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A Synthesis Paper on

“WAREHOUSING INDUSTRY IN INDIA AND ITS

SIGNIFICANCE”

SUBMITEED BY

Mr. SUDIP MITRA15PGDM53

SUBMITEED TO:

Mr. K. NARENDRAN Assistant Lecture (IIPM, Bangalore.)

INDIAN INSTITUTE OF PLANTATION MANAGEMENT, BANGALORE.(An Autonomous Organization Promoted by the Ministry of Commerce and Industry –

Govt. of India)Jnana Bharati Campus Malathalli Post

Bangalore 560 056

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Executive Summary

Warehousing plays a very vital role in promoting agriculture marketing, rural banking and

financing and ensuring Food Security in the county. It enables the markets to ease the pressure

during harvest season and to maintain uninterrupted supply of agricultural commodities during

off season. In a supply chain, warehousing function is very critical as it acts as a node in linking

the material flows between the supplier and customer. In today’s competitive market

environment companies are continuously forced to improve their warehousing operations. Many

companies have also customized their value proposition to increase their customer service levels,

which has led to changes in the role of warehouses. This paper highlights the findings of the

study carried out to evaluate performance levels and enhance productivity of the manual

warehouses by developing a WMS framework and cost benefit analysis. Warehouse Receipts

(WRS) are documents issued by warehouses to depositors against the commodities deposited in

the warehouses, for which the warehouse is the deposit bailee. This gives depositors the

confidence that their commodities will be stored with guaranteed quality and quantity. These are

negotiable instruments that can be traded, sold, exchanged, and used as collateral to support for

short term financing. The financial institutions, which accept warehouse receipts as collateral,

are able to reach a higher level of liquidity of the pledge because commodities always have clear

market prices and gain the right to claim the collateral before other creditors. The banks also

receive a higher level of protection of the collateral enforced both by the good management

practices of the licensed warehouse and the supervision of the regulatory agency.Indian

agriculture is at a crucial juncture with back-to-back droughts in 2014 and 2015. After growing

by just 0.2 per cent in financial year 2015, it is feared that agriculture sector will not grow more

than 2 per cent in financial year 2016; this is way below the desired 4 per cent levels. Around 14

crore households (more than in China) depend on agriculture. Investments in the agriculture

sector, share of which has stagnated at around 17 per cent of India's GDP, have come to a

standstill. We need fewer farmers producing more to feed India's increasing population. There is

an urgent need to modernise post-harvest management of farm produce with new technology and

scientific processes. And warehouse receipt finance is the answer to most of these daunting

questions.

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1.0) Introduction: Warehouses are an important part of any supply chain and logistics

industry. The Indian warehousing sector is progressively getting redefined from the

traditional concept of “Godowns” to modern day setups with automation. Warehousing

refers to the activities involving storage of goods on a large-scale in a systematic and

orderly manner and making them available conveniently when needed. In other words,

warehousing means holding or preserving goods in huge quantities from the time of their

purchase or production till their actual use or sale.

Warehousing is one of the important auxiliaries to trade. It creates time utility by bridging the

time gap between production and consumption of goods. The effective and efficient management

of any organization requires that all its constituent elements operate effectively and efficiently as

individual SBUs / facilities and together as an integrated whole corporate. Across the supply

chains, warehousing is an important element of activity in the distribution of goods, from raw

materials and work in progress through to finished products .It is integral part to the supply chain

network within which it operates and as such its roles and objectives should synchronize with the

objectives of the supply chain. It is not a ‘Stand-alone’ element of activity and it must not be a

weak link in the whole supply chain network.

Warehousing is costly in terms of human resources and of the facilities and equipment

required, and its performance will affect directly on overall supply chain performance.

Inadequate design or managing of warehouse systems will jeopardize the achievement

Of required customer service levels and the maintenance of stock integrity, and result in

Unnecessarily high costs. The recent trends and pressures on supply chain / logistics forever

increasing customer service levels, inventory optimization, time compression and cost

minimization have inevitably changed the structure of supply chains and the location and

working of warehouses within the supply chains network.

Warehousing is costly in terms of human resources and of the facilities and equipment

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required, and its performance will affect directly on overall supply chain performance.

Inadequate design or managing of warehouse systems will jeopardize the achievement

Of required customer service levels and the maintenance of stock integrity, and result in

Unnecessarily high costs.

The recent trends and pressures on supply chain / logistics forever increasing customer

Service levels, inventory optimization, time compression and cost minimization have

Inevitably changed the structure of supply chains and the location and working of

Warehouses within the supply chains network.

1.1) Objectives of the study

Explain the meaning of warehousing;

Recognize the need for warehousing;

Identify different types of warehouses;

Explain the characteristics of ideal warehouses;

Describe the functions of warehouses; and

Enlist the advantages of warehouses.

