Indian Logistics Sector Strategic Assessment of Key Elements...

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Indian Logistics Sector Strategic Assessment of Key Elements and

Opportunities

A Strategic Report by Infolitics

Co-authored by Mr. Anil Chawla of HS&SL

October 2, 2008

Indian L ogistics Sector: Strateg ic A ssessm ent of K ey E lem ents and O pportunities

© Infolitics

Contents

Contents

Figures

Tables

1 Executive Summary

2 Critical Elements of Indian Logistics Sector

2.1 Structural Elements of Indian Logistics Industry 2.1.1 Cargo Import Steps and Important Logistics Elements 2.1.2 Cargo Export Steps and Important Logistics Elements 2.1.3 Other Logistics Elements

3 Strategic Growth Areas of Indian Logistics Sector

3.1 Cold Chain / Cold Storage

3.2 Air Cargo Logistics

3.3 Warehousing in India

3.4 Custom Bonded Warehouse

3.5 Distribution Centre (DC)

3.6 Road Transport Service Provider

3.7 Custom House Agents (CHA)

3.8 Project Cargo

3.9 ICD / CFS

3.10 Sea Ports

4 Analysis of Opportunities

4.1 Cold Chain Operations 4.1.1 National Opportunity Assessment and Value Chain 4.1.2 Breadth of Cold Chain Operations in India 4.1.3 Cold Storage Types and Storage Needs for various Commodities in India 4.1.4 Cold Storage – Components, Commodities to Store, and Operations 4.1.5 Sources of Finance for Cold Storage in India 4.1.6 Optimal Cold Storage Design

4.2 Air Cargo Logistics in India 4.2.1 Prominent Indian Airports – Volume and Volume Growth 4.2.2 Prominent Indian Airports – International Cargo 4.2.3 Cold Storage facility for Exports at Air Cargo Hubs

4.3 Warehousing in India 4.3.1 Warehousing Overview, Needs, Classification by Ownership and Services 4.3.2 Warehousing Documents 4.3.3 Warehousing in India – Stakeholders and Roles 4.3.4 Warehousing Opportunity in various Sectors


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4.3.5 Pharmaceutical Warehousing and C&F 4.3.6 Value added services in Warehousing

4.4 Custom Bonded Warehouse – Need in India and Opportunity Assessment 4.4.1 Overview of Custom Bonded Warehouse 4.4.2 Opportunity Assessment for Custom Bonded Warehouse

4.5 Distribution Centre (DC) 4.5.1 Opportunity Assessment

4.6 Road Transport Service Provider – Working Models in India, Revenues and

Opportunity Assessment 4.6.1 Overview of Business 4.6.2 Supply Chain (Interrelationships) in Indian Road Transport Service Industry 4.6.3 Revenue Earnings – Sources and Potential 4.6.4 Opportunity Assessment

4.7 Customs House Agent (CHA) – Market, Customer and Opportunity

Assessment 4.7.1 Market Analysis 4.7.2 Customer Analysis: End-users of CHA, Needs and Future Trends 4.7.3 Opportunity Assessment

4.8 Project Cargo – Working Model in India, Market Size & Growth, and

Critical Success Factors 4.8.1 Operating Model in Project Cargo Business – The Predominant Model 4.8.2 Market Analysis – Size and Growth of Market 4.8.3 Critical Success Factors of CHA Business

4.9 ICD/CFS – Market Analysis and Opportunity Assessment in India 4.9.1 Market Analysis of ICDs / CFSs 4.9.2 Opportunity Assessment – Container Traffic and EXIM

4.10 Sea Ports – Opportunity Assessment in Containerization and Infrastructure

Growth 4.10.1 Containerization – Market Size & Growth, Opportunities / Potential and Expected

Future Trends 4.10.2 Sea Port Infrastructure Growth

5 Financials

5.1 Cold Storage – Investment, Expenditure, Revenues and Profitability

Assessment through Scenario Analysis 5.1.1 Cold Storage Investment – Subsidized Investment Estimations 5.1.2 Cold Storage Revenues – Break-up and Estimations for Trading / Renting 5.1.3 Cold Storage Expenditure – Major Heads and Prevailing Rates 5.1.4 Projected Profitability of Cold Storage based on Scenario Analysis

