Indian Logistics: Deciphering Storage Space Dynamics and More
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Indian Logistics: Deciphering Storage Space Dynamics and more... March 2018 Preface India’s logistics and warehousing sector is rapidly transitioning through a revolutionary phase. There have been multiple initiatives associated with large investments (both domestic & international) within this segment, clearly underscoring the upcoming trend. Of course, not to forget that India’s logistics industry was recently rewarded with Infrastructure status, thereby providing the impetus for added interest and therefore investments. As per the Fiscal Budget for 2018, there is a clear push for the logistics sector and an expected increase in investment of INR 5.97 trillion in creating and upgrading its infrastructure. With clear demarcations for cold storage and ICDs being established, other sectors are also under the scanner and their potentials are being analysed. While these are exciting times for the warehousing sector, there are other sub-sectors of storages that are undergoing a transformational change too. Through this incisive White Paper, we have tried to understand the current market dynamics of various storage spaces for different commodities across India, including - COLD CONTAINER AGRICULTURE LIQUID SPECIALIZED STORAGE STORAGE STORAGE STORAGE STORAGES WAREHOUSING This thought leadership piece also tries to provide an in-depth evaluation of the warehousing market across the top 8 cities. Whilst also examining the fact that the post GST era will see Tier II & III cities witness increased potential for logistics and ancillary services, this syndicated study also tries to appraise the investment proposition for each of the above sub-sectors. We hope you will find it an interesting read. Ramesh Nair CEO & Country Head JLL, India 1 Indian Logistics: Deciphering Storage Space Dynamics 2 Indian Logistics: Deciphering Storage Space Dynamics Storage Space Dynamics across India Agriculture Storage Total Installed capacity, Capacity in India, 2017 2017 131.8 21.0 Million MT Million TEUs AGRICULTURE STORAGE CONTAINER STORAGE Agriculture Storage area in Total throughput, India, 2017 2017 152.3 13.7 Million Sq Ft Million TEUs 3 Indian Logistics: Deciphering Storage Space Dynamics Throughput of liquid bulk cargo Cold Storage Capacity handled at major ports in 2017 in India, 2017 201.0 36.6 Million MT Million MT LIQUID STORAGE COLD STORAGE WAREHOUSE Cold Storage area in Warehousing Stock 2017 is India, 2017 139.8 42.3 Million Sq Ft Million Sq Ft for Grade A and Grade B in 8 Primary Locations in India 10% 8% Source: Central Bank Sri Lanka Report 4 Indian Logistics: Deciphering Storage Space Dynamics AGRICULTURE STORAGE Agricultural Warehousing involves storage of agricultural products such as food grains, cereals, oil seed, sugar, pulses, spices, fruits and vegetables, etc. SECTOR UPDATE IN INDIA Agriculture Storage Capacity 140.0 117.8 117.5 127.0 131.8 Agriculture Storage 120.0 Agriculture Storage Capacity in India, 20171 100.0 area in India, 20171 80.0 131.8Million MT 60.0 Million150 Sq Ft 40.0 Million Tonne 20.0 0.0 2014 2015 2016 2017 Agriculture Storage capacity in India is growing at 4% CAGR (2014-17) Source: Warehousing Development & Regulation Authority (WRDA)1 Agriculture Storage Capacity split across public and private sector 27% Almost 15% Private Sector 28% The remaining of the organised73% warehouse sector is being controlled by 12% 27% Government PSUs like Food of the warehouse Corporation Of India (FCI), capacity is held by Central Warehousing Corporation private sector and (CWCs) and State Warehousing 9% co-operatives. corporations (SWCs) 1 % 36% 73Public Sector Food Corporation of India (FCI) Central Warehouse Corporation(CWC) State Warehouse Corporation (SWC) Co-operatives Private Sector 1Source: Warehousing Development & Regulation Authority (WRDA), Annual Report 2015-16 ( http://wdra.nic.in/) and JLL Analysis 5 Indian Logistics: Deciphering Storage Space Dynamics Exports of Indian Hub of processed food agricultural products India is emerging as a sourcing Indian exports included hub for processed INR 187.91 billion worth foods thereby of agriculture products increasing the in Q1 FY17 2 requirement of agriculture storage GROWTH DRIVERS Fair price shop are slowly Union Budget 2018 has proposed diminishing, paving way expansion of warehouse depository and for the private players to specific exports and imports related enter this sector measures in the agriculture sector CHALLENGES Private sector is not getting Inefficient logistic competitive rentals as the government management offers storage spaces at low prices resulting in wastage 2% With advanced and developed MAJOR PLAYERS mechanism of agri-warehouses 21% the storage and process losses which are