India’s logistics sector has begun to accelerate due to the adoption of digitisation of commerce that has impacted warehousing and transportation formats. The logistics industry was valued at an estimated $ 130 billion in 2012-13. It has grown at a CAGR of over 16 per cent over the last five years. The Government of India has initiated several policy measures and programmes to attract investments in developing the logistics infrastructure of the country. According to the recent Economic Survey, the industry which is worth around $ 160 billion is likely to touch $ 215 billion in the next two years.Some of the key reforms undertaken by the Government of India include the following:

FDI regulations
The government allows 100 per cent FDI under the automatic route for all logistics services, Also, FDI of up to 100 per cent is permitted for courier services, subject to Foreign Investment Promotion Board (FIPB) approval.

Greater investments in the development of logistics infrastructure
The government has significantly increased the investment allocated for the development of logistics infrastructure including ports, airports, national highways, logistics parks, freight stations and corridors.
Private sector partnerships
Several measures have been undertaken by the Government of India to encourage private sector participation in the logistics industry across all modes. These measures include increasing targeted contributions of private players in the investments set aside for the development of logistics infrastructure, tax exemptions and duty-free imports. Apart from speeding up capacity creation, this is also aimed towards incorporating latest technologies and better management practices.

Streamlining indirect tax structure
The proposed introduction of the Goods and Services Tax (GST) is expected to significantly bring down the total costs of the logistics industry. At present, most companies have set up multiple small warehouses of size 4,000-10,000 sq ft across the country to save taxes on inter-state movement. But with the implementation of GST, the need to have several small warehouses is likely to be mitigated in favour of larger and consolidated warehouses at strategic locations.

Indian logistics industry
According to industry estimates, if tax avoidance is not a factor for deciding on the distribution network, the total warehouse space can be reduced by 20-50 per cent. Other cost benefits would include lower IT spend on ERP linkages, cost-effective routing and loading, lower inventory requirements and lower material handling and compliance costs.

Outsourcing of logistics:
The logistics industry stands to benefit from the increasing trend of outsourcing the logistics and warehousing function to third-party service providers such as LEAP India Pvt Ltd. This function was traditionally performed by the organisations themselves. However, corporate entities recognise the benefits associated with engaging a third-party logistics provider for integration of information flow, material handling, production, packaging, inventory, transportation, warehousing and often security. This allows corporate entities to concentrate on their core business and also avail of significant discounts through outsourcing. According to ASSOCHAM, around 55 per cent of Indian companies outsourced logistic services such supply chain management and warehousing in 2009, as compared to about 10-15 per cent in 1999. As per the industry estimates, the increasing trend of outsourcing is expected to result in the growth of third-party logistics market at a CAGR of about 22 per cent, during 2012-15.

Entry of global players
Several global players view the Indian logistics market favourably and have announced intentions to increase their capacity of transporting goods from/to Indian markets. Several large global logistics companies have entered India by the way of mergers with or acquisitions of Indian logistics companies and joint venture agreements. For example, LEAP India Pvt Ltd has pooling model equipment that offers companies’ solutions to improve supply chain efficiency by providing durable & innovative pallets and containers that helps to reduce product damage and saves customers time and money.

Increasing number of multi-modal logistics players
The demand for multi-modal transport services by the end users is increasing because it results in the reduction of overall transportation costs and quicker movement of cargo. It also requires less documentation. Several Indian logistics companies have formed joint ventures with other global and local players so as to provide multi-modal logistics services extending to air, rail, road and water.

Opportunities for material handling equipment sector
There is very good market for material handling products. With the increase in the size of the warehouse; manufacturers are careful about the flooring. Once the flooring is better, HOPT, BOPT, forklifts etc come into play – thus increasing overall supply chain efficiency. This business is expected to grow at 25 per cent CAGR for next five years. In India, the method of transferring auto components is still traditional and a truck full of goods requires 14 workers and 3 hours to load and off-load it. And when the items are auto components which may get damaged while transferring from point A to point B leading to lower visibility on shelf resulting in fall in sales and unhappy customers for clients.

Meanwhile, worldwide auto components are stored and moved in FLC (foldable large containers). With the help of pallets, the goods from the factors are reached safely and efficiently to its customers. LEAP supplies pallets FLCs on rent for FMCG, beverages, pharma and auto companies to store and transport goods and auto components. This has changed the landscape of how the goods are stored and transported in India. The company has more than 150 leading corporates as their clients.

LEAP is also into the business of giving forklifts on lease basis to corporates to handle their products efficiently. This will reduce the requirement of manpower and increase the efficiency of the transportation of products. Renting of pallets reduces capex for the corporate and carrying unnecessary carrying cost of stocks of pallets in their books. This becomes fixed overhead cost. If the corporate hire pallets, the rentals paid for the time of use becomes variable cost. In this process the corporates can effetely use man, money, material and machine for timely delivery of their products.

Conclusion
The logistics sector in India remains unorganised. In order to develop this sector in an integrated way, it is important to focus on new technology, improved investment, skilling, removing bottlenecks, improving intermodal transportation, automation, single window system for giving clearances, and simplifying processes. By improving the logistics sector there will be a huge implication on exports and it is estimated that a 10 per cent decrease in indirect logistics cost can increase 5-8 per cent of exports. In the coming years, the key trends that are likely to affect the industry positively are the entry of global players, increase in the number of multi-modal logistics service providers, and greater investments.

Author

Sunu Mathews,
Managing Director,
LEAP India