Starting Warehousing and Distribution Service

Entrepreneurs find that the warehouse and distribution service is a great way to conduct business. However, in order to start warehousing company, you would need a huge overhead account to buy warehouse property and facilities; people to work in the warehouse industry (most importantly, logistics officers to make sure that operations run as smoothly as possible and machineries to use.

Simply put, a warehouse is a commercial building for the storage of an assortment of goods.Customs, importers, exporters, manufacturers, transport businesses, and wholesalers use warehouses to store their products. For some entrepreneurs, the warehouse and distribution service is a great way to conduct business, and eventually proves to be a great investment.

Most of your overhead expenses will go into buying, constructing, renting or outfitting a building or several buildings for your use. A warehouse business will not be a warehouse unless there is that physical structure that can hold all the goods, or the “wares,” as they are called. Warehouses need not be acres wide, but spacious enough to hold whatever your customers would want. Some warehouses hold small products: microchips, auto spare parts, etc. Others hold larger products like luxury cars, boiler parts, etc. Some of your customers may be selling small products like light fixtures or bicycle parts, but needs warehousing storage for a huge supply of them.

It might be wise to accommodate customers whose products can fit into your warehouse. Don’t try to take in more than your actual warehouse can handle because it will only disrupt everyone’s operations, including your customers’.

Also, you should try to find your warehouse(s) location somewhere far from residential areas but near other industrial buildings, or at least, places where your customers can have easy access them. Warehouses are usually large plain buildings equipped with loading docks to load and unload trucks. Depending on what company you are servicing, you may want to find a location near airports, railways or seaports.

Warehouse and distribution companies need a lot of people to work within. Some people will have to be assigned to moving goods, receiving or distributing goods. Logistics officers are essential to this type of business, for they can make operations run as smoothly as possible. It would be unwise to think that only a few workers can make this type of business run without a glitch. Without logistic officers, you would have a difficult time accepting (or picking up) wares, placing them in storage, keeping track of orders for distribution, or releasing orders.

One marketing trend that is happening with great success is doubling warehouses as retail stores, with the larger orders on top of tall shelves and smaller bundles on the lower shelves for the walk-in consumers. Another marketing trend is more geared to Internet subscribers. Small orders are being shipped worldwide from various warehouses. Typically, a couple of companies would order large bulks of materials once per month. These days a large number of individuals and small scale business order smaller quantities of materials from warehouse distributors, but they order more frequently than the larger companies. Depending on how you wish to go about your business, you can either go for the typical supplier-warehouse-consumer deal, warehouse / retail outfit deal, or Internet based consumer distribution system.

In any case, all these involve setting up a distribution system: deliveries should be made either by boat, plane, train or by courier system. Your logistics officers should handle these flawlessly to ensure that deliveries are made on time, and without damage to the goods. It would also be prudent for you, as owner or manager of the warehouse business to get insurances for your company and your consumers, just in case things do not go according to plan.

Kharif sowing ends; total crop acreage down at 96.62 million hectare.last year

Sowing areas under pulses and oilseeds soared 80 per cent and about 430 per cent, respectively, more than last year’s as the southwest monsoon battered central and western parts of the country.
This year as per statement from the Department of Agriculture showed that pulses have been planted on 1.10 million hectares of land till Friday, against 0.61 million hectares during the corresponding period last year. Oilseeds have been planted on 2.78 million hectares, against 0.52 million hectares planted in the year-ago period.
Relatively high price of pulses, compared to other crops, also helped boost sowing. Total kharif area till Friday was 16.56 million hectares, 23.43 per cent more than the corresponding period last year.
The showers, which made a delayed entry into the country has covered the entire nation as of June 26, around a fortnight ahead of its scheduled date.
Data from the India Meteorological Department (IMD) showed that till Friday, the southwest monsoon was 27 per cent more than normal.

Last year position at the end of Aug was as below:-

with sowing of kharif crops almost completed, the total area planted to all summer crops including rice and pulses remains lower at 96.62 million hectare from the year-ago due to poor monsoon.
While sowing of pulses, oilseeds, coarse cereals, cotton, sugarcane and jute has completed, the planting of rice would end by next month
As per data released by the Agriculture Ministry, the total area under all kharif crops stands at 96.62 million hectare as compared to 99.9 million hectare in the kharif season last year.

Barring rice, sowing is almost completed in the kharif season. Rice and cotton area is higher than last year. The acreage under other crops is lower as compared to last year but still higher than normal area of last three years.

Some good spell of rains is required during vegetative and reproductions  stage of these crops, he said, adding that rainfall deficit has affected sowing operations this season.

Thanks to pick in up monsoon rains, area planted to rice has increased marginally to 35 million hectare from 34.97 million hectare, while cotton acreage has gone up to 12.25 million hectare from 11.16 million hectare in the review period.

