Trends to look out for in Warehousing & Logistics industry in 2021: Abhishek Bhutani-C&W
--By Abhishek Bhutani, MD-Logistics & Industrial, Cushman & Wakefield
Warehousing is the nerve centre of the logistics industry. The industry creates time utility and bridges the time gap between the production and consumption of goods. Implementation of GST and enabling government policies had brought vibrancy to the sector and it was at its peak in 2019. The sector witnessed an absorption of about 35 million square feet in 2019 and was well poised to cross that mark in 2020.
But with the outbreak of COVID19, things changed at a sector and warehouse-level in a flash, and some organizations were left with excess inventory that they couldn’t ship out. Others were at a standstill as they waited to receive inventory at their depleted warehouses. Combining supply chain nightmares with unpredictable consumer behaviour, some industries saw unprecedented demand, while the others witnessed demand plummet, leaving warehouses in a bind.
In the current scenario, the supply chain has somewhat stabilized, and warehouses have made short term adjustments to meet customer demand as best as they can. Now, it’s time to start thinking long term and re organise the strategy for the future.
Following are a few trends and agenda items that are expected to dominate the discussions in the board rooms across companies -
A Third-party logistics to gain momentum
With the demand in various sectors getting back at pre-COVID19 levels, the production rates must increase to meet the growing demands. The companies are now focussing on core business products to regain economic dip and are preferring to outsource warehousing operations. This gives a huge opportunity to third-party logistics(3PL) companies that can provide them with complete logistics solution and the scale to grow. The uncertainty arising due to the Covid-19 pandemic and companies' ambition to focus on regaining the market will further push the development of the3PL segment.
Moving to 3PL/Outsourcing model also helps companies maintain “Asset Light” model. The opportunity cost of “Working Capital” being deployed to mainstream business avenue also helps in improving the overall profitability.
All in all – The trend of outsourcing will gain increasing prominence.
B Reorganization of warehouses
With the introduction of Goods and Services Tax (GST), the warehousing strategy changed, and warehouses were built on supply chain efficiency rather than the consideration to benefit from tax saving. Consequently, the trend moved towards consolidation to larger fulfilment centres from multiple smaller warehouses. Year 2019 saw companies spending substantial investment in defining the consolidation strategy and reworking their distribution models. But when COVID19 - crisis shook the world, dependency on one big warehouse didn’t work well for many companies. Metro cities were badly hit by the pandemic, warehouses had to remain shut for longer than expected and that in turn also hit the supplies to smaller towns.
Consequent to that clients are being more cautious on strategizing the consolidation as dependency on a single warehouse can expose their supply chain activity to a higher risk. It is anticipated that every key micro-location from a consumer perspective will be covered from more than one location, as a backup at least.
C Increased use of warehouse automation
Prior to the pandemic, the warehouses were labour intensive in nature and there wasn’t any need felt to innovate or adopt big technological changes. However, the social distancing, health and safety protocols brought to fore due to the pandemic are pushing warehouses to accelerate automation and decrease human dependency. Due to lockdowns, social distancing and COVID-19-related health and safety protocols, warehouses in the current times must find ways to operate seamlessly with reduced workforce. Physical distancing guidelines make it extremely difficult on warehouses to operate, which has a trickle-down effect on the entire supply chain. For example, manufacturers do not have the manpower to keep up with increased demand, resulting in out of stock products and shipping delays.
D Increase in Cold storage
Cold storage the oft neglected vertical within Logistics became the hero of the hour thanks to the pandemic, as more people turned to online grocery shopping. All food perishables and pharma have huge dependency of uninterrupted cold storage supply chain. One can expect to see a significant investment in this vertical in the coming days.
The increased demand of cold storages the sector should see much more development than ever before.
E Anticipated changes in Lease agreements
No one ever imagined the word “Pandemic” and its co relation to the “Force Majeure” clause in lease agreements before Covid -19 crisis came in.
The lockdown brought down the business activity significantly, that every paisa spent was under scrutiny. The pandemic had many firms invoking “force majeure”. While many other tried to work out a middle ground where occupiers were working to minimize the cost and warehouse owners needed the cash flow to continue. This will have a bearing on future draft of the terms of agreement between the two parties, especially in case of an unprecedented event, like the pandemic.
As we now settle into the ‘new normal’, the only thing certain is that nothing is certain. Companies will have to create layered back up plans. With an unpredictable future, warehouse and distribution centres will have to be designed in a manner that offers maximum adaptability and flexibility. Their focus will be on how to best utilize space and efficiently manage their biggest expenses as cost centres.