logistic+industry+in+India+-+a+overview

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Logistic Industry In India an Overview www.ziaahmed.org

Zia Ahmed [email protected] 1

LOGISTIC INDUSTRY IN INDIA

By:- Zia Ahmed

www.ziaahmed.org

[email protected]





Table of ContentsLOGISTIC INDUSTRY IN INDIA ................................................................................................................... 4

Key Drivers of Growth in Logistic Industry .............................................................................................. 4 Express delivery industry witnessed 15% CAGR over last 3 years

............................................................ 4 EMS speed post - focused on documents business ................................................................................ 4 Organized players offer pan-India network and account for 65% of the express market.............................. 5 Outsourcing - a new growth area........................................................................................................... 5 Express cargo companies cashing in on 3PL opportunity ........................................................................ 5

CURRENT SUPPLY AND DEMAND ............................................................................................................. 6 The logistics industry structure .............................................................................................................. 6 Elements of logistics costs in India ........................................................................................................ 6 Multimodal transport............................................................................................................................. 6 Road logistics ...................................................................................................................................... 6 Trucking industry in India ...................................................................................................................... 6 Express industry in India....................................................................................................................... 7 Courier industry in India........................................................................................................................ 7 3PL market in India: Poised for remarkable growth ................................................................................. 7 Ocean logistics .................................................................................................................................... 8 Containerization: Fastest growing cargo segment in shipping .................................................................. 8

FUTURE SUPPLY AND DEMAND................................................................................................................ 8 Transport Systems............................................................................................................................... 8 Strong container growth to boost major capacity addition of various ICD/CFSs.......................................... 9 Container train business: Cashing on inland transportation of containers ................................................ 11 Transport Systems............................................................................................................................. 12 Challenges in the industry................................................................................................................... 13





List of Tables

TABLE1: MAINPLAYERS INLOGISTIC INDUSTRYININDIA...............................................................................................6

TABLE2: CHANGINGINDUSTRYDYNAMICS...................................................................................................................7

TABLE3: KEYPLAYERS INROADLOGISTIC..................................................................................................................8

TABLE4: NUMBER OFCFSININDIA .......................................................................................................................... 11

TABLE5: EXISTING ANDPROPOSEDCFSATJNPT..................................................................................................... 11

TABLE6: VARIOUSCATEGORIES FOR CONTAINER TRAIN LICENCE ................................................................................ 12

TABLE7: MINIMUMREQUIREMENT FORCFS...............................................................................................................12

TABLE8: PLAYERSAPPLIED FORLICENSES................................................................................................................13

TABLE9: KEYPLAYERS INTHEINDUSTRY.................................................................................................................. 13

List of Figures

FIGURE1: NDIANEXPRESSCARGOINDUSTRYUSDBILLION...........................................................................................8

FIGURE2: CONTAINERCONTRIBUTION OFVARIOUSINDIANPORT..................................................................................9

FIGURE3: CONTAINERIZATION OF TOTAL CARGO IN%................................................................................................. 10

FIGURE4: CONTAINERGROWTH INMNTEUS............................................................................................................11

FIGURE5: CFS CONCENTRATION ININDIA.................................................................................................................12

FIGURE6: CONTAINERTRAFFICFLOW ...................................................................................................................... 14





which gives it edge vis-à-vis unorganized players. Moreover, EMS tends to focus on documents business rather than packages/ cargo.

Organized players offer pan-India network and account for 65% of the express market

Organized players use technology-based infrastructure, and integrated air and surface solutions in the domesticand international markets to their advantage. Considering that huge investments are required to set up a pan-

India network, economies of scale play a very important role. The organized players offer superior service toclients in comparison to their unorganized counterparts as they provide online tracking of cargo, warehousingfacilities, etc. This has enabled organized players to garner a larger share of the express cargo distributionindustry. Given their extensive networks and high service standards, organized players have captured 65% of theexpress business, while unorganized or semi-organized players account for ~25% of the total market. Theremaining 10% is serviced by EMS Speed Post. However, within the domestic sector, unorganized players offer aprice advantage over organized players. As a result, organized sector has only 45% share of the market withunorganized players having a comparable 41% share. The remaining 14% market share lies with EMS SpeedPost. The express industry handles two types of consignments, i.e. documents and non documents. On an overallbasis, documents account for ~60% of the total organized sector revenues while non-documents constitute only40% of the market

