52
STOCKED AND READY The essential guide to Logistics and Warehousing in India. December 2009
STOCKED AND READYThe essential guide to Logistics and Warehousing in India.
December 2009
INDIAN ECONOMY – An Overview
• The GDP figures for 2008-09 were estimated at 6.7% as compared to the growth of 9.0% posted in2007-08.
• The Indian economy may not be insulated from the global economic crisis, but seems bettergeared to cope with the crisis riding strong economic fundamentals, prudent governmentapproach and a young & consuming demography.
• As per World Bank estimates, India would register a GDP growth at 5.1% in 2009, second onlyto China in growth!
• All three segments of the Gross Domestic Product (GDP) namely agriculture, forestry and fishing, industryand the services sector were seen to post a growth of 1.6%, 3.8% and 9.6% respectively in 2008-09 asagainst the growth of 4.9%, 8%, and 10.8% respectively in 2007-08 .
• Since the third quarter of 2008-09 there has been a visible weakness in industrial growth. The performanceof the manufacturing sector has been dismal with the commercial vehicle production plummeting to an alltime low in January 2009.
• A meltdown in the Indian equity market since January 2008 has led to a withdrawal of about USD 1400million of foreign capital from the market. While this has impacted capital formation, an apparentslowdown in real estate demand has further squeezed liquidity in the Indian markets.
• Today the equity markets have once again started breathing signs of realignment and stability.
• The fluctuating inflation and oil prices have been a phenomenon of the previous year.
• The recently released data of industrial growth shows a gradual and steady improvement in the economicscenario. The industry grew by 2.7% in May, 2009 and by 6.8% in June, 2009; this compared to the growthof 6.4% posted in June, 2008.
• While most of the industrial nations registered negative growth, at least India managed to remainabove the floor.
• There is still growth, the rate may be slower, but steadily picking up!
• The government, which has announced four financial stimulus packages to help the ailing economy, hasstarted showing some impacts on the ground as real estate demand seems to be coming around.
• The pressure on the mortgage markets has eased considerably with the home loan available at attractiverates of 8%-10% p.a. The government has provided a waiver of 1% for the first year on home loans againstproperties valued up to INR 2 million, providing the necessary impetus for affordable housing in thecountry.
• On another positive front, the Foreign Direct Investments (FDI) have increased month on month and inJune 2009, it amounted to USD 2582 million. The first quarter of 2009-10 has seen FDI of USD 7016 million.
• The economy is today in a phase of revival. Pro-active measures by the government have helped stabilisethe economy and tide over one of the worst economic slumps in known times.
FDI Equity Inflows
Apri
l
Ma
y
June
July
Aug
ust
Sep
tem
ber
Oc to
ber
Novem
ber
Decem
ber
Janu
ary
Fe
bru
ary
Ma
rch
0
1000
2000
3000
4000
5000
6000
GROWTH OF INDUSTRY (IIP): Recent Trends (in percentage)*
Weights June-08 Jun-09
Source: Central Statistical Organization, FICCI * Quick Estimates Of June 2009.
Industry 100 6.4Mining 10.2 2.8Manufacturing 79.4 6.9Electricity 10.5 4.5
Use Based ClassificationBasic Goods 35.6 5.3Intermediate Goods 26.5 3Capital Goods 9.3 17.9
Consumer Goods 28.7 5.9Consumer Non-Durables 23.3 3.4Consumer Durables 5.4 3.9
6.89.96.84.2
4.892
8.85
19.8
US
D in
Millio
n
Month
2007-08 2008-09
Source: RBI, ICICI Property Services Research
Stock Market Trend (BSE Sensex)
6679
9390
13,942
20,300
11,403
15,880
13,085
9,708
9,4248,839
12,961
15,626
0
5000
10000
15000
20000
25000
Jan-
05
Apr-0
5
Jul-0
5
Oct-0
5
Jan-
06
Apr-0
6
Jul-0
6
Oct-0
6
Jan-
07
Apr-0
7
Jul-0
7
Oct-0
7
Jan-
08
Apr-0
8
Jul-0
8
Oct-0
8
Jan-
09
Apr-0
9
Jul-0
9
Date
BS
ES
en
se
x
Source: RBI , ICICI Property Services Research
LOGISTICS: Overview
• Logistics is defined as the process of planning, implementation and controlling the efficient, cost-effectiveflow and storage of raw materials, in-process inventory, finished goods and related information from pointof origin to point of consumption so as to meet customer requirement. In plain terms, it is the process ofensuring that the right things reach the appropriate place at the right time.
• The consumer markets in the nation are today extending beyond the grade A cities of Mumbai, Delhi,Bangalore, Chennai and Hyderabad. The rapidly evolving landscape and increasing competition acrosssectors is creating the need for more efficient and reliable logistics. The growth of organized retail and itsspread to the largely untapped rural markets has created a pressing need for a reliable supply chainnetwork.
• The Indian logistics sector remains fairly unorganized. Transporters with a fleet of less than five trucksaccount for over two-third of the total trucks owned and operated in India.
• Lack of proper infrastructure, higher turnaround at ports, lower average truck speeds, despaired taxstructures and high administrative costs have led to greater inefficiencies in the system.
• The logistics cost of the Indian economy is over 13% of the GDP, compared to less than 10% GDP in most ofWestern Europe and North America. This accounts for approximately INR 600 billion.
• The National Highways (NH) form only 2% of the entire road network in India but handle over 40% ofnational road freight traffic, putting enormous pressure on the highway infrastructure.
• logistics industry is a manpower intensive sector and currently employs 40 million people. Thistranslates to about INR 500 billion of spend on manpower annually.
• Indian companies, which lack a broad network, are today turning to Third-Party Logistics (3PL's) in order toreduce logistics cost. The emerging markets of IT hardware & electronics and automotive are outsourcingto 3PL's in order to focus on their core competencies, while across sectors like FMCG and Pharmaceuticalsector the penetration remains fairly low due to lower profit margins and existing established supply chainnetworks.
• The market for 3PL's has broadened during the past few years. 3PL's are today providing an array of valueadded services and also leveraging their network to provide express distribution and warehousing facility.
• The 3PL share in the overall logistics sector is less than 6% in India. Developed economies such as the USand Japan have a 3PL's share in the logistics market of 57% and 80% respectively.
• The fast growing organized retail, increasing external merchandise trade and infrastructure investmentsby the government would provide the necessary impetus for the growth of the logistics sector in the yearsahead.
The
Source: Skills Gap in Logistics Sector, CII–KPMG Report
Country Logistics Share ofCost/GDP 3PL in overall
Logistics
India 13-15% <10%
U.S.A. 9.9% 57%
Europe 10% 30-40%
Japan 11.4% 80%
China 18% 10%
Elements Of Logistics Cost In India
0 10 20 30 40 50
Transportation
Warehousing, Packaging & Losses
Inventory
Order Processing & Administration
Percentage (%)
Source: The Logistics Sector In India, by Pankaj Chandra (2006-07)
LOGISTICS: The Growth Story
• The logistics sector in India has been growing at an annual rate of 8-10% p.a. since the year 2002. Thegrowth has been primarily driven by the emergence of India as a hub for IT/ electronics hardware, autoancillary, pharmaceuticals, textiles, capital goods and for the manufacturing sector.
• Merchandise exports reached USD 111 billion (INR 5550 billion) at a growth of 22.6% and imports stood atUSD 185.7 billion (INR 9285 billion) at a growth of 24.5% in 2006-07.
• The domestic logistics sector is expected to generate business worth USD 110 billion in the nexttwo-three years. This in turn would create job opening for over 400,000 people over a five-year horizon.
• Significant investments in infrastructure to the tune of INR 15,000 billion over the next few years and anincreased emphasis on Public Private Partnerships (PPP) would lead to the evolution of the logistics sector.
• Warehousing industry is expected to grow at a rate of over 35% p.a. in the years ahead. The marketsegment is estimated to grow from USD 20 billion in 2007-08 to about USD 55 billion by 2010-11.
• 3PL's are expected to grow at over 22% annually. Small enterprises continue to grow with increasing fleetand network. Global players have also increased their investments.
VICIOUS AND VIRTUOUS LOGISTICS
Source: Connecting to Compete, The World Bank Report
Seamlessprocess
Unfriendlyprocedures
Fraud and needto control
Low fragmentedService
Over-regulationRents
Inadequate MarketStructure
No Incentiveto invest
Liberalizedmarkets
Incentiveto invest
Integrity andCompliance
High QualityServices
Scale ofEconomies
VIRTUOUS CYCLEVICIOUS CYCLE
Trade & Transport FacilitationMeasures
• Technology is expected to play a key role in improving the cost effectiveness of the logistics industry. TheIT spends will grow to approximately INR 100 billion from the existing INR 4 billion in the next five years.
• A growing economy has seen considerable investments by fund houses in the logistics sector. The sectorhas witnessed over INR 200 billion during the early half of 2008.
• Increased FDIs in the automotive, capital goods, electronics, retail and telecom will increase opportunitiesfor 3PL providers in India.
• The implementation of VAT has helped replace the cumbersome state and central government taxes. Thismeasure is expected to increase the efficiency in the logistics sector.
INDIA'S COMPETITIVENESS: Competitiveness Index and Economic Indicators
Competitiveness is defined as a set of institutions, policies and factors that determine the level of productivity of a country. A nation's level of competitiveness reflects the extent to which it is able to provide rising prosperity to its citizens. Today's volatile economic environment further underscores the importance of competitiveness.
The Global Competitiveness Index (GCI) covers a total of 134 economies across the globe. It provides a relative rating on the supporting economic environment that helps nations weather economic shocks in order to ensure solid economic performance going to the future.