Current status of Indian warehouse management system

An overview on Collateral management service

An overview on Warehouse service provider in India

Future and prospect of warehouse management system in India

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2.0) Review of Literature:

About 80% handling and warehousing facilities are not mechanized and traditional manual

methods for loading, unloading and handling of foodgrains and other commodities are used.

However, the warehouses which are mechanized have just forklifts or hydraulic hand pallet

trucks. These numbers clearly indicate that there is an acute shortage of organized and good

quality warehousing and storage infrastructure in the country, for both, agricultural and non-

agricultural commodities. ( http://planningcommission.gov.in )

Lack of access to credit is a severe constraint for many farmers. A standard warehouse receipt is

Typically used only by traders in market places (mandis) and affluent farmers as a tool for

financing (Jindal, 2010). Warehouse receipt finance has thus become an exclusive product that is

perceived to be non-applicable to the small and marginal farmer. The same was experienced in

Zambia and Ghana (Onumah, 2003; Mor and Fernandes, 2009).

The study reveals that the facility of commodity finance is better than the traditional financing

facilities and farmers and agri firms who are availing this facility are overall satisfied with it as

they get 75% value of the commodity as finance. ( Babita Kumar, Gagandeep Banga ,Ajay

Jindal, “ Perception and Attitude of Farmers and Agri Firms Towards Commodity Finance”,

November, 2012)

For instance, a decade ago, loans worth only around Rs 5,000 crore were made to farmers against

warehouse receipts. Currently banking institutions have advances of around Rs 40,000 crore

against such receipts. While these numbers look smaller against the gross agri credit target of Rs

8,50,000 crore for the current fiscal, there is a tremendous scope for such financing in years to

come on the back of renewed attention of policy makers and changing agri dynamics in the

country. ( Amith Agarwal, “ Warehouse Receipt finance: A game changer in agri finance” ,

March 7, 2016 )

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ICICI Bank's Rural, Micro banking and Agribusiness group caters to the financial needs of those

involved in the commodities business, such as farmers, traders, processors and aggregations. A

credit line of up to Rs. 300 million is offered for agricultural operations with agricultural

commodities as securities, including those maintained in demat form ( www.icicibank.com).

Loan against Warehouse Receipts is basically a self-liquidating loan with the tenure of the loan

not exceeding 12 months (stipulated so as to guard against depletion in quality/valuation of the

underlying goods) and with security margin of up to 25-40%. This margin is taken to guard

against the “Market Risk” that the bank is subject to, due to unfavorable movement in the prices

of the underlying commodity. (Rahul Khetawat , “Agri Warehousing Sector in India” , July,

2010)

3.1) Need for Warehousing: Warehousing is necessary due to the following reasons.

(i) Seasonal Production-You know that agricultural commodities are harvested during

certain seasons, but their consumption or use takes place throughout the year.

Therefore, there is a need for proper storage or warehousing for these commodities,

from where they can be supplied as and when required

(ii) Seasonal Demand-There are certain goods, which are demanded seasonally, like

woolen garments in winters or umbrellas in the rainy season. The production of these

goods takes place throughout the year to meet the seasonal demand. So there is a need

to store these goods in a warehouse to make them available at the time of need.

(iii) Large-scale Production-In case of manufactured goods, now-a- day’s production

takes place to meet the existing as well as future demand of the products.

Manufacturers also produce goods in huge quantity to enjoy the benefits of large-

scale production, which is more economical. So the finished products, which are

produced on a large-scale, need to be stored properly till they are cleared by sales.

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(iv) Quick Supply- Both industrial as well as agricultural goods are produced at some

specific places but consumed throughout the country. Therefore, it is essential to

stock these goods near the place of consumption, so that without making any delay

these goods are made available to the consumers at the time of their need.

(v) Continuous Production-Continuous production of goods in factories requires adequate

supply of raw materials. So there is a need to keep sufficient quantity of stock of raw

material in the warehouse to ensure continuous production.

(vi) Price Stabilization-To maintain a reasonable level of the price of the goods in the

market there is a need to keep sufficient stock in the warehouses. Scarcity in supply

of goods may increase their price in the market. Again, excess production and supply

may also lead to fall in prices of the product by maintaining a balance of supply of

goods, warehousing leads to price stabilization.

3.2) Types of Warehouses:

After getting an idea about the need for warehousing, let us identify the different types of

warehouses. In order to meet their requirement various types of warehouses came into existence,

which may be classified as follows -

i) Private Warehouses

ii) Public Warehouses

iii) Goverment Warehouses

iv. Bonded Warehouses

v. Co-operative Warehouses

I. Private Warehouses -The warehouses which are owned and managed by the

manufacturers or traders to store, exclusively, their own stock of goods are known as

private warehouses. Generally these warehouses are constructed by the farmers near

their fields, by wholesalers and retailers near their business centres and by

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manufacturers near their factories. The design and the facilities provided therein are

according to the nature of products to be stored.

