Indian Logistics Industry – Overview

   
Industry Snapshot
 
  • The Indian Logistics Industry is estimated at US$ 125 billion in 2010
  • Generated employment for 45 million people
  • The industry is expected to grow annually at the rate of 15- 20 per cent, reaching revenues of approximately $ 385bn by 2015.
  • Highly Unorganized with organized sector responsible only for 6%
  • Market share of organised logistics players is also expected to double to approximately 12 per cent by 2015
  • The size of the 3PL industry is estimated to be~US$1.5 bn in FY11 (1% of logisticscost).
  • The share of 3PL services is expected to increase from 6% in FY06 to 13% in FY11, at a CAGR of 25%
  • Logistics costs are 10-20% of GDP
  • Indian Infrastructure is rated 54th among the 59 countries -- Road : 56/59, Rail: 25/59, Seaport: 51/59, Airport: 40/59
  
Several factors helped the growth of logistics industry in India over the decade that includes changing tax system, rapid growth in industries such as automobile, pharmaceuticals, FMCG and retail. However, major sectors that are investing huge amounts in logistics industry are aviation, metal & mining and consumer durables. With increasing competition and cost, focus on outsourcing, entry of foreign players is having positive impact on the industry. Three major contributors for the growth of the logistic industry are: emergence of organized retail, increase in foreign trade and India becoming soon the manufacturing hub.
 
As per the World Bank’s Logistics Performance Index 2010, India is placed at 47th position out of 155 countries.

Logistics Performance Index:
 
 
 
 
Score
 
 
Rank
 
Overall LPI
 
3.12
 
47
 
Customs
 
2.70
 
52
 
Infrastructure
 
2.91
 
47
 
International Shipments
 
3.13
 
46
 
Logistics competence
 
3.16
 
40
 
Tracking & tracing
 
3.14
 
52
 
Timeliness
 
3.61
 
56
 
Source: World Bank 2010
 
To improve infrastructure facilities and in turn the logistics industry government implemented several projects such as golden quadrilateral project, east-west and north-south corridors (connecting four major metros), Free Trade and Warehousing Zones (FTWZ) and private participation in the sector.

The logistics cost in India – which includes inventory holding, transportation, warehousing, packaging, losses and related administration costs – is estimated at approximately 13 per cent of GDP and is high when compared to the corresponding figures for major economies. India's multi-layered tax regime, infrastructure bottlenecks and other inefficiencies have been the primary reasons in keeping logistics costs high in India.
 
Elements of Logistics cost
• Transportation 35%
• Inventories 25%
• Losses 14%
• Packaging 11%
• Handling and Warehousing 9%
 
Share of logistics cost in total sale for various industries
 
 
 
Name of industry
 
 
% share of logistic cost in total sales
 
Cement
 
15%
 
Steel
 
6%
 
F&B
 
5%
 
FMCG
 
4%
 
Durables
 
4%
 
Apparel
 
3%
 
Auto
 
3%
 
Industry trends:
 
Transportation: Container cargo represents only about 30% (by value) of India's external trade-much lower when compared with the global containerized cargo average of 70-75%. At a growth rate of 12%, India's container cargo traffic is estimated to reach 15 million TEUs by FY16E from about 7.5 million TEUs now (at 12 major ports). In comparison, China has created capacity at its ports to handle more than 100 million TEUs a year. Out of the 15 mn TEUs of total container traffic, we estimate Exim rail container traffic to be 5 mn TEUs by FY16E. This would be a huge opportunity and will significantly benefit container rail operators.
 
Rising investment in the rail and port spaces also fuels growth in allied industries like wagon manufacturing, port handling equipment, railway electrification systems and construction companies.
 
To reduce the transportation cost and for quicker movement of cargo Multimodal transport operation is introduced (MTO). MTO helps exporters with less documentation for instance single document for all modes of transport.
 


Third Party Logistics (3PL): Outsourcing is everywhere. Logistics industry is no exception. Logistics services like transportation, warehousing, cross docking, Inventory management, packaging and freight forwarding all are part of third party logistic services. Companies in India currently outsource an estimated of 52% of logistics. And 3PL industry is estimated to be US$ 1.5bn in FY11. 3PL represents only 1% of logistics cost emphasis its significance in the industry. Future is no doubt lying in outsourcing. As the growth in the 3PL market is expected to be in the range of 25-30% CAGR over FY11-13E. As of now, the 3PL activity is limited to only few industries like automotive, IT hardware, telecom and infrastructure equipment.
 