The GCI is based on 12 pillars of economic competitiveness:
Pillar 1: Institutions
Pillar 2: Infrastructure
Pillar 3: Macroeconomic Stability
Pillar 4: Health and Primary Education
Pillar 5: Higher Education and Training
Pillar 6: Good Market Efficiency
Pillar 7 : Labour Market Efficiency
Pillar 8 : Financial Market Sophistication
Pillar 9: Technological Readiness
Pillar 10: Market Size
Pillar 11: Business Sophistication
Pillar 12: Innovation
• Despite the present financial crisis, the United States of America (USA) continues to be the mostcompetitive economy in the world. This is because the country is endowed with many structural facilitiessuch as highly sophisticated and innovative companies, excellent education system that collaboratesstrongly with the business sector in R&D and the sheer domestic economy that provides the scale ofopportunity for growth.
• Thus, despite the growing concerns about the soundness of the banking sector and the macroeconomicweaknesses, the country's other strengths render it a very productive environment.
• The USA is followed by Switzerland, Denmark and Sweden, who retain their positions when compared tothe previous year.
• Singapore in the 5th place, is the top-ranked country from Asia, on strength of its institutionalenvironment, moving up two places from last year as a result of a strengthening across all aspects ofinstitutional framework.
• Singapore ranks high for its efficiency of all its markets - goods, labour and financial. Singapore also has world-class infrastructure, leading the world in the quality of its port and air transport facilities.
Country GCI Rank GCI Rank Total GDP Total GDP Per Capita(2008-09) (2007-08) 2007(Billion) Population (PPP)
(USD) 2007 (Million) (USD)
Source: Global Competitiveness Index, 2008-09
United States 1 1 13,843.8 303.9 45,845.5
Switzerland 2 2 423.9 7.3 58,083.6
Denmark 3 3 311.9 5.5 57,260.9
Sweden 4 4 455.3 9.1 49,564.9
Singapore 5 7 161.3 4.4 35,162.9
Finland 6 6 245.0 5.3 46,601.9
Germany 7 5 3,322.1 82.7 40,415.4
Netherlands 8 10 768.7 16.4 46,260.7
Japan 9 8 4383.8 128.3 34,312.1
Canada 10 13 1432.1 32.9 43,484.9
United Kingdom 12 9 2772.6 60.0 45,574.7
Korea 13 11 957.1 48.1 19,750.8
France 16 18 2560.3 60.9 41,511.2
Malaysia 21 21 186.5 26.2 6947.6
China 30 34 3250.8 1331.4 2460.8
Thailand 34 28 245.7 65.3 3736.8
India 50 48 1089.9 1135.6 977.7
Indonesia 54 54 432.92 228.1 1924.7
• India ranked at the 50th place, derivessubstantial advantages not only from its marketsize (ranked 4th for its domestic market size and5th for its foreign market size) but also from itsstrong business sophistication and innovation.
• India is endowed with strong business clustersand many local supplies and ranks animpressive 3rd for the availability of scientistsand engineers and 27th for its quality of researchinstitutions.
• However India's overall competitive position isweakened by its macroeconomic instability(ranked 109th), with the government runningone of the highest deficits in the world,unsustainable levels of government debt andfluctuating inflation.
• Health and Primary education remain primaryareas of concern. Certain labour marketefficiency indicators are also poor, includingfemale participation in the labour force.
GLOBAL COMPETITIVENESS INDEX: INDIA
Rank (Out of 134) (1-7)
Score*
Source: Global Competitiveness Index Report, 2008-09*The scoring is on a scale 1-7, where 1 indicates the lowest score while 7 indicates the highest score.
GCI 2008-09 50 4.3
GCI 2007-08 (out of 131) 48 4.3
GCI 2006-07 (out of 122) 42 4.5
Basic Requirements 80 4.2
1st Pillar: Institutions 53 4.2
2nd Pillar: Infrastructure 72 3.4
3rd Pillar: Macroeconomic Stability 109 4.3
4th Pillar: Health and Primary Education 100 5.0
Efficiency Enhancers 33 4.5
5th Pillar: Higher Education and Training 63 4.1
6th Pillar: Goods Market Efficiency 47 4.5
7th Pillar: Labour Market Efficiency 89 4.2
8th Pillar: Financial Market Sophistication 34 5.0
9th Pillar: Technological Readiness 69 3.3
10th Pillar: Market Size 5 6.0
Innovation and Sophistication Factors 27 4.3
11th Pillar: Business Sophistication 27 4.8
12th Pillar: Innovation 32 3.7
• In Asia, countries like Japan, Korea, Malaysia and China occupy rankings within the top 30.
• China enters the top 30 this year, up four places from last year. The country benefits from its large and rapidly growing foreign and domestic market size.
• Macroeconomic stability also remains a source of competitive advantage, with government budget moving into surplus and manageable debt levels. Innovation is another competitive advantage with rising company spending on R&D, coupled with strong university-industry research collaboration and an increasing rate of patenting. Inflation remains a concern.
• China's weakness is related to its financial market, with restricted capital flows, inadequate regulation of securities exchanges and concern about soundness of the banking sector. There is a need to strengthen private institutions and also a weak accounting and auditing standards.
• India is ranked at the 50th position, a fall of two positions in comparison with the previous year, indicating a call for pro-active measures to drive the nation forward.
INFRASTRUCTURE
• The growth of the Indian economy at the rate of over 8% during the past three years has seen theinfrastructure stretched way beyond capacity.
• There has been an ever-increasing demand for air travel, reliable power supply, roads, efficient ports andrailways; this has not been matched with proportionate supply. The severe supply-side bottlenecks canretard the growth of the economy.
• It has been noticed that the infrastructure sector is receiving policy attention. The government is activelyencouraging private investments in big-public works projects. Certain airports are today being managedby private sector companies which were earlier exclusively government run .
• To improve efficiency, the Planning Commission envisages that at least 75% of new investments intoinfrastructure will come from the public sector, either private ventures or Public-Private Partnerships(PPP's).
• The government is keen to raise funds through various financial instruments. A proposal to launchDedicated Infrastructure Funds (DIF's), which would operate as close-ended scheme with a maturityperiod of seven years, is being considered.
Investments required for the infrastructure sector from 2007-2012
According to the Government Of India, the country needs USD 320 billion (at 2005-06 prices) in infrastructure spending over the next five years.
Source: The Parekh Committee Report, GOI (2007) Calculated at INR 45.30 = USD 1
Sector Amount (USD in Billion)
Power 130
Railways 66
Highways 49
Ports 11
Civil Aviation 9
Others 55
Total 320
• A distinct characteristic of the Indian economic environment is the inadequacy of basic inputs required tosupport economic activity. The Indian infrastructure - comprising Roads, Railways, Airports, Seaports,Information Technology and Power – is considered to be very poor.
• The Global Competitiveness Report (GCR) 2008-09 provides a comparative of the overall infrastructurequality of 134 countries, on various dimensions as enlisted in the table above.
• India is ranked 90th among 134 countries in terms of infrastructure quality despite having the longest railnetwork and good road length, whereas other developing countries like Malaysia (19), Korea (18) andeven China (58) have better infrastructure facilities.
COMPARATIVE ANALYSIS 2008-09: Rank on Infrastructure Indicators
Parameters Overall Infrastructure Infrastructure Infrastructure Infrastructure Electricity
Quality Quality Quality Quality Supply
Railroad Port Air Transport Quality Of
Source: Global Competitiveness Index Report, 2008-09
United States 9 16 11 12 16
Switzerland 1 1 17 6 3
Denmark 7 14 5 7 1
Sweden 12 11 13 18 9
Singapore 2 10 1 1 13
Finland 5 6 6 8 2
Germany 3 4 4 3 8
Netherlands 17 13 3 9 7
Japan 16 3 25 49 6
Canada 10 15 14 17 15
United Kingdom 24 20 30 27 18
Korea 18 7 29 26 21
France 4 2 10 5 4
Malaysia 19 17 16 20 31
China 58 28 54 74 68
Thailand 35 48 48 28 43
India 90 21 93 66 108
Indonesia 96 58 104 75 92
BOTTLENECKS
• Lack of homogeneity in procedures adopted by states. This creates an impediment in attracting privatecapital in state highways road projects.
• The Model Concession Agreement (MCA) varies from state to state. The states with a more standardizedMCA i.e. Maharashtra, Madhya Pradesh, Gujarat, Punjab, Haryana, Rajasthan, Kerala and Karnataka havemore PPP projects. The Planning Commission has suggested that the states should plan out a StateHighways Development Programme on the lines of NHDP.
ROADWAYS
• With a total of over 3.3 million kilometers,India's road network is one of the mostextensive in the world.
• The road freight industry in India is worth INR1420 million and is growing at about 6.8% yearon year.
• Relative to the population size, India's roadnetwork is almost twice as extensive as that ofChina. However, in India, only about 6% of allroads are relatively well developed; NationalHighways (2%) and State Highways (4%).
• Roads account for over 55% of the total freightmovement.
• Manpower spends amount to only 4% of salesas against the overall sector average of 8-10%.
• The industry has been extremely fragmented -almost 75% of trucking companies are singletruck operators and almost 90% of the truckingcompanies have a turnover of less than INR 10million.
KEY DEVELOPMENTS: Roadways
• The government has launched the NationalHighway Development Programme (NHDP).The NHDP provides for a total investmentvolume of around INR 2300 million (USD 46million) upto the middle of the next decade. Theseven phase NHDP consists of various subprojects, which also includes the GoldenQuadrilateral to become a four-lane dualcarriageway.
• The Golden Quadrilateral will significantlyimprove almost 5,850 km of highway linkingfour main cities and business centers i.e. Delhi,Kolkata, Mumbai and Chennai.
