Trends In India

The global market is seeing a rise in demand for third-party logistics (3PL) service providers delivering cost-effective solutions. The supply chain industry is heading towards an evolved global model of outsourcing requirements to 3PL service providers.

In India, however, due to the challenges around integrated services, the logistics industry is at a nascent stage. Nevertheless, with the increase in demand of outsourcing logistics solutions, some 3PL companies are seeing a generous rise in the demand for their superior services.

Given the positive changes in the logistics domain, the ‘supply chain management business’ in India has become an area of priority. Rising investment, rapidly evolving regulatory policies, mega infrastructure projects, and several other macro developments in recent times have driven the Indian supply chain market towards the search for sustainable business models. Consequently, infrastructure-related constraints and logistics centric inefficiency have been partially overcome.

Changing Demographics, Evolving Requirements of Trade, and Increasingly Skewed Modal Mix are the key trends expected to change the picture of logistics services and management in India.
Industry Size and Growth of the Transportation, Logistics, Warehousing and Packaging Sector

The cost of logistics and transport in India is valued at Rs. 6750 billion (US$ 135 billion) per year and it is growing at a rate of 8-10% p.a. The logistics cost accounts for around 13% of India’s GDP. On the other hand, the cost of logistics is much lower in the developed nations.

For example in the US, logistics account for around 9% of the country’s GDP, while Japan incurs logistics expenses of around 11% of its GDP. Conversely, India’s total expenditure on logistics and transport is lower than China (18%) and Thailand (16%).

In fact, NSDC states that the percentage-wise share of transport cost by value of GDP has been steadily increasing. The relatively high costs of logistics in India can be attributed to poor quality of infrastructure and inadequate service quality with respect to developed nations like the USA and Japan. Moreover, transportation, logistics, warehousing, and packaging, are unorganized, leading to greater expenses.

Evolution of Logistics Services

Traditionally, India’s logistics industry has been dominated by core service providers, who acquire contracts for various services like trucking, shipping, Inland Container Depot (ICD), Container Freight Station (CFS), etc. However the Indian supply chain market is seeing a sudden shift towards the outsourcing of logistics requirements.

Logistics serves as the backbone for several major sectors like retail, pharmaceuticals, automobiles, etc. To ensure smooth functioning and increased productivity, organizations have now started depending on third-party logistics (3PL) and fourth-party logistics (4PL) service providers. By outsourcing their requirements to the 3PL and 4PL companies, organizations can concentrate on their core domain more efficiently.

3PL companies fulfill various requirements such as, transport, warehousing, freight forwarding, inbound and outbound logistics, etc., while 4PL companies provide service chain management.

The shift towards outsourcing warehousing requirements can be attributed to ever-evolving global trends. Customers now demand better control, higher technology, and one-stop solutions for all their logistics needs. The entry of foreign investors to the Indian market has further boosted the logistics industry in India.

From physical distribution to outsourcing of warehousing requirements, the Indian logistics industry has seen a tremendous growth. Global logistics management is a futuristic concept where a single supplier will be able to meet the customers’ logistics needs, across geographies.

Segments of the Transportation, Logistics, Warehousing and Packaging Sector


Logistics services can be divided into three major segments:

  • ► Transportation
  • ► Warehousing
  • ► Value-added services

Transportation

The transportation service can be undertaken via different modes, such as road and rail, for inland transportation, or by water or air, for inter-country delivery of goods. The transportation sector in India is still dominated by the road segment. However, organizations have started veering towards new transportation segments such as Less Than Truck Load (LTL) movement, container rail transportation, etc.

Warehousing

The warehousing services in India are largely fragmented. Only in the past decade, has the warehousing sector seen improvements. Warehouses, equipped with world-class infrastructure, such as racking systems, and automation technology, are now replacing the primordial godowns, which are mostly sheds. However, the segment still remains fragmented, with individual agents controlling separate warehouses. There are only a few multi-modal warehouses such as ICD or CFS centers, which are often used by rail, ship, road modes of transport.

Value-added Services

► Various value-added services can be provided such as:
  • ► Packaging
  • ► Labeling and Assembling
  • ► Tracking and Tracing
  • ► Cold Chain
► Intermediate Processing
Growth rates of various segments of Transportation, Logistics, Warehousing and Packaging Sector

The logistics industry in India is expected to grow @ 15-20% annually. Till date, it remains an unorganized sector with only 6% as organized. However, the market share of organized logistics industry is expected to rise to 12% by 2015. This growth has been led by several factors, including entry of foreign entities, and the growing demand of outsourcing logistics requirements. Further, the rapid growth of industries like automobile, e-commerce, FMCG, etc., has largely contributed to growth of the logistics sector. Major sectors like mining, aviation, etc., continue to form the major investors in the segment.

Third-party logistics companies are gradually gaining a foothold in the market, providing innovative and reliable logistics solutions. They offer a range of services like supply chain management, inbound and outbound logistics, warehouse storage and management services, freight forwarding operations, etc.

Although roadway logistics is still the most popular mode, other segments like airline freight services, rail services, and shipping, have seen impressive growth rates. Similarly, the warehousing segment is also growing as it is gradually getting organized. Here is a look at the growth rates of various segments of the supply chain market.

Transportation

The Indian logistics industry is on the verge of change. It is being buoyed by current global trends and a rapid industrial growth in the country. Transportation of goods plays a major role in this growth as well. Let’s take a look at the performance of the four means of goods transport, i.e. air, road, rail, and water.

Air

Air cargo serves as a critical link between domestic and international markets. In India, the total volume of air cargo traffic accounts to around 1% of the total trade. Between 2006 and 2012, the air cargo traffic in India increased at a CAGR of 11.5%, with domestic cargo growing at 12.3% and the international cargo growing at 11.9%.

Rail

India has the largest rail network in India, spanning 64,456 km, with more than 7,133 railway stations. Rail freight has grown at around 7% between the financial years 2006 and 2012. It continues to be among the most economical modes of freight transport in India, with over two-thirds of freight being transported via rail over medium and long distances.

Road

The freight transportation in India is dominated by roadways. It accounts for 60% of total freight movement in the country. It has been growing at a CAGR of 4.2%, between 1951 and 2012, with a CAGR of 9.14% in 2011-2012. 

Water

Maritime traffic in India contributes to 90% of international trade by volume and 70% by value. India has a long coastline spanning across 7,500 km, with 13 major ports and 176 non-major ports. Over the last decade, maritime cargo traffic has seen a growth of 6% between the financial years 2007 and 2012. The traffic at major ports has grown at a rate of 2%, while the non-major ports have seen a growth rate of 13%. The cargo traffic is expected to touch a CAGR of 8% by 2016-17.

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