5.2 Warehousing – Investment, Expenditure, Revenues and Profitability

Assessment through Scenario Analysis 5.2.1 Investment in a Warehouse 5.2.2 Projected Revenue Earnings from a Warehouse 5.2.3 Expenditure – Major Heads and Prevailing Rates 5.2.4 Projected Profitability of a Warehouse based on Scenario Analysis

5.3 Custom Bonded Warehouse - Investment, Expenditure, Revenues and

Profitability Assessment 5.3.1 Investment 5.3.2 Setting up a Custom Bonded Warehouse 5.3.3 Revenues and Profitability


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5.4 Custom House Agent (CHA) - Investment, Expenditure, Revenues and

Profitability Assessment 5.4.1 Investment in setting-up CHA Business 5.4.2 CHA Revenues 5.4.3 CHA Profitability

5.5 Project Cargo - Revenues and Profitability Assessment 5.5.1 Revenue Sources in Project Cargo Business 5.5.2 Profitability of Project Cargo Business

5.6 Road Transport Service Provider - Investment, Expenditure, Revenues and

Profitability Assessment 5.6.1 Investment – Procurement Cost of Trucks of Various Sizes and Additional Costs

incurred 5.6.2 Expenditure - Cost Breakdown, Estimated Annual Financial Operating Costs 5.6.3 Revenues - Freight Rates 5.6.4 Projected Profitability – Scenario Analysis for mix of various Revenue Streams 5.6.5 Additional Comments

5.7 ICD / CFS – Revenue Stream Analysis and Profitability 5.7.1 Revenue Streams of ICD/CFS 5.7.2 Revenue Analysis & Profitability of ICD/CFS

6 Conclusion – Overall Assessment of Opportunities

6.1 Parameters for Overall Assessment of Opportunities

6.2 Assessment of Opportunities 6.2.1 Assessment of Storage (Cold Storage / Warehouse) related Opportunities 6.2.2 Assessment of Critical Elements: Opportunity Matrix

7 Appendix

7.1 Inland Waterways of India 7.1.1 Inland Waterways Authority of India 7.1.2 National Waterways of India

7.2 Long Distance Freight Rate

8 Profiles, Abbreviations, Notes and Legal Conditions

8.1 Profiles

8.2 Abbreviations

8.3 Notes

8.4 Legal Conditions


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Figures

Figure 2-1 Steps in Import Cycle

Figure 2-2 Steps in Export Cycle

Figure 3-1 Industry Structure: Road Transport Service Provider

Figure 3-2 Market Size and Margins: Logistics Pyramid

Figure 4-1 Presence of Cold Chain Infrastructure in Supply Chain

Figure 4-2 Breadth of Cold Chain Operations in India

Figure 4-3 Indian Airports with High Cargo Traffic and High Change in Cargo Traffic

Figure 4-4 Percentage of International Cargo Handled at Prominent Airports of India

Figure 4-5 Necessity for Warehousing

Figure 4-6 Warehouse Classification on the basis of Ownership and Services Provided

Figure 4-7 Supply Chain Interrelationships of Road Transport Service Provider: Model 1





Figure 4-12 Preferred Model in Market for Project Cargo


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Tables

Table 3-1 Transportation Cost Break-up: Conventional Logistics

Table 3-2 Transportation Cost Break-up: Cold Chain Logistics

Table 3-3 Exports data of Four Major Airports of India

Table 3-4 Import data of Four Major Airports of India

Table 3-5 Number of Ports by State and Coastal Line

Table 4-1 Nation-wide Infrastructure Requirement for Various Logistics Units

Table 4-2 Cold Storage Properties and Shelf-life of major Fruits / Vegetables

Table 4-3 Storage Capacity and Revenue for Major Commodities

Table 4-4 Gujarat: Cold Storage and Export Potential of Various Commodities

Table 4-5 Gujarat: Major Commodities and their Selection Reason for Promotion

Table 4-6 Cold Storage Rooms with their Prefered Capacities for a 5,000 MT Cold Storage

Table 4-7 Freight and Mail Cargo Movement on Indian Domestic / International Route for last seven

years

Table 4-8 Container Port Traffic at Important Sea Ports of India

Table 4-9 Kolkata Port: Description, Activities/Facilities, Volumes Handled, Opportunities and Rules

