Logistics Industry

Industry Snippet

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Backed by strong economic fundamentals, Indian Logistics industry is slated for a 15% CAGR to size up to USD 54 Billion by 2012

The Logistics industry includes five broad segments - ocean freight, air freight, rail freight, trucking and third party logistics (3PL) services
Indian Logistics industry is valued at around US$30bn. The industry is projected to see a growth at a 12 - 15% CAGR to US$54bn by 2012 Growth of logistics industry largely depends on infrastructure availability. Government spending and involvement of private players will catalyze the growth of the industry. Government programs and measures such as establishment of logistics parks and investment-linked tax deduction will support the industry to speed up its growth.

70% of the total domestic product is transported through road network and 15% through rail network
The countrys organized logistics market represent 6% of the total market. This is projected to grow at a CAGR of 25% by FY11 to US$15bn. Logistics cost is 13% of Indias GDP in comparison to 11% in Europe and 9% in the U.S. Of the total logistics cost, transportation represents 39% while warehousing, packaging and inventory accounts for 24% of the total costs. Higher logistics costs is mainly due to poor infrastructure facilities in the country. The higher logistics cost represents higher products/services cost in the international market. Third party logistics business in India is anticipated to hit US$90mn by 2012. Domestic companies are willing to expand their efficiency to meet the rising demand globally, according to a study by industry body Assocham.
Logistics Industry Segment Industry Size FY07 (USD billion) 10 11 2 4 4 Industry Size FY12E (USD billion) 15 15 5 6 13 CAGR

Road Freight Rail Freight Air Freight Port Related Logistics Express & SCM transportation

10% 8% 25% 10% 30%

Source: Thomas Weisel International Estimates; Agile Advisory; IIM.ac.in; Dpncindia; Dessenceconsulting; Cygnusindia ; India logistics news

Confidential & Proprietary

2009 QCaliber-India Services Private Limited.

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Container Corporation of India, a GOI enterprise, is the undisputed market leader in inter-modal logistics & transportation space in India Logistics Industry Structure
Indian Logistics Market

Road Freight

Express Logistics

Container Logistics

Liquid Logistics

Container Haulage

Inland Container Depot (ICD) and Container Freight Station(CFS)

Multimodal Transport Operator (MTO)

Companies Operating Across the Market Segment

Road Freight

Express

Container haulage
CONCOR

CFS

MTO

Bulk Liquid

Blue dart Gati Transport Corporation Gateway Distriparks All Cargo Aegis
Source: Thomas Weisel International Estimates; Agile Advisory; IIM.ac.in; Dpncindia; Dessenceconsulting; Cygnusindia ; India logistics news

Confidential & Proprietary

2009 QCaliber-India Services Private Limited.

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Key Trends: Industry is benefiting from the huge investments made in Infrastructure sector, and the growth in domestic Retail and Manufacturing sectors

Reforms in government policy and pro-industry initiatives such as

Abolition of CST Private participation in rail, air and port freight services

Factors Driving Growth in the Indian Logistics sector Increase in trade: Foreign trade has been growing at 25% CAGR over the past five years Reforms in Government policy Increased Government spending in infrastructure Rise in domestic consumption and retail market Containerization is a growing trend in India due to increasing demand for intermodal transport Large investment flow

Containerization is expanding as the demand for intermodal transport rising in India. Containerization of cargo has been seen mainly in foreign trade while development is expected in domestic trade. During the period FY07, bulk cargo increased at 8% whereas containerized cargo grew at 18.5%, which clearly depicts the rising demand for containerized cargo. Leisure travel is anticipated to grow at a CAGR of 6.2% over the period 2005 to 2025F To enhance retail penetration in India, logistics will be utilized on a large scale

Third party logistics providers are expected to provide end-to-end supply chain logistics services to the automotive industry; upgrading from merely a facilitator to transporter of goods. Companies are hoping to develop requisite competencies and assetbased networks to offer end-to-end logistics services. Countrys logistics market growth is also driven by rising number of multinational manufacturers setting up operations in India.
Around six or more Private Equity investors are eyeing for investment in the logistics sector along with other industries such as infrastructure, real estate and healthcare, because logistics companies are set to gain from the infrastructure investment injected by both governments and the private sector. Though the valuations of logistics stocks are strained, however, they are expected to be the best investment opportunity in the long term as the sector is poised to grow at a CAGR of around 12-15%. Growing demand for quality commercial space is also anticipated to boost the logistics sector. Cold chains total market in India was estimated to be around INR100bn in 2008. The market is estimated to reach INR400bn in 2015. Cold chains comprise two segments - surface storage and refrigerated transport. The industry is expected to grow at 22% per annum.

