E-commerce demand for warehousing sees sharp decline

The e-commerce market in India has experienced exponential growth, but is facing a strong decline for warehousing space as companies look for greater process optimisation. Conversely, the slack is being taken up by 3PL players who have taken an all-time high share of 39%.

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The Indian e-commerce market size is valued at US$ 71.5 billion in 2022 and is expected to reach US$ 358 billion by 2028, exhibiting a growth rate (CAGR) of 30.2% during 2023-2028. Buoyed by the rise in demand from across segments of e-commerce, rising disposable incomes and initiatives to boost infrastructure, the warehousing sector remained relatively unscathed even in the midst of the pandemic and has shown accelerated growth since. 

PE investors, have put in around US$ 1.9 billion in 2022, with an average investment per deal of US$ 272 million according to India Warehousing Report 2023 by Property consultancy Knight Frank India. It remained the most lucrative sector for investments in the logistics space, even as other sectors faced a slowdown. due to uncertain international scenario as well as rising inflation and interest rates.

However, e-commerce companies have witnessed a sharp decline in demand for warehousing and logistics by 71% to 3.4 million sq. ft. in FY23.  According to the report, this is due to several factors including:


  • Better optimization of resources: Businesses are constantly seeking ways to optimize their operations. They are optimizing their supply chain and transportation, because of which warehouse capacity required is much lesser or used in a better way than it was done earlier from E-commerce.
  • Changes in taxation: A favourable regulatory environment, along with the government support through policy and reforms, has started to boost spending on infrastructure, and in turn, the overall demand for modern warehousing.
  • Automation: The use of automation in the warehousing and logistics industry is increasing. This means that fewer people are needed to perform these tasks, which led to a decrease in demand for warehousing and logistics services from E-commerce.
  • Time-taking process: The E-commerce process for warehousing and logistics is time-consuming and costly. Sellers are charged for storage, dispatch, and warehouse handling. If products don’t move quickly, additional charges accumulate. In some cases, products are returned, incurring further expenses. Within a few months, storage costs can reach around 2% of the product cost, much higher than if managed independently. This process consumes time and money.
  • Lack of expertise in logistics: E-commerce companies often rely on third-party logistics providers to optimize their warehousing and logistics operations, because they lack expertise in this area.
  • Shift in demand: There is a shift in demand from e-commerce warehouse services to directly opting for 3PL companies, private companies and might be operating their own warehouses.


The e-commerce industry has a bright future and will continue to be a viable option for businesses of all sizes. Rishi Singla, Director of Jhanu Logistics, highlighted in an interaction with IBT, “While the decline in demand from e-commerce companies may be observed among some larger players due to their high operational costs, there are still opportunities for growth in the e-commerce sector. Smaller e-commerce players and niche marketplaces are emerging and providing alternative platforms for businesses to sell their products. These new platforms cater to specific industries and offer different strategies and services, which can attract sellers looking for more cost-effective options.”

He further adds, “Although some businesses may choose to optimize their own warehouse services and utilize third-party logistics (3PL) providers instead of relying solely on e-commerce companies for their warehousing needs, it does not mean that they will stop selling on e-commerce platforms. These platforms continue to provide a valuable avenue for businesses to reach a wide customer base and offer convenience for consumers.”

Demand shift towards 3PL

The decline in demand from e-commerce was more than made by third-party logistics (3PL) companies, manufacturing and retail. This shift towards 3PL is driven by the desire for cost efficiency, scalability and flexibility, specialized services and access to advanced technology. By outsourcing logistics operations to experienced and specialized providers, businesses can enhance their supply chain capabilities and remain competitive in an evolving market.

The demand from 3PL companies rose by 34% in FY23 to 20.2 million sq. ft. and accounted for an all-time share of 39% of the warehousing and logistics space. The bulk of the space taken up in Mumbai is followed by NCR, according to the report. The consultancy said the e-commerce companies would take another nine to 15 months to utilize the excess capacity. This indicates an increasing focus on outsourcing logistics to warehousing operators as the industry is looking for flexibility and scalability. 

In today’s dynamic market, service providers must embrace change and innovation to meet evolving customer needs. It is crucial to constantly update offerings, adopt new technologies, and improve operational efficiency. The key lies in utilizing available resources effectively and thinking outside the box.

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