Table 4-10 Paradip Port: Description, Activities/Facilities, Volumes Handled, Opportunities and

Rules

Table 4-11 Visakhapatnam Port: Description, Activities/Facilities, Volumes Handled, Opportunities

and Rules

Table 4-12 Chennai Port: Description, Activities/Facilities, Volumes Handled, Opportunities and

Rules

Table 4-13 Tuticorin Port: Description, Activities/Facilities, Volumes Handled, Opportunities and

Rules

Table 4-14 Cochin Port: Description, Activities/Facilities, Volumes Handled, Opportunities and Rules

Table 4-15 New Mangalore Port: Description, Activities/Facilities, Volumes Handled, Opportunities

and Rules

Table 4-16 Jawarhalal Nehru Port: Description, Activities/Facilities, Volumes Handled, Opportunities

and Rules

Table 4-17 Murmugao Port: Description, Activities/Facilities, Volumes Handled, Opportunities and

Rules

Table 4-18 Mumbai Port: Description, Activities/Facilities, Volumes Handled, Opportunities and

Rules

Table 4-19 Kandla Port: Description, Activities/Facilities, Volumes Handled, Opportunities and Rules

Table 4-20 Ennore Port: Description, Activities/Facilities, Volumes Handled, Opportunities and Rules


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Table 5-1 Investment for 5,000 MT Cold Storage Capacity

Table 5-2 Revenue Realization by Renting / Trading Commodities in Cold Storage

Table 5-3 Manpower Cost in a Cold Storage

Table 5-4 Electricity Expenditure in a Cold Storage for Negative & Positive Rooms

Table 5-5 Projected Operational Costs & Profitability for only Renting Model of Cold Storage:

Scenario - I

Table 5-6 Projected Operational Costs & Profitability for only Renting Model of Cold Storage:

Scenario - II

Table 5-7 Projected Operational Costs & Profitability for combined Renting and Own Use Model of

Cold Storage: Scenario - I

Table 5-8 Projected Operational Costs & Profitability for combined Renting and Own Use Model of

Cold Storage: Scenario - II

Table 5-9 Manpower Cost in Warehousing

Table 5-10 Projected Operational Costs & Profitability of Warehouse: Scenario - I

Table 5-11 Projected Operational Costs & Profitability of Warehouse: Scenario - II

Table 5-12 Procurement Cost of Trucks of Various Sizes

Table 5-13 Estimated Annual Financial Operating Expenses of Truck Operators

Table 5-14 Long Distance Road freight Rates (INR) in India for FTL

Table 5-15 Estimated Annual Financial Profitability of Truck Operators

Table 5-16 Profitability of Truck Operators for various Utilization Levels: Scenario - I

Table 5-17 Profitability of Truck Operators for various Utilization Levels: Scenario – II (a)

Table 5-18 Profitability of Truck Operators for various Utilization Levels: Scenario – II (b)

Table 6-1 Opportunity Matrix: Storage (Cold Storage / Warehouse) related Opportunities

Table 6-2 Opportunity Matrix: Assessment of non-storage related Opportunities

Table 7-1 Long Distance Freight rates (US$) in India for FTL

Table 8-1 Meaning of Abbreviations and Terms Used in Report

Indian L ogistics Sector: Strategic A ssessm ent of K ey E lem ents and O pportunities

