Logistics Industry Trends

Introduction
Logistics management is an area of research that has been getting increasing attention
from academicians and practitioners over the last two decades since it may lead to
reduced operational costs, improved delivery performance and increased customer
satisfaction levels, thereby making an organization more competitive in terms of cost,
quality, delivery and flexibility. The importance of logistics is increasing also due to
globalization as more and more multi-national companies (MNC) are sourcing,
manufacturing and distributing on a global scale, making their supply chains very
complex to manage. However, outsourcing logistics activities to experienced logistics
service providers (LSP), also known as third-party logistics (3PL) providers, may enable
companies get very efficient and customized logistical support while themselves
focusing on the core organizational activities. Today, there are many large multi-national
LSPs that offer complete supply chain solutions across many diverse countries in terms
of their socio-economic and political environments. Apart from core logistical activities
such as transportation and warehousing, LSPs also offer value-added services such as
customs clearance, freight forwarding, import/export management, inventory
management, assembly/installation, packaging and labelling, distribution, after sales
support, reverse logistics and so on. By outsourcing logistics, companies can leverage
the expertise of LSPs while concentrating on their core competencies.
Logistics Industry Trends
Certain logistics activities can be outsourced to third-party logistics (3PL) providers,
which include transporters who ferry goods from company warehouses to a port or vice
versa. Fourth-party logistics (4PL) providers use resources, capabilities, and technology
to manage the entire logistics process for a customer, unlike a 3PL provider who takes
care of only one function. A 4PL provider manages other 3PLs, including truckers,
forwarders, and custom house agents comprising the entire supply chain.
The immense growth in the logistics industry, especially in the emerging economies
over the past decade, ensures a bright future with 3PLs. Shipping logistics companies
have gained a lot in these regions, with a large contribution coming from 3PLs such as
transporters, warehouse facility owners, and brokers in freight-related jobs.
Non-asset-based logistics providers do not include transporters or couriers. The term
refers to providers who undertake consultation services on packaging and
transportation, freight quoting, financial settlement, auditing, tracking, customer service,

and issue resolution. These experts do not own any physical assets, but rather possess
freight industry knowledge, information technology know-how, and associated assets.
On-demand transportation is an evolving field within the 3PL industry. The on-demand
model includes services like full truck load (FTL), hotshot (direct, exclusive courier), next
flight out, or commercial airline shipping, and international expedited. As this field caters
to the special needs of clients, it comes at a premium price and hence is profitable for
3PL providers.
Indian Scenario
The Logistics sector in INDIA has today become an area of priority. One prime reason
for the same stems from the reason that years of high growth in the Indian economy
have resulted in a significant rise in the volume of freight traffic moved. The large
volume of traffic has provided for growth opportunities in all facets of logistics including
transportation, warehousing, freight forwarding, express cargo delivery, container
services, shipping services etc. The growth path also suggests that increase demand is
being placed on the sector to provide the solutions required for supporting future
growth. Strength of the logistic sector is likely to be one of the key determinants of the
pace of the future growth of the economy. The market size of the logistics sector in
INDIA is estimated to be between USD 90-125 billion. Given that the Indian economy
has grown to over USD 1.73 trillion, these estimates may already be well below the
actual size of the industry. Sources estimates that the industry employs over 45 million
people and is going at the rate of 15% with sub-sector growing at even 30-40% per
annum. Due to these reasons the Indian logistics sector is viewed as one of the most
attractive in the world. Recent policies by the government attract a strong growth area
for logistics in the future. Despite holding promise the logistics sector in India remains
mired in several complexities which have the potential of holding it back. These includes
significant inefficiencies in transportation, poor condition of storage infrastructure,
complex tax structure, low rate of technology adoption, and poor skills of logistics
professionals.
India-Emergence ofGlobalManufacturing Hub
The demand for FMCG and electronic products in India has been growing at the very
fast pace. Several MNCs from diverse industries have shown growing interest in setting
up world class manufacturing facilities in India to cater to the domestic market as well as
for the export market. Establishing manufacturing facilities in India has been a strategic
move to reduce their manufacturing costs and cater to the expanding Indian market.
The Indian automotive industry is well on its way to become one of the world’s major

