New directions in Asia Pacific logistics and warehousing
The logistics and warehousing sector in Asia Pacific is undergoing significant changes with increased merger and acquisition activity, which has lead to better infrastructure creation.
The supply chain industry has emerged as the indomitable sector, with logistic services becoming critical to maintaining the flow of essentials goods while well-placed warehousing assets have become vital to enable hyper-efficient deliveries across locations. Logistics players across the Asia Pacific (“APAC”) have quickly integrated technology to enable monitoring and tracking requirements for predicting delivery timelines and enhanced customer experience.
The increased intra-APAC trade has driven economies in the region to adopt, survive and modernise their logistics infrastructure, which limited the volume de-growth by 4.2 per cent compared to 12.3 per cent and 9.0 per cent de-growth in trade volumes in East to Europe and East to North America routes in H1 2020. The APAC market is expected to recover faster and grow at a 6 per cent CAGR from 2021 to 2024.
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The logistics and warehousing sector is under-going significant changes with increased merger and acquisition activity, which has enabled plenty of liquidity and consolidation, leading to better infrastructure creation. Both innovation and sustainability have become the critical parameters for the business where transparency, lower turnaround times and efficiency in operations are in demand. These changes are pushing the industry to demarcate between solutions-oriented adopting technologies like artificial intelligence, block chain, big data, real time supply chain visibility and infrastructure intensive service providers adopting scale of services, sustainable funding, green technologies, etc.
The disruption is witnessed in the B2C segment due to the current pandemic that resulted in these solutions to enhance customer experience and satisfaction. In this background, the B2B segment has adopted strategies like the Internet of Things (IoT) that have had significant implications on 3PL and 4PL businesses that address B2C requirements where the last mile tie-ups are becoming critical.
While paradigms to logistics sectors are similar across APAC, the warehousing assets exhibit different behaviours. Traditional hubs like Singapore have seen the development of large modern warehouse clusters, while cities in India are typically fragmented and smaller in scale. However, the common thread is most warehousing hubs/clusters are associated with the large urban agglomerations and transport hubs.
The requirement to go hyperlocal by most businesses as they transition from brick and mortar sales to online sales is quick and has resulted in the focus of investments and infrastructure building in the outskirts of these key cities. However, the increased focus on the warehousing assets has resulted in significant supply that has resulted in an average vacancy of 14 per cent across APAC except for Australia, Japan, and Hong Kong, which have observed lower vacancy rates around 4 per cent to 6 per cent . Though the increased adoption of technology is pushing for modernization of warehouses, regions like Japan, Hong Kong, Philippine suffer due to lack of land greenfield assets, pricey land parcels, and requirement to redevelop existing assets.
The penetration of the warehousing space concerning the catchment it serves is indicated by the stock per capita, which is seen to be highest in Australia and India. At the same time, it is lowest in Japan and Hong Kong, where the issues of availability of land limit the supply possibility to the catchment. The challenge is addressed by vertical development in these regions where the average levels are between 4 and 15, while in places like India and Australia, it is one level.
The requirement to be closer to an urban agglomeration to service the catchment in China, India, and Australia usually escalate the costs limiting the scale of development where the floor plates’ size is between 8,000 sq.m and 17,000 sq.m and pushes the newer warehousing cluster further from the city. However, inversely in spite of the cost, the limited availability of land results in a larger covered area with vertical development in Singapore, Hong Kong, and Japan, resulting in plates of 20,000 sq.m and upwards.
These diverse trends require an improved understanding of inventory management and an effective logistics plan. Given that most large economies of the region are evolved markets, the rental yields are typically between 3 per cent and 5 per cent , while in India, the growth opportunity is higher with the yields between 7.5 per cent and 9.0 per cent resulting in concentrated investment into the sector, which has grown since 2017 and is expected to grow due to policy level and budgetary supports to the sector.
The challenges to the availability of space and capital-intensive assets are being addressed by adopting robotics and automation within the warehouses that enable vertical development with efficient storage and retrieval systems. Further, the high labour costs in places like Japan, Korea are being dealt efficiently by automation that seeks to address labour shortage and ageing workforce.
Integration of cloud-based systems with IOT for enabling customer-centric business model results in connecting the warehouse ecosystem across a city and enabling prompt responses by 3PL & 4PL players, ensuring larger sales in a shorter period of time India.
Pharmaceuticals, food, and beverages will lead the charge in the growth of cold storage, while e-commerce and manufacturing are expected to grow warehouses. Given that only 5 per cent to 10 per cent of the grade-A warehousing in APAC is actually used for cold storage, this is likely to be the sunrise segment where more investments will be funnelled further necessitated by the growing requirement to transport the prospective COVID vaccines as close as possible to the medical centres within urban agglomerations that will accelerate the requirements for refrigerated units for logistics providers and requirements of safety and hygiene will push for specialized storage units closer to medical centres, etc. across cities.
The evolving customers and businesses are pushing the sector into new directions where the changes are rapid, and the push to cost efficiencies is critical. Given that the customer loyalties are volatile, and the impact on retention costs and profitability is high, it is imperative that the sector continually evolves and becomes more customer-centric.
Ajay Sharma is the Managing Director of Valuations for Colliers,India.