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Industry Snapshot - Logistics Industry

  • Jul 10th, 2017

1.INTRODUCTION

Logistic Industry

Logistics has become an important element in the success of most of the businesses in India. E-Commerce Industry is growing, and logistics could be stated as the success driving factor of the Industry. Customers nowadays opt for faster delivery options. It has become an important element to retain the customers.

Various modes are used for logistics like-

  • Freight and passenger transportation via road, rail, air, and water
  • Warehousing and cold-storage

As digitization is taking hold and customer experience is evolving, the logistics industry is witnessing a tremendous change. New technology is being adopted to come up with new and collaborative operating models to increase the efficiency of the existing or new models. Efficient logistics industry acts as an economic catalyst by opening up new market opportunities, moving products and services with speed and efficiency. The Union Environment Ministry has recommended approvals for projects worth Rs 20,500 crore (US$ 3.07 billion) in the aviation and port sectors.

The Logistics Industry includes activities like storage, freight management, supply chain management, managing vendors and partners, transportation, handling damage claims and much more. Lately, many new entrants have entered the market and recent development in other industries have also accelerated the growth in the Logistics Industry. A lot of opportunities and risk lies with the changing industrial scenario of India. New technology, new market entrants, new customer expectations, and new business models are key factors which are driving the industry.


2. INDUSTRY VS. GDP

The country’s logistics industry is worth $300 billion, according to the ‘Logistics Market in India 2015-2020’ by market researcher Novonous. In fact, the report states, Indian logistics market itself is estimated to grow at a CAGR of 12.17 per cent by 2020.

Indian Logistics Industry is expected to grow at a CAGR of 8.6 percent between 2015 and 2020, which grew at a CAGR of 9.7 percent during 2010-2015. Estimated at a value of $14 billion US dollars this industry is slated for another 9% to 10% growth in the years to come.

It offers opportunities for companies in transportation, storage, distribution, and allied services, according to a report by Motilal Oswal Securities Ltd.

The share of India’s logistics spends in GDP at 13% (versus 7-8% in developed countries), implying overall size of $180-220 bn (direct costs +wastages from inefficiencies).


3.INDIA Standing in the world

World Banks says that India's logistics performance at its key international gateways has improved in the last two years. World Bank measures the supply chain efficiency, called the Logistics Performance Index. As per Survey of 1051 industry professionals, India’s ranking in LPI stood 35 in 2016 from 54 in 2014. Though Germany topped the list, India’s efficiency was same as that of Germany.

 


4.CLASSIFICATION OF LOGISTICS

4.a. FIRST PARTY LOGISTICS

First Party Logistics comprises of those companies or trade bodies which do their own Logistics activities. They do not involve any third party to carry out the companies work. The term first-party logistics provider stands both for the cargo sender and for the cargo receiver.

A first party Logistics can be a manufacturer, trader, importer/exporter, wholesaler, retailer or distributor in the international commerce field. It can also be institutions such as government departments or an individual or families moving from one place to another. It refers to the demand side.

4.b. SECOND PARTY LOGISTICS

It refers to the supply side, who are professional suppliers of Logistics transportation, warehousing, and other services. They own the carriers for transportation and give on lease the ships, charter planes or even trucks.

4.c.THIRD PARTY LOGISTICS

In this, a company enters into an agreement with a third party professional Logistics companies to carry out in part or in full the logistics activities of the companies. The third party logistics are also known as the Contract Logistics. It generally takes care of the Supply Chain Management activities of the company. A term of Contract is decided along with the services to be rendered by the logistics Company. It is part of the long-term strategy of the company and extends much beyond the normal transport or normal trading with customer relations.

