Economic Reforms, Trade Co-operation, Improved Transportation Infrastructure, Key to Drive Growth Opportunities for Indian LSPs – Frost & Sullivan

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Mumbai, Maharashtra, India
Economic reforms, trade co-operation, improved transportation infrastructure, and industrial growth are ushering in increasing opportunities for the logistics service providers (LSP) in India. Presently, the Indian logistics industry is witnessing development and expansion of its existing infrastructure and emergence of e-commerce-specific logistics solutions; it has strong focus on manufacturing, but also has large presence of unorganized service providers.

In the ‘Indian Logistics Industry 2016 Outlook’, Frost & Sullivan finds that the industry is likely to grow at a CAGR of 8.6% between 2015 and 2020; it grew at a CAGR of 9.7% during 2010-2015. Transportation and Communication accounted for 7% of the nation’s GDP in 2015, accounting for around US $130.44 billion. The key drivers of this growth are infrastructure investment associated with ports, airports, and other logistics development plans, domestic demand growth, and increasing trade.

Growth prospects for the Indian logistics sector looks promising in 2016 with support from numerous Government initiatives in the areas of trade and industry promotion, logistics infrastructure development, and tax reforms. In addition to this, the booming e-commerce sector is likely to support strong growth in the warehousing segment. Dedicated freight corridor, increased port connectivity, and proposed auto hub are likely to increase share of railways in land transport. Despite economic uncertainties, the Indian logistics sector is likely to grow above 6% in 2016.

Gopal R., Global Vice President, Supply Chain & Logistics Transformation Practice, Frost & Sullivan says, “India’s freight volumes are still not justifying our economic size. Ideally, we should be handling three to four times the freight volume that we handle today, in comparison to other countries with similar economic activity. This translates to huge potential, which can lead to transformational growth of the Indian logistics industry. We need to focus on ways to build this freight volume through enhanced infrastructure capacity, productivity, and process efficiency.”

Frost & Sullivan’s 2016 outlook also brought forth trends observed in the Indian logistics industry, such as:

Government initiatives to promote the manufacturing sector and exports are likely to increase the demand for logistics functions. Trade with Asia, Europe, and North America are likely to remain the major drivers for freight forwarding and transportation companies in the region.
Major investments by both the public and private sectors in the last five years on infrastructure, technology upgrades, and expansion of sea and airport facilities, and a dedicated logistics corridor in the rail network are likely to strengthen the Indian logistics infrastructure.
The booming e-commerce market in India is bringing in new opportunities for LSP. The evolving business model(s) in this space focuses on containing logistics and delivery costs.
The existing multi layered tax system is contributing to significant delays in the road transportation sector, and proposed implementation of GST is likely to simplify tax structure and lower logistics costs.

The industry outlook highlighted India’s trade scenario and its contribution to the logistics industry, with details on port traffic, sea, air, and road freight. India’s exports are primarily driven by manufacturing products, fuel, minerals, and agriculture products. The Government of India’s Foreign Trade Policy (2015-2020) aims to increase the value of trade to US $900 billion by 2020, by aligning with Government initiatives such as “Make in India”, “Digital India”, and “Skills India” to promote growth of exports. Asia leads the share of trade for India, while North and South America and Europe are the other key regions. Exports to Asia, Europe, and America accounted 88% of the total exports in 2014.

Sea freight in India is a major contributor to the freight movement as more than 70% percent of international trade is through sea ports. It is expected to grow by 5.7% driven by the demand from Asia, Europe, and Africa. Major ports contributed 55% of the total sea freight and the capacity will expand as three additional ports are planned in West Bengal, Maharashtra, and Tamil Nadu. Containerized cargo tonnage is likely to cross 123 million ton in 2016 and is likely to grow by 4% driven by port modernization and expansion plans.

Port traffic in major Indian ports has grown by 1.8% between 2010 and 2015. But there has been uneven growth with ports located in the Western Coast and Gujarat witnessing consistent growth due to port privatization and industrial growth (Kandla has the highest share of port traffic — more than 15%). The infrastructure challenges at Indian ports include limited capacity, pre-berthing delays, longer ship turnaround time, inadequate draft, etc.

Moving to air freight, the domestic air cargo comprises one-third of air cargo volume and is likely to grow by 2.3% in 2016, while international air cargo is likely to grow at 12.5%. Under the 12th Five Year Plan (2012-17), an estimated US $11.4 billion has been allocated for airport modernization and expansion. Currently, 13 regional airports have been targeted with focus on expanding its infrastructure; the number of airports in the country is likely to increase to 250 as per targets of Airport Authority of India.

Share of road transport in total freight volume has been increasing in recent years. The road freight volume in India is forecast to be 2,211.24 billion freight ton kilometer, growing at 4.7%. As per the Government target, an additional 50,000 km of national highway is likely to be added by 2020. The Ministry of Road Transport and Highways plans to award close to 5,000 km to private companies during 2016-17, which is worth approximately US $7.69 billion.

Frost & Sullivan analysis finds that the potential market for LSP in India is approximately US $445 billion. The factors that can drive this growth include high costs of maintaining in-house logistic activities, rising complexity in supply chains due to growth in global sourcing and distribution practices, increasing orientation of manufacturing industries to focus on core competencies, and growth in online retailing. Along with the growth drivers, improving weak infrastructure, connectivity and distribution networks, developing specialty storage facilities, bringing in uniform regulations, and removal of administrative hurdles to prevent loss of time to deliver across borders are required to achieve the desired results.

This Industry Outlook is part of Frost & Sullivan’s Supply Chain & Logistics Transformation Practice, which works closely with logistics service providers, logistics infrastructure developers, Government institutions, and development agencies to help address their business challenges in a constantly changing industry environment. To know more about this Outlook, write to Ravinder Kaur / Priya George, Corporate Communications at ravinder.kaur@frost.com / priyag@frost.com with your full name, designation, company name, telephone number, company e-mail address, company website, city, state and country.

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