Logistics Industry in India

Logistics by definition is the management of goods flow between the points of origin and consumption to meet
customers or corporations requirements. Hence, it becomes critical that all components of the value chain should
be available at the right time and place, in desired condition and pertinently at right cost to efficiently complete the
goods flow chain

Summary

At present, the countrys logistics industry is worth $300 billion, according to the Logistics
Market in India 2015-2020 by market researcher Novonous . In fact, the report states, Indian
logistics market itself is estimated to grow at a CAGR of 12.17 per cent by 2020.

While the logistics activity can be broadly classified into inbound and outbound category, its value chain
involves transportation (rail, road, air, waterways), warehousing (CFS, ICD) and value added services.
A logistics companys service offerings range from a simple point-to-point transit to complex multimodal
logistics that include supply chain and third party logistics management.
Evolution of Logistics in India: Logistics is no more viewed as the cost center but forms a vital
part of the product delivery value chain for a company. Changed perception about the industry and
value delivered is driving the outsourcing business towards logistics players.
Organized player share still very small: Despite being the oldest industry, it continues to remain
largely unorganized primarily due to complex tax structure and lack of world-scale infrastructure.
Organized players share in certain categories (road transport) is <1%, while higher share is in the
complex 2PL categories, where scale and back-end IT infrastructure investments are required.
Margins vary widely in sub-categories: Business dynamics of each sub-category varies widely
and so does the margin profile. The margin profile would range from 3-5% in point-to-point transit
to 20-30% in supply chain management.

Poised for accelerated growth led by multiple drivers

Growth of the Logistics business is directly correlated with economic activity. Empirical evidence
suggests that the Indian Logistics industry grows at 1.5-2x the GDP.
With the Indian economy on a revival path, Indias Logistics sector is poised for accelerated
growth. Infrastructural bottlenecks that have stifled growth of the sector and have promoted
inefficiency are being addressed.
Building of the dedicated rail freight corridors, for instance, will help promote more efficient
haulage of containerized cargo by rail. Logistics requirement for e-commerce will grow as
exponentially as e-commerce.

Opportunities across the spectrum

Opportunities across the logistics spectrum transportation, storage, distribution, and

integrated/allied services.
While economic growth itself presents a case for improved business prospects, there are multiple
developments and trends for logistics enterprises to ride on. For CTOs, (a) Increasing
containerization, (b) EXIM growth, and (c) dedicated rail freight corridors are key volume growth
triggers.
Implementation of GST will be a game-changing event for businesses in general and organized
logistics players. It would provide a boost to warehousing, supply chain management and 3PL
business.
Specialized needs of the burgeoning e-commerce and cold chain industry will spawn a range of
opportunities for niche organized logistics players.

Summary of business presence of key logistics players

Company

Road

Transportatio
n
Rai
Air
l

Water

Warehousing

Storage
CFS/ICD Cold
Chain

Valued Added Logistic Services

Bulk

Express

Liquid

Cargo

Supply
Chain/3P
L

Multi-

Port

modal

Handling

Concor
Gateway Distriparks
TCI
Blue Dart
Gati
Allcargo
Aegis Logistics
Snowman Logistics
TVS Logistics Services
Safexpress Pvt. Ltd
Mahindra Logistics
Delhivery
Continental Warehousing
Star AgriWarehousing
Shree Shubham Logistics
Ocean Sparkle
J.M. Baxi

Key issues constraining the sector

1. Inadequate infrastructure, sub-optimal port scale: Despite being a more economical mode of
goods transport, railways in India has lost market share in freight movement to roads in the last
few decades due to huge under-investments, leading to capacity constraints. Compared to other
countries, Indias rail share in goods transport is 31% versus ~60% in 1980s and 48% in 1990s.
Indian Railways, uses freight earnings to cross-subsidize the losses in its passenger service
operations, thereby resulting in higher tariff for freight operations

2. Lack of last mile connectivity: Lack of coordination in infrastructure development leads to

interconnectivity issues among different modes of transport. This leads to delays and unreliability
in services, which increases cost, reduces competitiveness, and discourages investments.

3. Administrative delays: A countrys competitiveness is judged by the ease of doing business, and
logistics play a vital role in the same. Despite being a relatively low cost country, logistics cost in
India tends to be higher due to administrative delays led by paper work (resulting in huge
inventory investments and wastages) and complex tax structure

4. Low penetration of new technology in supply chain process is resulting in damage of goods. India
has least warehouse capacity with modern facilities, and given the fragmented industry state (large
share with unorganized players), investment in IT infrastructure is almost absent at required scale.

Significant investment required to iron out infrastructural bottlenecks

Building of the dedicated rail freight corridors, for instance, will help promote the more efficient
haulage of containerized cargo by rail. GST implementation will bring in ease of inter-state goods
movement across India. There is no e-tail without delivery delivery at the doorstep is a prerequisite. Logistics requirement for e-commerce will grow as exponentially as e-commerce.