II. Public Warehouses -The warehouses which are run to store goods of the general

public are known as public warehouses. Anyone can store his goods in these

warehouses on payment of rent. An individual, a partnership firm or a company may

own these warehouses. To start such warehouses a license from the government is

required. The government also regulates the functions and operations of these

warehouses. Mostly these warehouses are used by manufacturers, wholesalers,

exporters, importers, government agencies, etc.

III. Government Warehouses-These warehouses are owned, managed and controlled by

central or state governments or public corporations or local authorities. Both

government and private enterprises may use these warehouses to store their goods.

Central Warehousing Corporation of India, State Warehousing Corporation and Food

Corporation of India are examples of agencies maintaining government warehouses.

IV. Bonded Warehouses-These warehouses are owned, managed and controlled by

government as well as private agencies. Private bonded warehouses have to obtain

license from the government. Bonded warehouses are used to store imported goods

for which import duty is yet to be paid. In case of imported goods the importers are

not allowed to take away the goods from the ports till such duty is paid. These

warehouses are generally owned by dock authorities and found near the ports.

3.3) Issues affecting Warehousing

Since warehouses, stores and distribution centers have to operate as essential

Component elements within supply chains network, key decisions when setting up such

Facilities must be determined by the overall supply chain strategies for service and cost.

The factors that should be considered include the following.

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3.3.1) Market and product base stability

Long –term market potential for growth and for how the product range may expand will

Influence decisions on the size and location of a warehouse facility, including space for

Prospective expansion. These considerations will also impact on the perceived need for

Potential flexibility, which in turn can influence decisions on the type of warehouse and

The level of technology to be used.

3.3.2) Type of materials to be handled:

Materials handled can include raw materials, WIP, OEM Auto spare parts, packaging

Materials and finished goods in a span of material types, sizes, weights, products lives

And other characteristics. The units to be handled can range from individual small items

Through carton boxes, special storage containers for liquids, drums, sacks, and

Palletized loads. Special requirements for temperature and humidity may also have to be

Met in the case of perishables and all of these will impact on the type of warehouses and

Technology level.

3.3.3) Warehouse Facility: type, size and location.

The type of operation, the design capacity and size of a warehouse and its location will

All be influenced if not directly determined by its exact role and position in the supply

Chain network, and the role, capacity and location of any other facilities in the supply

Chain. The customer base, level of inventory, the need for optimization of inventory, time

Compression in the supply chain and the overall customer service levels should also be

Considered when deciding on type, size and location. A further consideration here is

Whether the warehouse facility should be an own-account operation run by the company

Or outsourced and run by a 3PL.

3.3.4) Inventory and Inventory Location:

Within a supply chain network there is an issue not only of what materials to stock and in

What quantities, but also in what locations .Options can include distribution centers.

Devoted to specific markets or parts of the product range distribution centers dedicated

To serving specific geographic areas, or regional distribution centers that hold for example the

fast moving product lines, with the slower lines held only in a Regional distribution Centre

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(RDC). The option depends on such factors as customer base, product range and service levels

required. The options on the level of technology have already been noted, and the range can go

from very basic installations with high manual input and least mechanization to fully

Automated and robotic installations.

The decision can be influenced by

1 Company-wide strategic marketing or employment policies,

2 Financial considerations,

3 Ability to achieve specified degree of throughput, and

4 Required customer service level.

Other factors can include the need for flexible operation to meet important demand

fluctuations such as seasonal variations, and the perceived future stability and growth of

the market and product range. The level of technology adopted in any particular

application should be chosen because it almost nearly matches the given requirements

and objectives. It is not true that automation or similar technologies are accurate in every

case. It is true that good, probably computer-based, communication and information

systems are vital in every application, irrespective of the technology level.

3.3.5) Choice of Unit load:

The option of unit load or loads – pallets, roll or cage pallets, tote bins - will be

determined by the nature and characteristics of the materials passing through the supply

chain, and this clearly encompasses an enormously wide range of goods, unit quantities,

and pack types and sizes This may appear as a very important factor more subject to

basic operation than to strategic influences. However, within the warehouse it can

influence the option of handling equipment and the types of storage systems. In the wider context

it will affect transport operations in terms of vehicle loading and unloading

and vehicle utilization.

