Sectorial Research Report

SECTOR: 3PL LOGISTICS

SUBMITTED TO: SYMBIOSIS INSTITUTE OF OPERATIONS MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION (OPERATIONS MANAGEMENT)

SUBMITTED BY: KOUSTUV BASU JAYCHANDRAN S PRANAY MOON KEDAR DESHPANDE ARUN BATRA PRN: 061 PRN: 074 PRN: 107 PRN: 109 PRN: 115

Symbiosis Institute Of Operations Management Plot No.A-23, Shravan Sector, New Cidco, Nashik - 422008

Page | 1

TABLE OF CONTENTS:

TABLE OF CONTENTS: ................................................................................................................................... 2 EXECUTIVE SUMMARY .................................................................................................................................. 3 INTRODUCTION: ............................................................................................................................................ 4 What is Third Party Logistics? ................................................................................................................... 4 Origin of 3rd Party Logistics (3PL): ............................................................................................................ 4 Why such a huge growth in 3 party Logistics providers?.......................................................................... 5 Types of Third Party Logistics Providers: .................................................................................................. 6 GLOBAL SCENARIO: ....................................................................................................................................... 8 INDIAN SCENARIO: BUSINESS ENVIRONMENT, PRACTICES, CUSTOMER EXPECTATIONS - MAJOR PLAYERS .................................................................................................................................................................... 14 ISSUES AND CHALLENGES ........................................................................................................................... 15 GROWTH DRIVERS ...................................................................................................................................... 18 BEST PRACTICES, QUALITY MEASUREMENTS ............................................................................................. 20 GOVT POLICIES PRESENT (DRIVERS/RETARDERS) ....................................................................................... 22 GOVT POLICY CHANGES REQUIRED ............................................................................................................ 24 FUTURE OUTLOOK ...................................................................................................................................... 25 REFERENCES ................................................................................................................................................ 26

Page | 2

EXECUTIVE SUMMARY
Typically, a core company providing services or products is considered the first party; the customer, the second party. A third-party, then, is a firm hired to do that which neither the first or second party desires to do. A third-party logistics firm is a firm that provides outsourced or third party logistics services to companies for some portion or all of their supply chain management functions. 3PL typically specializes in custom clearance, Freight Forwarding, Warehousing, transportation services that can be customized to customer needs and demand. The 3PL industry evolved in the 1970s during a time of expanding globalization and an increased use of information technology. The first generation 3PLs (1970s-1980s) offered services such as transportation, brokerage, and shipping. Second-generation 3PLs (1980-1990) were mostly asset or non-asset based companies with increased service offerings. The thirdgeneration-3PLs (2000 onwards) were mostly web-based 3PLs with increased supply chain integration. Third-party logistics (3PL) is gaining importance as more and more organizations across the world are outsourcing logistics activities to the 3PL service providers. By outsourcing logistics activities, organizations are able to not only concentrate on their core business operations, but also achieve cost-efficiency and improve delivery performance and customer satisfaction. In our present research we aim to identify the factors which have acted as drivers for evolution of 3PL organizations, the current scenario of the 3PL industry in both global as well as Indian context. We also seek to identify the challenges which the organizations offering 3PL services face while the delivery of these services and when it comes to improving the service portfolios.

Page | 3

INTRODUCTION:
What is Third Party Logistics? 3rd Party Logistics (3PL) is the supply chain practice where one or more logistics functions of a firm are outsourced to a 3PL provider. Typically, the logistics function consists of following:

Inbound Freight Customers and freight consolidation Public Warehousing Contract Warehousing Order Fulfillment Distribution Management of outbound freight to the clients customers

The 3PL provider manages and executes these particular logistics functions using its own assets and resources, on behalf of the client company. The thoughts and rational behind these are to keep the firm competitive by keeping it lean without owning many assets and allowing the 3PL companies to focus on niche area and to reduce operational costs. 3PL is also referred as Contract Logistics. 3PL companies are evolving from predominately transactional-based to more strategic in nature. At the same time, 3PL is gradually evolving into 4PL (Fourth Party Logistics Provider). 4PL is a supply chain services provider that searches the best logistical solutions for its client, typically without using own assets and resources. Origin of 3rd Party Logistics (3PL): During 80s, there was an increase in global transactions, hence globalization coupled with an influx use of information technology. These trends resulted in an increased demand on firms and raised the competitiveness among companies and industries. The role of logistics have become (one of the) pivotal role in determining the success of the companies. 3PL has gradually