more than 60% of the 41% Post Harvest total share, can be minimized Losses 23% Transportation Loss Processing Losses Harvesting Losses Threshing Yards Loasses 13% Storage Losses 1Source: Warehousing Development & Regulation Authority (WRDA), Annual Report 2015-16 ( http://wdra.nic.in/ ) and JLL EXISTING DEMAND AND SUPPLY DEMAND SUPPLY DEMAND SUPPLY HIGH LOW STABLE INVESTMENT DYNAMICS INVESTMENT SHORT MEDIUM LONG TERM TERM TERM POSITIVE STABLE NEGATIVE 2 https://tradingeconomics.com/india/exports-of-agricultural-products 6 Indian Logistics: Deciphering Storage Space Dynamics COLD STORAGE Cold storages are climate controlled storages for keeping products at given temperature suiting product needs. These include commodities such as frozen food, pharma products, fruits and vegetables, etc. SECTOR UPDATE IN INDIA Cold Storage Capacity in India 40 31.8 32.8 34.9 36.6 35 Cold Storage Capacity in Cold Storage area in 30 India, 20173 India, 20173 25 20 36.6Million MT 15 60.0Million Sq Ft 10 5 Cold Storage Capacity MT) (Mn 0 2014 2015 2016 2017 Cold Storage capacity is growing at 5.0% CAGR (2014-17) 3Source: Ministry of Agriculture & Ministry of Food Processing Industries and JLL Total Cold Storage Capacity 100% % of 25the storage is used for storing multiple items This 25% storage Mild Chill (10-20 degree C) 25% Sub-tropical fruits, Dairy caters to storage of products, Chocolate, Seeds high value commodity and hence it has high Chill (0-10 degree C) 100% investment potential Fresh Fruits and Vegetables, Fresh meat, Total Cold Storage for private players due to the higher rental Fish, Dairy, Pharmaceutical % Capacity Frozen (below -0 degree C) of the75 storage is yield associated with it used for storing compared to government Frozen vegetables and fruit, public storages Other items like -ice-cream, horticulture butter, fish and meat products crops including 75% 1 potatoes Storage used for storing multiple items Storing horticulture crops including potatoes 3Source: JLL and Report on Cold Chain, 2015 and 2016 by Ministry of Agriculture & Ministry of Food Processing Industries (http://nccd.gov.in/Meetings.html) 7 Indian Logistics: Deciphering Storage Space Dynamics GROWTH DRIVERS Growth in FMCG sector of around 9.2% Growth in pharma sector India - 2nd largest producer CAGR (2011-2016) indicating higher of around 11% CAGR (2011- of Fruits and Vegetables in demand for food and grocery items 2017) also indicates increasing the world is growing at 12% which has cold storage requirement 4 demand for cold storage5 CAGR (2009-15)6 CHALLENGES Low supply of quality cold storage has lead pharmaceutical tenants to either use temperature controlled reefer containers for temporary storage or invest additional amounts in existing cold stores for improvements MAJOR PLAYERS High Operating Cost - USD 60 in India vs USD 30 in US as the energy consumption in India is higher as well as infrastructure is inadequate7 Infrastructural challenge needs to be dealt in such a way that the operational cost decreases and efficiency increases, in order to make this sector lucrative EXISTING DEMAND AND SUPPLY DEMAND SUPPLY DEMAND SUPPLY HIGH LOW STABLE INVESTMENT DYNAMICS INVESTMENT SHORT MEDIUM LONG TERM TERM TERM POSITIVE STABLE NEGATIVE 4 Indian FMCG Industry Analysis Report, IBEF, 2017 5 Indian Pharmaceutical Industry Analysis Report, IBEF, 2017 6 JLL; http://apeda.gov.in/apedawebsite/six_head_product/FFV.htm - APEDA ; http://www.freshfel.org/docs/FAQ/Fact_Sheet_-_world_production_2009_-_2013.pdf 7 http://indiacoldchainshow.com/retail-cold-chain-challenges-opportunities/ 8 Indian Logistics: Deciphering Storage Space Dynamics LIQUID STORAGE The liquid storage tank facilitates the storages of liquid bulk such as crude, petroleum products, chemical and edible oil. SECTOR UPDATE IN INDIA Ports & Refineries with liquid storage facility The liquid bulk cargo are currently handled across 23 ports and 21 refineries BHATINDA NUMALIGARH DIGBOI PANIPAT BONGAIGAON MATHURA GUWAHATI GUJARAT JAMNAGAR KANDLA BINA MUNDRA SIKKA BARAUNI BEDI DAHEJ HAZIRA KOLKATA PIPAVAV VADODARA HALDIA MUMBAI JNPT PARADIP VISAKHAPATNAM MORMUGAO TATIPAKA KAKINADA KRISHNAPATNAM KARWAR MANGALORE MAJOR PORTS ENNORE NON-MAJOR PORTS COCHIN CHENNAI REFINERY KARAIKAL VIZHINJAM TUTICORIN 9 Indian Logistics: Deciphering Storage Space Dynamics Throughput of liquid bulk cargo handled at Major Ports 250 Throughput of liquid 187 189 196 201 bulk cargo handled at CAGR is growing at 200 major ports in 2017 the rate of 201 150 3% Million MT 100 50 0 Traffic handeled Traffic tonnes)million (In 2014 2015 2016 2017 Source: JLL; Ports, IBEF Report 20171 GROWTH DRIVERS Rise in Development of infrastructure import and like Airport, Seaports and export of Freight Lines which would liquid bulk cargo increase POL consumption MAJOR PLAYERS CHALLENGES Constraint capacity