The rise of logistics and warehousing

The government’s incessant efforts to build multi-modal logistics parks across the country and grant ‘industry’ status to the logistics sector has boosted its efficiency by leaps and bounds.

Setting up of industrial corridors will promote the development of manufacturing clusters as they get connected to ports and consumption hubs via roads, railways and inland waterways.

Future economic activity is likely to be focused on these five emerging corridors — Delhi-Mumbai Industrial Corridor (DMIC), Chennai-Bengaluru Industrial Corridor (CBIC), Bengaluru-Mumbai Economic Corridor (BMEC), Vizag-Chennai Industrial Corridor (VCIC) and Amritsar-Kolkata Industrial Corridor (AKIC). With the logistics and warehousing sector gaining prominence, the spotlight is on Chennai that has emerged as a major logistics hub.

The city features prominently in the Logistics Park Policy launched in 2015 which aims to build 35 logistics parks across the country, of which six are to be made in Phase 1 of the project. Chennai is among the first six locations identified for this other than Delhi-NCR, Bengaluru, Vijaywada, Surat and Hyderabad.

Emergence as a logistics hub

Since Chennai has been one of the prominent hubs for trade and commerce in the country, it has evolved into one of the key manufacturing hubs, particularly automobile. Besides having major connectivity via roadways, Chennai is an active port city. This invariably has led to high demand for warehousing and logistics.

Demand for it in the city is no longer limited to the automobile sector and instead, e-commerce, manufacturing, and food processing companies are also driving the logistics industry. Infra upgrades, like the proposed Chennai-Maduravoyal port and accelerated completion of Outer Ring Road, are further driving up the stakes for Chennai’s logistics and warehousing sector.

Corridors of growth

Clusters like Sriperumbudur-Oragadam and NH 5-Periyapalayam that are located outside the city, have developed as warehousing and logistics corridors. North Chennai is one region that has witnessed a sharp growth in logistics and warehousing. The area’s economy is majorly driven by industrial and port-related activities due to the presence of two major ports — Chennai port and Ennore port as well as a private port in the vicinity, Adani Kattupalli port.

PE investment

Chennai’s emergence as a logistics and warehousing hub has caught the fancy of investors due to high volumes of exports and manufacturing services spread across the city. As per ANAROCK research, out of the total inflows of $1.2 bn in the logistics and warehousing sector across the country between 2017 and 2019, Chennai saw total inflows of nearly $220 million — second only to Bengaluru which saw investments to the tune of $225 million.

Future growth potential

Compared to developed economies, India’s logistics sector remains largely underleveraged due to the fragmented nature of the market. However, with initiatives like ‘Make in India’ pushing activity in the manufacturing, e-commerce and retail businesses, there will be more requirement for quality warehousing spaces. The rapid ramping up of e-commerce activity has also led to a rise in demand logistics and warehousing, in major cities including Chennai. To cater to this demand, most organised players and private equity funds are keen on investing further in developing the logistics and warehousing sector. The rollout of the National Logistics Policy by the Commerce Ministry will further increase warehousing capacity across cities and reduce transaction costs for traders.