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The Logistics industry in India is undergoing a change to a system wherein a dedicated player handles majority of a companys logistics operations. These players are referred to as 3PL (thirdparty logistics) players who typically specialize in integrated transportation and warehousing services that can be customized to meet the companys needs. The need for controlling logistics costs and increasing need to focus on core competencies are driving more and more companies to look for such 3 PL players. The contribution of 3PL in the overall logistics market is likely to increase from 1.5 - 2.0% in 2008-09 to 3.5 4 % by 2013-14.
The Union Budget 2013-14 though has silent on its specific demand of industry status for easy access for finance
and separate regulatory authority for the sector to ensure better coordination between ministries for an integrated policy on the sector, the industry to have some cascading benefits. Budget announcements/provisions NABARD got Rs 5,000 crore to finance construction of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors. The special emphasis on the agriculture sector, including a guarantee of Rs 5000 crore given to NABARD for the creation of additional warehousing facilities, will be beneficial for the sector.
This window will also finance, through the State Governments, construction of godowns by panchayats to enable farmers to store their produce. Budget outlay for Rural Roads (Roads and Bridges) for 2013-2014 is fixed at Rs 21,700 crore and of which Rs 1743.90 crore has been earmarked for North Eastern Region and Sikkim. Corpus of Rural Infrastructure Development Fund (RIDF) operated by NABARD is increased to Rs 20,000 crore for 2013-14. Two new major ports will be established in Sagar, West Bengal and in Andhra Pradesh to add 100 million tonnes of capacity.
In addition, a new outer harbour will be developed in the VOC port at Thoothukkudi, Tamil Nadu through PPP at an estimated cost of Rs 7,500 crore. When completed, this will add 42 million tonnes of capacity. Surcharge on dividend distribution tax or tax on distributed income increased from 5 per cent to 10 per cent. Surcharge increased from 5 per cent to 10 per cent on domestic companies whose taxable income exceeds Rs 10 crore. In case of foreign companies the surcharge is increased from 2 per cent to 5 per cent, if the taxable income exceeds Rs 10 crore. Investment allowance of 15 per cent deduction in addition to the current rate of depreciation for investment of Rs 100 crore or more in plant and machinery during the period 1.4.2013 to 31.3.2015. No change in excise duty on commercial vehicles. Budget impact and outlook The Railway Budget 2013-14 though turnout to be a mixed bag with announcement such as introduction of dynamic fuel surcharge, freight terminals under PPP mode, proposal to set up independent rail tariff authority, which is under inter ministerial consultation stage, the Union Budget has completely silent on its expectations. The budget though largely left the measures to enhance export import to March 2013 end EXIM policy announcement, the removal of export duty on sugar and galvanised steel is a welcome move auguring well for the logistics sector improving cargo volume. Moreover the increased budgetary allocation and continued strong focus on agriculture to augur well for the sector. Similarly the investment allowance of 15 per cent for investment of above Rs 100 crore in P&M is to revive industrial capex. Since this incremental capacity result in additional movement of raw material as well as finished goods that will have cascading effect on the logistics sector with increased cargo volume. Similarly the budgetary allocation of Rs 5,000 crore for NABARD to finance construction of announcement of warehouses, godowns, silos and cold storage units designed to store agricultural produce, both in the public and the private sectors will help the industry players to augment their infrastructure. While the FAC linked freight tariff hike and setting up of independent rail tariff authority though put the road sector at advantage in short-medium term cargo movement the measures to boost industrial capex as well accelerated development of infrastructure is expected to be marginally positive for the industry.