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4.0) Policies and Procedures

Policies

The policies contain hard and fast rules and regulations that define the general conduct of the

warehouse operation. Examples of the types of policies that organisations will define are as

follows:

organisational specific warehouse management policy and procedures guideline outline

health and safety

human resources management

security

pest control

warehouse maintenance and cleaning

quality control

record keeping and reporting

reverse logistics – Return of goods and exit strategy in the event of downscaling or

shutting down operations

disposal of obsolete and damaged goods.

Procedures

The procedures' document defines step by step how the activities in the warehouse should be

carried out and clearly defines the processes to be adopted. These can be adopted as ‘best

practice’.

The procedures provide visibility of the operations for managers and donors.

However, in creating such procedures, care must be taken to avoid constraining the use of local

initiative which might be required to deal with local conditions. Procedures should be considered

as streamlining the business processes and providing checks and balances. They provide

guidance to warehouse managers and must have some level of flexibility to cater to unique

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situations. This can be achieved by limiting the level of detail that the procedures document

defines, allowing more flexibility and/or by arranging ‘dispensations’ to allow departure from

the procedures in order to optimise local performance, especially in emergencies.

The procedures will normally provide the step by step guidance on how to manage each aspect of

warehousing and may cover:

receiving and issuing of supplies;

quality control or verification;

storage of goods;

how to control stock movement (stock control);

documentation flow;

how to detect and deal with stock losses;

how rejected material will be managed; and

how to deal with unwanted material, obsolete and scrap, disposal.

4.1) Types of Warehouse Space

Commercial: in rented building used for business.

Government or state: such as at the ports or harbours. This is common in emergency

situations.

Transit: for temporary storage of goods destined for different locations and need storage

for a very short time.

Bonded warehouses: for storage of goods whose duty is unpaid and especially where the

goods are destined to another country. Pre-positioned stock is often held in bonded

warehouses so that export is quick and can sometimes be stored for long periods.

Open storage: not ideal for perishable products but in emergencies, sometimes the only

alternative.

Space that is owned and managed by the organisation.

Pre-fabricated warehouses where there are no permanent structures available. This is

common practice in emergencies.

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4.2) Basic Principles of Warehouse and Inventory Management

Planning inbound receipt procedures.

Storage formalities e.g:

o location management

o inventory control

o occupational health and safety

Outbound delivery procedures.

4.3) How to Select and Set-Up a Warehouse

Determining Needs

In determining needs, one should look beyond the basic need of a warehouse to store things.

Whilst, this is correct there are also other considerations.

the volume of goods;

speed of through-put required;

as a transit point;

breaking bulk location;

an area for sorting and consolidating different goods;

to enhance the speed of the response;

to protect and account for inventor; and

as a buffer in the event of a break-down or delay in the supply pipeline.

4.4) Determining Storage Requirements

Selecting a Suitable Location

There are a range of factors to consider when deciding on the location of a new warehouse

facility and these may vary depending on whether you are selecting a location for a temporary

building or selecting from one of a number of existing buildings.

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These may include:

proximity to ports of entry and beneficiaries

existing buildings

security

the context

site condition

access

services

land size available

purpose of warehouse

previous use of the facility

floor weight

access to labour

Warehouse Selection

Factors to consider:

nature and characteristics of goods to be stored;

nature of handling equipment available;

duration of storage needed i.e. short term or long term;

the need for other activities, e.g. repackaging, labelling, kitting, etc;

access and parking for vehicles;

number of loading docks required; and

secure compound.

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4.5) Warehouse Preparation Planning

Space layout

The areas that should be planned are both the general storage areas and the areas for goods

receipt, consignment picking and goods dispatch. It is also desirable that space should be set

aside for the following activities:

equipment maintenance and parking;

charging of equipment batteries such as pallet trucks;

refuelling of trucks;

an area for garbage disposal e.g. empty packaging;

a quarantine area for keeping rejected goods, goods to be sent back or destroyed;

an employee rest area;

washroom; and

an administration office.

Planning

It is worth keeping these requirements in mind during the planning of the main operating areas.

Planning consideration needs to be given to the following:

allocate space for each type of product and locating number;

allow sufficient space for easy access to the stacks for inspecting, loading and unloading.

Stacks should be one meter from the walls and another meter between stacks;

sizing the goods receipt and despatch area;

allow space for storage of cleaning materials and supplies;

allocate areas for damaged items by consignment number;

allow sufficient space to repackage damaged items and place it in separate stacks;

sufficient free space is needed to operate a warehouse effectively. When planning the size

of a warehouse consider:

o planning on having about 70-80% utilisation of available space, whilst

considering:

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o throughput rate

o number of stock keeping units (SKU)

o handling characteristics of items, etc.

Special storage needs

Some relief items require special attention in terms of the type and security of the storage area.

For example:

Medical supplies and drug shipments can contain a large number of small, highly-valued

and, often, restricted items, many with a limited shelf-life. Thus, a secure area is required,

as well as judicious attention to expiry dates.

