Emergence of Third Party Logistics in India (Contd./-)

In my last article related to emergence of 3 PL Service providers I have focused on the role of 3rd party logistics service providers and why companies need them.Now we will see what is the significance of this market related to distribution and delivery.

The Indian Transportation Environment

The Indian logistics structure consists of Surface transport, railways, air freight , Multi-modal transport , ports and shipping . Their performance is dependent on the state of infrastructure – roads, railways, ports and airports.

  • Roads & Trucking: The Indian Roadways play an important role in joining the various parts of India.The National Highways network of India is a network of trunk roads that is owned by the Ministry of Road Transport and Highways. It is constructed and managed by the National Highway Authority Of India (NHAI), the National Highways and Infrastructure Development Corporation (NHIDCL), and the public works departments (PWDs) of state governments. These highways as of April 2019 measure over 142,126 km (88,313 mi).The Indian government has vowed to double the highway length from 96,000 to 2,00,000 km in next 5 years.
  • The development of the Transport Infrastructure in India across various areas such as roads, railways and ports has gained tremendous pace in the last few years. The Transport sector in India is expected to grow at a compounded annual growth rate of 5.9 per cent, thereby becoming the fastest growing area of the country’s entire infrastructure sector.
  • Rail Transport: Rail transport is an important mode of transport in India. As of March 2017, the rail network comprises of 121,407 km (75,439 mi) of track over a route of 67,368 km (41,861 mi) and 7,349 stations. It is the 4th largest railway network in the world (after USA / Russia & China). It is one of the busiest networks in the world, transporting approx. 10 billion passengers and over 2.10 billion tons of freight annually, as of 2018.
  • Using the rail transportation is expensive due to handling requirements and the time and cost involved in pick-up and drop of consignment to and from railway facilities. Although Indian Railways has improved its services by introducing special freight trains, which provide much quicker transportation times, and giving multi-modal facilities to cut down time required in handling but still there is scope of improvement.Now even private operators are allowed to run container trains and manage railway terminals.
  • Seaports & Shipping: According to the Ministry of Shipping, approximately 95 per cent of India’s trading by volume & 70 per cent by value is being done through sea route.India has 12 major and 205 notified minor and intermediate ports. The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 per cent under the automatic route for port and harbour construction and maintenance projects.
  • Air Freight/Cargo – The domestic air freight demand is expected to touch 1.1 million tonne by the fiscal 2025 at a compounded annual growth rate (CAGR) of 7-9 per cent propelled by rapidly growing e-commerce activity, increasing capacity and improving airline connectivity to smaller cities, according to a research note.
  • However, cargo capacity of airlines is expected to grow at a higher CAGR of 13-15 per cent, given the impending fleet expansions. This will further shift the market towards airlines, rating . The estimated Rs. 600-700 crore domestic dedicated air freighter market stood at 0.8 million in 2019, logging a CAGR of 8 per cent in the last five fiscals, it said. Ironically, the domestic dedicated freighters fleet currently stands at just seven planes compared with about 680 passenger aircraft, including of the grounded carrier Jet Airways. ( Data Source – The Economic Times)

3rd Party Logistics market

  • The global 3rd party logistics market size has been valued at approx. USD 700 billion in 2018 and is expected to register a CAGR of 8 % from 2019 to 2025. Service providers have emphasized on enhancing their supply chain activities to address the growing demand. They are now seeing the benefits of automated freight payment and audit services for minimizing & reduction in costs.
  • Companies who outsource their supply chain & logistics to specialized 3PL players have managed to considerably reduce their capital expenditure (CAPEX), mitigate risks, and more importantly, focus on the core competencies of their business operations, which helps them gain a high degree of competitive advantage.
  • Demand for efficient inventory management and improved working capital is expected to increase the dependence on 3PL providers. Growth of the e-commerce industry across several regions has increased freight transportation, thus creating new opportunities for 3PL providers.
  • Mahindra Logistics Ltd in one of reports said that the domestic third party logistics space is expected to grow at a 19-20 per cent CAGR to reach Rs 58,000 crore by 2019-20. The CAGR of 19-20 per cent has been projected for the period between FY 2017-2020. There is huge growth opportunity in third party logistics (3PL) and the same is expected to grow at a CAGR (compounded annual growth rate) of 19-20 per cent and reach “Rs 570- 580 billion by FY20 from Rs 325-335 billion in FY17.( Data Source – The Economic Times)

In next and concluding part will focus on the impact of outsourcing the Supply Chain and Logistics functions to a 3 PL service providers.

………To be continued

Divya Prabhat

Supply Chain & Logistics Consultant

 

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