Source: Thomas Weisel International Estimates; Agile Advisory; IIM.ac.in; Dpncindia; Dessenceconsulting; Cygnusindia ; India Logistics News

Confidential & Proprietary

2009 QCaliber-India Services Private Limited.

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Key Challenges: Overburdened physical infrastructure is a major bottleneck currently faced by the Indian Logistics & Transportation players
Indian Logistics : Key Challenges Geographical Coverage insufficient Physical infrastructure a bottleneck Insufficient distribution channels /infrastructure bottlenecks restrict the scope to reach consumers of products nationwide. Though the country has developed the largest road networks in the world, yet the Regional concentration of manufacturing in India but geographically diversified distribution activities as well as infrastructure bottlenecks e infrastructure facility is not comparable to developed countries and few developing countries. Less than half of the roads were paved in India and less than 2000 km were express highways in 2007, which was significantly lower than Chinas 30,000 kms. India has a long coastline. However, the countrys port system isnt utilized properly. 70% of the seaborne trade is managed by 2 of its 12 major ports . Remaining 185 minor ports in the country is largely underutilized. The infrastructure including roads, airports and seaports are primarily the main target areas for investment. However, warehousing, a facilitator for the agricultural sector, has attracted lower investment that reduced its pace of growth in comparison to rising farm output. Unorganized trucking operations are becoming a key challenge for shippers. Twothirds of truck fleets in India have less than five vehicles. Shippers are facing operational issues in handling large number of carriers, which is needed to manage shipment volumes.

Over-burdened ports Warehousing investment is low Trucking operations

Technology Usage
Skill Gaps Issues

Technology usage is still very low in India, which restricts the scope of increasing efficiency and productivity
Availability of skills and expertise is not a challenge in India. However, sector has very poor image in terms of working condition and salary payment. It is difficult for companies to attract talent, as the sector is highly unorganized that limits the scope to improve the overall image of working conditions within the sector. According to industry analysts, logistics costs in India are among the worlds highest. Outside of the metros and a few cities, the delivery time is very uncertain.

Cost/Quality of Service

Source: Thomas Weisel International Estimates; Agile Advisory; IIM.ac.in; Dpncindia; Dessenceconsulting; Cygnusindia ; India Logistics News

Confidential & Proprietary

2009 QCaliber-India Services Private Limited.

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Key Opportunities: Consolidation, entry of private players, growth in MTO business, and surge in ocean freight are some major opportunities to be tapped
Capital Requirement Road Freight High Entry Barrier Low Competition Highly Fragmented market and low profitability Customer Needs Low service cost, Non time sensitive Drivers Demand for higher quality of road infrastructure Phase out of Central Sale Tax (CST) Implementation of Value Add Tax (VAT) High growth in document shipments Growth in high-value products such as mobile phones, network hardware, jewelry and branded drugs Government approval for privatization of rail container operation Establishment of dedicated freight corridor Standardization of containers Growing trade volume Opportunities Consolidation is expected in the industry this will lead to the emergence of pan- India players with bigger size and better profitability; growth in Cold Chain Warehousing Logistics Express industry is expected to continue growth at over 25%.

Express

Capital intensive

High

High

Cost efficiency, High time sensitive

Container haulage

Capital intensive

High entry barrier in road segment Medium

Rail haulage market is mainly dominated by CONCOR High at key gateway ports

Scheduled services and strong ICD network Quick turnaround time

Approval to private players for rail operation and rising demand from the railways to boost demand for wagon manufacturers in private sectors. CFS/ICD that runs its own container terminal, freight forwarder or shipping line is likely to gain from the surge in ocean freight.

CFS

CFS business is characterized by high capital intensity. The requirements is dependant on the facilitating infrastructure development such as railroads etc. Less Capital intensive

MTO

Low

High

Network strengths and service quality

Growing international trade Expanding domestic demand for efficient supply chain Growing need for door to door service and integrated services, Booming oil demand, and rising trade flow

Being less capital intensive and with neutral working capital requirement, the MTO business gives higher return on equity and return on capital employed Less competition in the market

Bulk Liquid

Capital intensive

High

Low

Port Connectivity and Integrated service offerings

Source: Thomas Weisel International Estimates; Agile Advisory; IIM.ac.in; Dpncindia; Dessenceconsulting; Cygnusindia ; India Logistics News

Confidential & Proprietary

2009 QCaliber-India Services Private Limited.

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Confidential & Proprietary

2009 QCaliber-India Services Private Limited.

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