Hazardous products such as fuels, compressed gases, insecticides, alcohol, ether and

other flammable, toxic or corrosive substances must be stored separately, preferably in a

cool, secure shed in the compound but outside the main warehouse.

Antibiotics and vaccines may require temperature-controlled cold storage arrangements,

with sufficient capacity and a reliable, as well as a back-up, power source.

With combustible items, such as alcohol and ether, specific attention is required when

storing and handling. Inventory management techniques need to be implemented to

prevent wasteful surpluses and to ensure proper stock rotation to avoid costly losses due

to expired goods. Procedures for controlling, preserving and releasing medical supplies

and drugs should be established in consultation with the medical experts.

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Diagram 1: Space utilisation

As shown above, the warehouse operation is composed of four key work activities:

goods receipt

storage

picking

goods dispatch

To estimate the resource requirement for the whole warehouse, one should start by estimating the

requirements for each of the key work activities in turn and the level of demand. Then, the

resource requirements for all activities should be combined together, taking into account the way

that the activities are phased during the working day, in order to make an estimate of the total

resources required.

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4.6) Aspects to consider when managing Warehouse Operations

planning the workload

allocating resources

space utilization & handling, (see the diagram above):

o receiving goods;

o storing goods.

assembling consignments

despatching consignments

disposal of goods

pest control

security

inventory management

handling and stacking techniques

occupational health and safety

4.7) Managing Inventory Levels

It has been established that the role of inventory management is to ensure that stock is available

to meet the needs of the beneficiaries as and when required.

Inventory represents a large cost to the humanitarian supply chain. This is made up of the cost of

the inventory itself, plus the cost of transporting the goods, cost of managing the goods (labor,

fumigation, repackaging, etc) and keeping the goods in warehouses. The inventory manager's job

is to make inventory available at the lowest possible cost.

In order to achieve this, the inventory manager must ensure a balance between supply and

demand by establishing minimum holding stocks to cover lead-times. To achieve this, the

inventory manager must constantly liaise with the programs to keep abreast of changing needs

and priorities. The warehouse must always have sufficient stocks to cover the lead-time for

replacement stocks to avoid stock-outs.

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Inventory Control

There are two methods of inventory control that are applicable to emergency situations:

1. reorder level policy

2. reorder cycle policy.

Both are applicable to humanitarian situations and have associated pros and cons. Note that

economic order quantity (EOQ) in practice only works in a fairly stable environment where

demand variability and replenishment lead-time are reasonably stable and predictable. This is not

the case in an emergency. Economic order quantity is applicable in more stable environments

such as refugee camps and perhaps later in a relief/recovery phase.

Inventory management in an emergency is more ‘project based’, matching supply with demand

in a rapidly changing environment. This requires building a supply chain that has a high level of

flexibility and adaptability, with rapid identification of need and rapid fulfilment of that need

through the supply chain.

In managing this sort of system, inventory should be considered in relatively small quantities

(inventory packages of associated relief items) that are attached (pegged) to an identified need

then moved (and tracked) through from source to the identified need (the user).

Optimisation comes from having logistics systems that can configure, procure and consolidate

these packages quickly and a distribution chain that is flexible and can adapt to changing

requirements quickly and at least cost.

Information systems that facilitate transparency of the supply chain inventory levels, location,

and demand provide the necessary visibility to facilitate good planning and effective decisions

that maximise services and reduce costs.

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4.8) Stock control and movements

The warehouse/inventory manager is responsible for monitoring the movement of goods as they

are transported from the supplier and for the control of stock movement in the warehouse

facility.

The vital stock control measurements include:

Establish levels of operating stocks based on consumption/rate of usage. The stock levels

shall be reviewed from time to time depending on current needs. (See “Inventory control

above);

Ensure that weekly and monthly stock balances reports of each stock item and the total

value are prepared;

Maintain monthly stock usage report of each item kept in the store and the overall in the

usage trend in last six months;

Review and report on six monthly basis slow moving items indicating the last movement

date the unit value and total value and liaise with user department;

Establish quantity, lead -time and availability of each item supplied on the market;

Keep a record of all non- stock items received from suppliers, returned to suppliers and

issued out to users.

Monitoring Goods in Transit

order lead time

tracking orders for goods

controlling stock movements:

o establishing minimum stock levels and monitoring the same;

o goods receipt quality inspections;

o physical stock control in the warehouse;

o controlling Specialised Items; and

o releasing stock from storage and goods despatch.

To facilitate and account for movement of stocks the following documents could be used:

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delivery notes or waybill samples 1 and 2 or packing list samples 1 and 2;

goods received notes, see several samples 1, 2, 3, and 4;

stock card ;

bin card ; and

consignment notes .

