Storage and warehousing competency is the core enabler of an efficient logistics landscape. Trade globalization has immensely progressed through riding on an integrated global supply chain and logistics system which enabled global trade to reach around US$21 trillion.
The warehousing concept usually reminds us of the creation of granaries to store food during drought and famine. But with the gradual change in the form of businesses now a day, services expected from warehouse and distribution center operations is evolving.
Now, businesses demand greater visibility into:
- Improved productivity, channel expansion, and tailored services for customers
- Store the goods to meet the volatile market demand
- Provide shorter lead time
- Deployment of modern systems such as Warehouse Management Systems (WMS) and Transportation Management Systems (TMS)
- Globalized distribution centers
Due to the changing trends in the businesses, warehousing and distribution operations should adopt the emerging changes and growing needs of the customers. The term ‘Globalization’ brought rigorous changes in the field of logistics. Access to better logistics is imperative to attract investment in the industry and trade.
Accordingly, streamlining national logistic development mechanism is a must for developing countries characterized by low logistics performance and unreliable supply chains. Bangladesh has been overburdened with communication infrastructure challenges which are deterring the potential of logistic growth and cross border trade expansion.
Bangladesh, having been ranked 100 in Logistics Performance Index (LPI), is still struggling to improve the performance compared to neighbor India which ranked 44th and stood as the regional top. Bangladesh has witnessed a downward trend in four indicators that means a substantial decline in important avenues. Coming to customs criterion, Bangladesh saw a landslide to 120th position from the earlier 82nd.
In terms of infrastructure, we went 22 notches down reaching 109th from the earlier 87th. In the arranging shipping criterion, Bangladesh slipped by 15 notches to 99th. Lastly, in the quality of logistics services, we ranked 94th which was 80th earlier.
However, the only ray of hope is that we saw a slight improvement only in timeliness and tracking-cum-tracing indicators. However, an upward shift only in one indicator is not enough to ensure an all-out logistics development in our country until we properly underpin the changing dynamics of the logistics sector.
In recent years, the government has shown a focus to develop the integrated transport infrastructure for bringing efficiencies in supply chain and reduce transport time. These developments are likely to change the current structure of storage facilities too.
However, new investments for establishing state-of-the-art storage facilities along with appropriate policy initiatives are necessary for capturing emerging opportunities. It is worth mentioning that despite various limitations, our RMG industry has become the second largest in global RMG export market due to having a bonded warehouse facility.
The warehousing market in Bangladesh is largely fragmented and consisting of small-scale operations that are predominantly managed by end-user industries which are either owned or rented on long term lease. And, more than 95% of all warehouses (other than Government-owned) in Bangladesh are captive warehouses.
In the current scenario of Bangladesh, leasing model is competitive since it ensures greater capacity utilization of space, specialized offerings-led better services, intensive focus on core activities like product quality and delivery by manufacturers rather than non-core business besides better utilization of scarce land currently occupied by captive facilities.
However, ICDs storing EXIM goods for a very short period are seen following the leasing model though may not be charging rent to clients exclusively for storage. However, lack of awareness about the leasing concept, our nascent market, low rental and sky-rocketing land prices are some of the key bottlenecks for lower penetration of leasing business in our warehousing sector.
It is prevalent that manufacturing led to a demand for warehousing space is dominant in Bangladesh. However, provided the higher consumption demand from the emerging middle class in the country, consumption led to the demand for warehousing is forecast to show the strongest growth over the upcoming years.
The major end uses of warehousing space are the export-oriented manufacturing sectors such as Readymade garments, textiles, leather and leather products, etc. Amongst the sectors which are focused on the domestic market, FMCG and pharmaceutical firms are the prominent users of warehousing space.
Dhaka and Chattogram stand as the largest warehousing clusters because these two cities are:
- Major hubs of manufacturing units
- Origin of EXIM trade
- largest consumption centers of the country
Dhaka has evolved as a central warehousing hub of the country. Chattogram, being the gateway for international trade and accounting for 90 percent of export-import cargo, has become the most important center for EXIM based warehousing. These two clusters jointly occupy 70% of warehousing space.
However, various other regional warehousing clusters or distribution hubs such as Khulna, Barisal, Bogra, Rangpur, Cumilla have also emerged as storage destination primarily for catering domestic consumption market.
Poor transport road infrastructure, quick and efficient last mile connectivity, local partners’ preference for regional storage facilities, nature of the demand for products (say an emergency product like medicine), etc. have helped in proliferation of these regional clusters.