Outsourcing - a new growth areaManufacturing companies are witnessing increased requirement for logistics services as raw materials aresourced from one end, assembled in another part of the world and then distributed to some other location. Suchglobalize manufacturing systems require a modern supply chain technology involving the use of specializedsoftware and networks in a coordinated effort to design, manufacture, ship, assemble, and distribute componentsand finished products. Consequently, companies are increasingly outsourcing their logistics requirements fromthird party logistics (3PL) service providers to get better service and cost reduction for their logistic requirements.3PL logistics activities and solutions cover order compilation, dispatch planning, physical transportation, in-transitmonitoring, confirmation of deliveries, payment to transporters and providing MIS to the client. 3PL helps clientsachieve efficient inventory turnover and working capital management.

Express cargo companies cashing in on 3PL opportunityA third-party logistics provider (abbreviated 3PL) is a firm that provides outsourced or "third party" logisticsservices to companies for part or sometimes all of their supply chain management function. Third party logisticsproviders typically specialize in integrated warehousing and transportation services that can be scaled andcustomized to customer’s needs based on market conditions and the demands and delivery service requirementsfor their products and materials.To successfully offer 3PL solutions to clients, express cargo companies need tohave a comprehensive and integrated multi-modal transportation service. Moreover, time bound transportation of cargo is essential for providing 3PL solutions. In the recent years, express cargo companies have identified 3PLas a new growth opportunity. Their inherent know-how, distribution management skills, technology andinfrastructure enable them to offer such services to clients. Globalization has led to increased movement of cargoacross geographies. We believe the logistics sector is currently in the nascent stage and growth would likely

explode in the coming period in view of the strong economic growth, VAT implementation, increased outsourcingand international trade. We expect the express distribution sector to continue witnessing 20% CAGR over the nextfive years.





Table 1: Main Players in Logisti c Industry In India

Logistic company profiles International logistics companies Express IndustryTVS Logistics Services Limited Exel DHLSafexpress DHL Danzas FedExContainer Corporation of India Ltd. (CONCOR) Aramex India UPS Jet Express Private LimitedDynamic Logistics SembCorp Logistics TNT India Private Limited

Gati Limited AFL LtdABC India Ltd AFL WIZ (Domestic Express Courier ServAssociated Road Carriers Ltd DTDC Worldwide ExpressPatel Roadways Limited (PRL) Elbee Services Ltd.South Eastern Roadways Corporation Limited (SERL) First Flight Couriers (P) LtdTransport Corporation of India Ltd (TCIL) Overnite Express Ltd

Blue Dart

Current Supply and Demand

The logistics industry structure

The global logistics industry was estimated at about USD 3.5 tn in 2005. India currently spends 13% of its GDP on

logistics, which is expected to come down to 8-10% due to adequate logistics systems and acceptance of 3PLservice providers. This has created a need for a range of logistics & supply chain management (SCM)) solutionsranging from logistics, supply chain, transportation and material handling to storage, warehousing, IT, inventorymanagement, etc., that benefit the productivity and efficiency of the entire value chain. Indian logistics industry ischaracterized by dominance of the unorganized market. Players can be broadly categorized as local transporters,transporters providing some kind of value-added services such as warehousing services, and completelyintegrated players providing 3PL services. The transportation service provider segment is completely dominatedby small local trucking companies and individual truckers. The freight forwarding service provider segment is alsorepresented by thousands of small customs brokers and clearing & forwarding agents, who cater to local cargorequirements.

Elements of logistics costs in IndiaIn India, the logistics market is still in a nascent stage and is predominantly considered for transportation. Themajor elements of logistics cost for Indian industries include transportation, warehousing, inventory management,and other value-added services like packaging.

Transport systems Logistics worldwide is heavily dependent on the kind of infrastructure and modesavailable for transportation. Based on the usage of modes, it can be classified into unimodal transport (traditionalmode) and multimodal transport systems.

Multimodal transport The concept of door-to-door delivery, which involves making use of all the modesof transport like rail, road, air and sea is termed as multimodal transportation. This significantly reduces the overallcost involved in the complete chain of logistics.

Road logistics The road transportation sector, dominated by the unorganized sector, has been growingat the expense of Indian Railways in the freight segment. Road transport will continue to be dominated by theunorganized sector in the future. During 1991-92 to 2002-03, freight transport by road grew at an estimated CAGRof 7.75%. In 2002-03, freight carried by the road transport sector is estimated at 607 billion tones km (btkm). Thisis expected to touch 1,023 btkm in 2009-10E.

