Why Logistic Companies Need Their Own Warehousing Unit?

Logistic companies are investing in warehouses than leasing it out. The easy loan access and the improved infrastructure status is one of the reasons for having their own warehouses. It is said that an estimated $7 billion will be spent by logistic parks and fulfillment centers on warehousing in the next 4 years. Logistic companies in India follow asset-light model where warehouses are leased instead of being owned. The recent infrastructure status has encouraged logistic companies to have a mixed option of partly leased and partly owned warehouses.

The advantage of having infrastructure status helps in cutting red tapeism and speeds up regulatory processes by giving easy credit access. Recently the notification from the Department of Economic Affairs (DEA) broadened the scope for infrastructure sub sectors to logistics from transport. The notification explains that Multimodal Logistic Park containing Inland Container Depot (ICD) with an investment of Rs 50 crore with a minimum area of 10 acre. For instance a cold chain facility with an investment of Rs 15 crore and a warehousing facility of Rs 25 crore would be classified as logistics infrastructure.

Studies reveal that in the next 2-3 years India will see a supply of 220 to 250 million square feet adding up to the modern warehousing capacity to 400 to 450 million square feet in FY21. Inorder to achieve this, the sector will garner a capital of $6.5 to 7 billion with 40% institutional capital being positioned. This has given rise to competitive lending options. The easy access to funding will improve competitiveness in the logistics cost and will throw open options for potential lending in the market.

The good news is that warehousing companies in India will not build warehouses but they will get proposal from developers to construct it for them. Banks are concerned about the destabilization in the sector due to the compromise happening in selected sectors, NPAs hike, fraudulent reports and more. Yet the credit options are open.

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