The Indian Logistics Sector – A Bright Future Prospect

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 percent 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



The Path Ahead

The future prospects appear to be very bright for this sector. On the IT front, there are innovations in the pipeline waiting to be deployed. Some of them include Warehouse Control System (WCS), Standard Interfaces (EDI standards) for B2B transactions, Web Services, Radio frequency Identification (RFID), and Telematics.
Approximately 110 logistics parks spread over approximately 3,500 acres at an estimated cost of USD 1 billion are expected to be operational in the near future. Further, an estimated 45 million sq. ft. of warehousing space with an investment of USD 500 million is expected to be developed by various logistics companies by 2012. Centres like Haldia, Falta, 24 Pargana, Dankuni, Kharagpur, Bantala and Durgapur are expected to witness substantial logistics activities in the near future.

The Conglomerate of two Obsessions in India

Cricket, a gentlemen’s game till the inauguration of the Indian Premier League, has changed its ways and means after the latter. The ardent lovers and the stalwarts of the game would have never envisaged that cricket will form a part of the ongoing extravaganza. After the IPL, Cricket and Bollywood have further strengthened relationships by intertwining to the business of sports. The amount of Bollywood influence on the game has substantially increased, thus, changing the very temperament of the game.

Since the inception of the IPL, there has been an influx of a lot of Bollywood celebrities in the game – either for business or marketing purposes. Bollywood biggies like Akshay Kumar, Hrithik Roshan and Katrina Kaif were roped in as official faces for Delhi Daredevils, Mumbai Indians and Royal Bangalore Challengers respectively. Realising the business potential in the game, people from Bollywood fraternity like Shah Rukh Khan, Juhi Chawla and Preity Zinta acquired franchisees of the teams in the IPL. Recently, Shilpa Shetty also acquired a stake in Rajasthan Royals. There are a lot of ad campaigns where the people from the two industries have come together to endorse a brand. Brands endorsed by Cricketers and Bollywood stars get an extra edge over other products due to the face value and snob appeal among the masses.

The conglomerate has reaped benefits on the monetary front in an immense way. The hype that Cricket and Bollywood has created for IPL has spread around the world and has attracted huge bucks. Players have been bought for staggering amounts; marketing has been done in a lavish manner and the cheer girls make up for the glamour quotient. A flavour of Bollywood has now been merged with the game of Cricket, thus diluting its persona.

However, one would feel that amidst the enormous business that this conglomerate has tapped and the revenues that it has garnered, the game has lost its charm – the charm which was there a few years ago. Though it is a revolution in the game from the business aspect, the lovers and the observers of the game would feel that the game is not a game anymore. It has turned out to be a valued proposition for business for many from the two industries.