• Other NHDP projects include upgrading theroadways linking the country's 12 mostimportant ports with the National Network andother business centers.
• 11,000 km of national highways are to beupgraded to four-lane roads using the BOT(Build, Operate, Transfer) model.
National Highway Development Programme
Source: NHAI
CHENNAI
KANYAKUMARI
SRINAGAR
DELHI
PORBANDAR
MUMBAI
KOLKATA
SILCHAR
ARABIAN SEABAY OF BENGAL
7
14
15
8A
8A
8A
Gwalior
Palanpur VaranasiFatehpur
Lakhnadon
KrishnagiriCoimbatore
Kochi Madurai
SalemRanipet
Poonamallee
Jammu
Jalandhar
Sonipat
Agra Lucknow Gorakhpur Siliguri
MuzaffarpurKanpur
Etawah
Gurgaon
Jaipur
Kota
Rajkhot Ahmedabad By PassSamakhaiali
Shivpuri
UdaipurChitiorgarh
Sikandara Purnea
Sagar
Nagpur
Vadodara
Surat
Pune
Satara Hyderabad
BelgaumKurnool
SiraTumkurBangalore
Hosur
Nellore
EluruVijayawada
Chilakaluripet
Visakhapatnam
Bhubaneshwar
Kharagpur
GuwahatiIslampur
Panagarti
DIU ISLAND
Kishangarh
Jhansi
76
26
75
28
3137
36
5425
3
1
7
7
7
7
7
57
8
2
2
6
5
5
54
8
60
North-South Corridor
East-West Corridor
National Highway Number -
Golden Quadrilateral
Legend
2
Average Turnaround Time At Ports
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07Year
Source: Working Group Report On Ports, Eleventh Five-Year Plan
Indicates the trendover the years
No
. o
f D
ays
Extensive Road Network in India
Source: Department Of Road Transport and Highways, ICICI Property Services Research
Category Length in km Share in %
National Highways 65,590 2%
Of which
Single Lane 21,674 33%
Two Lane 36,936 56%
Four/Eight Lanes 7980 12%
State Highways 128,000 4%
Major and other District Roads 470,000 14%
Rural Roads 2,650,000 80%
Total 3,313,590 100%
SEA FREIGHT: Ports
• The Indian ports sector comprises 12 major and 48 non-major operational ports.
• In 2006-07, the total traffic handled by Indian ports was 636 million tonnes, of which 484 million tonneswas handled by major ports and 172 million tonnes by non-major ports.
• Although India has a vast coastline, the port infrastructure is not very well developed. Inadequatehinterland connectivity, obsolete machinery, high labour cost and higher turnaround time are the keyissues that plague this sector.
• Over the past few years, the government has been trying to bring reforms by encouraging privateparticipation, allowing 100% FDI in the sector. While this move has helped create improvement, the Indianports are still not globally competitive.
• The Eleventh Five-Year Plan outlines an investment of INR 900 billion of which nearly 65-70% is to beraised from the private sector.
Commodity-Wise Traffic At Major Ports (2006-07)
Iron Ore
17%Fertilizer
3%
Coal
13%
Other
Containerised
Cargo
16%
Petroleum Oil
& Lubricants
(POL)
34%
Other Cargo
17%
Source: Indian Ports Association
KEY DEVELOPMENTS: Ports
• The Union Government plans to double the total capacity of major and non-major ports in the country to1500 million tonnes per annum (mtpa) from the current 750 mtpa by 2012.
• The present port capacity just about manages to handle the prevailing levels of traffic, though the portsare getting increasingly congested. The Planning Commission has planned to create surplus port capacityof around 30% by 2011-12.
• Jawaharlal Nehru Port Trust in Mumbai has lined up projects costing more than USD 200 million. MumbaiPort Trust (MbPT) has drawn up plans for new berths and terminals requiring USD 500 million. Kandla Portis expecting an investment of USD 300 million and Tuticorin Port has lined up berth development costingmore than USD 200 million.
• MbPT plans to set up a container terminal. The proposal includes construction of 2 offshore containerberths and container terminal with about INR 3660 million invested by MbPT and the remaining INR 8610million to be invested by the BOT operator. The project is slated for completion by 2009.
• The New Mangalore Port Trust (NMPT) is also gearing to meet large future needs and the focus is oncreating more facilities for users. The port, which has a capacity to handle 38 mt of cargo a year, plans tohandle 60 mt by 2011-12.
RAILWAYS - (Rail Freight)
• The Indian Railways (IR) has the second largest railway network in the world, running over 63,332 routekms and owns a fleet of 2,07,176 wagons, 50,080 coaches and 8,025 locomotives.
• IR runs around 14,000 trains daily, of which 8,900 are passenger trains and 5,100 are freight trains. Thetotal freight transport accounts for 67% of its total revenues.
• The freight and passenger traffic have grown at a five-year average rate of 7-9% and 5.5% respectively,with revenue growing even faster at around 12.5% and 9.8% respectively.
• The Indian Railways is the largest employer, providing employment to over 1.4 million people.
Source: Indian Ports Association
Traffic Handled At Major Ports
Indicates the trendover the years
Year
0
100
200
300
400
500
600
2000-01
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Tra
ffic
Han
dle
d (
in m
illio
n T
on
nes)
Freight Traffic Across ModesOf Transport -Year 2008
Road
60%
Rail
32%
Coastal
3%
Pipeline
5%
Source: CRISIL – Indian Infrastructure Report, ICICI Property Services Research
Source: Working Group Report, Eleventh Planning Commission, ICICI Property Services Research
Commodity-Wise Traffic Share 2006-07(Million Tonnes)
42%
9%7%
5%
5%
14%
9%
6%3%
Coal
Iron Ore-Exports
Fertilizer
Finished Steel
Iron Ore-Steel Plants
POL
Cement
Food Grains
Others including Containers
PROPOSED DEDICATED RAILWAY FREIGHT CORRIDORS
DELHI
KOLKATTA
EasternWestern
Source: ICICI Property Services Research
RAIL NETWORK IN INDIA
Gauge Length in km Electrification
Narrow (610/762 mm) 3,034 0%
Metre (1.0 mm) 12,662 1.2%
Broad (1.676 mm) 47,749 36.5%
Total 63,445 27.5%
KEY DEVELOPMENTS: Railways
• The Indian Railways registered a growth rate of 14% in passenger earnings and 17% in freight earning,clocking a surplus of INR 200 billion in 2006-07. However the railways modernisation and infrastructureprojects require INR 600 billion and hence railways will need more funds to complete the existing and newprojects in a time bound manner using the PPP mode in all sub-sectors except operations.
• In order to utilise railway land the government proposed to amend the Railways Act 1989, empoweringRailways to utilise excess land. The Railways is planning to utilise part of the land to build commercialprojects like agri-business hubs and organised retail for which it is in talks with companies like RelianceRetail, Future Group (Pantaloons), Tata's and the Birla Group.
KEY DEVELOPMENTS
• Modernization of 37 operating airports and also deployment of Public-Private Partnerships (PPP) mode todevelop new airports has helped improve airport infrastructure and would facilitate increased air cargohandling capacity.
AIRPORT INFRASTRUCTURE
• India is one of the fastest growing markets for airlines. The Indian Civil Aviation Sector has been posting adouble-digit growth over the past few years. It is expected to grow at 25% annually for the next five years.
• Investments in the aviation sector are expected to touch USD 30 billion by 2012 and USD 50 billion by2015.
• The entry of low-cost carriers like Spicejet, GoAir and Indigo Airlines has resulted in strong marketstimulation.
• There has been a steady rise in both passenger and cargo traffic (both domestic and international) overthe past few years. The cargo movement rose at a CAGR of 11.8% from 0.98 million tonnes in 2002-03 to1.7 million in 2007-08.
• The rapid expansion of airport infrastructure has become essential due to an unprecedented growth. Thedomestic market size is expected to cross 60 million and international traffic 20 million by the end of 2010.Over 155 aircrafts have been added in the past 2 years. By 2010 India's fleet strength will stand at 500-550aircrafts.
•Partnership (PPP) in various parts of the country.
• The freight stations would be upgraded with inter-modal facilities. The Railways also proposes to developlogistics parks along major stations in the country through PPP. Major stations in metro cities like Delhi,Mumbai, Kolkata and Chennai are likely to have such parks along railway stations.
• In non-metros which are the hub of freight business, the Railways is planning to set up about 20 logisticsparks over the next few years, requiring an investment of INR 100 billion.
• The Railways has established Dedicated Freight Corridor Corporation of India (DFCCIL) to implement thefreight corridor project over the next five years. DFCCIL has an authorized capital of INR 400 billion atpresent, which is likely to increase subsequently depending on the requirement.
The Indian Railways has identified 22 stations, which would be modernized under the Public Private
City Passenger Cargo Traffic Traffic (in million)
(in million)
Bangalore 10.1 178.0
Chennai 10.6 270.6
Delhi 23.9 432.8
Hyderabad 6.9 51.1
Kolkata 7.4 90.9
Mumbai 25.8 533.4
Source: Airports Authority Of India, CRISIL, ICICI Property Services Research Group
(in
'000 t
on
nes)
Month-Wise Freight Traffic Trend
0204060
80100120
Month
International Domestic
Source: Airports Authority Of India (AAI), ICICI Property Services Research
rA
pil-0
8
0M
ay-
8
Ju
n-0
8 8Ju
l-0
Au
g-0
8
Sep
-08
Oct
-08
No
-8
v0
Dc
0e
-8
J-0
9an
Feb
-09
Mar-
09
Conventional/Bonded Warehouses
Container Freight Stations (CFS)
Inland Container Depot (ICD)
Cold Storage
Liquid/Gas Depots
Logistics Parks
Free Trade Warehousing Zones (FTWZ)
Logistics InfrastructureLogistics Services
Logistics And Warehousing
Air/Rail/Road Transport
Shipping
Cold Chain
Express/Courier Service
Third Party Logistics (3PL)
LOGISTICS SERVICES
The freight transportation sectors- rail, road, air or coastal shipping dominate the logistics services segment. Services such as Cold Chain / 3PL's aid utilization of specialized services for transportation.
