Thursday, February 5, 2009

The Indian Logistics Sector – A Bright Future Prospect


February 4, 2009

The Logistics sector has been touted as a lucrative sector; however, the sector is still in its nascent stage in India. Despite having robust potential, logistics has not blossomed to its capability due to the fragmented set-up, lack of awareness amongst investors and inadequate measures by the government. Logistics primarily involves transportation, warehousing, order processing, inventory control, and material handling activities of goods and services. India currently spends around 13 percent of its GDP on logistics; this is higher than the US (10 percent), Europe (11 percent) and Japan (10 percent).

Though the industry has not witnessed the pinnacle, the recent figures seem strong and promising. In addition, the Indian logistics industry, expected to grow annually year-on-year at the rate of 15 to 20 percent, is projected to garner revenues of approximately USD 385 billion by 2015. Market share of organised logistics players is also expected to double to approximately 12 percent during the same period. The Indian logistics market is expected to reach a value of USD 125 billion by 2010, increasing from approximately USD 100 billion in 2007.
IT and Logistics

IT is considered as the backbone of the logistics industry. The integration between technology and logistics becomes a key for successful planning and transportation of goods from suppliers to consumers. The IT elements employed in the Indian logistics industry are Track and Trace, Warehouse Management System (WMS), Transportation Management System (TMS), ERP and Scanner implementation, Automatic Conveyor Belt system, and Scan-based Auto Sorting tables and process. Global players such as SAP, Oracle, SSA Global, Manhattan, and i2 technologies presently supply IT infrastructure to logistics companies. The IT expenditure in the logistics industry is currently pegged at USD 83.17 million and is destined to reach approximately USD 207.94 million within the next five years with a CAGR of 20-22 percent.
Investments and Logistics

India’s logistics sector had, so far, remained unorganised and devoid of investor interest. This continuous trend has started making a shift towards attracting investor interest. The sector attracted investments worth around USD 4.82 billion in the first half of 2008 which outclassed investments in other sectors including aviation, metals and mining and consumer durables. The contrasting change in the volume of investments is due to major development in an important factor, viz; organised logistics, which comprises of about six percent of the total logistics market, and is rising at 15 to 20 percent per year. Despite the economic slowdown, the organised market is expected to rise to 12 percent in a very short period.

The FDI cap has been lowered to 49 percent in the industry; however, the sector is still seeing a flurry of deals involving foreign players; for example, the DRS Group, a cargo transportation firm, received an investment of almost USD 22.5 million for approximately 25 percent stake from the PE arm of Kotak Mahindra Bank in 2007 to build and operate around six warehouses in the southern region of India. In a similar deal in 2007, First Flight Couriers Ltd. received funding of around USD 27 million from Temasek Holdings for a 27.7 percent stake, which the courier company utilised for expansion of its aviation and warehousing businesses.
Outsourcing and Logistics

Approximately 50 perent of Indian companies are now outsourcing logistics services such as supply chain management and contract warehousing up from a mere 10-15 percent reported at the start of the decade. At present, outsourced logistics accounts for only one-third of the total logistics market in India. The potential for growth is therefore considerable, opening a horizon of opportunities for the major logistics players to either enter the Indian market or step up their operations in the country. In addition, strong FDI inflows in the automotive, capital goods, electronics, retail and telecom market will lead to increased market opportunities for providers of third-party logistics in India which are growing at over 25 percent.

Major Logistics Players in India

logistics players