Transportation and Logistics market in Emerging economies like India - Glocalization approach needed
Logistics costs in India are estimated to be around 13% of the GDP, which comes to around US$94 billion in 200506.Transport sectors contribution to Indias GDP is estimated to be around 7.6% in 2006 -07, and road transport has a dominant role in this contribution with a share of 4.7% in Indias GDP.Currently, the market is extremely fragmented and dominated by unorganized sector. Most of the organized players are using their home grown operational TMS system for managing their day to day work. But the key issues with their legacy TMS or logistics applications are: * Absence of scalability and robustness * Inability to provide real time supply chain solution to key stakeholders * Planning and Optimization processes are manually intensive. As a result; customers are not getting the benefit of incremental freight savings across multiple modes and geographies * The entire freight settlement and audit processes are manually intensive and as a result pretty error prone But at the same time, every market has its own processes and own macro-economic and micro economic challenges. Like Indian transportation market has the following * Issues of Non-standardized vehicle types * Cumbersome taxes like service tax/toll tax/Octroi * Requirements of multiple operational documents * Procedure of payments to carriers for executing the shipments and the subsequent implications for tax settlement * Painful Change management requirements * Crippling Infrastructure issues in terms of both hard (Road /Rail/Port conditions/network connectivity etc) and soft infrastructures( skilled manpower/business practices/cumbersome Govt policies etc ) So,where there is a huge potential for growth for advanced Transportation Management systems, at the same time the need of the hour is strong localization approach from the advanced TMS systems from established ERP vendors. TMS best practices prevalent in advanced economies are not applicable and not required too now, in these markets in absolute terms. Products need localization approaches with features relevant for the respective market to address these requirements LSPs/3PLs/Manufactueers/Retailers know and understand the strategic and operational benefits of these systems but not sure how these systems will fit into the requirements of Indian market conditions. They are clamoring for Glocalization approach- Global Products but local execution approach which will only cater to their requirements. Ultimately the total cost of ownership of these systems are quite high too, they are really looking for reasons to justify this to their Top Management.
Posted by Nilabja Dey on March 31, 2009 11:54 AM
India
Emergence
of
global
manufacturing
hub:
The demand for FMCG and electronic products in India has been growing at a very fast pace. Several multinational companies 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 being 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 boost. As an outcome of the growth in the automotive industry, the automotive components industry has also witnessed significant growth with the country becoming home to many world-class auto component suppliers. Another industry which is seeing an upward swing is gems and Jewelry. India has been one of the leading exporters of gems and jewelry next only to countries like Belgium and Israel. Moreover Indian exports constitute about 55 per cent in terms of value of the world's polished diamond market. The IT Hardware industry is catching up with IT software and over the past couple of years India has slowly emerged as a manufacturing hub for IT hardware as well. Today India is well poised to emerge as a global manufacturing hub.
Warehousing:
Warehousing has become one of the major segments contributing to a rapidly growing Indian logistics industry. The growth in international trade and a rapid rise in containerization levels have led to high demand for warehouses and a tremendous opportunity for the private sector. The demand for specialized services is expected to further drive the growth in the market. There has already been a sizeable impact on the industry, in terms of market size, growth and the infrastructural resources. The numerous investment options in the warehousing market have heightened the interest of players entering the market, which is already evident from the growing number of players in the warehousing market. Several initiatives have been taken by the government towards the development of warehousing sector. The introduction of Goods & Services Tax (GST) regime and Warehousing Act 2007, investments in logistics parks and free trade warehousing
zones (FTWZs) have aided in the development of infrastructural facilities. The change in tax policy has had significant impact on investments by the logistics providers in warehousing segment and has opened the gates for large scale investments. There is tremendous competition between major private and public players in the market. The continued development of warehouse infrastructure will go a long way in providing the necessary support to the logistics industry. The infrastructure development in the warehouse segment is expected to get further fillip with the introduction of new regulatory and development bill.
Industry Snapshot
Indian Logistics industry is highly fragmented and can be classified into seven broad categories rail freight, Container Freight Stations/ Inland Container Depot, Multi-modal Transport Operator, coastal shipping, trucking, warehousing and express logistics. However, over the past few years, the concept of third party logistics (3PL) has evolved, which involves bundling of various logistics services such as warehousing, inventory management, transportation, freight - forwarding and packaging. The domestic logistics industry is growing at 10%-12% per annum and is currently estimated at USD 100-125 billion. The warehousing segment which forms an important constituent of logistics value chain is dominated by small players with limited capacity. As of March 2011, India had a warehouse space of around 1,800-2,000 million sq ft. However, most of the warehouses in India are small in size- between 5,000 and 25,000 sq ft with 80% being less than 10,000 sq ft as compared with 250,000 to 1 million sq ft in the US or Western Europe. The overall cost of the logistics in India is estimated to be approximately 13% of GDP. This is on the higher side as compared with approximately 5%-7% of the GDP in other developed nations of the world. The reason for the same being structural inefficiencies resulting from poor infrastructure, inconsistent tax system, high rail haulage rates, wastages in truck transport due to congestion, Octroi duty on truck transportation and no tax incentives. The major growth drivers for the sector would be increasing investment in warehousing, CFS/ICD and Multimodal Logistics Park, reduction of documentation and introduction of Goods and Service Tax (GST), uniform toll policy, granting of infrastructure status to the sector as a whole etc.
Duty Structure