Author: ASHISH KUMAR MISHRA
Article Dated:17 April 2007
Mumbai: At a time when the logistics industry in India is at a major inflexion point and international majors like United Parcel Services (UPS) and FedEx have started making their presence felt, DHL could not have waited any longer. DHL Exel Supply Chain & Global Forwarding CEO John Allan came calling last week. Attracted, no doubt, by the booming logistics market in India.
Riding on the increased investments in infrastructure, proposed phase out of Central Sales Tax (CST) and boom in the manufacturing sector, the organised Indian logistics industry is growing larger by the day. “We estimate the Indian logistics market to be around e33 billion. By 2015, we expect it to reach almost e90 billion at a compounded annual growth rate (CAGR) of over 11%, which is higher than the rate of growth of the Indian economy,” says Mr Allan.
He adds that in the next decade, there will be a substantial growth in the manufacturing segment, which will trickle down as opportunity for logistics companies. “There are two reasons why we see a major opportunity here. Firstly, India serves as a good base for manufacturing for exports like automobile components and pharmaceuticals so most of them are moving to India. Secondly, the size of the domestic market is itself getting larger.”
International majors like DHL, UPS and FedEx are competing strongly for the SME sector. Says Mr Allan, “Almost 70% of our customers are SMEs.” UPS, on the other hand, claims that almost 75 % of its customers are SMEs.
But opportunities come with huge challenges. India’s logistics spend, at 13% of GDP, is among the highest in the world due to a multilayered tax system, infrastructure bottlenecks and other inefficiencies. Says Mr Allan, “Compared to the developed markets, logistics costs tend to be higher or almost twice as high in underdeveloped markets” Logistics costs are generally calculated as a percentage of the sales value of the product.
Another challenge is to rise above competing with each other purely on cost. Mr Allan believes that this is a trend that will change with time. ”Moving forward, service providers will have to offer newer advantages. We ask the customers their needs and issues that they face and then design a service portfolio for them.” He adds that, if it does not suit the customer for whatever reason, then so be it.
Oddly enough, over the past few months, private equity activity in the logistics space has unfolded in a big way. Says Mr Allan, “I believe that there is nothing that private equity does that companies can’t do themselves. It seems that the private equity guys investing in the logistics space are looking at the development of infrastructure.”
DHL is looking at entering the Container Freight Station (CFS) business, though no big ticket plans have been laid down as of now, says Mr Allan.
Recently, DHL had increased its stake in the Indian JV with Lemuir group. In the new joint venture, DHL Lemuir Logistics Private Ltd, DHL will hold 76% stake. This is in contrast to the 49% it held in the earlier JV, DHL Danzas & Lemuir.
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Source: TIMES NEWS NETWORK [http://economictimes.indiatimes.com/Indian_logistics_market_to_touch_e90b_by_2015/