The reason for the rise in the Third Party Logistics in recent times have been:

  • To reduce Operating Cost
  • Focus on Business Goals
  •  To expand Operations
  • To reduce the flow of Investment

5.Top 10 Players in the Logistics Industry

Figures for June 2017


6. INDIA TRANSPORT SERVICES

        6.a.The global air transportation services industry

Air cargo represents more than 35% of global trade by value. The cargo business generates 9% of the airline revenue on average. The demand for air cargo transportation has increased significantly over the last few years because product life cycles have shortened and demand for rapid delivery has increased.

IATA forecasts that the value of international trade shipped by air this year will be USD 5.5 trillion, representing less than 1% of world trade by volume, but over 35% of value. That is equivalent to USD18.6 billion worth of goods every day.

The different categories of goods which are transported by Air are-

  •  perishable goods
  • pharmaceutical industry relies on air transport for its speed and efficiency in transporting high-value, time and temperature sensitive cargo, particularly vaccines.
  •  carriage of live animals by air
  •  personal electronic devices
  • e-commerce
  • companies rely on the express delivery services
  • Transportation of letters decreased from 340 to 328 billion
  • Letters globally, whereas the number of postal parcels grew from 6.7 to 7.4 billion air transport plays an essential role in their delivery.

Changing business models such as Just- in-Time Manufacturing and Global outsourcing models have contributed to the rapid growth of air cargo logistics business. Speed has become an important factor to any organization's success. It forms a competitive edge over competitors. Every activity, from the beginning till the end i.e. sourcing of inputs, parts and components and delivery are all becoming part of the total chain of activities. Efficient supply chain management, therefore, offers significant benefits including lower Inventory and intermediary costs; and simplicity in order placement, delivery, and management of suppliers and customers. These benefits directly contribute to making businesses more Competitive.

Over the years the export and import have grown tremendously that helped the demand for air cargo to increase to 2.26 million tons in FY 2014. At its present compounded annual rate of growth – 5.5 percent – cargo demand in India is expected to boost the airfreight market to 2.8 million tonnes by 2018, according to a recent report by market research analysts at Frost & Sullivan. The policies of the Indian Government have been favourable for private entrants who are hoping to enter the Industry. 100 percent FDI in airports via automatic routes along with 100 percent tax exemption for airport projects for a period of time is certainly boosting the Industry.

The industry experts are optimistic about further growth in the industry that will boosing the air freight to 2.8 million tonnes by 2018. Right now, the Indian Airlines operate nearly 500 planes and the Companies like Go Air, Jet Airways and IndiGo have placed orders for new planes to further expand their services.

6.b. Road Freight Industry

 Roads in India is spread across the nation as viens in a human body. The farthest of places are connected by roadways. The roadways form the important logistics infrastructures which transport million tonnes of goods across the country. India has a road network of 33 lakhs kilometres which is the 2nd largest in the world. The roads carry around 60% of the freight and 87.4% of the passenger traffic which is expected to grow at the rate of 12-15% by 2021. However, the National Highways are just 2% of the total road network. New roads and bridges are opening up tremendous opportunities for trade as quick and timely delivery of freight are helping in carrying out of trades timely. This will make a visible difference to the growth and development of the country.

According to Indian Institute of Management, India loses $6.6 billion every year in transportation delays for freight in a comparison survey of 3-4 years. Also, these delays cost $14 billion per year on account of the fuel consumption.

An allocation of Rs19,000 crore has been made towards the Pradhan Mantri Gram Sadak Yojana (PMGSY) to connect to the farthest of places, which, along with the spending by the state governments, may result in a total capital expenditure of Rs 27,000 crore. Government is committed to complete road projects identified under the Pradhan Mantri Gram Sadak Yojana (PMGSY) by 2019. Jaitley said the pace of road construction was 133km per day under PMGSY in 2016-17 as compared to 73km during 2011-14. India has been constructing highways at a rate of 27-28km per day, with the aim of speeding up the construction rate to 41km per day.

