Indian Logistics Industry expected to grow at 9-10% over the medium term: ICRA

India Infoline News Service | Mumbai | July 03, 2017 13:56 IST

The logistics industry in India is likely to grow at a rate of 9-10% over the medium-term, supported by underlying structural positives, as per an ICRA note. While the key driving factor on the demand side would be the economic recovery, the trend towards outsourcing of non-core activities like logistics, warehousing and associated activities to integrated players is likely to drive the share of the organised segment.

The logistics industry in India is likely to grow at a rate of 9-10% over the medium-term, supported by underlying structural positives, as per an ICRA note. While the key driving factor on the demand side would be the economic recovery, the trend towards outsourcing of non-core activities like logistics, warehousing and associated activities to integrated players is likely to drive the share of the organised segment.
 
Says Subrata Ray, Senior Vice President and Group Head- Corporate sector ratings, ICRA “The sector plays a pivotal role in any nation’s development by ensuring seamless movement of goods across the country and internationally in a cost-efficient manner, thereby enhancing a nation’s global competitiveness. The domestic sector is currently in a transformation phase with game-changing trends like implementation of GST, increasing focus by foreign investors across the logistics value chain, growing demand for end-to-end solution providers and emergence of new avenues such as e-commerce, logistics parks, cold chains and new start-ups. The Government’s thrust towards building multi-modal transportation infrastructure is also likely to have a significant influence on the logistics industry over the longer-term.”
 
GST implementation and evolving customer needs expected to favour organised logistics players going forward
In ICRA’s view, the GST implementation will also support organised players as it would have three major implications for the logistic sector – a) consolidation of warehousing network and a shift towards a ‘hub and spoke’ model, b) higher degree of tax compliance and c) creation of level playing field between Express and traditional transport services providers by virtue of access to input tax credit. There is also an increasing shift from pure transportation business to becoming end-to-end service providers, facilitating the growth of the Third-Party Logistics (3PL) and Supply Chain Management (SCM) industries in India.

Railways’ competitive position expected to improve on the back of commercialisation of DFCs and augmentation of existing network
The railways account for ~30% of total freight movement in India and are a preferred mode of transportation for a long haul and bulky commodities such as coal, iron ore, fertilizers, steel and cement. Despite its dominance in the transportation of select commodities, it has gradually lost market share over the past few decades due to a confluence of factors including under-investment in infrastructure, limited private sector participation, better service and reliability offered by road transport segment, and an increase in freight charges by railways. Among ongoing projects to improve rail competitiveness, the completion of the dedicated freight corridors (DFC)s would be a game changer as it would possibly remove several inefficiencies in freight movement. After many delays, the DFCs are now expected to commence operations from 2019. On both the eastern as well as western corridors, railways will stand to gain traction from road segment. 

Improvement in modal mix and reduction in logistics costs expected with increased focus on development of cost-efficient modes like waterways; however, momentum and acceptability of the same remain to be seen

Additionally, the Government's other major emphasis is on improving India's transportation mix by developing inland and coastal waterways. At present, seaways account for a miniscule 6% of total freight movement in India compared to countries like China (30%) and USA (14%) that heavily use waterways. Given the economic and environmental benefits, the Government has chalked an ambitious Sagarmala project that aims at doubling the share of seaways in the transport mix over the next decade by executing multiple projects related to expansion and modernization of various ports. With an attempt to improve integrated logistics, the Government also plans to develop about 35 strategically located multi-modal logistic parks (MMLPs), close to major manufacturing and consumption centres. These initiatives have significant potential to bring down the logistics costs in the country over the medium term. 
 
Overall, the Indian logistics industry is at the cross-roads, poised for growth on the back of the economic recovery and changing industry dynamics. Towards this end the ability of existing players to withstand, adopt and adapt these emerging trends would be critical.. While organized players are likely to increase their share in the road logistics pie, multimodal logistics are also expected to gain increased acceptance with shift towards more cost-efficient modes of transport like waterways and railways. “However, the shift towards these alternate cost-efficient modes is likely to be a gradual phenomenon,” adds Subrata Ray, “and would be more pronounced in certain bulk commodities. For transportation of non-bulk commodities, last-mile delivery, express logistics etc are likely to prefer the existing road logistics. Nonetheless, these trends are likely to improve the efficiency and reduce the costs of logistics in India over the long term.”

Disclaimer: The contents herein is specifically prepared by ‘Dalal Street Investment Journal’, and is for your information & personal consumption only. India Infoline Limited or Dalal Street Investment Journal do not guarantee the accuracy, correctness, completeness or reliability of information contained herein and shall not be held responsible.

 

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