However, area sown to pulses remained lower at 9.54 million hectare, compared to 10 million hectare a year-ago. Oilseeds acreage is down at 17.22 million hectare from 18.67 million hectare in the same period.

Lower acreage under pulses and oilseeds is a cause of concern as the country is heavily dependent on import of lentils and edible oils.

As per the data, area planted to coarse cereals is also lower at 17 million hectare, as against 19 million hectare in the year-ago period.

Sugarcane acreage is down at 4.71 million hectare from 5 million hectare in the review period.

Sowing of kharif crops begins with the onset of southwest monsoon from June, while harvesting commences from October.

                          India's kharif production for 2014-15

India's kharif production for 2014-15 was estimated at 120.27 million tonnes.
India's kharif foodgrains production for 2014-15 which is 8.97 million tonnes lower than the record production of 129.24 million tonnes achieved during Kharif 2013-14 mainly due to the delayed and deficient rainfall in different parts of the country.

The 1st Advance Estimates of Production of major Kharif Crops for 2014-15, released by the Department of Agriculture & Cooperation  said production of kharif rice was estimated at 88.02 million tonnes.This was lower by 3.67 million tonnes as compared to last year's record production of 91.69 million tonnes but higher by 1.34 million tonnes than its five-year average.

An official press release said delayed arrival of monsoon impacted sowing of jowar, bajra and maize in some major states such as Andhra Pradesh, Gujarat, Karnataka, Maharashtra and Rajasthan, leading to significant decline of 18.56 lakh hectares in the overall area under kharif coarse cereals than the last year.

The decline in area has adversely affected production of these crops, leading to a fall in the total production of kharif coarse cereals, which is estimated to be lower at 27.05 million tonnes as compared to 31.53 million tonnes during 2013-14.
The decline in area under tur and moong has also affected production of kharif pulses, which is estimated at 5.20 million tonnes as against their production of 6.02 million tonnes during kharif 2013-14
The assessment of production of different crops is based on the feedback received from states and validated with information available from other sources, the release said.

It said that, due to delayed and deficient rainfall, area coverage under most of the crops during current kharif season has declined. Erratic rainfall and dry spells in several parts of the country have also impacted productivity of crops.

"Due to lower area coverage and productivity, production of most of the crops is expected to be lower than their record production levels achieved during the last year. However, these are preliminary estimates and do not take into account the positive impact of rainfall of September 2014. Also, as per past experience, the first advance estimates reported by states are generally conservative and subsequently undergo upward revision," it said.

Among oilseeds, on account of decline in area and productivity in Gujarat, total production of groundnut in the country has suffered considerably and declined to 5.02 million tonnes as compared to its record production of 7.81 million tonnes during 2013-14.

Production of soybean estimated at 11.82 million tonnes is also marginally lower than the last year.
Due to setback in the production of these two major oilseeds, total production of kharif oilseeds is expected to decline to 19.66 million tonnes, 2.75 million tonnes lower than their record production of 22.41 million tonnes achieved during kharif 2013-14.
Production of sugarcane, estimated at 342.79 million tonnes, though lower by 7.23 million tonnes than the last year, is higher by 5.40 million tonnes than its average production.

Production of cotton has been estimated at 34.62 million bales

(of 170 kg each), lower by 1.97 million bales than itsrecord production of 36.59 million bales during 2013-14 but higher by 2.02 million bales than the average production. Production of jute estimated at 10.87 million bales (of 180 kg each) is also marginally lower than its last year’s production but higher than the average production of last five years.

There is a sharp decline in exports in the last six months, the Commerce Ministry is carrying out a detailed analysis of key sectors such as engineering goods, petroleum products, pharmaceuticals and gems and jewellery to evaluate reasons for the fall.

A Commerce Ministry official told BusinessLine: “We want to see if the factors that have led to the drop in export of identified items are all due to global forces that are beyond our control, or if there is a possibility of Government intervention to sort out certain issues.”

The Ministry wants to keep a tab on possible import restrictions that other countries may be putting in place, look at newer markets that are showing promise and identify specific domestic problems that certain exporters may be facing.

Exports have been falling since December and were down 20 per cent in May this year. Although part of the fall is due to a drop in petroleum exports because of falling oil prices, many significant items in the export basket have witnessed a decline or slowdown.

Exports in fiscal 2014-15 declined 1.23 per cent to $310.5 billion.

“If we look at details related to sub-categories within a sector and export destinations, some interesting facts come up,” the official said.