 On May 26th 2017, PM Narendra Modi inaugurated the longest road bridge in Assam. The bridge will open gates for economic growth in the region and bring an economic revolution. The bridge will reduces the distance by 165 km, saving six hours of travel time and fuel worth Rs10 lakh per day in the region

The new Initiatives are-

  •  The ministry of road transport and highways is planning a pilot project for running 50-tonne electric trucks between Delhi and Mumbai, aimed at halving the cost of transportation between the nation’s capital and the business hub. If the pilot is successful, the government will introduce it across the country, said Nitin Gadkari, minister for road transport and highways, shipping and ports.This would bring a huge change in the Logistics and transport sector in India. This will reduce the dependence on crude oil and will reduce the cost of electricity.
  •  Of the Rs1.31 trillion, the highest-ever capital outlay for the Indian Railways, a gross budgetary support (GBS) of Rs55, 000 crore will be provided by the finance ministry, as reported by Mint on 19 January.

6.c.Global Shipping Industry

 

According to the Ministry of Shipping, around 95 per cent of India's trading by volume and 70 per cent by value is done through maritime transport. The Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce. India is the sixteenth largest maritime country in the world, with a coastline of about 7,517 km.

India has 12 major and 200 notified minor and intermediate ports. The Cargo traffic records to 1,052 Million Metric Tonnes (MMT) in 2015 which is expected to reach 1,758 MMT by 2017. The Indian Government plays an important role in supporting the ports sector. It has allowed Foreign Direct Investment (FDI) of up to 100 per cent under the automatic route for port and harbour construction and maintenance projects. It has also facilitated a 10-year tax holiday to enterprises that develop, maintain and operate ports, inland waterways and inland ports.

Also, government is focusing towards improvement in road, rail and port infrastructure projects to provide impetus to the whole logistics industry. It has made an allocation of Rs2, 41,387 crore for roads, railways and ports in 2017-18.

6.c.1Market size

Cargo traffic handled by India’s major ports increased 5.1 per cent year-on-year to 315.4 million tonnes (MT) during April-September 2016. In terms of composition of cargo traffic, the largest commodity was P.O.L. (37.1 per cent), followed by coal (23.4 per cent), container traffic (19.6 per cent), other cargo (11.9 per cent), iron ore (5.66 per cent) and Fertilizer and FRM (2.5 per cent).

The government has taken several measures to improve operational efficiency through mechanisation, deepening the draft and speedy evacuations. In FY 2015-16, the Indian Port sector witnessed capacity addition of 94 Million Tonnes Per Annum (MTPA), which is the highest in the history of major ports.

The country’s major ports handled a combined traffic volume of 586.29 million tonnes during April 2016-February 2017, up from 550.45 million tonnes during same period last year, while containerised cargo tonnage rose 3.7 per cent to 10.5 MT during August 2016. During April-June 2016, the ports had handled a combined volume of 2.12 million TEUs, which is roughly around 70 per cent of the country’s overall container trade.

The Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry, reported that the Indian ports sector received FDI worth US$ 1.64 billion between April 2000 and December 2016.

6.c.2For investment

  • Reliance Defence and Engineering Ltd (RDEL) has signed a contract with the Ministry of Defence to  design and construct 14 fast patrol vessels (FPVs) for the Indian Coast Guard, at a cost of Rs 916 crore (US$ 137.4 million).
  • Tata Steel has signed an agreement to purchase 51 per cent stake in Creative Port Development (CPDPL), to develop a 10 million-tonnes-per-annum (MTPA) Subarnarekha port at Chamukh village in Balasore district of Odisha.
  • Jawaharlal Nehru Port Trust (JNPT) has signed an agreement to raise US$ 400 million from State Bank of India and Development Bank of Singapore, to improve the infrastructure which would double the existing capacity to 9.85 million twenty foot equivalent units (TEUs) annually.
  • Inland Waterways Authority of India (IWAI) and India Ports Global Private Limited (IPGPL) have signed a Memorandum of Understanding (MoU) for implementation of three additional works worth Rs 476 crore (US$ 71.4 million) in the Kaladan Multimodal Transit Transport Project (KMTTP) in Myanmar.
  • Kamarajar Port Limited (KPL, erstwhile Ennore Port Limited) has signed an agreement with M/s Toyota Kirloskar Motor Pvt Ltd to export automobile units through Kamarajar Port.
  • The Visakhapatnam Port Trust (VPT) has outlined an Rs 3,000 crore (US$ 450 million) expansion-cum-modernisation plan aimed at enhancing the port's capacity by nearly 50 per cent.
  • Government of India plans to invest Rs 70,000 crore (US$ 10.5 billion) in 12 major ports in the next five years under 'Sagarmala' initiative.

