of before any strategic planning.
These include political, economical, social, technological,
legal and environmental (PESTLE) parameters. The

Analysis PESTLE analysis helps to evaluate the key political and

economic factors, the cultural aspects, the technological

of Logistics and
innovations, and the current and impending legislation
that may affect the industry.
Political - For any industry to flourish, the political climate

Warehousing plays an important and decisive role. Political support,

both from the Central and State Governments, is a critical

Sector factor for the logistics industry to grow. The following are
essential for boosting the development of the logistics
industry:
4 Stability of the Government, with no or minimal
uncertainty with respect to its existence.
4 Proactive approach of the Government in industrial and
retail development to give an impetus to the logistics
business.
4 Political will and a strong decision-making attitude.

POLITICAL ECONOMICAL SOCIAL TECHNOLOGY LEGAL ENVIRONMENT

Proactive and Progressive Prejudice and Adaption and User friendly Increased
reform based Indian reluctance acceptance of framework awareness
approach economy towards the new
economic technology
liberalization

"Certain States may not be very sound economically but the proactive attitude and political will of such States have shown
them the way to become the hub of Logisitcs activities in the near future."
Source : Colliers International India Research

Colliers International - Logic of Logistics 22

Economical - Strong economic backing leads to a rise in The PESTLE
interest and builds trust among domestic and international
analysis helps to
logistics players, encouraging them to be a part of the
economy as it provides: evaluate the key
4 Assurance to logistics players with respect to the political and economic
required infrastructure development.
factors, the cultural
4 Expectance of more fiscal incentives from states in
addition to from the Central Government.
aspects, the technological
4 Major physical infrastructure in the form of continuous innovations, and the
electricity supply. current and impending
legislation that
Social - The social strata of any particular area and the
flexibility of its denizens in adapting to new practices and
may affect
models help to attract domestic and international the industry.
companies. Similarly, the attitude of the people towards
new ideas of work also plays a major role.

Technology - Old technologies and methodologies are still

prevalent in India; however, tech-savvy states have the Window Clearance strategy are also enjoying an increased
advantage due to their technological advancement in the interest by logistics players.
form of GPS enactment. Zero wastage and zero error is only
possible if the supply chain is managed or equipped with Environment -
newer, high-end and user-friendly technologies, which are Environmental/Ecological issues
considered as the backbone of any system. 4 Hitherto, the logistics sector has not achieved the zero
waste fundamental, which means that a huge amount of
Legal - waste accumulates at the source or distribution centres,
Central Level (warehouses). These facilities in turn dump this waste,
4Incentives in the FTWZ in terms of FDI and other more often in a non-ecological/environmental manner.
tax-related incentives, similar to that in SEZs. Thus, logistics players with an eco-friendly attitude are
4CST - the waiver of Central Sales Tax (CST) has preferred by most states.
proved to be a critical decision in encouraging large 4 Environmental regulations - there are no strict or
warehousing units. This also promotes the 3PL model in uniform environment regulations across the country, which
the country. gives an undesirable benefit and liberty to many logistics
4Incorporation of Value Added Tax (VAT) has resulted players.
in greater transparency and less ambiguity in the system. Business environment
State/City Level 4 Management style - most logistics players, especially in
4Cities with favourable development control rules the unorganised segment, still practice the old business
(DCRs) especially in the form of higher FSIs, encourage model of in-sourcing. However, many of these players have
warehouse development. adopted the 3PL model, predominantly with the entry of a
4Similarly, the states/cities that have adopted a Single few international players and some domestic giants.

Colliers International - Logic of Logistics 23

 2. Infrastructure - although the Government is taking a

Challenges
number of steps to streamline the physical infrastructure
across the country, still the inadequate logistics
infrastructure is impeding the growth of this sector in

in the Indian India. Transportation woes are evident from the whopping
cost of transportation, which accounts for 40 per cent of

Market for
the total logistics cost. Various ports and air hubs do not
possess the desired state-of-the-art facilities and/or
technologies to meet world-class standards.