Page | 4

increased in demand and its performance has determined the effectiveness of the logistics company. More logistics companies have emerged and competitiveness has increased. Some of the successful companies that emerged during these periods include: DHL Exel Schenker UPS Panalpina NYK Logistics

Why such a huge growth in 3 party Logistics providers? A significant reason for the growth in 3 party Logistics is that companies are moving from transaction strategies to relationship based alliances such as partnerships. All types and sizes of companies from small firms to multi-nationals are becoming increasingly aware that they can gain a competitive and economic advantage by outsourcing their supply chain and logistics requirements to specialist companies that offer the resources and expertise to provide a faster, more efficient and cost effective service. Some of the important factors which have lead to this growth in 3PL service business have been listed as follows: 1. 3PL Frees up Resources: companies now understand that they are not in the business of managing supply chains but in marketing and selling their products. Using a 3PL to manage complex distribution requirements frees up resources to focus on core competencies rather than being tied down with day-to-day operational uncertainty. 2. Reduce Costs during Economic Recession: The trend towards adopting a 3PL is even greater during periods of economic downturn as companies turn to it as a way of reducing their logistics costs. 3. Foray into Overseas Markets: More and more organizations worldwide are developing products for global markets. At the same time they need to source material globally to

Page | 5

be competitive. Therefore, it is not surprising that one of the top challenges facing companies is how to handle a progressively more complex global supply chain. As companies look to source and sell in new markets, their supply chains are extending overseas, most commonly in countries like China, India, South East Asian and Eastern European countries. Companies that can provide a diverse range of services to include export shipping, documentation requirements, packaging and labeling considerations, warehousing and inland transit options, legal and governmental restrictions and compliance management are now sought after for these specialist trade routes. 4. Firms with wide and/or complex distribution network: Outsourcing the logistics function is a more feasible and viable option for companies with a very complex distribution network as they do not focus on logistics as their core competency. 3rd Party logistics is useful and significant in the case of the creation of a new product group or when a company is integrating activities of a takeover. Types of Third Party Logistics Providers:

Transportation based: In this type, the third party logistics provider goes on to provide the transportation services. They also provide a comprehensive set of other services such as tracking and tracing of consignments, cross-docking, specific packaging, or providing a unique security system. They are of two types. Leveraged or non-leveraged. Leveraged 3PLs use the assets of other firms. Non-Leveraged 3PLs use the assets belonging solely to the parent firm. Examples of this would be Ryder, Schneider Logistics, FedEx Logistics, UPS Logistics etc.

Warehouse/Distribution based: In this type, the 3PL provides warehousing facilities along with its distribution facilities. Not all firms have former warehousing and distribution experience. Thus the transition to integrated logistics has been less complex than for the transportation based providers. Examples of this type would be DSC Logistics, USCO, Exel, Caterpillar Logistics, and IBM.

Page | 6

Forwarder based: They are essentially middlemen who extend their roles to provide logistics services. They are Non-asset owners that capably provide a wide range of logistics services such as warehousing and distribution (to an extent). Examples of this type are AEI, Kuehne & Nagle, Fritz, Circle, C. H. Robinson, and the Hub Group.

Financial based: They Provide freight payment and auditing, cost accounting and control, and tools for monitoring, booking, tracking, tracing, and managing inventory. Examples of this type are Cass Information Systems, CTC, GE Information Services, and FleetBoston.

Information based: This is logistics based on Information usage. It is a fast developing method of providing 3PL services. They are usually Internet-based, business-to-business and electronic markets used for transportation and logistics services. Examples of this type are Transplace and Nistevo.

Non Asset Based Service Providers: This class of 3PL performs functions such as consultation on packaging and transportation, freight quoting, financial settlement, auditing, tracking, customer service and issue resolution. However, they dont employ any truck drivers or warehouse personnel, and they dont own any physical freight distribution assets of their own no trucks, no storage trailers, no pallets, and no warehousing. A non-assets based provider consists of a team of domain experts with accumulated freight industry expertise and information technology assets. They fill a role similar to freight agents or brokers, but maintain a significantly greater degree of hands on involvement in the transportation of products.

Page | 7

GLOBAL SCENARIO
Logistics over the period of time has become an important part of every economy and every business entity. Logistics cost average about 12% of the Worlds GDP. In Singapore, logistics cost accounts for about 11% of its GDP. The worldwide trend in globalization has led many companies to outsource their logistics function to Third Party Logistics (3PL) companies, so as to focus on their core competencies.