See in the Annexes the warehouse flow chart.

Stock Records - Documentation

stock identification

stack cards, see samples 1 and 2

bin cards

stock Checks: see inventory section for different samples or in the Annexes

stock loss reporting

reporting of stock levels.

4.9) Resource Requirements

In addition to the work methods, equipment and space requirements it is essential that the

warehouse is adequately resourced. This is done by planning or estimating the requirements for

people and equipment in order to operate the warehouse facility.

There is a trade-off to be made between the people and handling equipment requirements for any

given workload.

In global warehouse operations, which are run like commercial operations, the focus is on

minimising the cost of running the operation. In this situation, it is often better to invest in

handling equipment and reduce the dependence on people resources.

However, in field operations, many humanitarian organisations prefer to hire local labor which

provides employment instead of relying on handling equipment.

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The requirement for the total amount of resources required will be determined by the amount of

goods flowing into and out of the warehouse, as shown in the diagram below.

Basic Warehouse Equipment

Various types of equipment are required to ensure the smooth execution of work in a warehouse.

All equipment should be properly stored when not in use and a regular maintenance schedule

posted. Warehouse staff should be trained in standard daily maintenance practices and the correct

use of equipment. Where necessary, they should be equipped with personal safety equipment

such as work gloves, work boots, goggles, etc.

Required equipment may include:

sufficient quantities of standard forms, calculators and stationery to keep proper storage

records;

small tools for opening cases, such as hammers, pliers, crowbars, steel cutters;

tools and materials for store repair and simple maintenance;

supplies for reconditioning damaged packaging, such as bags, needles, twine, oil

containers, stitching machine, strapping machine, adhesive tape and small containers or

cartons;

a sampling spear for inspecting foodstuffs;

scales for weighing goods;

standard wooden pallets in sufficient numbers – ideally international;

standardization organization’s “Euro” type (120 × 80cm);

two-wheel hand trolleys for moving supplies within the warehouse;

a pallet-jack to move pallets;

a forklift where pallets are to be loaded and offloaded from trucks;

brooms, dust pans, brushes, shovels, sieves, refuse bins for cleaning and disposing of

collected waste;

first aid kits, flashlights, fire extinguishers and other fire-fighting equipment both inside

and outside the warehouse;

weighing scales; and

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Care of Warehouse equipment

Warehouse equipment is maintained to prevent accidents and breakdowns from occurring.

Maintenance activities consist of inspections, regular servicing and monitoring performance for

failure trends, as this will enable symptoms to be recognised before failure occurs.

Equipment maintenance has a strong health and safety bias. Often health and safety legislation

will impose on management an obligation for safe systems of work. Ensuring safe policies and

procedures of work will require an examination of men, machinery, methods, materials and

environmental aspects.

Some areas to pay attention to:

planned maintenance

maintain equipment

maintain building

completion of maintenance records

4.10) Legal Considerations

Leasing Temporary Warehouses/Contracting.

The common practice in emergencies is to lease or rent, not purchase warehouses. In this

situation, there is often a shortage of suitable buildings or locations for warehouse space and this

can often cause the costs to increase significantly. Therefore, it is often necessary to utilise

temporary warehouse space for as short a time a possible.

Care must be taken with the drawing up of the lease agreement (See Warehouse Rental Contract

sample) with the owner. The following items are basic inclusions and in a lease agreement:

The cost for the lease;

The duration of the lease agreement;

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Exit clause: the period of notice required for terminating or extending the lease period.

Confirmation of the existence of property insurance, covering third-party, fire, water

damage, window breakage, etc;

Details of any security arrangements;

A detailed inventory of any equipment, fixtures and fitting included with the building and

detailed description of their condition;

Confirmation of either sole tenancy or details of other tenants;

Information about the ground or floor strength per square metre;

The weight capacity of any equipment such as forklifts, racks and shelves;

In situations where neutrality is important, care must be taken to establish the actual

owner of the building, which might be different from the ‘lessor’ of the building e.g. the

military, religious groups or government;

Force majeure;

Indemnity; and

Insurance.

5.0) Warehouse receipt finance in India: One of the important aspects of the Indian

commodity derivative market is the introduction of warehouse receipts (WRS) as an

alternative solution for market participants to access short-term finance. The concepts of

the WRS system is based on warehouse receipts which can be used as collateral for

accessing finance. The system is made more sophisticated by adopting measures such as

grading of commodities according to their quality, rating warehouses according to their

size, reputation and integrity etc. In India receipts issued by Central / State Warehouses

are accepted as collateral by banks however those issued by private warehouses are not.