Demand for warehousing space
Our warehousing sector hovers around two basic demands:
Consumption-led demand: Consumption led demand is forecasted to show the strongest growth over the next 5 years. This will be driven by the higher consumption demand from the emerging middle class in the country which is expected to rise from 20 percent of the population (2016) to 33 percent by 2025.
EXIM led demand: Pertains to warehousing needed for export-import trade such as ICD/CFS, seaports, land ports and airports. In case additional infrastructure is not developed on priority, infrastructural challenges and capacity constraints especially at Chattogram port could pose as a major deterrent to service the future export – import led demand, which will impact the export competitiveness and the stature of the country as a preferred manufacturing destination.
To harness efficiency in cross-border trade, a demand-driven logistics competency comprising of state-of-the-art storage and warehousing facility is a must.
Given Bangladesh’s ratification of Trade Facilitation Agreement (TFA) under WTO, comprehensive development of overall supply chain management services is critical. WTO forecast that TFA implementation can increase exports from developing countries estimated between US$170 billion and US$730 billion, while that of developed economies between US$310 billion and US$580 billion a year.
The major logistics and warehousing challenges faced by export-oriented manufacturers are:
The Warehouse Ordinance Act 1959 which regulates the storage of agricultural commodities only. However, other policies pertaining to land use and infrastructure creation have an indirect bearing on the warehousing sector. The Land Use Policy 2001, National Integrated Multimodal Transport policy 2013, National Land Transport Policy 2004, National Economic Zone Act 2010 are few important regulations influencing the sector.
Congestion at Chattogram port and disintegrated regional connectivity.
Frequent Dhaka – Chattogram highway traffic congestion and limited Rail ICD facility.
Lack of commonly bonded warehousing.
Lack of warehousing facility at land ports (i.e. especially Benapole and other land ports. They use trucks for temporary storage.) and
Neglected inland water connectivity (Difficulty to use Rail ICD and Pangaon terminal due to capacity constraints as well as traffic congestion within Dhaka)
These challenges have an impact on the usage of warehousing space. For example, an imported raw material needed for production arrives later than scheduled due to delays at ports as well as unpredictable and high transit times.
On the other hand, pressure for maintaining production and shipping schedules forcing manufacturers to ship finished goods immediately after production. In this scenario, pre and post production storage of material is bare minimal in Bangladesh.
In order to address the pressing challenges encountered by stakeholders, a minimum 5% of GDP infrastructure investment needs to be ensured for inclusive logistic facility network facilitation involving private sector investment.
Thus, the cost of doing business will be under our grip which will help us reap more economic dividends in terms of attracting FDI, productivity at the economy of scale and relocating sunset industries.
The much-needed reforms:
Promotion and setting up of logistics and warehousing parks: New and modern warehousing infrastructure should be developed in line with other developing countries.
As the hub of storage and distribution, these integrated parks should have all logistics and warehousing activities such as warehousing, cold storage, availability of different transport modes, truck terminals, bulk cargo terminals, ICD/CFS, facilities for packaging, material handling and intermodal transfer, etc.
Allocation of areas exclusively for warehousing within industrial parks: Policy should be formulated to mark and keep aside areas exclusively for storage and other associated activities.
Minimum threshold limit for built-up and common area: To promote the development of modern and efficient warehousing facilities, only those facilities which meet the minimum threshold limit in terms of the built-up area besides maintaining ground coverage norm should encourage through various policy initiatives.
Revision in land zoning: Ensure allocation of dedicated land for industrial/warehousing activity under land zoning maps. Additionally, the allocation of land for warehousing in upcoming manufacturing and consumption clusters.
Development of transport infrastructure and warehousing services supporting EXIM trade: Government should invest in creating transport infrastructure that will improve regional connectivity and lead to gradual concentration of warehousing sector.
Regulation to allow common bonded warehousing: Regulatory measure should be taken to allow the creation of common bonded warehouses which will allow exporters to import raw material and create large inventories to address seasonal demands. Common bonded facilities will particularly help import intensive exporting sectors like apparel and textiles.
Since Bangladesh is at the critical juncture of inclusive trade and economic development momentum, the demand for a bespoke logistics facility is mounting. Additionally, the trend rapid transformation of SME into diversified businesses requires ensuring a bundle of logistics competence to help thrive and strengthen our trade landscape.
Moreover, where the whole world foresees Bangladesh becoming a developed economy by 2041, a greater leap forward in our logistics ecosystem is critical to calibrate our development visions in marking a real impact in the global level-playing field.
The write-up produced here is based largely on the findings from a comprehensive study on Warehousing sector commissioned by IFC, World Bank Group in association with Knight Frank, India.