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1 Executive Summary India is one of the fastest growing economies of the world today. This growth is fuelled by growth in infrastructure, booming manufacturing sector, EXIM trade, retail and agricultural related activities amongst others. Logistics assumes central activity in these growth areas. In India logistics cost, as a proportion of GDP, stands today at 13 per cent which is set to rise as the Indian economy shifts from service oriented economy to that of non-service activities, like, manufacturing and food-processing etc. Rural logistics is set to contribute a larger share to this increase as the infrastructure related to agricultural activity unfolds. With rising disposable income, changing lifestyle, focus of government and private sector on rural and agricultural related activities, the rural logistics has received special attention in the past two to three years. Rural logistics, though lucrative, has a number of challenges which makes it difficult to tap the opportunity. Development of cold chain / warehousing infrastructure, thus, remains at the core of the government’s plan to enable growth of rural areas, provide employment opportunities for rural youths, meet India’s growing food demand etc. Similar is the trend in cities which have witnessed changing lifestyle and shift to consumerism which is further fuelling national intra-trade activity and thus the logistics sector. Indian economy is opening up and one recent step in this direction is the signing of India-ASEAN trade agreement which will likely to push trade through Eastern Coast of India many folds. The inclusion of India into Nuclear Suppliers Group (NSG) and civilian nuclear co-operation agreements with USA and France, and another one in pipeline with Russia is a pre-cursor to the increase in trade activities with major powers of the world. By 2030, the economic benefits that will accrue to India’s economy, as a result of the nuclear trade could touch US $500 billion. Further, the government is strengthening the infrastructure with over US $70 billion of investment planned till 2012. Logistics will be one sector which will be the backbone of flourishing trade activity and infrastructure development, and will receive special attention by the government / private sector in coming years. There are a number of activities in the Indian logistics sector which are broadly classified under ‘Hardware’, ‘Services’ and ‘Technology’ related activities, however, not all of these activities are core to the growth of the sector. Indian logistics sector offers unique opportunities which are mainly driven by an opening and near double-digit growing economy, and lack of infrastructure in key areas. It may be noted that although, lack of infrastructure acts as an inhibitor, but the dearth of adequate infrastructure also presents unique opportunities to players who are ready for the situation and understand the market. This report identifies such elements which are growth engines of the Indian logistics sector and focuses on understanding opportunities related within these elements. Identifying strategic logistics elements requires one to understand the supply chain and value chain, EXIM trade elements and their role, government policies and subsidies etc to identify the most critical elements. The report begins with identification of such strategic elements which are then studied in deep for each element to find market structure, growth drivers, barriers to entry, rules / government policies applicable to the market, competition threat and opportunities. Financials are discussed with possible scenarios and their financial / technical analysis, wherever required.


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The report identifies ten such strategic growth areas of Indian logistics sector which includes:

1. Air Cargo Logistics 2. Cold Chain / Cold Storage 3. Custom Bonded Warehouse 4. Custom House Agents (CHA) 5. Distribution Centre (DC) 6. ICD / CFS 7. Project Cargo 8. Road Transport Service Provider 9. Sea Ports 10. Warehouse

Containerization and rail based logistics are other major strategic growth areas of Indian logistics sector and these are studied under various strategic elements mentioned above, wherever they impact. The ten strategic elements, mentioned above, are analyzed in detail by understanding data of each sector collected through credible sources and / or primary interviews. Financial outlay, technical competency, return-on-investment, competition analysis and difficulty of implementation are some of the main parameters which will further help identify the right opportunity and rank them through an ‘Opportunity Matrix’. These are some of the external parameters that need to be mapped with internal strengths, capabilities and tie-ups or collaborations of an organization to arrive at the most compelling opportunity to pursue. These are largely a function of each company and the report, therefore, analyzes opportunity on the basis of external factors on a macro level with specific illustration of state / city level logistics activities to provide appropriate insights and analyze scenarios.

This report is one step ahead in understanding the strategic elements of Indian logistics sector as it delves into each strategic element and identifies opportunities, rather than skimming over the logistics scenario by reporting facts, figures and new developments. The report provides insights which can be used to understand the sector and directly assess a particular sector opportunity.


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Profiles, Abbreviations, Notes and Legal Conditions

Profiles

D N P Inform ation & A nalytics Pvt. L td.D N P Inform ation & A nalytics Pvt. L td.D N P Inform ation & A nalytics Pvt. L td.D N P Inform ation & A nalytics Pvt. L td. (Infolitics) (Infolitics) (Infolitics) (Infolitics)

Infolitics provides Business Research / Consulting services to organizations around the world.

Business Research: Infolitics provides customized solutions to client problems. Business Research services provided by Infolitics assist clients in taking better business decisions.

Consulting Services: Infolitics provides consulting services in Business Process Transformation / Business Process Re-engineering by helping clients aligning their processes with strategic goals and designing new processes. We also provide consulting in emerging areas like Logistics and Retail.

The team has experience of working with clients from across the globe including Fortune 500 clients. They have collectively worked on more than 300 client projects.

