Strategic Insight on the Indian Logistics Industry

Reforms and Modernization of Transportation Infrastructure will Open Up Growth Opportunities for Service Providers

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The Indian logistics industry is fragmented and under developed. Logistics costs are relatively high due to poor physical and communication infrastructure; high dwell time at ports; low levels of containerization; and a multi-layered tax system contributing to significant delays at border crossing points. Development of transportation and logistics-related infrastructure such as dedicated freight corridors, logistics parks, free trade warehousing zones, and container freight stations are expected to improve efficiency. Government reform initiatives, promotion of manufacturing and trade, improving investment climate are expected to transform the industry and drive growth between 2016 and 2020.

Economic reforms, trade cooperation, improved transportation infrastructure, and industrial growth is ushering in increasing opportunities for the logistics service providers (LSPs) in India. Presently, the Indian logistics industry is witnessing development and expansion of its existing infrastructure, emergence of e-commerce specific logistics solutions, has a strong focus on manufacturing, but also has a large presence of unorganized service providers.

Indian Logistics Industry is expected to grow at a CAGR of 8.6 percent between 2015 and 2020, which grew at a CAGR of 9.7 percent during 2010-2015. Transportation and Communication accounted for 7.0 percent of the nation’s GDP in 2015, accounting for around US $130.44 billion. The key drivers of this growth are infrastructure investment associated with ports, airports, and other logistics development plans, domestic demand growth and increasing trade.

Key trends observed in the Indian logistics industry are 

  1. Government initiatives to promote the manufacturing sector and exports are likely to increase the demand for logistics functions. Trade with Asia, Europe, and North America are likely to remain major drivers for freight forwarding and transportation companies in the region.
  2. Major investments by both public and private sectors in the last five years on infrastructure, technology upgrades and expansion of sea and airport facilities, and dedicated logistics corridor in the rail network are expected to strengthen the Indian logistics infrastructure. 
  3. The booming e-commerce market in India is bringing in new opportunities for LSPs. The evolving business model(s) in this space focuses on containing logistics and delivery costs.
  4. The expected implementation of nationwide uniform GST is likely to transform the distribution structure of majority of industries as it eliminates the need for dedicated warehouses for each individual administrative region.

The industry outlook highlighted India’s trade scenario and its contribution to the logistics industry, with details on port traffic, sea, air and road freight. India’s exports are primarily driven by manufacturing products, fuel, minerals and agriculture products. The Government of India’s Foreign Trade Policy (2015-2020) aims to increase the value of trade to US $900 billion by 2020, by aligning with Government initiatives such as Make in India, Digital India, and Skills India to promote exports growth. Asia leads the share of trade for India, while America and Europe are the other key regions. Exports to Asia, Europe, and America accounted 88 percent of the total exports in 2014.

Sea freight in India is a major contributor to the freight movement as more than 70.0 percent of the international trade is through sea ports. It is expected to grow by 5.7 percent driven by the demand from Asia, Europe, and Africa. Major ports contributed 55.0 percent of the total sea freight and the capacity will expand as three additional ports are planned in West Bengal, Maharashtra, and Tamil Nadu. Containerised cargo tonnage is likely to cross 123 million ton in 2016 and is likely to grow by 4 percent driven by port modernization and expansion plans.

Port traffic in major Indian ports has grown by 1.8 percent between 2010 and 2015. But there has been uneven growth with ports located in the Western Coast and Gujarat witnessing consistent growth due to port privatization and industrial growth (Kandla has the highest share of port traffic - more than 15 percent). The infrastructure challenges at Indian ports include limited capacity, pre-berthing delays, longer ship turnaround time, inadequate draft etc.

Share of road transport in total freight volume has been increasing in recent years. The road freight volume in India is forecasted to be 2211.24 billion freight tonne kilometre growing at 4.7 percent. As per the Government target, additional 50,000 km of national highways is expected to be added by 2020. The Ministry of Road Transport and Highways plans to award close to 5,000 km to private companies during the 2016-17 period which is worth approximately $7.69 billion.

