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The Rise of In-City Warehousing & Industries Benefits

In-city Warehousing Solutions Horizon, Urban warehousing

Capitalising on Hyperlocal Consumption:

Consumer behavior is evolving, placing greater emphasis on last-mile connectivity, faster demand fulfillment, optimized inventory stocking, and value-added services. The expansion of omnichannel retailing and the growing category of pharma and D2C brands have created opportunities for warehouses to cater directly to end consumers. This shift has increased the scope for air cargo, cold-chain structures, and the development of multi-level structure warehouses within cities.

The Rise of In-City Warehousing:

Prior to the Covid-19 pandemic lockdown, e-commerce in India was still a fraction of the retail sector, with brick-and-mortar retailers still commanding 95% of the market share. According to the Economic Survey 2023, e-commerce order volume grew by 69.4 percent year on year in FY22 following global shutdown during Covid-19 pandemic. E-commerce companies face a pressing need for faster order fulfillments as 46% of Indian shoppers who order things online anticipate them to arrive within two hours. To meet the ever-increasing demand for same-day or next-day deliveries, traditional warehousing models located in distant industrial or rural areas faced significant challenges. In response, businesses started establishing urban fulfillment centers, strategically positioned to cater to major metropolitan markets. Leveraging the gig economy and innovative crowdsourced delivery services, this delivery paradigm has proven to be a lucrative logistics model. In this piece, we delve into the significance of in-city warehousing and its impact on various industries.

In-city Warehousing Solutions Horizon, Urban warehousing

Catering to Urban Consumers:

The urban population of India is anticipated to reach 67.54 crores in 2035, up from 48.31 crores, in 2020, according to The United Nations-Habitat’s World Cities Report 2022¹. With more than half of the country’s population living in cities, the demand for faster deliveries will only grow.

Quick commerce (Q commerce) has now become the new normal, driven by the urban consumer’s desire for instant gratification. This trend has given rise to the hub and spoke model of warehousing and logistics, with larger warehouses located on the outskirts of cities and smaller warehousing units inside the city forming the integral spokes. By storing smaller inventories and frequently replenishing stock from regional warehouses, in-city warehouses enable speedy and even ahead-of-time delivery of goods to urban consumers. In-city warehousing has the potential to transform the urban logistics landscape by offering improved responsiveness, cost savings, and enhanced customer experiences.

Industries Benefiting from In-City Warehousing:

Various other industries are also poised to reap the benefits of in-city warehousing models such as mini-warehouses, dark stores, micro-fulfillment centers, and ghost kitchens. According to the Alvarez and Marsal’s research report,2023 ², in terms of total space, the market size of in-city warehousing is expected to be approximately 17 Mn sqft by FY’26.

3PL players are considering in-city locations especially for multi-client warehousing for reducing shipping costs, optimizing order fulfillment time and improving returns processing.

To further enhance their operations, pharmaceutical companies are increasingly turning to in-city temperature-controlled warehousing facilities. These state-of-the-art storage facilities not only ensure the integrity and efficacy of drugs but also enable faster accessibility and value-added services to hospitals and healthcare institutions. By establishing temperature-controlled warehouses in urban areas, pharmaceutical companies can significantly improve accessibility and streamline distribution networks. Proximity to hospitals and healthcare institutions reduces transportation time, minimizing the risk of delays and ensuring prompt availability of critical drugs. Additionally, in-city warehousing enables efficient last-mile delivery, reducing lead times and enabling faster response to medical emergencies. This enhanced accessibility translates into improved patient care and better outcomes.

The online food delivery sector also drives the demand for cold storage facilities, being closer to the city center ensures that the goods do not go through multiple temperature cycles.

Micro fulfillment centers (MFCs) play a crucial role in the fast-moving consumer goods (FMCG) and direct-to-consumer (D2C) retail industry. These centers receive orders, consolidate packages, and deliver them to grocery outlets and Kirana stores within a quick turnaround time. This efficient order fulfillment process improves inventory management and reduces reliance on third-party distributors.

For hotels, restaurants, and catering businesses, central units located within cities enable large batch production and allow for temperature-controlled zones, expanding the business into packed goods delivery. With favorable guidelines from the Food Safety and Standards Authority of India (FSSAI), local players are scaling their operations across the country.

Challenges of In-City Warehousing:

While in-city warehousing presents numerous advantages, there are several challenges that businesses must navigate.

One major obstacle is the availability of reasonably sized and compliant property parcels at affordable prices. Land acquisition is a significant challenge, particularly when aggregating multiple small land parcels or buying large land parcels. Zoning laws also pose obstacles, as many existing regulations are not suitable for warehousing, limiting the availability of suitable locations and driving up costs. The cost of land and rentals in city cores can be high, requiring a thorough cost-benefit analysis. Additionally, the construction costs for multistoried structures and the need for high automation levels add complexity to the equation.

Overcoming these challenges requires maximizing storage capacity utilization, optimizing facility layout and design, and leveraging innovative automation solutions to enhance throughput and minimize handling costs.

In-city Warehousing Solutions Horizon, Urban warehousing

Government Support and Enhanced Connectivity:

Recognizing the importance of the warehousing sector, the government has taken steps to support its growth. Initiatives such as the implementation of Goods and Services Tax (GST) and allowing 100% Foreign Direct Investment (FDI) in warehousing have had a positive impact.

Infrastructure development has also played a vital role in propelling the warehousing industry forward. Upgraded highways, improved city roads, and expanded rail networks have enhanced connectivity and accelerated the transportation of goods. Special freight corridors are being constructed, enabling faster and more efficient movement of cargo. In-city warehouses have a strategic advantage with their proximity to national and state highways, as well as emergency services.

A single nodal agency facilitating land related approvals in a time-bound manner, which is one of the biggest challenges faced by the industry, can go a long way in ease of doing business for the industry. There also needs to be a separate Urban Logistics Policy for in-city storage needs.

In line with India’s commitment to sustainability and the adoption of electric vehicles (EVs), the development of EV infrastructure is a crucial factor in determining in-city warehouse locations. Factors such as charging stations, parking space, and battery swapping facilities will play a significant role in ensuring the timely delivery of goods from in-city warehouses to consumers. Industrial parks have the added advantage of providing the necessary space and infrastructure for EVs. Collaborative efforts between developers and tenants can result in solar-powered EV charging stations, further reducing the carbon footprint of the supply chain.

Conclusion:

In-city warehousing is revolutionizing the urban logistics landscape, enabling faster deliveries, cost savings, and enhanced customer experiences. By strategically locating distribution centers closer to urban areas, businesses can tap into the growing demand for quick commerce and streamline their supply chain networks. Although challenges exist, such as land availability and high costs; government support, infrastructure development, and a focus on sustainability are driving the growth of in-city warehousing in India. Various industries recognize the advantages of this model as a key driver of operational efficiencies in the future. To learn more about how the in-city warehouse model can benefit your business or industry, we invite you to book a site visit to Horizon Urban Logistics Parks in Delhi.