Trucking industry in India The trucking industry in India is characterized by fragmentation andunorganized players. It is estimated that close to 80% of the industry in unorganized. It is mostly controlled byprivate players with dominance of small fleet operators. It is a plain vanilla offering and the barriers to entry arevery low, as 65% of the players are small fleet operators owning 1-5 fleets





Express industry in India

Express businesses offer document, small package, and general distribution services throughout the country andoverseas, on a time-definite basis. They have significant investments in brand, technology, infrastructure, people,and regulatory development. They offer wider, value-adding, services than couriers, including border management(octroi, customs, and security), track and trace, trade facilitation, warehousing and distribution, and performanceaccountability. In 2005-06, the total industry market size in India was INR 40 bn( USD 950 million). Of this, the

total organized express industry is at approximately INR 26 bn(USD 500 million), and the organized domesticsegment at INR 11 bn(USD 250 million). The Express Industry Council of India survey projects the industry togrow at 20% every year.

Courier industry in India

Couriers mostly offer point-to-point document deliveries across metropolitan areas using manual administrationand operational systems. Some offer small parcel deliveries and some offer regional and even national services.They are all ‘low-cost operators’ with limited infrastructure and they exist in both organized and unorganizedsegments of the economy. The courier industry has world over been recognized as an essential andindispensable part of any economy. In India, various factors like growth of the industrial segment, growth inexports and imports and overall economic scenario of the country have contributed to the growth of the courier industry. Domestic courier industry with a turnover in excess of INR 22 bn is still in a nascent stage. India hasmore than 2,300 courier companies. It is a highly disintegrated industry with nearly 20 players in the organizedsector, 2,000 in the semi organized sector, and the rest in the unorganized sector. There are a few major playersin the organized sector who have a combined market share of 90%.

3PL market in India: Poised for remarkable growth

The 3PL market in India is still in a relatively nascent stage, with multinational companies in all industries beingpredominant users of these services. However, domestic majors in leading industrial sectors have also begun tofollow the footsteps of their multinational counterparts, starting with outsourcing their basic logistics functions.Realizing the significant cost reductions and several other benefits gained by these companies, a large number of

small to medium companies in all the industries are gearing up to use 3PL services for their logistic functions,resulting in tremendous potential for 3PL market in India. One of the most important logistics functions for Indianindustries still are transportation and warehousing, which are likely to be outsourced to 3PL service providers.High level of growth is estimated for the Indian 3PL market in the next 5-7 years. The Indian 3PL market,estimated at about USD 890.3 mn in 2005, is expected to grow at a CAGR of 21.9% to touch USD 3,556.7 mn in2012E. Other sectors which have shown substantial contribution to 3PL market and significant growth potentialinclude information technology, hardware and electronics, FMCG, and retail sectors.

Table 2: Changing Indust ry Dynamics

Services Today FutureConsignment Tracking Track and Trace GPS/GIS- dynamic routing of inventoryLogistics Transportation Movement Solutions, manpower, money and materialRegulatory Compliance Consultative + ComplianceTransportation Trucking Bonded: Express, TruckingWarehousing Space provider Dynamic engagement between stock and fulfillmentMaterial Movement Pick up & drop off Procurement & movement





Figure 1: ndian Express Cargo Industry USD billion

0.600.67

0.87

0.99

1.15

1.49

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

U

S

D

M

i

l

l

i

o

n

2003 2004 2005 2006 2007 2008

Year

Indian Express Cargo Industry

Table 3: Key Players in Road Logistic

Road Express Air Express Courier Industry Warehousing Industry Trucking Industry 3 PL Service Provider

Gati Gati Bluedart Exel Logistic Delhi Assam Roadway Exel

Safeexpress Safeexpress Firstflight AFL Patel Roadways Bax Global

TNT( Speedage) Bluedart AFL Om Logistic SemCorp

TCI DTDC CWC Panalpina

Overnite Safex Geo Logistic

Professional Courier DHL

Ocean logistics

With a coastline of 7,517 kms, India has 12 major and 184 minor ports. Ports play a vital role in the supply chainof most exporters from India. It involves various intermediaries like freight forwarders, customs house agents,multi modal transporters, and inland container depots & container freight stations.