6.c.3Initiatives

  • The various initiatives taken up by government for the development of the ocean freight are-
  • Union Cabinet has approved the proposal of Ministry of Shipping to replace the 'Major Port Trusts Act, 1963' by the 'Major Port Authorities Bill, 2016.
  • Ministry of Shipping plans to undertake development of 37 national waterways (NWs), out of the 111 NWs declared under the National Waterways Act 2016, in the next three years.
  • A new productivity-linked reward (PLR) scheme for 37,870 Port and Dock workers in all the Major Port Trusts for the years 2015-16 to 2017-18 at an annual cost of Rs 49.58 crore (US$ 7.4 million) has been approved by the Cabinet.
  • Ministry of Shipping plans to install 160.64 megawatts (MW) of solar and wind based power systems at all the major ports across the country by 2017
  • Bharatmala project was launched, which would help in improving connectivity to both major as well as minor ports in the country.
  • Government of India expects investment proposals worth Rs 1.2 trillion (US$ 18 billion) in the shipping sector to be finalised during the upcoming two-day Maritime India Summit (MIS).
  • Propose amendments to the Multi Modal Transportation of Goods Act, 1993 to increase transparency in the shipping and logistics sectors
  • Government of India has set an ambitious target to convert 101 rivers across the country into waterways to promote water transport.
  • Ministry of Shipping, in collaboration with Rajasthan government, has planned to develop an Inland Shipping Port at Jalore, Rajasthan.
  • 100 per cent FDI would be allowed under the automatic route for port development projects to expand the capacity of the ports.
  • Income tax incentives would be allowed as per the Income Tax Act, 1961.
  • Bidding documents such as RFQ, RFP and Concession Agreement have been standardised.
  • The Shipping Ministry’s power to delegate finances has been enhanced to accord investment approval for PPP projects.
  • Security clearance procedures have been streamlined.
  • The major ports’ developmental projects are being closely monitored.

7.WAREHOUSING AND STORAGE

7.1.RETAIL WAREHOUSING

A warehouse is a commercial building for storage of goods. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. They are usually large plain buildings in industrial areas of cities, towns and villages.

They usually have loading docks to load and unload goods from trucks. Sometimes warehouses are designed for the loading and unloading of goods directly from railways, airports, or seaports. Stored goods can include any raw materials, packing materials, spare parts, components, or finished goods associated with agriculture, manufacturing and production. In Indian English, a warehouse may be referred to as a godown.

 Industrial/Retail warehousing: accounts for 55% of the total market.

Factors leading to growth in Retail Industry are-

  • Growing manufacturing activity
  • Rising domestic consumption
  • Increasing international trade
  • Emergence of organised retail in the country
  • Increasing private and foreign investments in infrastructure
  • Easing of government regulations

7.2.LIQUID STORAGE

The terms liquid storage mainly refers to the storage of liquid bulk such as crude, petroleum products, chemical and edible oil. Tank farms facilitate a modal shift by providing an intermediate storage facility for liquid bulk cargo before these are taken to processing plants. They enable cost-efficient logistics through larger shipping parcels to allow savings in ocean freight, facilitate trading, meet surges in seasonal demand due to the cyclicality associated with the commodity products handled and provide specialized storage requirements depending on the nature of the product.

