What future holds for E commerce and logistics in India

The logistics sector in India has gone through a paradigm shift over the past decade. From an increasing number of policy incentives to tech-enhanced warehouses, the sector is now seeing a change in every aspect of its operation. The integration of retail and logistics real estate continues to unfold, with e-tailers looking for physical outlets and traditional retailers strengthening their online channels and restructuring their warehousing footprint. Stores are increasingly a means to attract and tie-in customers and to generate sales, both through store-based and online channels. Moreover, the rapid growth of the e-commerce sector coupled with the recent policy announcements have impacted sentiments with players across the board forced to have a relook at their operating models and expansion strategies. It thus, becomes imperative to take a closer look at the linkages between the two sectors and understand as to how the two most dynamic sectors in India are responding to changes – one: to changes in their own ecosystem and two: to the changes in the corresponding sector.

Warehouse leasing rise going forward will largely be driven by an anticipated rise in product sizes, continued demand from e-tailers, policy impetus to both sectors and higher demand from tier II cities. The trend for e-commerce to own and operate their own facilities will result in having more built to suit facilities and pure leasing will decline. As demand is expected to remain robust, supply needs to keep up pace to accommodate the significant increase in space take-up over the past couple of years. While majority of the sector is unorganised, however the entry of international players has resulted in the emergence of quality assets. while the overall supply (grade A and inferior grade) for the sector is expected to be around 60 million sq. ft. till 2020, at least 22 million sq. ft. of this supply is estimated to be in the grade A category, with supply infusion by leading players. Serious players with a long-term view would also eventually consider ‘green’ solutions or establishing logistics networks in an environment friendly way.

However, that the sectors will move beyond the obvious equation of supply and demand. As the sector evolves, we believe that many more variables would be added to this equation which would include modernization of supply chains, increased use of tech and AI, optimization of delivery networks and greater synergy between retail and logistics networks.

Evolution of Supply Chain

New digital technology is enabling more timely and transparent information flow among supply chain participants and is driving the evolution of supply chains from the current linear model to a responsive and dynamic ecosystem capable of catering to complex consumer demand while fulfilling various purposes. Next-generation supply chains will evolve from the current linear model to an ecosystem capable of fulfilling a multitude of business objectives.

Increase in the use of tech in the logistics and e-commerce sectors…

The industrial and Logistics sector, is likely to be revolutionized the most by five megatrends – the increased use of IoT, big data, robotics, automation and over the course of time, blockchain.This would also lead to the country eventually adopting 4PL processes of an entity’s entire supply chain, giving leeway for the country to even adopt 5PL processes in the foreseeable future.

Greater cooperation between E-commerce players

In the longer-term, the gradual normalisation of e-commerce growth in India and pressure on the profit margin of 3PL players for faster and cheaper delivery will result in the stabilisation of demand. Hence, in a bid to cut costs and enhance efficiencies, we may see interest of e-commerce players / retailers to share fulfilment centres. This may encourage the growth of small-scale warehouses, especially in close proximity to highly-populated residential catchments.

Optimized Delivery Networks

The growth of omnichannel retail will continue to drive additional warehouse demand from e-commerce platforms, retailers and third-party logistics (3PL) operators seeking greater access to more neighbourhoods. Urban distribution networks will need to be optimised for last-mile delivery to enhance delivery speed.

Greater synergy between last mile logistics and brick & mortar Stores

There will be closer integration of last-mile logistics and bricks-and mortar retailing as operators strive to improve efficiency. Many retailers are already strengthening their store-based fulfilment capacity to satisfy customer demand for faster delivery. Retailers would need to adopt a holistic approach towards omnichannel operations. Retail store networks and logistics operations should be viewed as one to ensure that consumer orders are fulfilled in the fastest and most efficient way.

Asset Enhancement and Redevelopment Opportunities

In order to meet the increasing demand for quality warehousing spaces, most of the grade B warehouses located in close proximity to leading cities would undergo redevelopments as per occupier specifications. This will provide dual benefits to both: developers - who can gain from the rental increase and occupiers who will gain from the improved infrastructure.

Conclusion

There is a bright future for the logistics and e-commerce sectors in the country. This is on the back of intrinsic strengths of India - the most important of which is the inherent consumer-demand led growth of both sectors and the continued willingness of all players to work together for creating cross industry efficiencies. It will be interesting to see how soon these sectors would reach their true potential and see heightened growth in the country.