The results of the 2012 16th Annual Third-Party Logistics Study once again reaffirmed that third-party logistics providers continue to provide strategic and operational value to many shippers across the globe. Shippers consider logistics and supply chain management as key contributors to their overall business success, and approximately three-quarters of survey respondents say 3PLs provide new and innovative ways to improve logistics effectiveness.

The key findings of this survey, which throw some light on the prevailing trends in the global 3PL market are listed as follows: 3PLs Make Valued Contributions: Again in 2012, companies across industries and around the globe regard logistics and supply chain management as key components of their overall business success, and many credit their 3PLs with helping to provide new and innovative ways to improve logistics effectiveness. Logistics Spending is Consistent: Across all regions included in the 2012 survey, shipper respondents report that total logistics expenditures represent an average of 12% of sales revenues, and they spend on average 42% of their total logistics expenditures on outsourcing. Transportation Spend Dominates: Overall, survey respondents who use 3PL services report that their outsourcing activities account for 56% of transportation spend and 39% of warehouse operations spend.

Page | 8

3PL Use is Rising: A majority of shipper respondents, 64%, report they are increasing their use of 3PL services, while 24% are returning to insourcing some 3PL services and 58% report they are reducing or consolidating the number of 3PLs they use.

The Success Rating Perception Gap Remains: Most shipper respondents (88%) and most 3PL providers (94%) view their relationships as successful. In addition, just over two-thirds of shippers say 3PLs provide them with new and innovative ways to improve logistics effectiveness, whereas 91% of 3PL providers feel this is the case.

Gain sharing and Collaboration Lose Ground: The 2012 3PL Study provides insight into several factors that relate to the success of 3PL-shipper relationships: openness, transparency, and good communication; agility and flexibility to accommodate current and future business needs and challenges; interest in gainsharing between 3PLs and shippers; and interest in collaborating with other companies, even competitors, to achieve logistics cost and service improvements. Interestingly, results from the current study suggest that both gainsharing and collaboration may have lost some popularity due to the recent modest improvements in the global economic picture.

3PL Use Pays Off: Metrics including logistics cost, inventory cost, and fixed asset reductions due to use of 3PLs, as well as order fill rate and order accuracy, validate the cost and service improvements resulting from successful 3PL relationships.

Execution-Oriented Activities Still Lead: The logistics activities most frequently outsourced continue to include those that are more transactional, operational and repetitive, while those less frequently outsourced are those that are more strategic, customer-facing and IT-intensive. In the future customers may be more receptive to strategic services that may be available from 3PLs. One observation from this years study is that generally, the percentages reported by shippers for outsourcing of individual logistics activities is down slightly from those reported in recent years. As indicated earlier, this is likely due to the fact that this years shipper survey respondents included a higher percentage of respondents in the lowest annual sales category than in the previous years study and companies in the lower annual sales categories tend to outsource fewer logistics services.

Page | 9

The IT Gap Remains: Information technology remains a key component of 3PL-shipper relationships, and the 2012 3PL Study results indicate that 54% of shipper respondents are satisfied with 3PL IT capabilities compared with 93% who indicate that IT capabilities are a necessary element of 3PL expertise.

New 3PL Selection Criteria: Fuel efficiency and carbon emissions are becoming a more important part of shippers 3PL procurement decision processes. Reasons for Non-Use Persist: Non-users of 3PL services provide reasons why they choose not to outsource to 3PLs. Among the most prevalent: logistics is a core competency at our firm; logistics is too important to consider outsourcing; cost reductions would not be experienced; too difficult to integrate our IT systems with the 3PLs systems. Other shippers tell us these are some of the same factors that are responsible for their decisions to use 3PLs.

Current Global Market:

Over the past two to three years, economic volatility and uncertainty have impacted global business markets and in turn, global markets for 3PL services. The table below includes data from Armstrong & Associates that estimates the magnitude of global 3PL revenues for 2010 (US $541.6B), and provides breakdowns for the four major geographies that are included in the 2012 3PL Study. Global 3PL revenues reported for 2010 represent an increase of 6.8% over those reported in 2009, confirming the general trend toward improving global business conditions. Focusing specifically on the US, 3PL revenues reported by Armstrong & Associates have increased from US $107.1B in 2009 to US $127.3B in 2010. Generally, these reflect the somewhat improving global business environment and ongoing economic globalization.