Cold Chain Is a temperature controlled supply chain facility. An unbroken cold chain is an uninterrupted series of storage and distribution activities which maintain a given temperature range to help transport perishable items to the desired location.
LOGISTICS INFRASTRUCTURE
Internal Container Depot (ICD)– An ICD is a common user facility with public authority status equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under customs control and with customs and other authorities competent to clear goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export.
ICD's are generally located in the interiors of the country away from the servicing ports.
Container Freight Stations (CFS)– CFSs are functionally similar to ICD's and act as a transit facility. CFS is however an off dock facility located near the servicing ports which helps in decongesting the port by shifting cargo and customs related activities outside the port area.
CFS's are largely expected to deal with break-bulk cargo originating/terminating in the immediate hinterland of the port and may also deal with the rail-borne traffic to and from inland locations.
Cold Storage– Are facilities meant to preserve the perishable commodities of food items for a longer period with retention of the original colour, flavour and taste.
Logistics Parks– Logistics Parks are specially notified areas that house warehouses, cold storage facilities, modal transport facilities, container freight stations etc to facilitate domestic and foreign trade. These areas offer special tax benefit to the developers.
Free Trade & Warehousing Zone (FTWZ)– FTWZ is a special category of Special Economic Zones for the purpose of trade and warehousing.
–
EMERGING TRENDS/GROWTH DRIVERS IN THE LOGISTICS INDUSTRY
Emerging Role of 3PL's
• Third-Party Logistics providers are entities that provide services to companies for their supplychain management functions.
• 3PL's ideally specialize in integrated warehousing & transportation services that are customized to theclient's needs based on market conditions and inherent demand.
• The key players in the domestic market include the likes of DRS, Gati, DHL, SafeExpress, Sical Logistics,Reliance Logistics, A S Cargo and AFL among others.
(3PL's)
*PROMINENT LOGISTICS PLAYERS
Public Sector Private Players Foreign Players
Transport Corporation Of India (TCI) Gati DHL/Blue Dart
Container Corporation Of India (ConCor) SafeExpress Federal Express (FedEx)
Food Corporation Of India (FCI) Reliance Logistics TNT
Central Warehousing Corporation (CWC) Tata Realty and Infrastructure ProLogisLtd. (TRIL)
SICAL AFL
DRS Logistics Maersk Logistics
Source: ICICI Property Services Research. The list is indicative in nature and not exhaustive.
Major Reasons for Outsourcing of Supply Chain Activities
26%
12%
24%
27%
11%
Strategic Reasons
Investment Reasons
Process Effectiveness
Lower Cost
Lack of Internal
Capability
Source: Indian Supply Chain Infrastructure - B. S. Sahay & Ramneesh Mohan, ICICI Property Services Research.
•organized structure and distribution network of an otherwise scattered market.
• 3PL's are today increasing investments to become end-to-end integrated players. As per the investmentplans of the leading 3PL's in India, the logistics industry's capital expenditure is progressively increasing tomatch its revenue growth, a strong indicator of 3PL's diversifying to become integrated service providers.
• The organized 3PL sector, which has been continuously growing during the past few years, is expected tocontinue its upward movement, with a CAGR of about 15% in the next few years.
• According to a Technopak study, the total outsourced logistics revenue in 2006 was INR 1,151 billion ofwhich 5% was or INR 58 billion was attributed to revenue gained from the 3PL sector.
The entry of global players in the 3PL segment has led to a considerable expansion in network besides the
EMERGENCE OF INDIA AS A MANUFACTURING HUB
• The manufacturing revolution is well under way in the Indian economy, spurred on by an increasingpresence of multinationals and scaling up of operations by domestic companies.
• The manufacturing sector has been averaging a growth of 8.5% in the last four years (2004-08), with arecord 11.5% in 2006-07.
• The current global crisis has seen a slump in the industrial production numbers to an all time low.Notwithstanding this fact, an improving economy has led to positive results in the early phase of therecovery. This is indicative of India emerging as a potential manufacturing hub.
• According to the Confederation of Indian Industries (CII), India will emerge as one of the globalmanufacturing hubs with expected revenues of approximately USD 50 billion by 2015.
• Manufacturing still contributes around 15% of the country's GDP. According to a UNIDO analysis based on2007 figures mentioned in the International Yearbook of Industrial Statistics 2009, India ranks among thetop 12 producers of Manufacturing Value Added (MVA).
• In textiles, the country is ranked fourth after China, USA and Italy, while in electrical machinery andapparatus, it is ranked fifth. It holds sixth position in the basic metal category, seventh in chemicals andchemical products, refined petroleum products and nuclear fuel, twelfth in machinery & equipment andmotor vehicles.
• Exports from Special Economic Zones (SEZ) rose 33% during the year ending March 2009, far outpacingthe country's overall exports growth of just 4%, according to the Commerce Department. According tothe data, exports from such tax-free manufacturing hubs totalled USD 18.16 billion last year.
• The growth of the manufacturing sector would create an imperative demand for quality logistics andwarehousing infrastructure. A cost-effective logistics service is today the need of the hour.
• The manufacturing sector is estimated to have a USD 180 billion investment opportunity over the next fiveyears, according to the Investment Commission of India.
Source: CSO
Average Growth in IIP (April-March)
Year Average Growth (%)
2004-05 8.35
2005-06 8.15
2006-07 11.55
2007-08 8.14
2008-09 2.6
INDIA, THE MANUFACTURING HUB - Major Investment Plans
• LG is looking at making India its global manufacturing hub for its mobile handsets. The company willsoon be exporting mobile phones to Europe and the Commonwealth Independent States (CIS) fromIndia.
• Luxury brands like Louis Vuitton and Frette are looking at India as a manufacturing base for theirproducts.
• Skoda Auto, a part of the international Volkswagen Group based in the Czech Republic, plans to makeIndia its regional manufacturing hub. It will start producing cars in India by 2010 with a manufacturingtarget of 50,000 units. Besides the domestic market, these will also be exported to neighbouringcountries like Nepal, Sri Lanka, Burma and Bangladesh.
• Aircraft manufacturer Airbus is considering India as one of the key centres for design anddevelopment of its long haul A-350 plane.
• Bharat Heavy Electricals Ltd. (BHEL) has decided to re-enter the wind energy business in a big way thisyear with focus on equipment manufacturing.
• Royal Philips Electronics, Europe's biggest consumer electronics group, plans to make India a hub fordeveloping and manufacturing products for global markets and sourcing components across its coreareas of lifestyle, healthcare and lighting.
• Cryolor Asia Pacific, a wholly-owned subsidiary of France-based Cryolor SA, is setting up a facility tomanufacture storage equipment for liquefied gases. The company will invest USD 8.9 million in theunit coming up at Melmaruvatur, 110 km from Chennai.
• Samsung plans to invest USD 100 million over a period of four years in its manufacturing plant nearChennai and make it its global hub.
• Hyundai has made India the manufacturing and export hub for its small cars. The i10 is beingmanufactured only in India and exported to the world. India is Hyundai's largest base outside Korea.
• Suzuki is making India its manufacturing hub for small cars. The Ritz is being manufactured solely inIndia and exported to Europe.
Source: IBEF
GROWTH OF ORGANISED RETAIL
• The Indian retail sector is worth an estimated USD 350 billion and growing between 30-40% p.a. Themarket share of organized retail is expected to rise from the current 4% to about 10% by 2010.
• According to ASSOCHAM, the organized retail segment would see an investment of USD 70 billion by2010. By 2015, the retail sector is projected to overtake the USD 650 billion mark and organized retail willcross USD 130 billion mark.
• The share of retail trade in the country's GDP was between 8-10% in 2007. It is currently 12% and isexpected to reach 22% by 2010.
• At USD 511 billion in 2008, the market continues to expand. The FDI inflows as on January 2009, in asingle-brand retail trading stood at approximately USD 25.18 million, according to the Department ofIndustrial Policy and Promotion (DIPP).
• The rising household consumption and the emergence of organized retail in tier II and tier III cities isexpected to further boost the growing economy. Today global and local brands alike are targeting smallercities and towns, setting shop with their value formats to drive home a selling proposition.
• The rural market in India has grown at 25% compared to 7-10% growth of the urban consumer retailgrowth.
• Brands such as Wal-Mart have forayed into India through a Joint Venture with the Bharti group. Carrefour,the world's second largest retailer, is likely to finalize its investment plans for India in the months ahead.
• Groups such as Reliance, Aditya Birla Group, Future Group and Shoppers Stop have aggressiveinvestment plans in the year ahead.
• The growth of the retail sector has led to increased investments in the retail and infrastructure sector alike,creating immense new job opportunities.
• The growth and expansion of various retail formats across the country has led to an imperative demandfor improving the supply chain network and infrastructure, in order to enable cost effective logisticssolutions.
Source: ICRIER, ICICI Property Services Research
8580
33
80
40
66
20
4
0
10
20
30
40
50
60
70
80
90
Percentage
(%)
USA UK Russia FranceThailand Japan China India
Share Of Organised Retail
LOGISTICS PARKS – Proposed Developments across India
•Logistics Parks across India by 2010 with a total of 4 million sq. ft. at an investment of around INR 6000 million,to be raised through debt and equity route.
• Safe Express, the country’s leading logistics company, will raise its number of logistics parks to 32 in the nexttwo years in India with an investment of INR 10 billion. The company has launched three of its world-classLogistics Parks in Gurgaon, Nagpur and Ahmedabad.
• Shree Shubham Logistics Ltd., a Kalpataru group company, plans to develop 11 Agri-Logistics Parks, of which5 are already functional.
• Tata Realty & Infrastructure Ltd. (TRIL) has signed a 50-50 joint venture with Dubai-based Jafza International todevelop and operate logistics parks across India. The JV plans to construct logistics parks in seven majorlocations in the country with an initial investment of INR 24 billion.
• Allcargo Global Business Logistics Ltd. (AGL) is investing INR 3400 million (USD 68 m) in establishing 10Logistics Parks in India to improve the supply chain for the country's automotive industry.
• The Indian Rail Ministry has proposed to build Logistics Parks along major stations in the country throughPublic-Private Partnerships (PPP). The rail-based multimodal facilities will be set up in Ahmedabad, Bangalore,Nagpur, Chennai, Mumbai and Hyderabad.
• The Eredene Group has agreed to invest a forecasted INR 210 million, in a planned 30-acre Logistics Park toserve Kalinganagar Industrial Complex. The Kalinganagar Logistics Park will be developed and managed byApeejay Infra – Logistics Parks. The Eredene Group is also in a JV with Apeejay Group for a Logistics Park inHaldia, West Bengal.
• The Container Corporation of India (ConCor) has proposed to join hands with Rajasthan Industries Departmentto set up an INR 500 million integrated Logistics Park in Kanakpur. The 80-acre proposed logistics park wouldhave state-of-the-art warehouses, cold chains, national and international transport services, courier servicesand packaging industries.
• Tata group firms Drive India Enterprise Solutions & Tata Realty and Infrastructure plan to set up logistics parksacross the country with an investment of INR 20 billion. The two companies would set up 7-8 logistics parkswith a total warehousing space of 38.5 million sq. ft. in the next 4-5 years.
DRS group, a Hyderabad-based company and operators of Agarwal Packers & Movers, plans to set up 18
Source: ICICI Property Services Research.
LOGISTICS PARKS - A One-Stop Shop for Logistics
• Logistics Parks are specially notified areas that house warehouses, cold storage facilities, modal transportfacilities, container freight stations etc to facilitate domestic and foreign trade.
• These areas help facilitate in unloading cargo for distribution, packaging and redistribution.
• They offer special incentives and tax benefits to the developers.
• Logistics Parks ideally focus on the domestic markets and are being developed along industrial areas tofacilitate easy transit and reduce logistics costs.
• Major players in the market are focusing on establishing Logistics Parks. Over the next three years, around110 logistics parks are expected to come up across India at an estimated cost of USD 1 billion.
WAREHOUSING
• Warehouses are commercial buildings for storage of goods predominantly used by manufacturers,importers, distributors, transport businesses, customs etc. They are equipped with loading trucks orsometimes are loaded directly from railways, airports or seaports.
• Today the sole of a warehouse has transformed from being a godown to an inventory management set-upwith a greater emphasis on value added services.
• Services such as packaging, labelling, bar coding are today being provided at warehouses. The necessityfor quality space and management of inventories has led to logistics companies and large companiesalike investing into development of warehouses.
• The warehousing segment, which currently accounts for about 15-20% of the market share of the logisticsindustry, is expected to grow the fastest amongst various logistics functions.
• The warehousing market segment is estimated to grow from USD 20 billion in 2007-08 to about USD 55billion by 2010-11.
• The warehousing sector, which has largely remained unorganized and traditional in nature, is witnessingrd the foray of various 3 Party Logistics Providers (3PL), which would be the key differentiating factor in the
industry going forward.
• The improving infrastructure and the implementation of VAT will further provide the necessary impetus tothe warehousing sector.
• The organized sector has a capacity of approx. 80 million metric-tonnes (MT) and is growing at 35-40%annually. Various companies are planning investments to the tune of USD 50 million over the next 3-5years.
• Over the next five years, approximately 110 logistics parks and 45 million sq. ft. is expected to bedeveloped across the country by various logistics companies.
Stockpiling
Distribution
Warehouse
ProductMixing
ValueAddition
CustomerService
Increasingly, warehouses are also being used to do
higher end tasks associated with production till now.
These include MRP tagging, promotion bundling, repackaging quality
checking etc.
A warehouse may be used as a place where material
from different factories of an organization is mixed and dispatched to common set
of distributors.
The goods are dispatched to the dealers / distributors from the warehouse. The warehouse thus performs like invoicing and order
processing.
Increasingly warehouses are being used as the customer service and repair centers.
This ensures quick availability of spare parts and offers low turnaround
time.
A warehouse is often used as a stock piling station to manage demand-supply
gaps over a long term.
Source: Skill gaps in The Logistics Sector - A white paper by CII & KPMG
MULTI-TASKING FUNCTIONS AT A WAREHOUSE
FREE TRADE & WAREHOUSING ZONES (FTWZ)
• The Free Trade & Warehousing Zone (FTWZ) is a special category of Special Economic Zones for thepurpose of trade and warehousing.
• The objective of a FTWZ is to create trade-related infrastructure to facilitate the import and export ofgoods & services with freedom to carry out trade transactions in free currency.
• The Government of India had announced in the Foreign Trade Policy 2004-09 to set up Free Trade &Warehousing Zones, so as to enable creation of world-class infrastructure for warehousing of variousproducts, state-of-the-art equipment, transportation and handling facilities, commercial office space,water, power, communication and connectivity, with one-stop clearance of import & export formality, tosupport the integrated zones as international trading zones.
• 100% Foreign Direct Investment is permitted in development and establishment of FTWZ; minimum sizeof a FTWZ is stipulated at 1 lakh sq. mtrs.
• The FTWZ's shall be under the administrative control of the Development Commissioner (DC).
FISCAL AND REGULATORY BENEFITS-FTWZ
• Duty deferment Benefits– Customs dutydeferment benefits for products requiring longerstorage time.
• Tax holiday under section 80-1AB of Income TaxAct for 10-15 years.
• Income from leasing of warehouse facilities tounits should be eligible for tax holiday.
• Excise duty exemptions– Excise duty exemptionfor products sourced from the domestic markets,including goods, spares, DC Sets, packingmaterials etc.
INFRASTRUCTURE BENEFITS-FTWZ
• Advanced warehousing facilities– Facilitatequality warehousing & container freight storageservices, which includes customized warehousesand sophisticated Cold Storage facilities.
• Ancillary & support services– Presence of supportservices such as enhanced transportationfacilities and equipment helps small & mediumscale traders to save on capital investments byleasing equipments provided by the zone.
• Hubbing opportunities– Quality infrastructure andfacilities enable organizations to hub itsoperations.
• Integrated facilities– Access to support facilitiessuch as banking, insurance, customs officials whowould be present within the zone etc would helpimprove management efficiencies.
List of FTWZ's in India
Source: Ministry Of Commerce and Industry
1 J Matadee Eco Parks Pvt. Ltd. Kancheepuram District 40.625 NotifiedTamil Nadu
2 Balaji Infra Projects Ltd. Dighi Port, Raigadh 100 Formal ApprovalMaharashtra
3 Chiplum Infrastructure Pvt. Ltd. Mumbai, Maharashtra 40 Formal Approval
4 Jafza Chennai Business Parks Pvt. Ltd. Tiruvallur District 136.38 Formal ApprovalTamil Nadu
5 Jhunjhunwala Vanaspati Ltd. Sahupuri, District 103.63 Formal ApprovalChandauli, Uttar Pradesh
6 Haldia Free Trade Warehousing Ltd. Haldia, West Bengal 45.72 Formal Approval
7 LMJ Warehousing Pvt. Ltd. Kandla, Gujarat 40 In-Principle Approval
8 Shipco Infrastructure Pvt. Ltd. Kolar, Karnataka 120 In-Principle Approval
9 Arshiya Technologies International Ltd. Panvel, Maharashtra 68 In-Principle Approval
10 Vibrant IL&FS Consortium Naigaon, Maharashtra 68 In-Principle Approval
11 DLF Universal Limited Amritsar, Punjab 40 In-Prinicple Approval
12 Greater Noida Integrated Greater Noida, Uttar Pradesh 80 In-Prinicple Approval Warehousing Pvt. Ltd.
No. Name Location Area (Hectares) Approval Type
REGULATORY FRAMEWORK
Warehousing Development & Regulation Act –2007.
The Warehousing (Development and Regulation Act) Bill–2007, which has been approved by Parliament, seeks to establish a Warehousing Development & Regulation Authority (WDRA), to regulate the industry, establish accreditation agencies for warehouse registration and also do arbitration.
As per the Bill, no person shall commence or carry on the warehousing business to issue negotiable warehouse receipts unless he has obtained a registration certificate in respect of the concerned warehouse or warehouses granted by the authority under this act.
The authority will not grant a certificate of registration under this section unless it is satisfied that the warehouse in respect of which the application has been made has adequate facilities and safeguards required to warehouse the goods of the nature specified in the application and the applicant satisfies the financial, managerial and other eligibility criteria and competence as may be prescribed.
BENEFITS OF THE WAREHOUSING ACT
• The Warehousing Act would create a legal framework for making the warehouse receipts negotiable.
• This act would help farmers avail loans from banks by depositing the produce in a registered warehouseand using the Negotiable Warehouse Receipt (NWR) as collateral for obtaining short-term loans.
• The act would help standardise the process of agri-produce storage mechanism.
• Would also induce farmers to produce crops as per the marketable grades and standards for being kept inwarehouses thus improving the quality of produce.
