The world market for material handling equipment and systems is projected to increase more than 5 per cent per year and exceed $120 billion (including price increases)
A recent study reveals that the Indian MHE industry is expected to grow steadily. The improvement in the Indian economy will result in accelerated demand for goods movement and create opportunities for suppliers of goods handling products and services of all types.
With the Prime Minister’s ambitious plan of “Make in India” taking root, the industry is expecting to see good growth in manufacturing and consequently in logistics and distribution activities for the next few years.
India is emerging as a key market for material handling equipment with a spurt in the number of warehouses and container freight stations.This will, in turn, boost the demand for MHE like forklifts, pallet trucks, stackers, order pickers and reach trucks.
The need for MHE is directly related to the amount of cargo and freight traffic. India will see a major pull in the demand for these equipments.With a wide production capacity base, India is perhaps the only developing country, which is totally self-reliant in such highly sophisticated equipment.
Warehousing Industry – Market Trends
Total warehousing space requirement in India expected to grow at a CAGR of 9% from 919 mn sq. ft. in 2014 to 1,439 mn sq. ft. by 2019.
- Manufacturing will continue to remain one of the biggest demand drivers of the warehousing sector with an annual requirement of 61 mn sq. ft. of incremental space between 2014 and 2019
- With the government’s renewed focus on incentivizing the manufacturing sector, the logistics market will reap the benefits in the coming years
- Investment in warehouse can provide an opportunity of realising returns in the range of 12%-20% per annum to investors willing to explore this sector
Logistic Industry – Market Trends
Logistics spend in India is 13% of GDP whereas globally it is in range of 9% to 10%.
- As India’s nominal GDP could grow from $1.8 trillion currently to $3.6 trillion by 2020, the overall export-import cargo at Indian ports is projected to increase to around 2,800 million metric tonnes (MMT) by 2020 from approximately 890 MMT now.
- India logistic industry accounts for 2% (100 billion US$) of 5000 billion US$ global logistics industry and expected to grow at 15% to 20% per annum reaching revenue of 280 billion US$ by 2016 according to Cushman & Wakefield.
- “India has the capacity of only 30 million tonnes of cold storage and it requires another 62 million tonnes,” the former bureaucrat said.
- Every retailer relies on strong logistics & warehousing infrastructure for success of his business. Robust growth in foreign trade, (Imports and Exports) demands availability of quality and timely logistics and warehousing services.
- The current economic loss due to poor logistics infrastructure is $45 billion, which is 4.3 per cent of the GDP and is expected to increase to $140 bn — over 5 per cent of the GDP by 2020.
- The contribution of ports situated in TN and West Bengal is set to increase significantly.
Overall, India is expecting a CAGR of 10 per cent in the period 2016 to 2020 in the material handling sector.Customers typically look at solutions to their material handling needs to transfer materials (mostly in pallets) from Point A to Point B. As the goods are mostly palletised, this leads to high productivity and reduces overall costs in the system.
Challenges in Material Handling Industry
One of the biggest challenges faced by the material handling industry is related to the plethora of taxes and duties across various states in India. Introduction of GST will be a game changer for this industry as it will enable the customers to consolidate and build warehouses and distribution centres where it makes economic sense rather than having them sub-optionally spread across various states.
Other challenges faced by MHE manufacturers in India are the sharp practices followed by some global players who avoid payment of taxes in India by utilising methods such as high sea sale, etc. This method enables the seller to sell the equipment in India in INR without paying VAT. At the same time, Indian manufacturers have to bear incidence of VAT on their sales, thus putting Indian manufacturers at a disadvantage vis-à-vis such imports. State Governments have to be vigilant to stop these kind of practices and only allow genuine cases to happen.
There is also discrimination by various states for manufacturing in India with the application of Entry Tax on goods manufactured in India. This Entry Tax is not applicable on products imported. All the above taxes on Indian manufacturers flies in the face of the Prime Minister’s ambitious “Make in India” initiative and needs to be addressed expeditiously.