Page | 10

Global Logistics Costs and Third-Party Logistics Revenue (US$ Billions)

2010 GDP 1,574.0 1,039.0 14,590.4 2010 Logistics Logistics (GDP %) Cost 9.9% 14.9% 8.3% 8.8% 9.2% 8.3% 9.4% 8.1% 9.4% 8.5% 9.0% 8.9% 10.5% 18.1% 9.0% 13.0% 8.7% 9.0% 9.0% 9.0% 155.8 154.8 1,211.0 1,521.6 237.6 275.2 193.2 63.4 132.5 191.0 330.8 1,423.7 129.8 1,063.9 20.3 199.9 474.9 20.0 90.6 38.8 3PL Revenue % 8.4% 6.5% 10.5% 9.9% 10.1% 10.1% 10.6% 14.2% 9.4% 10.0% 9.9% 10.2% 9.9% 7.0% 11.3% 5.7% 8.8% 11.5% 11.0% 11.1% 7.1% 7.8% 2010 3PL Revenue 13.1 10.1 127.3 150.5 24.0 27.8 20.5 9.0 12.5 19.1 32.8 145.7 12.8 74.5 2.3 11.4 41.8 2.3 10.0 4.3 6.3 165.7

Region North America

Country Canada Mexico United States

Region 17,203.4 Europe France Germany Italy Netherlands Spain United Kingdom Others 2,583.0 3,316.0 2,055.0 783.3 1,410.0 2,247.0 3,675.7 Region 16,070.0 Asia Pacific

Australia
China Hong Kong India Japan Singapore South Korea Taiwan Others

1,236.0 5,878.0 225.0 1,538.0 5,459.0 222.7 1,007.0 430.6

824.5
Region 16,820.8

10.7%
12.6%

88.2
2,126.4

Page | 11

South America

Argentina
Brazil Venezuela Others Region

370.3 2,090.0 290.7 784.6 3,535.6 9,470.6 63,100.4

12.6% 11.6% 11.9% 14.2% 12.3% 15.9% 11.1%

46.7 242.4 34.6 111.4 435.1 1,505.8 7,012.6

6.0% 8.2% 5.8% 7.7% 7.7% 3.7% 7.9%

2.8 19.9 2.0 8.6 33.3 55.7 550.9

Remaining Regions/Countries Total

From the above table it can be found out that the top 3 country markets for 3PL logistics business are:

Rank
1 2 3 United states China Japan

Country ( US$ Billions)

Market Size
127.3 74.5 41.8

Major Players In 3PL logistics:

As the 3PL logistics business is growing at the rate of 6.48% every year, new players are coming in to catch the market share. As explained in the above table, the major markets are Unites states, china & Japan as the tendency to outsource logistics part in increasing day by day in those countries. At the same time, the 3PL players are focusing on emerging market for expansion.

Page | 12

Following are the major players in 3PL Logistics business:

Gross Revenue Third-Party Logistics Provider (3PL)

DHL Supply Chain & Global Forwarding Kuehne + Nagel DB Schenker Logistics Nippon Express C.H. Robinson Worldwide CEVA Logistics UPS Supply Chain Solutions DSV Panalpina World Transport Hyundai GLOVIS Sinotrans Bollor/SDV Logistics Expeditors International of Washington Geodis Toll Holdings Agility DACHSER Hellmann Worldwide Logistics UTi Worldwide GEFCO (US$ Millions)* 30,486 19,476 18,999 18,450 9,274 9,091 8,670 7,587 6,887 6,303 6,286 6,163 5,968 5,578 5,303 5,266 5,045 4,687 4,550 4,449

Page | 13

INDIAN SCENARIO

In this era of globalization, India is witnessing an increasing demand for the third party logistics (3PL) business, with companies now concentrating on managing their supply-chain mechanisms in a better way to deepen their market penetration. Companies are shifting their focus from transaction strategies to relationship-based alliances, such as partnerships. All types and sizes of companies ranging from small firms to multinationals are becoming increasingly aware that they can gain a competitive and economic advantage by outsourcing their supply chain and logistics requirements. Further, continuous improvement in logistic infrastructure has led 3PL services to be perceived as a far better mode of controlling both internal and external logistic processes.

