05 December 2017

Sourcing in India: Focus on Logistics sector

The market size of the logistics sector in India is estimated to be between US$ 110 to 150 billion and expected to grow to US$ 200b by 2020.

Given that the Indian economy has grown to over USD 2 trillion, these estimates may already be well below the actual size of the industry. The sector employs over 45 million people and is going at the rate of 15% with sub-sector growing at even 30-40% per annum. Some highlights of Indian Logistics sector as below:

 

  • As per estimate India spends around approx. 14.4% of its GDP on logistics and transportation as compared to less than 8% spent by the other developing countries.
  • Indian logistics market is expected to grow at a CAGR of 12.17% by 2020 driven by the growth in the manufacturing, retail, FMCG and e-commerce sectors.
  • 3PL (3rd Party Logistics), e-commerce logistics and cold chain are the three biggest segments in the logistics and warehousing industry in India based on future growth rates. 3PL logistics market in India is expected to be worth US$ 301.89 billion by 2020.
  • Estimates that the warehouse market in India is expected to grow at a CAGR of 10% whereas freight forwarding market is expected to grow at a CAGR of 12% till 2020.

 

And as per Logistics Performance Index (LPI - World Bank), India ranks 35th across 160 countries recording an efficient logistics system score of 3.42 out of 5 (Higher the score better is the ranking). Below chart gives a comparison between logistics market of India, China and US.

As shown in the above chart India’s outgo on the logistics cost/GDP is about 13-14% of value of goods, whereas for other developed economies the average cost stands around 8% value of goods as shown in the figure. The key reasons for this is higher transit time due to infrastructural bottlenecks across different modes (Road, Rail, and Water), administrative delays, extra indirect taxes levied for inter-state transport and inefficiencies in the system.

And though the LPI has improved to 35th (2016) from 54th (2014) however on parameters like Infrastructure, Timeliness et el India still have lots of catching up to do. Refer the below table for details:

Structure of the industry

The logistics market in India is largely unorganized as several local or domestic transporters with a fleet size of around 5 trucks or trailers accounted for more than 2/3rd of the total owned and available fleet size for road transport in India. The Indian logistic sector is primarily categorized into four segments comprising Transportation (rail, road, air, water-ways), warehousing (Container freight stations and Inland Container Depots), freight forwarding and value-added logistics. The transportation contributes maximum (60%) to the whole pie of logistic sector. 

The Indian logistics industry is fragmented and under developed. Logistics costs are relatively high due to poor physical and communication infrastructure; high dwell time at ports; low levels of containerization; and a multi-layered tax system contributing to significant delays at border crossing points. Currently, each of India’s 29 states taxes goods that move across their borders at various rates. As a result, freight that moves across the country is taxed multiple times. 

Some leading players in Logistics in India 

 

  1. ABC India Ltd.
  2. All Cargo Logistics 
  3. Atlas Logistics Pvt. Ltd. 
  4. DELEX Cargo India Pvt. Ltd. 
  5. TVS Logistics Pvt. Ltd.
  6. GSI Logistics Pvt. Ltd. 
  7. Gati-Kintetsu Express Pvt. Ltd. 
  8. Jeena and Company Private Limited 
  9. MAHINDRA Logistics Services Limited 
  10. Om Logistics Pvt. Ltd. 
  11. Redington (India) Limited 
  12. SAL Logistics Pvt. Ltd. 
  13. SICAL Logistics 
  14. TCI Logistics 
  15. TKM GLOBAL Logistics Limited

 

 

Main challenges

Current Issues and challenges for India is that despite being a low-cost country it has higher logistics cost due to various issues and challenges faced by the industry. Apart from being entangled in complex tax structure the industry is also affected by poor rate of customs efficiency of clearance processes and procedures thus affecting the international export logistics stratum. Furthermore, the existing Indian infrastructure is poor, combined with lack of implementation of efficient IT-enabled tracking and tracing mechanisms has affected the performance of logistics.

 

Elements of logistics cost (avg) across industries (estimated) in India

 

Elements of logistics cost (avg) across industries (estimated) in India

SWOT analysis of the Indian logistics sector

 

Key trends / Outlook

  • The expected implementation of nationwide uniform GST* (Goods and Services Tax) from 1st July, 2017 is likely to transform the distribution structure of majority of industries as it eliminates the need for dedicated warehouses for each individual administrative region.

*GST: Goods and service tax is a colligation of multiple taxes levied by both Central (ie, excise duty, countervailing duty and service tax) and state (value-added tax, Octroi and entry tax, luxury tax, etc) governments when an end user purchases goods or services. It means same level of taxation would be charged on a specific product or service across the entire country irrespective of being manufactured and sold in different states. The planned dual GST model (central GST and state GST) proposes to replace around 29 state and federal taxes and tariffs for a single tax at the point of sale.

  • India will join 160 nations, which have a value-added tax, including Poland, Canada and Japan. At the top rate, India’s GST will be among the highest. 
  • Government initiatives to promote the manufacturing sector and exports are likely to increase the demand for logistics functions. Trade with Asia, Europe, and North America are likely to remain major drivers for freight forwarding and transportation companies in the region.
  • Major investments by both public and private sectors in the last five years on infrastructure, technology upgrades and expansion of sea and airport facilities, and dedicated logistics corridor in the rail network are expected to strengthen the Indian logistics infrastructure.
  • The booming e-commerce market in India is bringing in new opportunities for LSPs (logistics service provider). The evolving business model(s) in this space focuses on containing logistics and delivery costs.

 

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