Servings to:

  • POL: oil marketing companies, industrial units
  • Chemical: industrial units across all segments such as
  • Textile, pharmaceutical, agriculture, FMCG, and paper
  • Edible oil: edible oil refining companies

Major players in the commercial segment

  • IMC Ltd.
  • Vopak India
  • Kesar Terminal
  • Ganesh Benzoplast
  • Indian Oil Tanking
  • Aegis Logistics
  • Sealord

7.3.AGRI-WAREHOUSING

Agricultural storage infrastructure in India has been poor. This has led to a loss of millions of tonnes of production losses each year. The Indian Agriculture Industry still uses redundant technologies, inefficient supply chain, and poor storage facility. This results in more than 30% loss of the agricultural products.

As per Emerson Climate Technologies India report of 2013, India which is the world’s second largest producer of fruits and vegetables is throwing away fresh produce worth INR 133 billion of the total of INR 440 billion every year because of the country’s lack of adequate cold storage facilities and refrigerated transportation.

Recently, private sector participation in agri-warehousing has increased, making this segment more Competitive. Private players are focusing on improving the quality of agri-warehouses with the use of technologies and are INR 440 billion challenging public sector players.

The Warehousing (Development & Regulation) Act, which aims to standardize warehousing operations, make warehouse receipts (WRs) negotiable and establish accreditation agencies for warehouse registration.

Some of the beneficiaries of this Act are:

  • Easy credit to farmers and avoidance of distress sale of outputs.
  • Reduction in risk since loans are backed by collateral which also reduces the monitoring cost.
  • Funding is available for food processors, traders and brokers against their farm produce.
  • Agri-warehousing activity covered under Priority Sector
  • Lending by RBI
  • Subsidy schemes such as Grameen Bhandaran Yojana: the capital investment subsidy scheme offered by the NABARD which ranges from 15% to 33% of the project cost depending on the location and operator.
  • National Agricultural Renewal Fund. Govt. of India is encouraging private investment in the creation of agricultural infrastructure.
  • Tax incentives such as tax holiday on warehousing income and 100% upfront depreciation for tax purposes.

7.4. COLD STORAGE

Cold chain is a logistics system that provides a series of facilities to maintain ideal storage conditions for perishables from the point of origin to the point of consumption in the food supply chain. Cold stores are essentially used for the storage and distribution of perishable goods such as fruits and vegetables, chocolates, dairy products; frozen foods such as meat and ice cream, and temperature-sensitive pharmaceutical products. Growing Indian population, consumer incomes and changing preferences have led to increased focus on food security and health services. The demand for processed food has also risen sharply necessitating the support from efficient cold chain logistics of the country.

India’s cold chain sector is a combination of surface storage and refrigerated transport. The industry has been growing at a CAGR of 20% for the last three years. Cold stores are the major revenue contributors of the Indian cold chain industry. Current cold storage capacity in India totals 31.8 million tons. Growth has averaged 3 to 4% over the past 10 years, and 10.5 million tons of space was created in the last seven years.

Organized cold store is growing at a very high rate due to various factors. Growth in organized retail is one of the key factors driving the growth of the organized cold chain segment contributing 8% -10% of the cold storage Industry. Ownership is mainly in the private sector, with the public and cooperative sectors only comprising 10% of capacity. The sector’s value is estimated at $6.5 billion (USD) and market growth has averaged between 15 to 20%.

In the year 2012, the Government has increased the FDI in cold storage facility from 51% to 100% which has accelerated the development of more cold storage across the country. The total number cold storage in India are 6300 with an installed capacity of 30.11 million metric ton. These are mostly located in Uttar Pradesh and West Bengal covering 65% of the India’s cold storage capacity.

Cold storage are mostly used for storing potatoes in India.

  • Sectors showing healthy growth which will drive the cold storage industry:
  • Pharma and biopharma is expected to grow at 15% y-o-y.
  • On the back of export demand, the flower segment is expected to grow at a growth ranging from 7.8% to 8.1% over 2017–2027.
  • Domestic and export demand is expected to drive demand for spices, which is expected worth 14.8 Billion USD by 2020
  • The Government is also providing various incentives to promote cold stores in India; some of these are:
  •  100% FDI allowed through the automatic route.
  • The introduction of GDPs and GRPs will necessitate the cold storage and transportation of most formulations in the pharmaceutical sector.
  • The Government is emphasizing on food parks and integrated cold chain development through public private partnerships
  • APEDA (Agricultural and Processed Food Products Export Development Authority) scheme: 25% of the cost is subject to a ceiling of INR 1 million per beneficiary for setting up cold storage.

7.5. CONTAINER STORAGE

The Container traffic at major ports has almost doubled in the past 5-6 years. But the spreading protectionist stances could reverse the past several decades’ steadily easing trade barriers that have supported the growth of containerization since the 1950s.

 According to estimates, the world container throughput will reach 1 billion TEUs by 2020, which is almost double of the current container traffic. The emerging Asian & African Countries are expected to be the prime movers in achieving this growth. Most of the shipyards are filled with orders for container ships of over 10,000 TEUs capacity. These container ships will form the major part of the world maritime fleet in the coming years. India is going to be the preferred destination for a global manufacturing hub. This fact presents many opportunities for the ports to change their current operation style and be ready for the foreseen surge in demand of handling and faster evacuation of containers. Many investments have been proposed and steps have been taken by various port authorities for attracting the container traffic.

The government is working on the plan to ease the movement of the containerized cargo at the port and approvals to move containers to ICD/ CFS (Container Freight Stations, Inland Container Depots) or vice versa.

CFSs and ICDs are some of the fastest-growing segments of the Indian logistics industry. Their growth will gain pace in line with the increasing need to tackle the growing complexities of the maritime intensive supply chain. Growing competition from private participation will also force players to provide new services and customized logistic solutions.

The industry has slashed CAPEX (Capital Expenditure) by more than half in the past five years, bringing it down from $25.2 billion in 2011 to $12.4 billion in 2016. Operational cash flow as a percentage of revenue slowed to 6% through the last-12- month period ended September 30, 2016.

In 2017 there will be three 2M, Ocean Alliance, and The Alliance which will comprise 11 shipping operators and will manage more than 70% -80% of the container capacity on the Asia-to-Europe and transpacific routes in 2017.

Total container volume throughout in India during 2015-16 stands at 11.6 million twenty-foot equivalent units (TEU), an 8 percent increase compared to the year earlier. With containerized transportation expected to double over the next five years


8.GROWTH DRIVERS

8.a.RAPID INDUSTRIAL GROWTH

Automobile, aviation, pharmaceuticals, FMCG, and retail are among the large cash cows which the logistics sector is currently riding on. The eight core infrastructure-supportive industries such as coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity registered cumulative growth of 4.9% during April-November compared to 2.5% in the year-ago period. Railway budget had projected a rise of 50 million tons in the national carrier’s freight traffic.

 India spends around 14.4% of its GDP on logistics and transportation. The sector is expected to grow at a CAGR of 15-20 percent between FY2016-2020. This growth will be driven by infrastructure investment associated with logistics development plans.

The Economic Survey 2017, projected on Tuesday a decline in the industrial sector’s growth to 5.2% in the current fiscal year from 7.4% in the last majorly due to demonetisation. However, the growth will be normal or increase in the year 2017-18.

8.b.CONSUMPTION-LED DEMAND

Today, India’s 65% population is below 35 years of age. Rapid economic growth has pulled millions of people out of poverty and created a sizable consumption class. In 2015, 66M households were part of the ‘consumption class’ with annual household income of more than $4000, which is 27% of India’s total household. This class constituted only 7% households back in 2005. As India continues on the path of economic development, the consumption class will rise to 53% of total households in 2025, implying a mammoth 800M+individuals belonging to the consumption class. The expansion of the affluent class (Globals) from 2.5M households in 2015 to 23M by 2025.