In-line with this development, it is expected that improving infrastructure and rising focus on core business operations will lead the future growth of the Indian 3PL market. According to a recent survey, the market is anticipated to witness a CAGR of around 27% during the forecast period (2012-2014), harvesting a total revenue of nearly US$ 5.8 Billion by 2014.

Unfortunately, 3PL vendors often lack the capabilities to deliver full supply chain solutions. Indias huge geographical diversity requiring varied logistics expertise for each region presents the biggest challenge that needs to be addressed by the 3PL service providers. To overcome this problem, 3PL companies have to make huge investment to setup a logistics network to support the flow of products from the clients manufacturing plant to the end customers. This can be undertaken by building warehouses and DCs at locations required by their clients.

Despite this, Indian market is full of opportunities compared to developed markets, because of the infrastructural development, such as ports, highways, bridges as well as increasing connectivity and rising significance of logistic services in the country.

Page | 14

ISSUES AND CHALLENGES

Challenges in the Indian Logistics Sector: Geographic diversity of India needing varied logistics expertise for each region is a major challenge to be addressed by 3PL service providers. India has a diverse geographic scenario coupled with a diverse consumer habit scenario in each of its states. Logistics operation in each state requires a suitable model that facilitates the effective storage and transportation of goods mostly sold in that state, making it very difficult for adopting a uniform logistics model. 3PL service companies interested in serving a particular company would have to offer multiple solutions to fulfill the nationwide logistics needs of that company. Infrastructure limitations in India, which limit the scope of logistics services package are another concern for 3PL service providers. The congested roadways and ports resulting in significant delay in movement of goods, affect the performance of 3PL service providers. These have been discussed in detail in the following section. Similarly, lack of sufficient warehousing and specialized storage facilities beyond major cities of the country result in 3PL service providers to restrain from offering warehousing services across the country, hence resulting in their failure to become the complete logistics service providers for clients. Building own warehousing facilities in strategic geographic locations that would serve as hubs for specific regions, could address this problem. The complicated tax structure, deep-rooted corruption and high bureaucratic control are some other hassles faced by 3PL service providers in providing the best of logistics solutions for their clients. The major bottlenecks as identified by us have been elaborated as follows: The infrastructural bottlenecks: Infrastructure is one of the biggest challenges faced by the Indian logistics sector and has been a major deterrent to its growth. Infrastructural problems like bad road conditions, poor connectivity, inadequate air and sea port capacities and lack of development of modes of transports like railways and alternates like inland water transport and

Page | 15

domestic aviation have been constant irritants. Due to the infrastructural bottlenecks costs per transaction in Indian logistics sector is very much high compared to those in the developed markets. Transport of freight by road forms an important component of freight movements within India, with a large chunk of goods, over 65 percent, being moved by road. The poor infrastructure has severely crippled the smooth functioning of logistics operations. With narrow and congested highways, poor surface quality of roads and 40 percent of villages not having access to allweather roads, the efficiency of the transport system is severely affected. The bulk of Indian trade is carried by sea routes and the existing port infrastructure is insufficient to handle trade flows effectively. The current capacity at major ports is overstretched and their infrastructural upgrades are being made at very slowly pace. While Shanghais ports can turnaround a container ship in 8 hours, the same ship in Mumbai takes 3 days. Air cargo handling facilities at mini metros and towns are negligible as to be non-existent. For cost effective movement of goods it is essential to have quality infrastructure in place. The challenge is to meld the different modes of transport together into seamless network such that the cost is at the lowest. The development of world class infrastructure like modern integrated logistics cum transport hubs and freight corridors at major locations across the country will facilitate more efficient logistics operations. To help Indian logistics sector overcome the challenge and make them globally competitive it is imperative to remove the infrastructural bottlenecks and plan new projects taking into consideration the future growth requirements. Rail Transport shortcomings: Rail is a highly reliable, environmental friendly, safe & secure mode of transport. Indian Railways boast of the second largest rail network in the world, yet its share in goods transportation is much less compared to the share of roadways. In comparison with countries like USA, Russia and China, the cost of transport per ton per kilometer in India is very high almost three times that of China. The railways has the potential to bring down the freight cost to greater extent with favorable commercial characteristics, dense and longdistance freight lines and strong flows of bulk products. The slow pace of progress in network

Page | 16

expansion and modernization of existing facilities in the rail segment coupled with poor customer service has resulted diversion of freight traffic even bulk items such as steel and cement to the road sector. The market share of Indian Railways in total freight traffic has been thus falling consistently. Clipped Aviation Logistics: Indian aviation industry is one of fastest growing in the world and has seen rapid transformation over the years. Private airlines account for around 75 percent share of the domestic aviation market and dominate the industry with their full service airlines and low cost carriers. The air cargo segment of the aviation industry, one the important links in the countrys economic growth, is also growing at a fast pace. A strong and dynamic aviation logistics network will provide a tremendous fillip to trade and the economy as a whole. Aviation holds a small share of Indias freight market with air freight being very expensive in comparison to road and rail. There are not many cargo airlines, few attempts on this front have failed to take off. The demand for services, especially air cargo, is growing with the domestic air cargo traffic registering a 25-per cent increase in 2009-10. However India still accounts for meager 3% of the size of the world air cargo market which is estimated at 27 million tons valued at $200 billion. The aviation logistics in the country is beset with numerous bottlenecks. Inadequate infrastructure is one of the major problems faced by the sector. India's air traffic is highly concentrated at a few airports with most of the second tier cities being ignored or having negligible facilities. Another major issue is the poor cargo handling facilities at airports across the country. Other issues like constrictions in inter-State movement of goods, the impeded movement of air cargo between second tier cities and gateway airports and scale of operations add to the woes, leading to lower cost efficiencies.

Page | 17

GROWTH DRIVERS
Phased Implementation of VAT: Value Added Tax (VAT), the Indian governments proposed uniform tax regime, is expected to drive Indian industries towards using more 3PL Services. Introduced partially in 2005, a full implementation of this regime is expected to necessitate having centralized large warehouses in regional hub cities, to achieve best efficiencies in logistics. Since building such a large warehouse require huge investments, most Indian Companies are likely to outsource the warehousing function, creating immense potential market for 3PL Service providers. Leading Companies in major industries have already started planning for the new scenario and the required warehousing capacity to be outsourced, others are expected to follow them soon. Government infrastructure initiative: The Government of India increase focus on improving logistics infrastructure is expected to have a huge positive impact in the 3PL Market. The government has invested US$17 billion to upgrade highway networks with the implementation of two major projects, namely The Golden Quadrilateral Network and The North-South-EastWest Network. Apart from these, in a remarkable infrastructure related definitions, the government has opened up rail freight operations to private players, thereby creating opportunities for cheaper and faster movement of goods. Transportation by rail is definitely cheaper by road, as trains are faster and have lower cost per unit distance travelled. This is expected to enable 3PL service Providers in offering more cost effective services to clients, thereby increasing the 3PL usage in all industries. Growth in Automobile and Rail Sector: Apart from these sectors the increasing list if Multinational Companies starting operations in India is expected to fill the growth of 3Pl market. Entry of Automobile giants like Volkswagen, Honda, Ford, GM, BMW etc & Retail giants like Wal-Mart are expected to contribute to considerable amount of growth to 3PL usage in respective industry sectors. The opening up of Indian Economy to foreign investments is expected to attract more companies into the country, thereby adding momentum to 3PL market growth. The widespread information technology awareness and expertise in India is

Page | 18

also expected to help 3PL companies in adding several value added services using IT such as best management systems, warehouse management system and integrated Supply Chain and main system

Page | 19

BEST PRACTICES, QUALITY MEASUREMENTS

Since the mid-1980s, service quality has been a priority theme in both marketing and logistics research, running parallel to the interest in quality, quality management and satisfaction in companies. Research identifies significantly improved customer satisfaction as a key benefit of LSQ. On these lines, research in Spain by Vazquez Casielles et al. (2002, p. 40) confirms that quality in supplier physical distribution activities has the greatest influence on customer satisfaction. The notion of LSQ has been studied from two different perspectives: 1. objective Quality 2. Subjective quality. The first approach relates quality with adapting the service to service provider defined specifications (Crosby, 1991). This industrial view of service sees quality as an accurate evaluation of all the stages and operations necessary to deliver the service, likening the process to that of manufacturing a product by considering the service as a physical object which can be observed and with attributes that can be evaluated (Garvin, 1984). The second approach transfers evaluation of quality to the customer that is subjective quality. From this perspective, service quality is a global judgment or attitude, concerning the superior nature of the service In the sphere of logistics service, the contribution from Bienstock et al. (1997), includes this development by identifying objective variables measured through customers perceptions in relation to their expectations (subjective components) as the main components of LSQ. More recent studies contribute to this line by considering LSQ as the difference between the expected and the perceived service. This subjective character makes quality highly relative and volatile in nature as it varies in time and space. In terms of modeling and measurement proposals, there are two schools in the literature, the Nordic and the American. The former differentiates two components in service quality (Gronroos, 1982): (1) technical quality expressed as the service being technically acceptable andleading to a concrete result; and (2) functional quality which includes the way the customer is treated during theservice provision process.

Page | 20

Later work by Rust and Oliver (1994) adds a third component: the service environment.

The American school has predominantly used the SERVQUAL scale to measure and dimension service quality. This multi-item scale evaluates five quality dimensionsfrom a global perspective): (1) reliability; (2) reactivity; (3) guarantee/safety; (4) empathy; and (5) tangible elements.

Page | 21

GOVT POLICIES PRESENT (DRIVERS/RETARDERS)

The Indian government has started paying attention to the problems being faced by the logistics sector and has initiated several infrastructural projects to mitigate their woes. Projects like rail freight corridors and development of the inland waterways as a means of developing alternative modes of transport are being planned. Some important steps are being taken in augmenting the rural infrastructure like connecting majority of the habitations with all weather roads, construction of new roads and upgrading of existing ones etc. New port and a large container handling facilities are on the cards. While there has been some effort on the part of government to augment the Rolling Stock, there also has been significant emphasis on better utilization of the existing ones. It is commonly known that IT can be leveraged to improve the utilization of existing stock. This has failed to happen in India. However, to emphasis the significance of transportation in logistics industry and to increase the competence in the sector government has introduced private participation, especially in port sector. The major initiative in transport infrastructure is introduction of National Maritime Development Program (NMDP) with an investment of Rs.568bn. NMDP would be addressing the challenges of the growing international traffic demand of the country along with developing the port facilities at par with world standards. While liberalizing the railway services, government opened the doors of container business to the private parties. A total of following 15 players immediately entered the market:

Page | 22

Further, the government has been active in taking steps to expand connectivity and regain the market share of freight business. Just by improving wagon utilization, the Railways have achieved a significant reduction of freight cost. Cargo traffic is always given second priority over passenger traffic in transportation industry. Due to which even though railway transportation is cheaper in inland transportation, it is not getting substantial share. To address this problem the Indian Railway has proposed the creation of a dedicated freight corridor connecting four metros covering 2800 route km, at a cost of about Rs 670bn to carry freight trains including containers. The logistic sector would be greatly benefitted and achieve higher efficiency if the Indian Railways is successful in implementing its plans for improved speed of freight trains, upgradation of rolling stock, improved signaling and communication, setting up additional container depots and rationalization of the freight rates to remove distortions. Restructuring and corporatization of the railways will go a long way in meeting the formidable challenges of the future. To remove the differential state-level taxes that are causing higher unit and inventory carrying costs, government introduced uniform Goods and Services Tax (GST). As a result, there is expected to be significant reorganization in warehousing system in the country. Also, the following FDI regulations prevailing in India hint strongly the governments initiatives for improvements in existing logistics scenario in country: In general 100% FDI under the automatic route is permitted for all logistic services FDI up to 100% subject to FIPB approval is permitted for courier services. FDI up to 49% under the automatic route is permitted for air transport services, including air cargo services. 100% FDI is permitted in Ports and Harbours under automatic route. 100% FDI is permitted under the automatic route for storage and warehousing including warehousing of agricultural products with cold storage. 100% FDI is permitted in transport and transport support services through automatic route.

Page | 23

GOVT POLICY CHANGES REQUIRED

Page | 24

FUTURE OUTLOOK
The Indian 3PL market is set to grow tremendously in the next 5-7 years, spearheading the growth of logistics market. Several factors including governments support are instrumental in this growth. Though certain challenges remain to be addressed, the general trend is highly positive. With scenario highly favorable for them, the onus is now on 3PL service companies to offer quality services at affordable pricing, and delivering consistent results to maintain the momentum. For now, surely 3PL is the way forward for Indian Logistics Market.

Page | 25

REFERENCES

1. http://www.3plogistics.com
2. 2012 3PL logistics study , 16th annual report. 3. Research paper Logistics service quality: a way to loyality written by Irene Gil Suara, university of velencia, spain. 4. 3PLstudy.com

Page | 26