Changing Landscape of Indian Logistics Industry
The Indian logistics industry is growing at a rate of 10.5% per annum and expected to touch USD215 billion in 2020. The logistics sector is estimated to provide a livelihood to over 22 million people and the number is growing rapidly. Growth of this industry is driven by increasing consumption across sectors and growth of eCommerce industry in specific. Total logistics costs account for 3.5-5% of the retail price in CPG up to 20% in commodities and process industries.
Improved road infrastructure, increased axle load for commercial vehicles and more importantly with the implementation of GST, the Indian logistics industry is undergoing a major structural change. Consolidation of warehousing network (shift towards hub-spoke model) and increasing tax compliance is driving the business move more towards organized players in warehousing and transportation.
Growing Warehousing Business
The share of warehousing costs is increasing with emerging industries and sophistication of warehousing activities. With the implementation of GST, improving road infrastructure and increased axle loads for trucks are resulting in the consolidation of warehouses. Hence, the warehousing industry is in a major boom where we are seeing large private equity players showing investment interests in creating logistics real estate.
Estimated that country has over 300 million sq. ft. of space of which only 12-15% is grade A. The need for warehousing space is driven by both growths in fresh demand and replacement of old godowns or grade C warehouses.
Road transportation is estimated to be 60-70% of India's domestic freight. However, the segment is considered to be inefficient. The inefficiency is attributed to the high fragmentation of the industry where small to medium fleet owners control over 90% of the trucking industry in India. However, higher GST compliance is creating a level playing field for organized third party logistics players by virtue of access to the input tax credit.
Qwixpert's financial analysis of several logistics firms in the country shows that median growth was just 3% and the median return on capital employed (ROCE) was 19%. Companies who have grown more than medium while maintaining median ROCE are those have a good mix of contract logistics services in addition to customers of 3PLs are starting to ask for complete solution and not just a commercial quotation. Also, with the increasing cost pressures with the client, they expect 3PLs to improve productivity to manage the manpower cost increase. Hence, it is very important for 3PLs to choose the industry sector to target based on the inherent strengths and right aspirations.
Transportation players moving towards integrated 3PLs
Targeting the right customers, pipeline management, win loss analysis to improve effectiveness. Also training sales team on the process of developing long term customers.
Improve the productivity of ongoing operations to reduce the cost and improve profitability of the key account/project
Service Offering Design
Based on the current strengths and client profile, create service offerings to improve the share of wallet with customers as well as improve profitability.
Help 3PLs in responding to to technical part of RFQ in arriving at the solution network, warehousing, line feed mechanism, etc.
RFQ Solution Design
Value Creation for Clients
Identify areas of improvement in their client's supply chain which may or may not be in 3PL's scope. Helps clients saves costs or improve service levels and poentially increase business for 3PL
Help 3PL set up or take over new projects from existing client (or 3PL) operations smoothly without affecting the client's business.