Indian Logistics Industry Snippet

7/31/2019 Indian Logistics Industry Snippet

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Page 2Confidential & Proprietary 2009 QCaliber-India Services Private Limited.

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 toUS$54bn by 2012

Growth of logistics industry largely depends on infrastructure availability. Government spending and involvement ofprivate players will catalyze the growth of the industry. