Logistics set for rapid growth

 India’s logistics sector is poised for accelerated growth, led by GDP revival, ramp up in transport infrastructure, e-commerce penetration, impending GST implementation, and other initiatives like

‘Make in India.’

This offers opportunities across the spectrum for companies in transportation, storage, distribution, and allied services, according to a report by Motilal Oswal Securities Ltd.

Empirical evidence suggests the Indian logistics industry grows at 1.5-2 times the GDP growth. Moreover, infrastructural bottlenecks that have stifled sector’s growth and promoted inefficiency are being addressed by the government.

Building of dedicated rail freight corridors will promote efficient haulage of containerised cargo by rail. One key advantage of the dedicated freight corridor is that freight trains could be run on time tables similar to passenger trains, and the frequency can be theoretically increased to one train in 10 minutes. This will reduce time for goods transportation between Mumbai and Delhi to 18 hours from 60 hours now.

Also, setting up of various industrial corridors along the dedicated freight route will metamorphose the warehousing business– from small warehouses spread across the country to large, global-size warehouses concentrated in a few hubs.

The proposed new goods and services tax (GST) regime and e-commerce will alter the landscape in warehousing, supply chain management and third party logistics business. GST implementation will be a game-changing event for businesses and particularly for organised logistics players.

The report says logistics requirement for e-commerce will grow  as exponentially as e-commerce.

Indian logistics sector is estimated to have grown at a healthy 15% in the last five years. However, growth in sub-sectors varies, with the lowest being in basic trucking operations and highest in supply chain and e-tailing logistics. Some studies estimate the share of India’s logistics spend in GDP at 13% (versus 7-8% in developed countries), implying overall size of $180-220 bn (direct costs +wastages from inefficiencies). A comparison with other countries shows inefficiencies are high in the Indian logistics sector.

Infrastructural bottlenecks across modes (rail, road, waterways) have stifled the sector’s growth. Capacity constraints and inefficiencies can be noted from the high transit time in rail as key train routes operate at >110% utilisation, thus leading to an average speed of 25 km per hour. The road sector is fraught with inadequate and low-quality highway availability, thereby limiting the trucks’ size and impacting economies of operation.

Despite being an economical mode of transport, railways has lost market share in freight movement to roads in the last few decades due to capacity constraints. Compared to other countries, India’s rail share in goods transport is 31%, which has come down from 60% in 1980s and 48% in 1990s.

Another key constraint is administrative delays. Despite being a relatively low-cost country, logistics cost in India is higher due to administrative delays led by paper work—leading to huge inventory investments and wastage—and a complex tax structure.

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

Logistics encompasses a wide array of services like transportation (air, surface, internal waterways, sea), storage (warehousing, logistics parks, container depots, cold chains) distribution (courier service, e-tail deliveries),and  integrated/allied services (freight forwarding, 3PL) and investment in logistics boosts growth in its upstream and downstream economic activities, says the report.