In India, 85% of the consumption class lives in urban areas.

8.c. GLOBALISATION

Many companies today manage worldwide production and distribution systems, and national economies are increasingly being integrated into a global economy. As production facilities are shifted to locations around the globe where products can be produced more economically, the demand for world trade will continue to increase. The patterns of domestic and foreign production and distribution vary significantly by industry and product type, and they affect transportation requirements in the United States. For example, increasing imports from Asia eventually may warrant containership service directly from India, a service that would operate through the Suez Canal to the East Coast of the United States. These containers would then be transported inland from the East Coast, instead of from the West Coast as currently is the case.

8.d.OUTSOURCING OF LOGISTICS

85% of the logistics industry is working on outsourcing. Outsourcing logistics activities are on a rise as experienced logistics service providers (LSP) also known as third-party logistics (3PL) providers, may enable companies to get very efficient and customized logistical support while the companies maintain their focus on the core organizational activities.

8.e. EXIM-BASED DEMAND

As India emerges as a manufacturing hub, increased cross-border outsourcing will drive improve­ments in the logistics industry in India. With the existing spur in export and import activity, the need for EXIM based logistics infrastructure like ICDs, FTWZ will go up.


9.DIFFERENCE BETWEEN LOGISTICS AND TRANSPORTATION

 


10.BUDGET DECISIONS FOR INDUSTRY

  • The Federation of Freight Forwarders’ Associations in India (FFFAI) observes that the Union Budget 2017-18, presented by the Finance Minister on February 1, 2017, is a growth-oriented.
  • The shipping sector has also been provided a boost with INR 11,635 crore allocation for the development of SEZs in Kandla and Jawaharlal Nehru Port in Navi Mumbai, the first phase of outer harbour projects in Tuticorin.
  • Inland navigation under the Jal Marg Vikas Project on the Ganges between Haldia and Allahabad will also offer the much-needed impetus for seamless load board services.
  • The proposed construction of new airports for better connectivity with Tier 2 and Tier 3 cities will further enhance effective cost utilisation and business efficiency.
  • Installation of Bharat Net along the railway tracks to enable the clients of these startups to track their products from the pick-up point to their destination.
  • Budgetary allocation of Rs 2,41,387 crore for multimodal transportation sector
  • Increase of allocation for highways from Rs 57,976 crore in 2016-17 to Rs 64,900 crore for 2017-18
  • Identifying 2,000 km of coastal connectivity roads for construction and development
  • Port connectivity, Greenfield ports, airports in T-II & T-III cities through PPP mode, logistics parks
  • Investment of INR 3.96 lakh crore in the Infrastructure sector and 2.41 lakh crore for transportation modes (including road, railways, and shipping) which would help in reducing the logistics costs and lead to an increase in trade.
  • For transportation sector as a whole, including rail, roads, shipping, provision of ` 2, 41,387 crores has been made in 2017-18.
  • For 2017-18, the total capital and development expenditure of Railways has been pegged at 1, 31,000 crores. This includes ` 55,000 crores provided by the Government.
  • The railways will increase its throughput by 10% by upgrading dedicated corridors which have high traffic volumes. The national carrier will lay down 3,500km of tracks in 2017-18 as compared with 2,800km in 2016-17.

11.GST AND ITS IMPACT ON LOGISTICS

GST implementation is expected to boost the logistics sector as it will trim down the costs by 20%-30%. Logistics in India is highly scattered and disintegrated. Integration with IT and technology is expected to reduce the costs and meet service demands. Earlier, trade barriers such as the entry tax, local body tax, Octroi and other hurdles, trucks idle for 30-40 per cent of the day, leading to huge man-hour and fuel losses.

As GST is a single tax reform which will be collected at each stage applying the Input Tax Credit System it will make the trade across state more efficient. Industry estimates suggest that the logistics industry is expected to grow at a CAGR of 15-20 per cent over the next few years.