For instance, the engineering goods sector, which was driving overall export growth till some time ago, posted a 10 per cent fall in exports in May. Automobiles, which form a considerable part of engineering goods export, posted a small decline of 2 per cent, mostly because of a sharp increase in demand from Sri Lanka, and to some extent from the UAE, Italy and Spain. Demand in major destinations such as Mexico and the UK fell sharply.
The Government had announced export incentives under the new Foreign Trade Policy (FTP) in April and may not come up with another incentive package immediately.

However, it would continue to take measures to reduce transaction costs and time.

“The number of mandatory documents for exports and imports was recently brought down to three, from seven. The Directorate-General of Foreign Trade is working with the Customs Department to cut down on paper-work further,” he said.

Agri Warehousing in India

Indian economy is an agrarian economy with over 70% of the population engaged in activities related to agriculture. Indian food grain production has grown at an average rate of 1.20% over a period from 1994-95 with production of 192 million metric tonne (MMT) to an all time record output of 232 MMT in 2010-11 (15 years) and with the expectation of good monsoon in FY12 the uptrend is likely to continue. A major part of the food grain production consists of rice at about 94 MMT (41%) and wheat at about 82 MMT (35%). Further, production of Rabi and Kharif crops is now almost equal on account of growth in Rabi crop due to increased production of wheat, rice, cereals and pulses. All these taken together have drastically increased the need for storage capacity in India

Due to insufficiency of covered storage capacity of food grains, which was around 47.55 MMT as on March 31, 2000 and due to progressively increasing government stocks, considerable amount of food grains had to be stored under open Cover and Plinth (CAP) storage and to an extent in hired capacities, mainly during the year 2000 to 2003. But with the falling procurement levels between 2002-03 and 2006-07, the additional capacities hired by FCI during higher procurement levels in 2000-01 and 2001-02 had to be released due to idle capacities.

The years from 2007-08 to 2009-10, saw highest ever levels of procurement of food grains by Government agencies, resulting in severe strain on the available storage capacities. Higher minimum support price (MSP), better reach and consequent higher procurement helped ensure better and remunerative prices to farmers. However, it caused strain on available storage capacities with the State agencies involved in procurement.

Before 2000, private sector interest in warehousing industry was low due to its capital intensive nature and high uncertainty over revenue generation.

Bottlenecks

Even with significant development of storage capacity sanctioned under NABARD and NCDC schemes, it is estimated that around 20-30% of the total food grain harvest is wasted due to inadequate storage capacity, regional imbalance in warehouses, lack of adequate scientific storage and inefficient logistic management in the country. It is said that each grain bag is handled at least six times before it is finally opened for processing which leads to higher storage & transportation charges and also increases to wastage of food grain during transit & handling.

Further, the storage capacity available with State agencies are primarily used for keeping central stock of food grains for the buffer stock, public distribution systems and other Government schemes which co nsequently leaves only a marginal capacity for other players to store their produce.

Food grain (mainly wheat & rice) is the main commodity stored, while the other major crops storable in the godowns include oilseed, spices and cotton. Though the government has started focusing on building storage capacity through various schemes, the focus is still largely on the storage of wheat and rice which are considered as staple food in the country.
Also due to the existing regional imbalance the government’s capacity to procure produce is limited outside

Northwest India, which has recently led to fall in wheat prices and compelled the farmers to sell their produce below its MSP.
With all these issues, much needs to be done to built additional storage capacity, renovate existing warehouses and implement a robust system of NWR to make available more funds to farm producers and simultaneously provide security to the lenders.

Way ahead

1. Capacity of warehouses to be built:

Though the storage capacity has increased at a CAGR of 6.7% during the last decade till March 2010, the irony remains that around 20-30% of the total food grain harvest is wasted due to lack of availability of storage capacity, regional imbalance in warehouses, lack of adequate scientific storage and i nefficient logistic management in the country. Albeit, with adequate storage capacity in place, a normal handling loss of around 5-7% is expected to continue.

Two things needs to be addressed at this stage, 1) to build additional storage capacity and 2) upgrade the existing state owned warehouses. Most of the warehouses owned by state agencies are over 15-20 years old and hence the same needs upgradation to contain wastage levels. With present state owned capacity of 37 MMT and renovation cost of around Rs.1,000 per metric tonne, the total required capex is expected to be around Rs.37-40 bn.

In order to balance food grain production to consumption (for both Kharif and Rabi crops), a total peak storage capacity required works out to be around 70% of annual production. With annual food grain production of 232 MMT the required storage capacity is around 162 MMT which indicates a deficit storage capacity of 70 MMT at present levels. The same could be verified by taking base of wastage level. So with the wastage level of around 30% (with production level of 232 MMT), the deficit storage capacity works out to be around 70 MMT.