Frost & Sullivan analysis finds that the logistics industry is expected to increase by over 8 percent during the forecast period.The factors that can drive this growth include, high costs of maintaining in-house logistic activities, rising complexity in supply chains due to growth in global sourcing and distribution practices, increasing orientation of manufacturing industries to focus on core competencies, and growth in online retailing. Along with the growth drivers, improving weak infrastructure connectivity and distribution networks, developing specialty storage facilities, bringing in uniform regulations and removal of administrative hurdles to prevent loss of time to deliver across borders is required to achieve the desired results.

Table of Contents

Strategic Insight on the Indian Logistics IndustryExecutive SummaryKey Findings Key Findings (continued)Key Findings (continued)Overview of Global Trends and IssuesGlobal Trends—Geopolitical, Economic, and Financial Developments and IssuesGlobal Oil Supply and Demand Imbalance Crude Oil Outages—Unplanned Outages by the OPEC Member CountriesGlobal GDP Growth—Economic Uncertainties to Continue to Hamper Global GrowthIndia—Economic TrendsIndia Set to Represent about 4% of Global GDP by 2020“Make in India” to Revive Manufacturing and Improve Logistics InfrastructureMajor Industrial Clusters in India Manufacturing Products Comprise of More than 50% ExportsAsian Trade Dominated by Manufacturing Goods South Asian Countries Accounted for about 3% of India’s Trade Asia, Europe, and America Remain Key Destinations for ExportsForeign Trade Policy (2015–2020) to Support Trade GrowthOpportunity to Improve Logistics Efficiency Due to Poor Transportation InfrastructureEconomic Reforms and Improving Infrastructure Likely to Provide Opportunities for LSPs India Can Increase its Transshipment Potential by Improving Logistics Infrastructure Macro Drivers of Logistics—Development Plans, Trade, and Infrastructure Investment to Support GrowthOverview of the Indian Logistics IndustryServices Sector Growth Will Be Driven by Construction and Robust Trade SectorsOverview of Indian Economy and Share of Logistics SectorLogistics Expenditure in Key IndustriesTransportation and Logistics Industry SizeFreight Activity in IndiaSea Freight Development in India—Total Port Traffic TrendsSea Freight Development in India—Traffic at Major PortsSea Freight Development in India—Contribution of Major PortsPort Development InitiativesRoad Freight in India—Transportation Projects to Ease Congestion and Improve Efficiency Air Freight in India—Air Cargo Sector Likely to Receive Infrastructure StatusAir Freight Development—Capacity Constraints Hampers International Air Cargo GrowthKey Enablers and ChallengesTransportation and Logistics Industry Size ProjectionKey Trends Affecting the Indian Logistics IndustryEconomic Trends—External Trade and Foreign Direct InvestmentGST Likely to Alter Logistics Network of Light and Consumer-based Industries eCommerce Boom Likely to Drive Warehousing Demand and eLogistics Solutions Customer Trend—Logistics Benchmarking and Analysis of End-user Preferences Impact of Logistics Industry Trends—Conditions Favorable for Smooth TakeoffOutlook and Growth Opportunities for the Indian Logistics IndustryLSPs Can Invest in Assets to Reap the Benefits of Reform Dedicated Freight Corridors to Lead Modal Shift toward Rail Freight“Make in India” Opens up Diverse Growth Opportunities for Logistics Service Providers Moving toward Integration of Multi-modal Logistics Infrastructure to Deliver Freight within and across BordersLogistics Industry Ready to Take Off Legal DisclaimerAppendixLogistics Services SegmentationLogistics Industry TitlesThe Frost & Sullivan StoryThe Frost & Sullivan StoryValue Proposition: Future of Your Company & CareerGlobal PerspectiveIndustry Convergence360º Research PerspectiveImplementation ExcellenceOur Blue Ocean Strategy




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