automobile manufacturing hubs. Since the deregulation and opening up of the
automotive industry, the industry has witnessed tremendous changes and experienced
a great boom.
Indian Logistics Industry:CurrentScenario and Future Outlook
Logistic is the backbone of the economy, providing the efficient, cost effective flow of
goods on which other commercial sectors depends. The logistics industry in India is
evolving rapidly and it is the interplay of infrastructure, technology, and new types of
service providers that will define whether the industry is able to help its customers
reduce their logistics costs and provide efficient services. Despite weak economic
sentiments, the logistics and warehousing industry continued to witness growth largely
due to growth in detail, E-commerce and manufacturing sectors. The logistics sector is
expected to grow at around 10-15% in the period 2014-2015. With this forward looking
attitude and promise of growth and improvements, the service oriented logistics is all set
to expand bay.
Challenges Faced by Logistics Industry in India
TransportRelated Challenges
In India road has become predominant mode of transportation of freight cargo.
Estimate of the modal movement of cargo highlights that in India nearly 60.2% of the
cargo is moved by road, 32.1% by rail, and rest by the coastal shipping, airways and
inland waterways. Pipelines constitute a very minor proportion It is recognized that
movement of long haul bulk traffic by road is less efficient than by rail. But road is still
preferred over rail because:
1. Important rail networks are over saturated- There has been little improvement in
the track infrastructure since independence. While route kilometer has grown only at a
CAGR of 3%, incorporating additional lines on existing routes has not fared much better
growing at a low CAGR of 6.6%. During the same period freight and passenger traffic
has grown at a CAGR of nearly 55%. This had led to most high density corridors
becoming oversaturated.
2. Rail freight tariffs are high- Indian railways follows a policy of subsidizing
passenger tariff by freight tariff. This has resulted in sharply rising trend in railway freight
rate over the years compare to little increase in passenger tariff rate. The result of this
has been that Indian rail freight rates have already become one of the highest in the
world.
3. Transit times are long and uncertain- Freight traffic is frequently subordinated to
passenger traffic on the railway network. This results in a freight train taking as much as

6-8 days for a journey of 2000kms. Also there is no guarantee on the transit time for
freight trains.
4. Rail terminal quality is poor- Most rail terminals (goods shed) used for
loading/unloading of freight are antiquated. They also suffer from issues of access and
evacuation of traffic.
5. Less flexibility in carrying different types of products- Special wagons are not
easily available for carrying specialized products. For eg- Special types of steel required
for automobile production have to be carried by trucks as the existing wagons do not
offer the kind of protection that these high value products require.
6. Railway carriage not easy for industry which cannot provide full train loads-
Railways have a preference for customers who can provide full train load as unlike in
some other countries, railways in India no longer run mixed trains which can carry
different types of cargo due to operational inefficiencies.
While Road movement is preferred to rail, road movement has its own set of
challenges. They are:
1. Road network coverage- Freight movement in India is dependent on national
highways. While NH constitutes only about 2% of the road network of India, they carry
40% of total traffic. As a result most of these highways are severely congested resulting
in freight travelling only a third of the distance compared to developed countries.
2. Poor road quality- The road quality in India, on the NHs as well as the roads is
improving but is still poor in many locations. Estimates suggest that motor able roads
are still less than 10% of the total road network.
3. Expressway network will take time to develop- In many developed countries
expressway s have been developed to facilitate high speed freight movement through
linking of important cities, ports and industrial centers. In India the expressway network
is still largely at aplanning stage with a target of development of around 15000Kms of
expressway only by the end of 13th plan period.
4. High level of fragmentation of the trucking industry- The trucking industry in
India is largely fragmented and in the hand of small truck operators. Estimates suggest
that nearly 70% of the truck owners in India own between 1-5 trucks. Due to this there is
fierce competition amongst operators leading to truck owners resorting to overloading to
recover investments.
5. Multiple checkpoints- Trucks in India have to pass through multiple check points in
their journey. Trucks have to stop at state borders, for payment of toll taxes, for RTO
inspections etc.