Since farmers / traders will not deposit their goods with a warehouse whose receipts are

not financed by banks viability of the private warehouse is at stake. Hence there is scope

for expanding the warehousing infrastructure and also WRS system by making it

mandatory for the banks to endorse private WRS.

Warehouse Receipts (WRS) are documents issued by warehouses to depositors against

the commodities deposited in the warehouses, for which the warehouse is the deposit

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bailee. This gives depositors the confidence that their commodities will be stored with

guaranteed quality and quantity. These are negotiable instruments that can be traded,

sold, exchanged, and used as collateral to support for short term financing. The financial

institutions, which accept warehouse receipts as collateral, are able to reach a higher level

of liquidity of the pledge because commodities always have clear market prices and gain

the right to claim the collateral before other creditors. The banks also receive a higher

level of protection of the collateral enforced both by the good management practices of

the licensed warehouse and the supervision of the regulatory agency.

6.0) Financing against Warehouse Receipts in India

Financial accommodation against WRS is still not very popular in India although it is an

upward trend. Some of the difficulties faced by banks in popularizing financing against

Warehouse Receipts and their solutions as envisaged by them, are given below-

• WRS to be made transferable through endorsement under Sale of Goods Act. This will enable

the WRS holders to take delivery of the underlying goods on the same terms and conditions

as would have been to the person who had originally deposited the goods.

• Making WRS fully negotiable instrument, under Negotiable Instruments Act 1881, will

enhance liquidity of the product and help in mitigating counter-party default risk.

• Electronic maintenance of records of such WRS in a dematerialized form resolves the

problem of inadequate speed of transaction, splitting of Warehouse Receipts, forgery and

loss of receipts etc.

• For all types of lending to agriculture sector in general and financing against WRS in

particular the risk weight for the purpose of capital adequacy may initially be reduced to

the level of 75 percent from the current level of 100 percent.

• Difficulty in disposing of a security in case of default would be removed by creating a screen

based spot market along with uninterrupted clearing and settlement facilities.

• Receipts issued by Central / State Warehouses are financed by banks but those of Private

Warehouses are not freely financed by banks. Since farmers / traders will not deposit their

goods with a warehouse whose receipts are not financed by banks viability of the private

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warehouse is at stake. Hence it is necessary that private WRS should be endorsed by the

banking system.

• High margins, up to 40 percent stipulated by banks create liquidity problem for the farmers

who are therefore not very keen on obtaining finance by means of WRS. The margins

could be reduced to 10-20 percent if the issues regarding quality and grade and ease of

disposing the stocks in case of default as mentioned above are solved.

• Some state governments have introduced stamp duty on pledge / hypothecation which have

an adverse impact on the nascent WRS in India. Hence at this early stage of development,

WRS needs all the concessions from the

7.0) Current Status of Warehousing Capacity in India: The warehousing capacity

available in India, in public, cooperative and private sector is about 108.75 million MTs.

The warehousing capacity available in India, with various agencies/sectors is as follows:

S.No Name of the Organization /Sector Storage Capacity in Million MTs

1. Food Corporation of India (FCI) 32.05

2. Central Warehousing Corporation (CWC) 10.07

3. State Warehousing Corporations (SWCs) 21.29

4. State Civil Supplies 11.30

5. Cooperative Sector 15.07

6. Private Sector 18.9

Total 108.75 the storage capacity available with FCI and a part of the warehousing

capacity available with CWC and SWCs is used for the storage of foodgrains procured by

Government agencies for Central Pool. The storage space available in the country is not

sufficient to cater to the procured stocks. As a result, a substantial quantity of foodgrains

is stored in Cover and Plinth (CAP) Storage.

8.0) An overview of warehouse service provider in India :

CENTRAL WAREHOUSING CORPORATION: A premier Warehousing Agency in

India, established during 1957 providing logistics support to the agricultural sector, is one

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of the biggest public warehouse operators in the country offering logistics services to a

diverse group of clients.

CWC is operating 445 Warehouses across the country with a storage capacity of 10.26

million tonnes providing warehousing services for a wide range of products ranging from

agricultural produce to sophisticated industrial products.

Warehousing activities of CWC include foodgrain warehouses, industrial warehousing,

custom bonded warehouses, container freight stations, inland clearance depots and

aircargo complexes.

Apart from storage and handling, CWC also offers services in the area of clearing &

forwarding, handling & transporation, procurement & distribution, disinfestation

services, fumigation services and other ancillary activities.

CWC also offers consultancy services/ training for the construction of warehousing

infrastructure to different agencies.