• The industry would also benefit by way of reduction of the risks related to extension of credit as thepledging /collateralisation of agriculture produce would have a legal backing in the form of NWR’s.
• The act has the potential to spur other related activities like standardization, grading, packaging andinsurance in the agricultural sector.
• Would facilitate large private investments and entry of new players in the warehousing sector, which largelyremain unorganized.
INDUSTRIAL PARK SCHEME –2008
“Industrial Park “, under the scheme, means a project in which plots of developed space or built-up space or a combination with common facilities and quality infrastructure facilities is developed and made available to the units for the purpose of industrial activities or commercial activities in accordance with this scheme.
The government has notified the Industrial Park Scheme 2008 vide Notification No. 3/2008, dated 8.1.2008, for tax benefit under section 80-IA of the Income Tax Act. The scheme shall be applicable for any undertaking, which develops, develops and operates or maintains and operates an industrial park between April 1, 2006 and March 31, 2009.
CRITERIA FOR APPROVAL
The Criteria For Approval as Industrial Park is as under:
• The date of commencement of the Industrial Park should be on or after 1st Day of April 2006 and not later `than 31st March 2009.
• The area allocated or to be allocated to industrial units should not be less than 75% of the allocable area.
• There shall be a minimum of thirty industrial units located in an industrial park.
• For the purpose of computing the minimum number of industrial units, all units of a person and hisassociated enterprise will be treated as a single unit.
• The minimum constructed floor area shall not be less than 15,000 square metres.
• No industrial unit, along with the units of an associated enterprise, shall occupy more than 25% of theallocable area.
• The industrial park should be owned by only one undertaking.
• Industrial units shall undertake only manufacturing activity as defined in section D of the NationalClassification, 2004 Code, issued by the Central Statistical Organization, Department of Statistics.
SWOT ANALYSIS
WEAKNESSES
• Lack of efficient infrastructure remains a primary concern.
• The logistics cost in India at 13-14% of the GDP remains high when compared to many developedcountries where the logistics cost is ~8-9%.
• The logistics sector remains fairly unorganized and scattered, with the majority being small timeplayers.
• The logistics sector largely continues to follow traditional methods, with limited or restricted use ofupcoming technology and tracking facilities.
• Absence of a regulatory framework and the Indirect taxes regime has led to extensivefragmentation of the industry.
• Lack of quality institutions providing specialized courses in this sector.
• Lack of skilled labour and poor pay scales when compared to other industries.
• There is considerably a higher risk in fleet movement. The turnaround time at Indian ports remainshigher compared to other developed countries.
STRENGTH
• The fundamentals of the Indian economy remain strong despite the global downturn and remainone of the preferred investment destinations by major corporates across the globe.
• Entry barriers to provide logistics services in India is low.
• Availability of manpower at cost effective rates remains a key driver for the growth of the logisticssector.
• The availability of large chunks of land at strategic locations for development of warehouses is anadded advantage.
• Excellent port connectivity and network to different spheres across the globe remain an inherentstrength.
• The emergence of organized retail and India emerging as a global manufacturing hub has led to thecreation of an imperative demand for logistics services.
• Favourable government policies and an increased spend towards infrastructure developmentwould bolster the growth of the logistics sector.
THREATS
• The geographical extent and vastness of the country with diversity across each sector remains achallenge.
• The lack of focus on developing manpower and skills for the logistics sector has resulted in asignificant gap in the numbers and quality of manpower in the sector. This gap, unless addressedurgently, is likely to be a key impediment in the growth of the logistics sector in India.
• There are inevitable security concerns that remain a formidable threat.
OPPORTUNITIES
• The upcoming Logistics Parks and Free Trade & Warehousing Zones (FTWZs) would provide thenecessary impetus for the growth of the sector.
• The Indian logistics sector is still at a nascent stage and the true potential of the sector remainsuntapped.
• There has been a continuous rise in foreign trade over the years. The increase in quantum of tradewould create an imperative demand for Logistics and Warehousing.
• The increased spend on infrastructure development by the government would bolster the growthof the logistics sector and also aid in effective cost reduction.
• The entry of global 3PL's into the Indian markets would facilitate the expansion of network,standardization of procedures and thus in transforming the otherwise unorganized sector.
• The phasing out of Central Sales Tax (CST) and implementation of VAT would help create a uniformtax structure.
• The growth of Organized Retail and its penetration into Tier II and Tier III cities has createdimmense need for a strong back and front end supply network.
• There is a lack of Cold Storage facilities. India is today developing as a global hub for fresh produceoutsourcing. An efficient cold chain infrastructure - the need of the hour.
• Growth potential in services such as Express transport remains untapped.
SWOT ANALYSIS
LOGISTICS PERFORMANCE INDEX (LPI): Measuring Logistics Performance
• The Logistics Performance Index (LPI) and its indicators provide the first in-depth cross-countryassessment of the logistics gap among countries. Complementing existing international competitivenessindicators, such as the World Economic Forum's Global Competitiveness Index (GCI), the LPI and itsindicators propose a comprehensive approach to supply chain performance.
• The LPI provides a comprehensive picture of supply chain performance – from customs procedures,logistics cost and infrastructure quality to the ability to track and trace shipments, timeliness in reachingdestination and the competence of the domestic logistics industry.
• Using a 5-point scale, the LPI aggregates more than 5000 country evaluators. It is complemented by anumber of qualitative indicators of the domestic logistics environment, institution and performance ofsupply chains.
• The LPI and its indicators point to significant differences in logistics performance across countries andregions. It reflects not only expected disparities between developed and developing countries, but moreimportantly, significant differences among developing countries at similar levels of development.
• The LPI rankings and indicators provide robust benchmarks that may help build the case for reform. Bythrowing light on the costs of poor logistics performance, the LPI and its indicators can help countriesbreak out the vicious circle of logistics unfriendliness to effectively access global markets.
The key indicators from the LPI are:
• Singapore holds forte with excellent infrastructure, customs and transportregulations providing for an effectivesupply chain.
• Most of the nations, which occupy the top10 rankings in the GCI, also form a part ofthe LPI.
• However, the GCI rates the United States asRank 1, whereas in finer aspects of logisticsperformance, USA occupies the 14thposition.
• India is rated 39th indicating a scope forreforms in the sector, to tap into thepotentially large domestic markets.
Source: Connecting to Compete, The World Bank Report
Country Logistics Performance IndexRank Score
Singapore 1 4.19
Netherlands 2 4.18
Germany 3 4.10
Sweden 4 4.08
Japan 6 4.02
Switzerland 7 4.02
United Kingdom 9 3.99
Denmark 13 3.86
United States 14 3.84
Finland 15 3.82
France 18 3.76
Korea 25 3.5
Malaysia 27 3.48
China 30 3.32
India 39 3.07
Indonesia 43 3.01
THE INDIAN LOGISTICS INDUSTRY: A Reality Check
• Logistics is a high cost, low margin business. Unorganized players who evade taxes and do not follownorms stipulated in the Motor Vehicles Act such as quality of drivers and vehicles, weight restrictions etccompound the existing woes.
• Economies of scale are absent. Even the organized sector, which contributes slightly more than 1% of thelogistics cost, is highly fragmented.
• The Indian Logistics Service Providers (LSPs) are bound to pay numerous taxes and face multiple checkposts. High cost of operation and delays involved in compliance with varying documentationrequirements of different states make the business unattractive.
• On an average, a vehicle on Indian roads loses 24-48 hours in complying with the paperwork andformalities at different check posts en-route to a destination; in effect, an average increase intransportation cost by 30%~40% per shipment. Fuel worth USD 2,500 million is spent on waiting at checkposts annually.
• A vehicle that costs USD 30,000 pays USD 7,500 p.a. in form of various taxes, which include excise duty onfuel. This is why freight cost is a major component of the overall cost.
• Lack of trust among Indian Shippers – There is a lack of trust and awareness among Indian Shippers withregard to outsourcing logistics. The volume of outsourcing by Indian Shippers is presently very low(~10%) compared to other countries (>50%). The possible benefits, perceived risks, losing control andsensitive organizational information primarily prevent organizations from outsourcing logistics.
• Poor physical and communication infrastructure is another deterrent to attract investments in the logisticssector. Road transportation accounts for more than 60% of inland transportation of goods and highwaysthat constitute 14% of total road network carry 40% of the freight movement by roadway.
• The Indian ports account for longer turnaround time at ports due to delays in loading/unloading issues.This has led to certain Indian exporters resorting to transshipment at ports such as Singapore, Dubai andColombo, adding to the cost of shipments and also delayed deliveries.
• Low penetration of IT and lack of proper communication infrastructure also result in delays. Unavailabilityand absence of a seamless flow of information among the constituents of LSP's creates a lot ofuncertainty, unnecessary paperwork and lack of transparency.
• There is an evident lack of skilled and knowledgeable manpower in the logistics sector.
• Service tax levied on logistics service fees makes outsourcing costly and outweighs the possible benefits.
