Logistics is regarded as the backbone of the economy, providing efficient and cost-effective flow of goods on which other commercial sectors depend. The sector comprises shipping, port-services, warehousing, rail, road and air freight, express cargo and other value-added services. The global logistics market currently generates over USD 8 trillion annually and represents around 11% of global GDP.
The Indian logistics sector comprises inbound and outbound segments of the manufacturing and service supply chains. Companies in India currently outsource an estimated 52% of their logistics requirement.
Transport is a crucial function of the logistics industry, accounting for 50-60% of the market size, followed by warehousing and storage, comprising another 25-30% of the total market. The rest of the market constitutes value-added and freight forwarding services. The size of Indian warehousing industry is estimated at over Rs.550 billion. Of this, the industrial warehousing and retail industry accounts for more than half of the total market share, comprising over 515 million square metres, with market value of Rs.300 billion, while agri warehousing, is estimated to be 121.39 mt or Rs.100 billion. Road transport, with 60% share, dominates the logistics industry, followed by railways 32%, waterways 7%, and air cargo 1%.
The boom in the e-commerce sector and expansionary policies of the FMCG firms has increased the service geography of the logistics firms. The industry has moved from being just a service provider to provider of end-to-end supply chain solutions to their customers.
The Indian freight transport market is expected to record a CAGR of 13.35% by CY 2020, driven by the growth in the manufacturing, retail, FMCG and e-commerce sectors. The freight transport market in India is expected to be worth US$ 307.70 billion from CY 2015 to CY 2020. In India, road freight constitutes around 63% of the total freight movement consisting of 2.2 million heavy duty trucks and 0.6 million light duty trucks annually. The road freight movement is expected to register a CAGR of 15% over the next five years. The sea freight consists of around 9% of the total freight market and is mainly used as a major mode for imports and exports. Air freight comprises about 1% of the total freight market in India and is projected to register around 12.5% CAGR over the next five years.
India spends around 14.4% of its GDP on logistics and transportation compared with less than 8% by other developing countries. According to Assocham, India can save up to US$45 billion if logistics costs are brought down to 9% of the country’s GDP, thereby making domestic goods more competitive in global markets. The US spends 9.5% and Germany 8% of their GDP on logistics costs.
The rollout of GST is expected to eliminate the time spent at check posts for administering local taxes, and reduce the competitive edge enjoyed by the unorganized logistics players due to tax avoidance. The new tax regime will bring down distribution costs for organized players in the industry. It has eliminated the need for dedicated warehouses for each individual administrative region. Logistics companies, forced to set up many small warehouses across multiple cities, can put up just a few, big warehouses region-wise and can follow the hub-and spoke model for freight movement from the warehouses to the different manufacturing plants, wholesale outlets, retail outlets and the various point of sales.
The integrated transport and logistics framework aims at increasing the average speed of freight transportation on the highways network from the current speed of 20-25 km per hour to 40-50 km per hour and to reduce the logistics cost by almost half. An overall network of about 56,000 km has been identified including existing national corridors (Golden Quadrilateral and north-south-east-west corridor), proposed economic corridors, inter corridor routes and feeder routes. In addition to this 191 towns and cities have been identified on these routes where steps will be taken to reduce congestion. Inter-state border movement related documentation and procedure will also be simplified. These interventions will enable a reduction of 5%– 6% in the overall supply chain costs in the economy. Logistics parks will help reduce transportation cost for the top 15 nodes by about 10%, besides reducing pollution, congestion and warehousing costs.
The government’s plan will serve to make the economy competitive by reducing logistics costs, bring down pollution levels by reducing congestion on roads, give a boost to industry and create employment. This is the first time ever that the development of the transport sector is being done in such an integrated manner. The plan will serve to make the economy competitive by reducing logistics costs, bring down pollution levels by reducing congestion on roads, give a boost to industry and create employment.