The present taxation rate peaks at 26.5 per cent (Cenvat of 14 per cent, and VAT of 12.5 per cent) apart from the state level corporate tax of 2 per cent for transferring inter-state goods but GST is expected to bring it down to 18-21 per cent. Corporates can save up to 40 per cent of their logistic costs incurred at check-posts and toll plazas. Along with this the Inter-state travel time will be drastically reduced as the time for checking the documents at every state border is reduced. Along with the benefits of the unified taxation system the Logistics sector will also benefit from the routes as they will be determined by geographical advantage. Two most important factors which will determine how soon the Logistics market benefits from GST is the how well the Industry adapts to the new system and penetration of technology in the transportation sector.

As per World Bank India incurs cost 2-3 times more than the global standards. With a fixed GST rate between 18 and 22 per cent, coupled with virtual melting of State boundaries, the numerous smaller warehouses in many locations will consolidated into bigger ones. This will disrupt the existing ineptitude and facilitate structural re-engineering of the logistics network.

GST will not only allow logistics companies to set up just a few and big warehouses region wise, but also allow them to follow the hub-and-spoke model for freight movement from the warehouses to different manufacturing plants and wholesale and retail outlets. There shall be consolidation of smaller stock transfer warehouses into large warehouses. . The existing players will benefit from economies of scale. New players will enter the market as the industry is expected to flourish in coming years. Online booking will ensure that customers get the best and right price deals and will give the real time movement of goods due to GPS enabled tracking systems.

Earlier people established warehouses to evade taxes but under the one tax system the number of warehouses will reduce by consolidating and moving towards capacity expansion and restructuring. This will completely redefine the Logistics market which will drive investments, better inventory control, and better technology application/process controls thus reducing the overall cost. There will be lower stocking points and fewer stock out situations.

The Transport Corporation of India is already in the process of building GST-ready warehouses across four locations (Nagpur – 1.65 lakh sq. ft., Hyderabad – one lakh sq. ft, Chennai – 45,000 sq ft and NCR – 2.5 lakh sq ft) in India.


12.CHALLENGES

  •  Infrastructure: NH constitutes only about 2% of the road network of India, they carry 40% of the total traffic. As a result most of these highways are severely congested resulting in freight travelling only a third of the distance compared to developed countries. This enhances the cost of wear and tear of the vehicle which in turn increases the operating costs for logistics players.
  • The trucking industry in India is largely fragmented and in the hand of small truck operators. 70% of the truck owners in India own between 1-5 trucks.
  •  Coastal shipping in India is hampered by inadequate port and land side infrastructure which hampers large scale use of it for freight movements.
  • The ICD/CFS infrastructure available for EXIM trade is inadequate. The land requirement for setting up ICD/CFS at an appropriate place is difficult
  • Warehousing front 80-85% of warehouses are traditional with sizes of less than 10,000sqft. Most of the warehouses are not leak proof, equipped with security systems.

13.SCOPE AND OPPORTUNITIES

  • Infrastructure investment associated with ports, airports- transportation and logistics-related infrastructure such as dedicated freight corridors, logistics parks, free trade warehousing zones, and container freight stations are expected to improve efficiency.
  • Government initiatives to promote the manufacturing sectors and exports are likely to increase the demand for logistics functions. Trade with Asia, Europe, and North America are likely to remain major drivers for freight forwarding and transportation companies in the region.
  •  Potential of retail warehousing is increasing in India. This requires a change in the way of working and developing new capabilities around handling food collection, storage and transportation.
  • The booming e-commerce market in India is bringing in new opportunities for LSPs (logistics service providers). The evolving business model(s) in this space focuses on containing logistics and delivery costs.
  • Nation-wide uniform GST is likely to transform the distribution structure of majority of industries as it eliminates the need for dedicated warehouses for each individual administrative region.

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