Investors 3. Unorganised sector - warehousing is predominantly a

ball game for small players in India, which leads to a
number of issues, such as the small capacity of these
facilities, poor handling and a lack of employment of newer
technologies. The supply chain in the country needs to
adopt the basic fundamental of zero error with minimal
wastage.
4. Inadequacy in the number of facilities available - the
sector is dominated by Government - owned bodies as
The Indian logistics sector is heading towards an era where private players were earlier shy of the sector as there were
it might enjoy magnificent growth in the near future if it is no short-term advantages associated with the development
able to meet the following challenges: of such facilities. Due to this, the facilities have not been
1. Land woes - this is the prime concern for logistics developed at the required pace causing a mismatch in the
players/developers looking to set up a warehousing facility current demand and supply.
in the country as it poses a variety of challenges, among 5. Unavailability of state-of-the-art warehouses - owing
them: to the dominance of disorganisation in the sector, high-
a. Availability of land in the required quantum coupled tech facilities are not readily available across the country.
with a lack of contiguity in parcels. In addition, there are very few cold storage spaces available
b. Prevailing land costs are very high for developing and this has become a major concern, especially for the
warehousing facilities: FMCG segment. The supply chain does not incorporate
4High prices for road-front land parcels. such advanced technologies as GPS/GIS, which are
4Low prices for internal parcels with the approach commonly used in other countries.
road narrower than 18 metres. 6. Taxation - there seems to be no link between the
c. Acquisition of land has become a major concern taxation policies of various states and it has become quite
because: difficult for logistics players to figure out these complicated
4Many states do not allow private companies to structures. However, with the Government's intervention
purchase agricultural land. in simplifying the taxation structure, some complications
4The procedure for the conversion of land use have been resolved, although many are still in limbo.
varies from state to state.
4Moreover, the conversion of another zone to an
industrial zone is also a tedious process.

Colliers International - Logic of Logistics 24

The improvement of the taxation system, infrastructure
and transparency in the system will pave the path of
success and bright future for the logistics and warehousing
sector. India will witness high-end logistics and
warehousing facilities in the near future. In the long run,
India's Industrial development will also expand immensely
with the provision of nuclear power and the assistance in
manufacturing capital from the USA. Currently nuclear
power in India supplies about 3 percent of India's
Conclusion
electricity which is expected to increase up to 25 percent of
the country's electricity by 2050. With the improvements
in infrastructure and manufacturing bases in various
sectors such as pharmaceuticals and computer hardware,
India could grow into a more competitive trading nation,
beating other countries such as China in supplying cheap
consumer goods to the US and Europe. This growth will
also show its positive impact on Industrial Real Estate
activities. Real Estate Developers can surely look at either
developing the warehousing on their own or preferably
form joint ventures with warehousing development and
management companies thus, drawing benefits from the the quality of everyday and value added services would set
each others strengths. The developers can either apart the developers from an unorganised set of
immediately deploy the land parcels originally warehousing companies. It is also essential to run a logistics
agglomerated for townships/integrated development park in an efficient manner in terms of having a prudent
complexes for logistics usage considering the ongoing tenant mix, monitor vacancies closely and develop a set of
sluggish phase in these asset classes or consolidate fresh loyal customers. Having a tie-up with a warehousing
parcels in known logistics corridors. It would ensure an management company can take care of these issues leaving
immediate and stable source of revenue from these the developers to concentrate on their core competence of
presently unviable land parcels and also offer the flexibility acquiring land and development permission and handling
of converting the land to a more profitable usage some local issues in day-to-day management. The warehousing
years later. and logistics sector has provided a worthy alternative for
However, the developers should stick to the ground rules developers looking forward to diversify but it is
which need to be followed in any other real estate asset. recommended that the developers do their homework
Location is the most important consideration along with properly and establish symbiotic relationships with leaders
the connectivity as the cost of warehousing is dependent in warehousing construction and management space.
on these factors. Commitments need to be strictly adhered Logistics and warehousing can support healthy growth of
to as the warehousing companies sign forward contracts retail and manufacturing in India, but it needs a set of
with their clients depending upon the date of delivery of developers with genuine interests and not those who are
ready-to-occupy space. Good quality of construction is a merely looking at it as an opportunity to enhance their
pre-requisite in today's competitive environment; however valuations.

Colliers International - Logic of Logistics 25

"The art of simplicity is a puzzle of complexity."
Doug Horton

The logistics industry is a collection of discrete,

interconnected businesses interacting with each other
within a single sector just as a three-dimensional logic
game where dissimilar and non-symmetrical block pieces
fit with each other to form a solid cube form. Each block,
each unit supports and depends on another.

The art of logistics is how to integrate the strategic,

operational, and tactical efforts of these businesses and
ensure that the right material reaches the right place at the
right time. Each line of business unit may be a player in
the broader market but together they assemble to form a
solid sector.

The resulting structure will be strong and hold its form

but in order to build a tower you need a solid foundation.
In this case Real Estate supports the core activities of
logistics. The sector builds, develops and unfolds from its
base, which is the land.

Colliers International - Logic of Logistics 26

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Author Sources

Surabhi Arora www.ciilogistics.com

Senior Manager, Research www.rreef.com
Tel : 91 11 2335 6620 www.inboundlogistics.com
Fax : 91 11 2335 6624 www.cewacor.nic.in
Email : [email protected] www.ftwz.com
Alankrita Pagare www.mapsofindia.com
Asst. Manager, Research India Logistics Outlook 2007
Tel : 91 11 2335 6620 "Skill gaps in the Indian Logistics Sector": A white paper by KPMG and CII
Fax : 91 11 2335 6624 Indian real estate- shifting gears - a report E&Y
Email : [email protected] Trade Logistics in the Global Economy - World Bank Report

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