Source: Global Competitiveness Report, 2008-09
The most problematic factors for doing business in India
0 5 10 15 20 25 30
Inadequate supply of infrastructure
Inefficient government bureaucracy
Corruption
Restrictive labour regulations
Tax regulations
Inflation
Policy instability
Inadequately educated workforce
Tax rates
Poor work ethic in national labour force
Access to financing
Foreign currency regulations
Government instability/coups
Poor public health
Crime and theft
Percent of Responses
FUTURE PROSPECTS
Despite inherent problems, the Indian logistics sector continues to grow at 15-20% vis-à-vis the average logistics industry growth of 10%. Since the organized sector accounts for merely 1% of the annual logistics spend, there is immense potential for growth of the sector. The major opportunities are highlighted below:
a) Many large Indian corporates such as Tata's and Reliance Industries have been attracted by the potential of this sector. They have started providing in-house logistics services and soon, sensing the growth of themarket, have started providing services to other corporates as well.
b) Large express cargo and courier companies like TCI and Blue Dart have also started logistics operations.These companies enjoy the advantage of already having a large asset base and an all-India distributionnetwork.
c) The Indian economy is today on a steady path of recovery. The growth of the economy would create ademand for specialized logistics services.
d) There has been an immense focus on the infrastructure sector. The development of the GoldenQuadrilateral project, East-West and North-South corridors (connecting four major metros), Free Tradeand Warehousing Zones (FTWZ's) in line with the SEZ's and Public-Private Partnerships (PPP) in
INVESTMENTS IN THE LOGISTICS SECTOR
Name of The Organisation Amount (INR in million) Investor
AllCargo Global Logistics 2420 Blackstone
AllCargo Global Logistics ~550 New Vernon
Apeejay Infra-Logistics Pvt. Ltd. 210 Eredene Capital PLC
Apeejay Infra-Logistics Pvt. Ltd. 420 Eredene Capital PLC
BLR India 500 Reliance Capital
Delhi Assam Roadways 400 IDFC PE
Direct Logistics 100 SIDBI Venture Capital
DRS Logistics 1000 Kotak PE
DRS Logistics 2000 Merrill Lynch
Elbee Express 160 Clearstone Venture Advisory
First Flight Courier Ltd. 1000 Temasek Holdings
MJ Logistics 854 Eredene Capital PLC
Quickjet Cargo N. A. Tata Capital
Sattva Group 68 Eredene Capital PLC
Sical Logistics 1100 IDFC PE Fund II
Sical Logistics 1070 Old Lane Opportunities Fund
Source: Industry Sources, Company Websites, News Articles, ICICI Property Services Group Research
infrastructure development is expected to boost investments in the logistics sector.
e) There is growing interest among entrepreneurs to venture into this business since logistics services canbe provided without assets.
f) In India, 100% FDI is allowed in logistics sector. Most of the logistics companies have their presence inIndia, mainly involved in freight forwarding. For domestic transportation and warehousing they havetie-ups with Indian companies. The MNC's are expected to play a bigger role by either forming whollyowned subsidiaries or taking the acquisition route, thus creating a large distribution and global network.
CASE STUDY: Agriculture Sector
• In the post green revolution era, there has been significant growth in the production and productivity inthe Indian agricultural sector. The country has become self sufficient in food grains and has achieved aremarkable growth in the production of pulses, oil seeds and fibres.
• However, we are witnessing a reversal of trends and have started importing wheat again. In the financialyear 2006-07, a total of 1.424 million MT had been imported (Source: Press Information Bureau, Government of India).
• With the rise in population at 2.1% per annum, the population of India would be about 1600 million in thenext 20 years, which leads to a consumption requirement of 358 million MT of food grain.
• Agriculture will continue to be a driver of the economic growth; wherein the production spans over a
AGRICULTURAL PRODUCTION – Key States
Name of the Commodity Total Production Major Producing States
Food Grains 209 MMT Uttar Pradesh, Punjab, AndhraPradesh, West Bengal, Madhya Pradesh, Haryana, Maharashtra,Karnataka and Rajasthan
Oil Seeds 23.6 MMT Rajasthan, Madhya Pradesh, Gujarat, Maharashtra, Andhra Pradesh, Karnataka, Tamil Nadu, Haryana and Uttar Pradesh.
Cotton 21037 thousand bales Gujarat, Maharashtra, Punjab, Haryana and Andhra Pradesh
Jute and Mesta 10927 thousand bales West Bengal, Bihar, Assam and Andhra Pradesh
Source: ICICI Bank Ltd., ICICI Property Services Group Research
short period but consumption is spread over the whole year. To ensure that the quality of commoditiesstocked for consumption is maintained, it is pertinent that the warehouse capacity in the area is capable ofhandling the arrivals /produce in the area.
While all the commodities are produced across India, about 80% of agricultural production is confined to few states only. It has been depicted in the following table.
DEMAND-SUPPLY GAP – AN ANALYSIS: Method 1
Source: Ministry Of Agriculture (2006-07), ICICI Bank Ltd., ICICI Property Services Research
Name Of The Crop Total Crop Production (million MT)
Total Warehousing Requirement 106.7
Warehouses provided by CWC/SWC and Grameen Bhandaran Yojana 44.1
Un-catered Warehousing Space 62.6
Food Grains 209
Commercial Crops 68
Oilseeds 23.6
Cotton Seeds (0.3 mn MT of cotton seeds requires anequivalent of 1.875 mn MT space of food grain) 1.88
Cashew 0.57
Spices 0.7
Skimmed Milk Powder 0.16
Fertiliser Consumption 1.03
Total Production 304.94
Assumption: Warehousing Space Requirement = 35% of the Total Production
Method 2
Herein, the demand-supply gap for storage of food grains, oil seeds and fertilizers is analyzed for certain selected states, based on production capacity and available warehousing space:
Assumption: In the below mentioned analysis, 25% of total production has been assumed to be waste and 50% of total capacity not catered by SWC, CWC and FCI godowns are assumed to be catered by all other storage structures, private licensed, private unlicensed godowns & other rudimentary storage structures.
Source: IndiaStat.com, ICICI Bank Ltd., ICICI Property Services Group Research
Punjab 24.86 9.71 4.47 4.47
Rajasthan 24.07 2.76 7.65 7.65
Madhya Pradesh 20.67 2.62 6.44 6.44
Maharashtra 14.30 4.04 3.34 3.34
Gujarat 9.63 1.20 3.01 3.01
Andhra Pradesh 15.96 5.41 3.28 3.28
Uttar Pradesh 45.27 5.96 14.00 14.00
Name of the State Total crop production (2006) SWC and FCI capacity by Grameen demand for storage
Bhandaran YojanaPrivate licensed andother un-scientificstorage structure
Total CWC, Capacity catered Un-catered
DEMAND-SUPPLY GAP (All figures in MMT)
Conclusion: The above analysis indicates an imperative demand for warehousing space, which remainsun-catered by the current infrastructure. Only 40%~50% of the current warehousing space, providedby CWC, SWC and FCI, could be considered as scientifically created storage facility. The rest by & large remains unorganized.
Quality storage space and modern warehousing facilities are the need of the hour to help provide the necessary impetus for the growth and evolution of the agriculture sector.
CASE STUDY: FMCG SECTOR - An Analysis
OVERVIEW
• With annual revenues of approximately INR 720 billion, the FMCG sector today is one of the largestin the country and accounts for 14.5% of the GDP.
• Typically, a customer buys the goods at least once a month. The items procured are of small value,but all FMCG products put together account for a significant part of the consumer's budget.
• The consumer keeps limited inventory of these products – as many of them may be perishable –and prefers to purchase them frequently, as and when required.
• The Indian FMCG sector is a low-margin business where volume holds the key to success. Thecritical success factor is the ability to build, develop and maintain a robust distribution network.Availability near the consumer is vital for wide penetration as most products are of low unit valueand frequently purchased.
• The FMCG sector is expected to grow by 4-5% per year in mature categories and 8-10% per yearinupcoming categories.
LOGISTICAL BOTTLENECKS
• The FMCG sector, characterized by high volume and vast retail network, ranks the highest in cost ofmaterial and logistics activities.
• The Indian FMCG sector spends over 15% of its revenues on logistics. Close to 25% of theaggregate sales, amounting to USD 4.1 billion, is tied up in inventories in the supply chain networkcountrywide.
• The four week finished goods inventory is a major challenge to the organizations.
• On an average, transportation cost accounts for 6.7% of total supply chain costs; storage andwarehousing cost accounts for 3.86% of the gross sales.
Source: Indian Supply Chain Infrastructure By B. S. Sahay, Ramneesh Mohan, ICICI Property Services
Supply Chain Cost (as a % of Gross Sales)
Supply Chain Average Cost in the FMCGCost Type Sector
Lower UpperBand Band
Cost Of Material 52.92 15 90
Cost Of Labour 8.90 0.51 70
Cost Of Production 11.78 0.5 40Overheads
Storage Cost 3.52 0.16 12
Inbound 3.38 0.12 20Transportation Cost
Outbound 3.38 0.1 8Transportation Cost
Warehousing Cost 2.06 0.2 10
Secondary/Tertiary 2.02 0.1 20Transportation Cost
Distributors Margin 6.35
Inventory (in Units of No. of Days of Gross Sales)
Inventory Average OverallLower UpperBand Band
Raw Material 26.09 3 60
Packing Material 22.50 5 45
WIP 4.40 1 10
Goods In Transit 6.0 4 7
Accounts Receivable 15.91 4 40
Accounts Payable 31.11 10 74
Inventory at CFA's/DC 10.72 2 20
Inventory at Distributors 12.67 4 30
Inventory at Retailers 14.11 2 45
Source: Indian Supply Chain Infrastructure By B. S. Sahay, Ramneesh Mohan, ICICI Property Services
CONCLUSION
a) The Indian FMCG sector carries a total of 26.09 days of inventories as raw material and 4.40 as Work In Progress (WIP). The 6 days of Goods In Transit (GIT), along with 13.25 days of finished goods, reflect poorstate of infrastructure within the country.
b) Simple operational initiatives like inter-modal transportation, cross-docking and Full Truck Load (FTL)movements could go a long way in improving supply chain infrastructure.
c) An efficient supply chain system with strategically located warehouses could help reduce transportationcosts and reduce cycle time thereby improving cost efficiency.
Note: Figure in brackets indicates number of proposed logistics parks
Key location to serve industrial towns of Sonipat, Ghaziabad, Noida, Bhiwadi, Faridabad; Agri, Auto, Pharma and Textile hub.