NCML: The National Collateral Management Services Limited (NCML) is the country’s

leading organization providing a bouquet of commodity based services under a single

umbrella. Since its incorporation in 2004, NCML has empowered a multitude of

stakeholders in the commodity value chain in managing their risks. NCML is governed

by an independent and professional Board. The Company was promoted by NCDEX,

IFFCO, leading banks and reputed organizations. Fairfax India Holdings Corporation,

through its wholly-owned subsidiary FIH Mauritius Investments Ltd, has recently

completed acquisition of majority ownership interest and management control in National

Collateral Management Services Limited (NCML). Fairfax India is an investment

holding company whose objective is to achieve long-term capital appreciation, while

preserving capital, by investing in public and private equity securities and debt

instruments in India and Indian businesses or other businesses with customers, suppliers

or business primarily conducted in, or dependent on, India. Fairfax India, is a group

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Company of the Prem Watsa led Fairfax Financial Holdings which is based in Toronto,

Canada and is listed on the Toronto Exchange.

STAR- AGRI : Founded in 2006, StarAgri is one of Asia’s leading post harvest solutions

company with global ambitions. With an integrated agri-solutions strategy across the post

harvest needs of both producers and buyers, we leverage tie-ups with some of India’s leading

financial institutions to hold commodities worth INR 75 billion across over 200 collateral

management locations. Our unrivalled farmer reach, in-depth understanding of the agribusiness

and appreciation of the challenges facing the country’s rural sector have enabled us to grow into

one of India’s most preferred agribusiness service provider.

With a pan-India network of 800+ warehouses across 16 states and over 1.5 million tonnes of

warehousing capacity, StarAgri caters to customers ranging from banks to international bulk

commodity buyers, food, health & FMCG companies and commodity exchanges. We deliver

integrated post harvest solutions including warehousing, collateral financing, procurement and

value-added services to enhance efficiency across the entire food supply chain.

By creating a workplace that attracts the best professional talent, integrating risk management in

agri-credit and practicing global standards of governance, StarAgri aims to be the most respected

and inclusive agri-solutions company. Today, we have direct relationships with more than

100,000 farmers across India and aim to reach many more as we build global scale.

Collaborating with more farmers in more places than ever before, we will together address the

daunting challenge of food security for a growing world.

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9.0) Conclusion:

In view of the increase in the economic activities, it is essential to promote efficiency in

the warehousing sector with improvement in basic standards and operational procedures

for warehouses.Warehousing is a capital intensive sector and without availing finance

from banks and other financial institutions, warehousing facilities cannot be created by

the entrepreneurs. Besides, land requirements for construction of the warehouses are

difficult to meet now-a-days due to high cost of land. Although 100% FDI and some

benefits are allowed for the warehousing sector, there has been moderate growth in the

private warehousing sector. About 80% handling and warehousing facilities are not

mechanized and traditional manual methods for loading, unloading and handling of

foodgrains and other commodities are used. However, the warehouses which are

mechanized have just forklifts or hydraulic hand pallet trucks. These numbers clearly

indicate that there is an acute shortage of organized and good quality warehousing and

storage infrastructure in the country, for both, agricultural and non-agricultural

commodities.

Indian agriculture is at a crucial juncture with back-to-back droughts in 2014 and 2015.

After growing by just 0.2 per cent in financial year 2015, it is feared that agriculture

sector will not grow more than 2 per cent in financial year 2016; this is way below the

desired 4 per cent levels. Around 14 crore households (more than in China) depend on

agriculture. Investments in the agriculture sector, share of which has stagnated at around

17 per cent of India's GDP, have come to a standstill. We need fewer farmers producing

more to feed India's increasing population. There is an urgent need to modernise post-

harvest management of farm produce with new technology and scientific processes. And

warehouse receipt finance is the answer to most of these daunting questions.

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REFERENCES

[1] KPMG, “KBuzz Sector Insights”, Issue 16-April 2012

[2] KPMG, Transportation and Logistics, “Logistics Game Changer”.

[3] Netscribes, Netscribes’ Transportation and Logistics Series, “The

Warehousing Market – India Report” September 2012

[4] NDTV Profit, “GST decoded: Why Chidambaram has given Rs9000 crore to

states” March 1’ 2013.

[5] CA Sudhir Halakhandi, The Chartered Accountant, Journal of the Institute of

Chartered Accountants of India, “Budget 2007-2008”, volume 55, No. 10, April

2007, Page 1588.

[6] SMEONESTOP, “Factors contributing to the growth of Indian Logistics

Industry” 13th January’ 2013

[7] Siddharth Paradkar, TATA Strategic Management Group, “GST: An

Opportunity to reassess your Supply Chain”

[8] COGNIZANT, Cognizant 20-20 Insights, “India’s Goods and Service Tax:

the Case for Distribution Network Redesign” March 2012.

[9] John J. BARTHOLDI, III, Georgia Tech and Donald D. EISENSTEIN,

University of Chicago, “Bucket-brigade assembly lines” 1 January’ 2012.