As per the recently sanctioned projects under NABARD for some private players rated by CARE, the construction cost for the modern warehouses was in the range of Rs.4,000-6,000 per metric tonne of capacity created and hence the total construction cost for building of 70 MMT storage capacity would be around Rs.350. Assuming that all the godowns are supported by capital subsidy the total capital subsidy outlay would be around Rs.84 bn. Further, considering wastage of around 70 MMT, the foodgrain loss is also to the tune of Rs.70-100 bn.

This indicates that the capital subsidy burden for new warehouses and for renovating the existing sta te owned warehouses would largely be compensated by the savings in food grain in two-three years. Hence, it makes sense to extend the Rural Godown Scheme beyond 2012 with more focus on building capacity in consumption centres as only 22% of the total storage capacity is available in the consumption states.

2.Need to focus on other commodities also

The major storage capacity of government agencies are occupied by wheat and rice which leads to acute shortage for storage capacity for other food grains and agri commodities. With production of 40 MMT of coarse cereals (bajri, jowar, corn, etc.), 16.51 MMT of pulses, 27.85 MMT of oilseeds, 336.7 MMT of sugarcane and 33.93 million bales (1 bale = 170 kg) of cotton more focus should also be given for efficient wareh ousing of such commodities to minimise wastage.

Over the years warehousing business has been transformed to a great extent from merely a storage infrastructure to a one stop shop for supply chain management through the entry of private sector. Nowadays the goods are stored as per the scientific methodology to protect them against the quantitative as well as qualitative losses occurring due to unavoidable circumstances such as floods, pest attacks, etc. Hence, ‘warehouse performance indicators’ should be introduced to check the efficiency of the warehouses which nwshould include quality parameters like ability to control wastage, pest control measures, provide wide range of testing, grading and certification services which can help in ascertaining the value of the commodity deposited and bring transparency among all interested entities.

3.More warehouses to issue NWR

Generally, at the time of harvesting, the price of agricultural commodities tends to be lower because of positive supply situation and farmers often do not get adequate price for their produce. By depositing their produce in a registered warehouse and obtaining NWR, farmers can use it as collateral for obtaining short-term borrowing for their working capital requirement for the current sowing season from banks. Further, when the prices become favourable, the farmer can sell the same, repay the loan and get a surplus income.

The introduction of NWR system in the country would not only help farmers to avail better credit facilities and avoid distress sale but would also safeguard financial institutions by mitigating risks inherent in credit extension to farmers. The pledging /collateralization of agricultural produce with a legal backing in the form of NWR would lead to increase in flow of credit to the rural areas, reduce the cost of credit (due to certainty of recovering credit by the bank) and would spur other related activities, like standardization, grading, packaging and insurance services in the agricultural sector. With the increased requirement of quality storage, warehousing industry would also get a boost in rural areas. This would also fill gaps in the logistic chain of agri-business in the rural sector.

Apart from individual farmers, cooperative societies and Self-Help Groups (SHGs) would also be able to assist their members particularly small and marginal farmers by aggregating their surplus produce and keeping the same in registered warehouses. An established NWR system would also act as an incentive for farmers to produce goods of quality and specification amenable to standardization and storage in registered warehouses.

Apart from all the infrastructure and subsidy support the farmer community need to be educated to form cooperatives and organise into larger bodies which would construct storage capacity and various production pockets. Further, such cooperative can negotiate with organised retail for selling their produce in bulk reducing the storage capacity and lesser movement of goods. In future, it may take shape in the form of contract farming for organized retail, which is presently being done mainly for fresh vegetables.

Dr Arora Warehousing & Logistics Solutions

Profile of Dr. N. K. Arora

Name:                                    Dr. Navneet Kumar Arora

                                                Director (Technical), WDRA, with a total of 35 years of

                                                experience in Warehousing.

Qualification:                       M.Sc, (Entomology), Ph.D. & Additional Specialisation in

                                                Pesticide residues by completing M.Sc. (SSAC205), Ag.

                                                Chem. from IARI, New Delhi.

                                                Post Graduation in Company Secretary from Pune

                                                University

Training:                               Gold Medallist in 52^nd All India Warehousing Training

                                                Course at New Delhi.

Past career:                         Started his career in CWC in 1982 and at worked various places in Rajasthan, Gujarat, Delhi and Head Office as  SAM (T) and left CWC to join Maharashtra State Warehousing Corporation, where he worked at senior level as Senior Manager (QC) and subsequently as GM (Business, QC, Training and HR).  He also held various portfolios of GM (Administration, GM (Finance) and Financial Advisor.

He worked as Deputy MD of MSWC with independent charge of whole Vidharbha in Maharashtra.  He also had worked as Secretary to the Board of MSWC for quite a long period.  He also worked as Joint MD and CMD of MSWC for many numbers of times for longer durations.