Containerization: Fastest growing cargo segment in shipp ing

One of the most remarkable developments in the traffic carried at various ports across the world iscontainerization of bulk goods, which were earlier carried loosely from one port to another. This has resulted inmultiple benefits in terms of reduction in cost, increased safety of goods transported, increased speed of transportation, and significant increase in efficiency in handling cargo. This is evident from the fact that traffichandled at various ports in India has grown at a rate of 6.7%, whereas container traffic has grown at a CAGR of 14% from 2.2 million TEUs in 2000 to 4.7 million TEUs in 2006.

Future Supply and Demand

Transport Systems

India’s container traffic growing at CAGR of 14% Burgeoning trade is driving container traffic at major ports in thecountry. In the past five years, India’s container traffic has increased at CAGR of 14%. There has been a sea





change in accepting containerized trade in the region, which has played a crucial role in this high growth rate.Remarkably, India’s container traffic is growing faster than the global container traffic during the past 6-7 years.The country’s growing external trade, particularly textile, automotive, auto ancillary, engineering, and capitalgoods, have boosted containerization in India. India’s growing domestic market is one of the major drivers of containerization. Containerization to contribute 22% to total cargo by 2010-11E The robust growth of India’smanufacturing industry has pushed up India’s containerization. The government of India has pursued a policy of

developing a number of Inland container depots and container freight stations to facilitate modal interchange anddistribution of cargo and most importantly to avoid awkward customs procedures from the waterfront.containerization at major ports of India contributed about 11% of total cargo handled at those ports in 2000-01, itincreased to 16% in 200506, and is estimated to further increase to 22.7% by 2010-11E.

Strong container growth to boost major capacity addition of various ICD/CFSs

ICD: (Inland Container Depot). To capitalize on the growing trend of containerization of international trade,containers are permitted to be moved to points in close proximity to important industrial stations, so that theimported goods are cleared at as close as possible to the importers premises. The facility also enables exportersexport goods from a point that is closest to their premises. With this aim of creating a suitable place and facilitatingexport and imports, ICD were created.

CFS: (Container Freight Station). For examination, assessment of the containerized cargo, both import andexport CFS were set up. They are appointed as custodians of imported goods by the commissioner of customsIndia currently has 177 ICD/CFSs in various parts of the country with a majority of them in the northern andwestern regions. With high growth in container trade, most of the ports and the CFS near them are working at100% capacity utilization. JNPT, India’s largest container handling port which carried 2.8 mn TEUs, accounts for 59% of total containers handled in India and the CFS’ capacity in the region is ~ 900,000 TEUs. In the recent past,there have been many players who have established their presence in the ICD and CFS segment. The barriers toentry are also low as land acquisition is the only criteria for establishing presence and in the present scenario;volume generation is much higher as compared to ICD/CFS handling capacity. We believe that the quality of service provided at the CFS and strong relationship with shipping lines is an important differentiating factor in theindustryFigure 2: Container Contribution of Various Indian Port





.

Figure 3: Containerization of total cargo in %

11

16

23

0

5

10

15

20

25

%

2000-01 2005-06 2010-11

Year

Containerisation in India





Figure 4: Container Growth in Million TEU’s

3.9

4.5

6.2

9.2

0

1

2

3

4

5

6

7

8

9

10

m

T

E

U

s

2004 2006 2008 2010

Year

Steady Container Growth

Table 4: Number of CFS in India

Region CONCOR Others TotalNorth India 15 22 37South India 10 58 68West India 13 39 52Central India 9 - 9East India 8 3 11Total 55 122 177

Table 5: Existing and Proposed CFS at JNPT

Exist ing CFS at JNPT Capacity TEUs/annum Proposed CFS Capacity TEUs/annumB/Lawrie 96,000 AMEYA CFS ( CMA-CGM) 48,000Conware 39,000 CWC CFS LOGISTIC PARK ( MSC) 72,000CFS- JNP 61,200 FORBES- GOKAK ( PATVOLK) 40,000CFS-D’node 72,000 SOL LOGISTIC 115,000CWC 54,000 PNP MARITIME 57,000DRT 97,200 THAKUR CFS 139,500GDL 186,000 TRANSINDIA CARGO SYSTEM 60,000Maersk-CFS 99,600 APOLLO INTERNATIONAL 60,000Maersk 42,000 NHAVA SHEVA LOGISTICS 90,000TLP 105,600 DADAJEE DHACKJEE LOGISTICS 60,000SEABIRD 37,200ULA 46,200