Website: www.infolitics.com

Contact Person: Mr. Pankaj Kandhari (Mobile +91-98199-85859)

E-mail: [email protected]

H industan Studies & Services L td.H industan Studies & Services L td.H industan Studies & Services L td.H industan Studies & Services L td. (H S& SL ) (H S& SL ) (H S& SL ) (H S& SL )

HS&SL, incorporated in 1992, is a research and consultancy company providing services to clients across the globe.

HS&SL understands India, Indian business, Indian markets, Indian laws and Indian ethos.

HS&SL’s primary business is Strategic Business Research. They have done significant work in the field of Foods, Beverages and Ingredients. But, they also work in other fields.

In addition to business research, the company is involved in technology development and training of manpower.

Simplicity, clarity and aversion to jargon are their hallmarks. They never lose holistic strategic perspective of client's business and needs.

www.infolitics.com


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Website: www.hindustanstudies.com

Contact Person: Mr. Anil Chawla (Mobile +91-94250-09280)

E-mail: [email protected]

1.1 Abbreviations

Table 0-1 Meaning of Abbreviations and Terms Used in Report

Term / Abbreviation Meaning or Explanation

ICD Inland Container Depot

CFS Container Freight Station

CHA Custom House Agent

NIC National Informatics Centre

FF Freight Forwarder

DC Distribution Center

LCL Less-than-Container-Load

FCL Full Container Load

FCI Food Corporation of India

CWC Central Warehousing Corporation

SWC State Warehousing Corporation

Octroi A kind of government tax in India levied on goods imported

ODC Oversize Dimensional Cargo

EXIM Export-Import

CA Controlled Atmosphere

NHB National Horticulture Board

AEZ Agricultural Export Zone

MAP Medicinal and Aromatic Plants

Mandi A term in Hindi denoting a common place for trading of agricultural produce, generally in wholesale format

Thekedari A term in Hindi denoting ‘On contract basis’

www.hindustanstudies.com


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Toll Naka Check points at city / state limits, primarily for collection of taxes

MOFPI Ministry of Food Processing Industries

NCDC National Cooperative Development Council

NABARD National Bank for Agriculture and Rural Development

EOU Export Oriented Unit

JIT Just-In-Time

MTO Multimodal-Transport-Operators

ASEAN ASEAN group comprises of Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, The Philippines, Singapore, Thailand and Vietnam

BEP Break-Even-Point

IWAI Inland Waterways Authority of India

1.2 Notes

1. Data in the report is presented in US$. The conversion rate used is 1 US$ = INR 40. 2. The conversion rate used in this report may have some deviation with the prevailing currency

conversion rate depending on day-to-day inter-banking rates

1.3 Legal Conditions

a) The report is covered by copyright restrictions. DNP Information & Analytics Pvt. Ltd. (hereinafter called Infolitics), are owners of copyright for this work and Hindustan Studies & Services Ltd. (hereinafter called as “HS&SL”), are co-owners. Infolitics and HS&SL are publishers of the report. The publishers acting through either of them have authorized resellers located in various parts of the globe on non-exclusive basis to sell the report.

b) Infolitics or HS&SL or any of the authorized resellers sell every copy of this report or part of the report strictly for use by single user with the condition that the recipient of the report shall not forward or copy or circulate or pass on the report or part of the report to anyone except with the written consent of Infolitics or HS&SL or any of the authorized resellers. A user / reader of the report may print a copy for personal use, but will not print multiple copies and will not circulate any printed copy.

c) In case Infolitics or HS&SL or any of the authorized resellers sell a copy of this report with multi-user rights, this will be specifically mentioned in a letter addressed to the recipient. Unless multi-user rights are clearly defined for a recipient in writing, no recipient or holder or reader of the report will assume any such rights.


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d) Opinions expressed in the report are of the author(s) of the report. Publishers and / or any authorized reseller need not agree or disagree with any or all of the opinions expressed in the report.

e) The report has been prepared with full care and diligence using data from sources that in the opinion of Infolitics are reliable and trustworthy. Infolitics does not, however, assume any responsibility or liability, either direct or indirect, in respect of the data provided except that the data is from sources that it is purported to be from. Readers / users are advised to verify and confirm all data, facts and projections before taking any business decisions.

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