LOGISTICS INDUSTRY

Indias 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
sectors 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 Indias 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 sectors 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, Indias 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 workleading to huge inventory investments and wastageand 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.