A recent study by the National Transport Development Policy Committee (NTDPC) indicates an
annual investment requirement of USD570b by 2032 versus the current level of USD100b. It
proposes to increase the investment commitment in railways as a percentage of GDP from the last
two-decade average of 0.4% to 0.8% in 2012-17 and further increase it to 1.1/1.2% by 2030

Effects of GST on Indian Logistics Industry

Manufacturers have to maintain warehouses (cost share in logistics vary between 15-35%) in each
state for economical (taxation structure) reasons, leading to wastage of infrastructure, manpower
and increasing costs. The proposed GST will result in a unified market across India and
manufacturers shifting to the hub and spoke model for goods delivery goods delivery decision
will be driven by logistics and operational efficiencies.

Government and corporate sector to benefit alike: Corporate sector would benefit from
simplification of the tax structure, uniformity of treatment across states, much wider applicability
of input tax credit, lower compliance cost of litigation due to elimination of multiple categories and
resultant disputes over definition (most notably the distinction between goods and services). For
the government, both Centre and States, they will benefit from higher tax collection.

Supply chain management to get a boost: Currently, significant amount of time is lost at the
numerous check points at the state borders resulting in increase of cost as well as travel time. Apart
from taxation, these long lead times to supply goods have also forced manufacturers to keep large
number of warehouses. Elimination of checkpoint time will result in manufacturers realigning their
distribution strategy to make it more logistically efficient and many will outsource the activity to
logistics companies (similar to developed countries) to focus on the core business.

Organized sector to get a boost, partly at the cost of unorganized: In the current tax structure,
tax credit is not available for all taxes post manufacturing

E-Commerce has emerged as fastest growing vertical for logistics players

Following the most significant trend in 2015, Snapdeal took the hyperlocal route and launched
Snapdeal Instant to allow delivery of packages to customers within an hour of placing the order.
Having received a whopping $500 million in funding in 2015, Snapdeal also launched four-hour
delivery, card-on-delivery, and 90-minutes reverse pickups. At present, the company is fulfilling
60 per cent of its orders from its own fulfillment centres, as compared to the seven per cent at the
start of 2015.
Amazon added eight new fulfillment centres this year, increasing their storage capacity to nearly
five million cubic feet across all 21 centres in India. Amazon claims that this is the largest storage
capacity and warehouse infrastructure in India in the e-commerce industry.
Investing in better data analytics and forecasting customer demands was the mantra for the ecommerce players looking to cut down cost of deliveries. Flipkart tied up with partner stores that
act as alternative delivery channels, so that customers can pick up their shipments at their
convenience.
Local networking for faster deliveries also gained momentum in 2015. Paytm launched a two-hour
delivery model for mobile phones, similar to Snapdeals omni-channel strategy. E-fulfilment
centres and return processing centres have also aided Paytms growth in 2015.
Vehicle tracking plays a significant role in providing necessary control and effective route planning
for faster delivery. In September 2015, Paytm invested in logistics solutions provider Loginext to
exploit tech ecosystem for supply chain. Flipkart benefited by its investment in Blackbuck in
capturing data on vehicular movement and utilisation, and utilising the data for better planning.
Logistics solutions provider Loginextwhich caters to Paytm, Myntra and Amazon among others
even provides heat maps for giving information on those areas where maximum delays are
happening.

Significance of Tier II and Tier III

The higher affordability of 3G and 4G smartphones has given rise to more orders from Tier II and III cities.
Snapdeal gets 60 to 70 per cent of its orders from Tier II and III cities, while Flipkart gets only 20 per cent
of its orders from those areas. Despite the handicaps caused by inadequate coverage, e-commerce majors
have come up with innovations for high-speed delivery.
Snapdeal has built its supply chain towards many regions of the country like the North East.

Flipkart claims that its algorithm on routing makes delivery and pick-up more accurate and faster
than anyone else in this business. Flipkarts investment in MapMyIndia has helped the company
too.
Going a step further, Amazon India has engaged with an NGO in a pilot project of rural delivery
network in Tier III IV towns, through logistics firm Connect India E-Commerce Pvt. Ltd.,
incorporated by founders of BASIX group. The plan is to ensure last-mile delivery with the help of
the well-established rural distribution network of BASIX. Amazon has a service partner
programme too for last-mile delivery in remote areas. Budding entrepreneurs in these areas act as
Amazon.ins local distribution network providers and create the last-mile delivery footprint.

Turn to 2016
Money will be flowing into developing logistics for e-commerce this year.
Having invested in B2B logistics startup Blackbuck, Flipkart has announced that it will be putting
in $2.5 billioninto logistics needs over the next four to five years.
Besides roping in GoJavas, Snapdeal made six acquisitions last yearmost in technology and
logistics sectorsreducing its delivery times by 70 per cent.
A lot of the trends observed in 2015 are expected to continue in 2016 too. While technologyenabled supply chain will see greater penetration into Tier II and III cities, highly personalised and
specialised services are also required. Specialised cargo delivery will add to the complexity [of
delivery] in 2016.
Roads are sure to continue as the most important mode of transport, but improvements are essential
here as well. The Union governments decision to earmark 20 per cent of the $1-trillion reserved
for infrastructure brings hope in this direction.
After Loginext and Grey Orange, there is a possibility that the likes of Roadrunnr and Delhivery
might be the next ones to tie up with the biggies. With Amazon, Flipkart, Snapdeal, and even Paytm
expected to overtake even offline biggies, taking a leap of faith in logistics seems like the inevitable
next step.