Business Logistics & SCM

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India logistics sector tipped for double-digit growth April 4, 2007

Filed under: Business Logistics — TSBL @ 4:47 pm

Article Dated: 20 February 2007

India’s third-party logistics (3PL) market is all set to experience a period of explosive organic growth, according to new research. The report, India Logistics Outlook 2007 by market analyst Datamonitors, predicts high double-digit growth rates for both outsourced and contract logistics in India. With India’s gross domestic profit (GDP) growing at over 9 per cent per year and the manufacturing sector enjoying double digit growth rates, the Indian logistics industry is at an inflection point, and is expected to reach a market size of over US$125 billion in year 2010. Strong growth enablers exist in India today in the form of over $300 billion worth of infrastructure investments, phased introduction of value-added-tax (VAT), and development of organized retail and agri-processing industries, says Praveen Ojha, logistics analyst with Datamonitor and author of the study. In addition, strong foreign direct investment inflows (FDI) in automotive, capital goods, electronics, retail, and telecom will lead to increased market opportunities for providers of 3PL in India. However, as a result of the under-developed trade and logistics infrastructure, the logistics cost of the Indian economy is over 13 per cent of GDP, compared to less than 10 per cent of GDP in almost the entire Western Europe and North America. As leading manufacturers realign their global portfolios of manufacturing locations, India will have to work on such systemic inefficiencies, in order to attract and retain long-term real investments.

With increased geographical distribution of incomes in India, the consumer markets are extending beyond the five metros of Mumbai, Delhi, Bangalore, Chennai and Hyderabad. However rather than being pre-emptive, the companies are only following with new distribution outlets. As such the increased competition across industry verticals is forcing firms to focus on product distribution, and logistics outsourcing is gaining further momentum with this.

According to Datamonitor, outsourced logistics, at just above one-quarter of the entire $90 billion Indian logistics market, is slated to grow at a compound annual growth rate (CAGR) of over 16 per cent from 2007-10.

The Indian logistics industry is characterized by dominance of a disorganized market. Transporters with fleets smaller than five trucks account for over two-thirds of the total trucks owned and operated in India and make up 80 per cent of revenues. The freight forwarding segment is also represented by thousands of small customs brokers and clearing & forwarding agents, who cater to local cargo requirements. In order to reduce logistics costs and focus on core competencies, Indian companies across verticals are now increasingly seeking and using the services of third-party logistics service providers (3PLs).

Datamonitor says the logistics industry in India is currently hampered due to poor infrastructure such as roads (over 70 per cent of freight transportation in India is via roads), communication, ports and complex regulatory structures.

The National Highways (NH) form only 2 per cent of the entire road network in India, but handle over 40 per cent of the national road freight traffic, putting enormous pressure on the highway infrastructure. Also, on an average a commercial vehicle in India runs at a speed of 20 miles per hour (mph) compared to over 60 mph in the mature logistics markets of Western Europe and the USA. In addition, the twelve major ports of India handle volumes higher than their full capacity, resulting in pre-berthing delays and longer ship turn-around time compared to even the East Asian counterparts like China and South Korea.



One Response to “India logistics sector tipped for double-digit growth”


    its informative to me

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