Abhijit Malkani
director of operations,
ProLogis India
Among the most troublesome aspects of India's supply chain is its warehousing industry. In many cases, what passes for distribution centers are merely aluminum sheds connected to dirt roads on the outskirts of industrial areas. The sector is in vital need of upgrade on both the physical side and the personnel side.
Help may be on the way, however. ProLogis, the world’s largest owner and operator of distribution facilities, has added India to the list of Asian countries where it operates. Via a joint venture with K. Raheja Corp., one of India's largest real estate developers, Denver-based ProLogis expects to develop 7.5 million square feet of distribution space throughout India at a cost of $575 million in the next three years.
Land has already been secured, or is in the process of being secured, in Pune, Bangalore, Chennai, Kolkata and Mumbai. ProLogis already has a template for success in Asia, having developed a huge network of warehousing and distribution space in China, as well as Japan. In September, Namaste spoke with Abhijit Malkani about where opportunities and pitfalls lie for the country's warehousing industry.
Namaste: For a shipper considering entry into the Indian market, what are some words of warning and some words of excitement about the warehousing situation in India?
Malkani: We are not related to the shipping industry and our comments should be provided in context with being a developer for the logistics and warehousing sector. As far as warnings, there could be regulatory issues with doing business in India. Also, there is competition from the domestic unorganized sector, which can offer cheaper services. The excitement comes from strong domestic growth and growth in international trade. There's growth in retail and manufacturing that's driving logistics and warehousing sector. There's also tremendous potential for growth as the warehousing industry is in a nascent, fragmented and unorganized stage.
Namaste: Interstate tariffs have, in the past, required companies to locate distribution centers, or “go-downs,” in every state to avoid cross-border duties. How does this affect the warehousing industry? And how will the go-down system evolve over the next few years?
Malkani: As of today there is a tax (central sales tax) involved every time goods are moved across the border from one state to another state. So manufacturers have storage facilities in each and every state rather than in a centralized location, which can service multiple states. With the phasing out of CST and implementation of value-added tax, it will be more efficient to have bigger centralized storage facilities. Go-downs are typically like large-size covered sheds that usually do not have mechanized material handling equipment. There is also no focus on value addition that can be possible in true warehouses.
Namaste: Is there a shortage of qualified warehousing personnel in India, and if so, what are the reasons behind the shortage?
Malkani: Yes, there is a shortage of qualified workers for the warehousing industry. As the sector is largely unorganized and fragmented there was no demand for skilled professionals in the sector. But as the logistics and warehousing sector has started growing, a number of institutions are looking at offering various courses aimed specifically at this sector.
Namaste: Land prices in India — particularly in the commercial sector — seem to be a bit high in terms of value-for-money. Is this something ProLogis is seeing, and going forward will prices rise or stabilize?
Malkani: Land prices as well as rentals in India in the commercial sector have always been high, particularly in the major metros like Mumbai, Delhi, Chennai, Bangalore and Kolkata. This is primarily due to strong demand. However, we anticipate that with the slowdown in the global economy, the market will stabilize.
Namaste: Is it hard to acquire land in the key places where warehousing space is needed?
Malkani: Yes, it is difficult to acquire land, especially for short-term requirements. Warehousing needs large land parcels. Additionally we have to look at the development rules applicable, like floor space index (a government calculation that limits the ratio of land a developer can build on), ground coverage, zoning, accessibility, etc.
Namaste: Do India’s relative shortcomings when it comes to road infrastructure inhibit warehousing capability, or does ProLogis merely focus on what goes on inside its facilities?
Malkani: It is essential to support the facility with strong infrastructure like good roads, connectivity to ports, and uninterrupted electricity. Positive and aggressive steps are being taken by the government to deal with upgrading the infrastructure. We believe, therefore, in providing a facility that is supported by equally strong and sound infrastructure.
Namaste: Is demand for warehousing space being driven primarily by exporters or by those looking to distribute domestically, and is ProLogis particularly targeting certain types of potential customers?
Malkani: As the industry is so far in a nascent stage and availability of quality warehousing space is low, warehousing space requirement is driven both for domestic distribution purposes and also for (export-oriented units). ProLogis is not targeting any particular segment.
Namaste: Geographically, what are the areas that are more in need of sophisticated warehousing space? Also, what are the areas that are already quite developed?
Malkani: Very few areas in the country have sophisticated warehousing. The major cities and industrial hubs and port locations would all need high quality warehousing.
Namaste: What expertise does ProLogis, as a global heavyweight in the warehousing sector, bring to India? How will foreign insight from companies like yours drive the sector forward?
Malkani: We bring strong customer relationships with major global customers. We also have vast development experience and expertise (in custom-built facilities). We bring a global reputation for quality and best practices in the industry. We also bring solid financial strength.