Storage Infrastructures Related Challenges
In addition to the poor transportation infrastructure the storage infrastructure in India
also needs significant improvement. Main reasons for this are:
1. State of ICD/CFS is poor- The ICD/CFS infrastructure available for EXIM trade is
inadequate. The land requirement for setting up ICD/CFS at an appropriate place is
difficult to come by as several hurdles have to be cleared in the consolidation of land.
As a result many logistics companies with an interest in setting up ICD/CFS eventually
fail to do so. While it is difficult to set up a facility, at the same time the existing facilities
are plagued with several issues: - Many of the older facilities today are located within
city boundaries restricting day movement of trucks. - The approach roads to the facilities
are poor making evacuation of cargo difficult. - Most facilities have issues of inadequate
parking, lack of available land for expansion etc.
2. State of warehousing is poor- Various estimates put warehousing costs to be
around 10% of the total logistics costs. Despite this the state of warehousing is largely
dismal. On the warehousing front 80-85% of warehouses are traditional with sizes of
less than 10,000sqft. Most of these warehouses are not leak proof, equipped with
security systems, racking facilities etc. Majority of the operators of these warehouses
are also small to mid-sized entrepreneurs with limited investment capacity, The only
large warehousing owners are government agencies including central warehousing
corporation and state warehousing corporations, but their focus is mainly on food grain
storage. There is also shortage of warehouses. This is because land availability for
warehousing at an appropriate place and at an appropriate price is a concern.
Estimated Future Growth
The Indian Logistics sector growth depends on the growth of its soft infrastructure like
education, training and policy framework as much as the hard infrastructure. To support
India’s fast paced economy growth of logistics industry is very essential. It is estimated
that the Indian logistics sector will continue to show robust growth of 10-15% annually,
leading the pace of growth of the economy at large.
Logistics-Future Trends in India
India has become the prime destination for logistics service providers all over the world.
The demand for logistics services in India has being largely driven by the growth of the
economy. The growth is projected at 7-9% in next few years, with the Compounded
Annual Growth Rate (CAGR) expected to grow at rate of 7-8%. This growth is expected
to gain greater momentum due to exponential growth of the Indian economy. India is
also experiencing a big retail boom as the buying capacity of the middle and upper
middle segment of the population have scaled new heights. Many large MNCs from the

retail industry are planning to set up operation in India and large local retailers are also
planning to expand their operations.
But with the infrastructure largely under-developed and incapable of catering to a
growing economy, logistics management in India becomes too complex. The poor
condition of infrastructure directly translates to higher turnover, pushing up the operating
costs and reducing efficiency. There are other problems such as complex regulatory
compliances and limited adoption and utilization of technology, which has resulted in
increased paper work and inability to communicate effectively with customers. In spite
of dismal infrastructural scenario, the hopes of the logistics sector are kept up by the
various upcoming infrastructural projects like logistics parks and hubs and other
initiatives by public and private sectors. The future of the logistics sector depends not
only on the continued development of infrastructure but also on the capability of the
service providers in adopting themselves and making optimal utilization of technologies.
Conclusion
The future of the Indian Logistics Industry lies ultimately in value propositions for the
customer. Value solutions can be engineered only if the complex strands of supply-
chain mesh together seamlessly. These solutions are expected to command a premium
but also come at a cost. The cost-conscious Indian market first has to be made to
appreciate the value of premium services first. This would result a reduction in cost
down the line, which can only happen when most of the deficiencies mentioned above
are removed. Logistics companies can leverage further economies of scale when
operations are expanded. This may require industries to collaborate with logistics
service providers to nurture their businesses, possibly in a way the automobile industry
in India nurtured the auto-component companies. The future is bright for logistics
industry in India- the expectation is that a tipping point for the industry will soon be
reached which will propel it to greater heights.

Logistics Industry Trends

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Logistics Industry Trends