The organised 3PL market in India can be categorised into three major segments – public sector, private sector and foreign entrants. Some of the major players in each category are: TVS logistics, DIESL (TATA), Panalpina, TCI, Gati, Allcargo, V Trans, Total, VRL and Reliance etc.
 
Private Participation: The industry is becoming more competent with the entry of global giants like Gazeley Broekmen (Wal-Mart's logistics partner), CH Robinson and Kerry logistics and large Indian corporate houses like Tata, Reliance and Bharti group. A series of mergers and acquisition like DHL acquired Blue Dart, TNT acquired Speedage Express Cargo Service and Fedex bought over Pafex, are also leading to consolidation industry at various levels and segments. Many of these companies are planning to broaden their areas of operation and are also planning to develop their own logistic parks across the country. If the trend continues as per the estimates, the market share of the organized logistics players is expected to double from 6% in 2007 to approx. 12% by 2015.
 
Express logistics: Organised players have monopoly over the express logistics industry. 65% of express business is in the hands of organized players, while semi-organised and unorganised players accounts for 25% and the remaining 10% of the market by EMS Speed Post. But altogether different picture can be witnessed in the domestic segment. In domestic front, unorganised players hold 41% of the market share based on price advantage. While organised players accounts for 45% and EMS Speed Post the remaining 14%. Key players in express cargo are: DHL, FedEx, TNT, UPS, AFL, DTDC, First Flight Couriers, TCI Express, Gati and VRL etc.
 
Warehouses: Recently, warehouses have become key growth drivers in the logistics industry. Apart from conventional storing services, warehouses now providing value-added services like consolidation and breaking up of cargo, packaging, labelling, bar coding and reverse logistics etc. warehousing and related activities account for approx. 20% of the total logistics industry.
 
Most of the warehousing space in India lies with unorganised players in domestic front, which is causing wide supply and demand gap in storage space. According to KPMG, an additional 120million square feet of warehousing space is needed by 2012 to bridge this gap.
 
Currently, the organised warehousing industry in India has a capacity of approx. 80million metric tonnes and is growing at 35 to 40 per cent per annum. An investment of approximately US$ 500million is being planned by various logistics companies for the development of about 45million square feet of warehouse space by 2012.Many players in this segment such as Multi Modal Logistics Park, Mega Food Parks and Free Trade Warehousing Zones have planned next generation storage models.
 
Logistic parks: About 110 logistics parks spread over approximately 3,500 acres at an estimated cost of $1 bn are expected to be operational and an estimated 45 mn ft2 of warehousing space with an investment of $ 500 mn is expected to be developed by various logistics companies by 2012.
 
Majority of these logistics parks are planned in close proximity to state capitals. However, availability of large land parcels at relatively low cost, connectivity to multiple markets across states and industrial clusters has led to the emergence of some tier-2 and tier-3 cities as favoured destinations for the development of logistics parks and warehouses.
 
Market Players:
 


Government Initiatives and regulations:
 
Initiatives:
 
To emphasis the significance of transportation in logistics industry and to increase the competence in the sector government introduced private participation, especially in port sector.
 
The major initiative in transport infrastructure is introduction of National Maritime Development Program (NMDP) with an investment of Rs 568bn. NMDP would be addressing the challenges of the growing international traffic demand of the country along with developing the port facilities at par with world standards.
 
While liberalizing the railway services, government opened the doors of container business to the private parties. A total of 15 players immediately entered the market.
 

 
Cargo traffic is always given second priority over passenger traffic in transportation industry. Due to which though railway transportation is cheaper in Inland transportation, it is not getting substantial share. To address this problem the Indian Railway has proposed the creation of a dedicated freight corridor connecting four metros covering 2800 route km, at a cost of about Rs 670bn to carry freight trains including containers. The dedicated freight corridor is proposed to come up by FY17E.
 
To remove the differential state-level taxes that are causing higher unit and inventory carrying costs, government introduced uniform Goods and Services Tax (GST). As a result, there is expected to be significant reorganisation in warehousing system in the country.
 
FDI regulations
 
  • In general 100% FDI under the automatic route is permitted for all logistic services
  • FDI up to 100% subject to FIPB approval is permitted for courier services.
  • FDI up to 49% under the automatic route is permitted for air transport services, including air cargo services.
  • 100% FDI is permitted in Ports and Harbours under automatic route
  • 100% FDI is permitted under the automatic route for storage and warehousing including warehousing of agricultural products with cold storage.
  • 100% FDI is permitted in transport and transport support services through automatic route
 
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