Thursday, January 26, 2012

Indian logistics market to double by 2012

Buoyed by the economic boom and the massive investment on infrastructure, the logistics market in the country is set to double by 2012, reported Business Standard. 

"The overall logistics market in India which currently stands at about Rs 3,50,000 crore is likely to go up to Rs 7,00,000 crore in the next five years on the back of the country's  economic boom. The main drivers that will fuel the growth in the logistics market include the upcoming freight corridor project, building of logistics hubs and warehouses, port development, technology upgradation, investment by private players and also the impending industry status for the logistics sector", SL Ganapathi, Managing Director, Logistics Plus, told Business Standard.
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The enormous business potential of India's domestic market, with a growing middle-class, will also drive the uptrend in logistics demand.

Talking on the future of the logistics market, S Acharya, managing director of Vi eTrans and member, Planning Commission for logistics said, "The logistics market in India is poised for a fast growth in the next ten years but the domestic logistics services providers need to embrace the latest technology to keep pace with their overseas counterparts. IT will play a significant role in the growth of logistics sector and facilitate consolidation." 
Acharya admitted that today most of the domestic players in the logistics sector are reluctant to adopt the latest technology available in the country.

Ganapathi opined that with the conferring of the industry status on the logistics sector, the logistics cost would come down to 11 per cent of the country's GDP. 

The cost reduction would help the sector to enhance its competitiveness in global trade.  
Although the sector is growing in value as well as in volume terms leading to sustainable opportunities in the logistics space, India's logistics cost is among the highest in the world at almost 13 per cent of its GDP.  

Logistics costs in India are estimated at over Rs 4.5 trillion, growing at a compounded annual growth rate (CAGR) of 8-12 percent. 

The high logistics cost is attributed to the highly fragmented Indian logistics market with small local players dominating the supply chain landscape. 

According to Ganapathi, the industry status for the logistics sector would lead to consolidation and also bring in large, organised global players to the domestic market. 

"Today only 15 percent of the domestic logistics providers are in the organised sector. Once the sector is accorded the industry status, the domestic market will witness more organised players, especially the global players, thereby enhancing competition and cutting logistics costs", GK Mukerjea, MDD and CEO, Transafe Services, said. 

The industry status for logistics sector wold enable the existing organised players in the logistics business to cater to a wider client base, Mukerjea added. 

Apart from the availability of land and the requisite infrastructure, industry status for the logistics sector also means that the logistics services providers can avail greater loans as the borrowing rates will come down, he claimed. 
Small firms are often caught in a bind because they lack bargaining power to negotiate costs, which in turn puts a squeeze on profits thereby restricting their ability to invest in capacity building.

Bigger logistics companies on the other hand have more resources to upgrade network capabilities, systems and invest in people, thereby offering more cost-effective and efficient services.

Also, with the need for specialised logistics service providers, there is an increasing trend towards outsourcing supply chain activities 
Owing to India's strategic importance in the global economy and huge consumption base, domestic and international players are showing strong commitment to the sector. 

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