Technology has catapult to build a more robust logistics network in the country with better infrastructure planning, increased coordination among stakeholders and improved operational efficiencies, India aims to unlock the potential of the sector needed to fuel economic growth.
With the pandemic outbreak, almost every industry suffered, and the logistics market was no exception. COVID-19 also brought about a shift in the consumers’ behaviour and preferences, and they resorted to online shopping for all their purchasing requirements. This transformation in the consumer psyche rendered a significant impact on the logistics market since it is largely a consumer-driven sector. The driver community specifically faced a major setback as their sustainable livelihood was under threat.
The coronavirus crisis created a ripple effect on the logistics sector and posed various challenges on its path of survival and growth. It is one of the highly unorganized markets and owing to the pandemic, the entire logistics ecosystem faced various roadblocks. Be it the small vendors or the drivers, the sector could not function optimally.
India’s logistics cost is estimated to account somewhere between 13-14 per cent of the GDP. This compares poorly with the cost of 7-8 per cent for developed economies.
From artificial intelligence to automation, the business of moving freight and delivering it to the right place at the right time is increasingly being controlled and optimised by technology. E-commerce and the pandemic has attributed to its ability to reduce cost which are in the driving seat.
India’s supply chain and logistics sector is one of the largest globally, with a logistics industry of $215 billion and growing at a CAGR of 10.5 percent.
As per PWC report , the Indian Government has already eliminated foreign direct investment caps for the Indian shipping industry, with the result that 100% foreign direct investment is now permitted in this sector, although the first such investment was made only a number of years after the regulatory changes took effect.
Despite their cautious investment behaviour, multinational logistics companies are eyeing the Indian T&L market, anticipating excellent business opportunities in the future. India’s GDP is growing by around 7-9% annually, while its manufacturing sector is seeing strong double-digit growth rates. Planned infrastructure investments of over US$300 bn should also provide a solid foundation for outstanding growth rates in the T&L industry.95 Indeed, the T&L industry in India grew at compounded annual growth rates of more than 16% from 2007 to 2010, resulting in an overall market size greater than US$100 bn.
In particular, India’s third-party logistics (3PL) market is an attractive business opportunity for logistics service companies and should provide further impetus for growth. The 3PL market makes up more than 50% of the total logistics market in developed countries but is still at a nascent stage in India. Today, Indian 3PL service companies often do not possess sufficient capabilities to provide any services beyond conventional transportation contracts. Many are not able to respond to the increasing demand for value-added services such as customs clearance, cross-docking, reverse logistics, labelling or packaging. The strong growth in manufacturing industries is likely to intensify competition and many Indian companies will need to optimise their supply chain mechanisms. Manufacturing companies may place greater focus on their production activities, with the result that many may begin outsourcing logistics processes to 3PLs. As a consequence, strong outsourcing-activities will be observable in the Indian market over the next two decades.
Not surprisingly, multinational logistics companies are carefully observing the dynamics of the Indian T&L market and seeking opportunities to participate in the growth story of the country. Attractive business opportunities will arise not only due to the increasing demand for logistics services, but also from the market’s high inefficiency and fragmentation. The cost of logistics as a fraction of India’s GDP is extremely high. While logistics costs of Western Europe and North America make up 8-10% of their GDP, India currently spends more than 13% of its GDP on logistics.96 Those logistics service providers which are able to help companies increase efficiency in their logistics processes may realise significant profits.
A robust logistics sector can go a long way in boosting India’s quest for being a manufacturing giant given that several initiatives like ‘Make in India’ have been launched by the government.
