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business | IST

Mad About Markets: Challenges and opportunities for India's logistics sector

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Logistics in India is highly fragmented, and to date, 85 percent of the transporters own less than 20 trucks, when it comes to warehousing over 90 percent of warehouses are smaller than 10,000 square feet each. CNBC-TV18 discussed the scope for the fast-evolving sector.

Diwali is over and unlike most sectors that see a lull in activities due to festivities, the logistics sector has its hand full ferrying new purchases and gifts. The sector in India is on the cusp of transformation, according to many experts and the market can testify to this with Delhivery filing for its initial public offering (IPO) only last week.
What constitutes logistics?
In short, transport, warehousing and supply chains come together to make up this sector.
In transport, road (read trucks), railways, airlines and ships play the main role and it is the biggest component of the three main verticles. Warehousing is a complex verticle too as goods are stored before they are dispatched to the destination and this depends on many factors like distance from ports, factories, markets to the need of having temperature-controlled facilities, especially for perishable goods.
The third component is the supply chain. Companies that manage end-to-end supply solutions, whether it's managing sea shipments, road or rail transport, from factories to markets to raw materials to finished goods to warehouses.
Opportunity for the Indian logistics sector
The FY20 direct spend was at $216 billion and this is expected to grow to $365 billion by FY26 at a compounded annual growth rate of 9 percent plus.
Direct spending comprises transport and that comprises nearly 70 percent of the overall logistics market share. So out of the $216 billion, the transportation sector alone accounted for $151 billion in FY20.
Within transport, road accounted for the lion's share, which was followed by rail, cross border, and air.
Who are the players?
The full truckload people – Delhivery, TCI and VRL logistics are among the key players in the segment. But if you don't want to ship an entire truck full of goods, you can offer part truck load players and this is big business too and is increasingly growing. Next is the superfast express parcel delivelogiry, the backbone of all e-commerce deliveries and this has the likes of Blue Dart, Delhivery, Gati, and others.
All Cargo and Gateway Distriparks are the go-to companies when it comes to cross-border logistics be it air or shipping. If you want to transport things via rail, the biggest of them all is Container Corp, which has over 80 percent market share and the other one is Gateway Distriparks.
For the supply chain service providers, there is Snowman, Mahindra logistics, TCI, DHL, as well as Delhivery itself.
Challenges and Opportunities
Logistics in India, unfortunately, is highly fragmented, and to date, 85 percent of the transporters own less than 20 trucks, when it comes to warehousing over 90 percent of warehouses are smaller than 10,000 square feet each. Going forward, the warehousing space opens up the opportunity for consolidation and further growth.
Organised players account for only 3.5 percent of the logistics market. However, they are expected to grow much faster at a compounded rate of more than 35 percent over the next few years.
The total logistics spending in India is a major lag because almost 14 percent of the GDP is spent on logistics costs, which is significantly higher than developed countries like China, US and Europe, where the global average is somewhere around 8 percent. So there's lots of room for improvement.
To further understand the challenges and opportunities for the space, CNBC-TV18 spoke Deepak Garg, the Founder and CEO, Rivigo and Sandeep Barasia, The Chief Business Officer, Delhivery.
Speaking on opportunities, Barasia said logistics, as we like to broadly call it supply chain has to play a critical role in the growth of the economy, If we are going to get to that USD 5 trillion GDP target then logistics and supply chain have to play an important role.
"Goods have to move. Everything that's manufactured in the country eventually has to get to the consumer. So goods have to move from whether it's B2B movement from factory to factory or factory to the retailer, or even cross-border and then eventually from a retailer or a warehouse to the end consumer, so there lies a large underlying opportunity," he said.
Garg said they are serving almost every sector of the economy, FMCG electricals, electronics publications auto, pharma, and so on and so forth.
"Through the last year pharma, healthcare e-commerce, electronic sectors have grown significantly, the auto has been reasonably mild, but our expected expectation is in the coming year or two auto sector will also kind of bounce back and grow stronger," he said
For the full discussion, watch the video