MSWC 20,400CWCL 19,200JWC 14,400PREETI 7,800TOTAL 997,800 741,500

Container train business: Cashing on in land transportation of containers

In India, till some time back, container carrying was a monopolistic industry. Container Corporation of India(Concor) was the only player allowed to run container trains. While container traffic increased at a phenomenal





Table 8: Players Appl ied for Licenses

INR 500 mn= USD 11mn INR 100 mn = USD 2.2 mnConcor J M BaxiMSC ( Hind Terminal) Delhi Assam RoadwaysNOL ( Hindustan Infrastructure) Bothra ShippingSICAL Pipavav Rail CorporationETA

Adani GroupP & O Ports ( DPW)GatewayReliance

Table 9: Key Players in The Industry

Multi Modal ICD/CFS Container train Freight forwarders Container Companies ShippingLines

Allcargo Concor Concor AFL CONCOR MaersklineUnited Liner Agencies

GatewayDistriparks

GatewayDistriparks

Air and Sea CargoSystem

Indian Container LeadingCompany

P&O Nedlloyd

Agil Freight Allcargo Reliance Alpha Cargo Express Maersk APLSICAL SICAL Express Freight

Forwwars

MSC

JM Baxi JM Baxi

Challenges in the industry

Dominance of large number of unorganized companies The logistics industry is highly unorganized. Itis estimated that the unorganized segment accounts for over 80% of revenues across the value chain. There area large number of market participants present across the value chain. Logistics encompasses transportation,warehousing, distribution, and value-added services. In transportation, predominately in the road segment, themarket is highly fragmented with individual truck owners and small unorganized companies holding significantmarket shares. Truck owners with less than five trucks account for 67% of the total trucks owned and operated.Warehousing activity is also highly unorganized with individual owners dominating this segment. The fragmentednature of the industry leads to end-user industries utilizing disintegrated services to form their logistics chain. Thisinvolves dealing with a large number of transporters, warehouse agents, and distributors. These marketparticipants are involved only in providing disintegrated services with little value addition to the entire process andhence, are in a position to offer highly competitive rates, many a times undercutting organized companies.However, with companies moving to outsource logistics in an effort to remain competitive, share of theunorganized sector is slowly dipping over the years.

Infrastructure changes essential to improve efficiencies The logistics industry is hampered due topoor infrastructure such as roads, communication, and ports. Over 50% of all goods are transported by road. Theroad infrastructure is poor in the country. Of the total road length of over 3 mn kilometers, national highwaysconstitute only 1.9% of the road network amounting to 57,737 kilometers. On the other hand, national highways

carry over 45% of the total goods transported by road. This puts enormous pressure on the highway system. Also,the poor condition of roads and their maintenance further strains users. Another reason was that only about 1% of national highways were four-lane till 2000, leading to slower pace of goods movement, affecting transporters’efficiency and higher cost due to higher usage of fuel, directly affecting profitability and turnaround time. It isestimated that in India a commercial vehicle on an average runs at a speed of around 35 kilometer per hour (kmph) compared to over 100 kmph in other developing countries. However, this problem is likely to have a lower impact over the long term as the government has initiated projects to four or six-lane national highways coveringthe four metro cities and connecting the North-South and West-East corridors. These projects are planned toprovide world-class roads that are likely to cut down travel time and ensure savings in fuel and maintenance





costs. This is further likely to have a positive impact on the profitability of truck operators and help in consolidatingthe road freight industry. Reformation of government policies must for development of industry Governmentpolicies affect growth and efficiency of logistics management companies. In India, lack of such a policy means thatindividuals and smaller companies are able to offer cheap services to end-user industries, affecting profits of largeorganized companies. The policy on tracking, if implemented, is likely to positively impact companies which caninvest in such technologies. In current market conditions, although logistics management companies are willing to

invest in such technologies, the issue of cost sharing by the end-user industry is acting as a restraint. Governmentpolicy mandating usage of tracking devices is likely to force end-users and logistics management companies toinvest in such technologies and the cost of offering these services will reflect the cost involved in tracking.

Figure 6: Container Traffic Flow

Sources

1. Logistics Spreading Out- Edelweiss Securities2. Logistics: Helping in Wealth Creation – Kotak Securities3. Retail, Franchising and Logistics-Price Waterhouse Coopers4. SSKI India Research

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