Key central gatewayAmbala(2)
Jaipur(2) Kanpur(1)
Nagpur(4)
Raipur(1)Jamshedpur(1)
Ranchi(1)
Muzaffarpur(3)
Guwahati(3)
Key post for trading with South, East & South-East Asian nations; Auto, Engg, Minerals, Metals, Pharma and Textile hub.
Has the potential to be developed into a key logistics centre; well connected with South & West Indian cities
Excellent existing infrastructure; key to Auto, Electronics, Engg industries
Key hub for trading with Africa and Middle East; Agri, Auto, Textile, Timber hub
LOCATION ATTRACTIVENESS
Ahmedabad(1)Bhopal(1)
Indore(5)Gandhinagar(1)
Chandigarh(1)
Sonipat(4)
Kolkata(1)
Nashik(1)
Mumbai(8)
Renowned hub served by JNPT & Mumbai ports; Auto, Agri, Engg, Pharma, Textile hub
Hyderabad(5)
Chennai(3)Kochi(2)
Bangalore(3)
Vizag(1)
Good / Low Cost
Above Average
Average / Medium
Below Average
Poor / High Cost
Bangalore
Mangalore
Chennai
Coimbatore
Hyderabad
Mumbai
Pune
Ahmedabad
Kandla
Alwar
NCR
Vizag
Kochi
Kolkata
City Road Rail Airport Port Govt Policy Land Cost Operational Growth Connectivity Connectivity Connectivity Connectivity Efficiency Potential
LOCATION ATTRACTIVENESS: Logistics & Warehousing
Source: ICICI Property Services Group
IN CONCLUSION
Key Growth Stimulators for the Logistics & Warehousing Industry
Organised Retail
• The Indian retail sector, worth an estimated USD 350 billion, is growing between 30-40% p.a.; organizedretail is expected to rise from the current 4% market share to about 10% by 2010.
Manufacturing Hub
• The manufacturing revolution is well under way in the Indian economy, spurred on by an increasing presence of multinationals and scaling up of operations by domestic companies.
• The manufacturing sector has been averaging a growth of 8.5% in the last four years (2004-08), with arecord 11.5% in 2006-07.
• According to the Confederation of Indian Industries (CII), India will emerge as one of the global manufacturing hubs with expected revenues of approximately USD 50 billion by 2015.
Foreign Trade
• India's exports have grown at an annual growth rate of over 25% in 2007-08; during the same period, imports have grown at a rate over 30%.
• As per Commerce & Industry Minister Anand Sharma, during 2003-04, India's merchandise trade was around USD 142 billion - with exports around USD 64 billion and imports around USD 78 billion.
• This has, in 2008-09, increased to around USD 456 billion, with exports at USD 169 billion and imports at USD 287 billion.
• India's share in global trade has increased from 0.92% in 2003 to 1.53% in 2007. The WTO has not released figures for 2008 but India's share is likely to be around 1.60%, as per the Commerce & Industry Minister.
Improving Infrastructure
• Road projects like the Golden Quadrilateral, North-South Corridor, East-West Corridor have improved connectivity and have helped bring efficiencies in the logistics supply chain.
• Creation of a dedicated rail freight corridor would considerably bring down transit time and thereby the overall logistics cost.
• Projects for increasing and improving cargo handling capabilities across major ports which would help improve turnaround time.
• Modernisation of over 30 airports across the country would bring global standard cargo handling facilities with it.
• UNCTAD's World Investment Report and A. T. Kearney have rated India as the second most favoured investment destination in the world.
Emerging Trends In Logistics Industry
• A highly fragmented and unorganized industry thus far, last few years have seen many a big & renowned business house investing into this sector.
•
• The market for 3PL's has broadened during the past few years. 3PL's are today providing an array of value added services and also leveraging their network to provide express distribution and warehousing facility.
• With the retail markets getting more organised, need for scientifically designed warehouses has beenon the rise.
• The concept of a one-stop logistics shop in the form of Logistics Parks is taking shape.
• Major players in the market are focusing on establishing Logistics Parks. Over the next three years around 110 logistics parks are expected to come up across India at an estimated cost of USD 1 billion
• The Government of India had announced, in the Foreign Trade Policy 2004-09, to set up Free Trade & Warehousing Zones, so as to enable creation of world-class infrastructure for warehousing of various products, state-of-the-art equipment, transportation and handling facilities, commercial office-space, water, power, communication and connectivity, with one-stop clearance of import and export formality, to support the integrated zones as international trading zones.
Warehousing: Growing Demand-Supply Deficit
• The logistics industry, which was estimated at USD 100 billion in 2007, is expected to grow to USD 385 billion by the year 2015, growing at a CAGR of 18%-18.5%. (Source: ICICI Direct Report on Transport Corporation of India.)
• The warehousing sector revenues, which accounted for 20% of the logistics industry in 2007~08, at USD 20 billion, is expected to grow at a CAGR of 35~40% annually to USD 55 billion by 2010~11, by which time, its share of logistics industry is slated to increase to 35%. (Source: ET Knowledge Series, 2002, KPMG Report on Skill Gaps in Indian
Logistics Industry.)
• As per ICICI PSG estimates, the warehousing sector revenues would constitute almost 50% of the overall logistics industry by 2015.
The sector has also witnessed entry of many international players.
.
Logistics Industry - Estimated Growth
0
100
200
300
400
2007 2009F 2010F 2012 F 2015F
Year
US
DB
n
Source: ICICI PSG Estimates
Share of Warehousing
• As per ICICI PSG estimates, the warehousing capacity in 2007 stood at 80 mn MT, with a warehousing space of around 106 mn sq. ft., as against the ideal requirement of 155 mn MT, creating a demand-supply gap of an astounding 48%.
• Warehousing capacity build-up will have to keep pace with the overall growth of the warehousing sector. As per ICICI PSG estimates, by 2012, merely taking into account the sector's revenue growth, and not taking account the 2007 demand-supply gap of 48%, from 80 MT capacity in 2007, a warehousing capacity to cater to 375 MT by 2012 and 770 MT by 2015 will have to be created.
• As per industry sources, while 110 logistics parks are going to get created till the year 2012 starting 2007; during the same period, an investment of USD 500 million would be made into the warehousing sector to augment its capacity by 45 million sq. ft.
Source: ICICI PSG Estimates
Warehousing Capacity Build-up
50
100
150
200
250
300
350
400
2007 2009 2010 2012
Warehousing Capacity (mn MT) Warehousing Stock (mn sq. ft.)
• While it is evident from the above graph that the capacity build-up in terms of tonnage & sq. ft. are not in coherence, the capacity shortfall of 48% as in 2007 still remains to be addressed!
• The warehousing story gets gloomier when we do an analysis of the weight that every sq. ft. of warehouse space would carry; while in 2007, every sq. ft. of space was carrying 0.75 MT, by 2012, the same space will have to carry 2.5 MT!
• Going by the above trend, and given the pace of current investments into this sector, the Indian warehousing sector will witness an insurmountable demand-supply deficit by the year 2012, which will become detrimental to the growth of both industrial and agricultural production. Only proactive government initiatives, fresh investments and an organized approach would help deal in mitigating the impact of this huge supply deficit.
Existing Warehousing Capacity
58%
22%16%
4%
North East West South
Upcoming Logistics Parks
52.5%
26%
12.5%
9%
North East West South
Source: ICICI PSG Estimates Source: ICICI PSG Estimates
Upcoming Warehousing Capacity
9%
12.5%
26%
52.5%
North East West South
Source: ICICI PSG Estimates
PRESCRIPTION FOR GROWTH
• Reduce logistics costs through improved efficiencies and turnaround time at ports.
• The logistics cost of the Indian economy is over 13% of the GDP, compared to less than 10% GDP in most of Western Europe and North America. This accounts for approximately INR 600 billion.
• Besides, a multi layered tax regime only adds to the overall logistics bill.
• According to the Confederation of Indian Industry (CII), improvement of logistics and warehousing industry can make Indian industries more cost-competitive, which would in turn propel GDP growth to 11~12% from the existing 7~8%.
• Simplify & unify the tax regime across the country.
• Improve the infrastructure beyond Tier I towns so as to improve connectivity which by itself would considerably bring down the logistics costs.
• Significant investments in infrastructure to the tune of INR 15000 billion over the next few years and an increased emphasis on Public Private Partnerships (PPP) would lead to the evolution of the logistics sector.
• The National Highways (NH) form only 2% of the entire road network in India but handle over 40% of national road freight traffic, putting enormous pressure on the highway infrastructure.
• Entry of more established global 3PL companies in the Indian markets would not only help organize this fragmented sector, but will also create a healthy competitive environment.
• There is a need to set up logistics parks inside the SEZs.
• Cost of land plays a vital role in the success of a warehousing project. Government will have to play a vital role in making available land parcels at affordable prices at desired locations.
• The accordance of industry status to this sector would by itself bring in further efficiencies and help boost growth. This will also aid flow of both domestic and foreign funds into this sector.
• Going ahead, this sector would need trained professional manpower. Dedicated courses and training institutes will have to be evolved over time to cater to this upcoming necessity.
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Prioritisation and
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Reference
• Skills Gap In The Indian Logistics Sector: A White Paper (CII & KPMG)
• The Logistics Sector In India: Overview & Challenges By Pankaj Chandra & Nimit Jain
• Roadmap For Logistics Excellence By C Raghuram & Janat Shah
• Connecting to Compete 2007: The World Bank Report
• The Global Competitiveness Report 2008-09: World Economic Forum
• Logistics Industry: Global & Indian Perspective By Subrata Mitra
• Indian Supply Chain Infrastructure By B. S. Sahay, Ramneesh Mohan
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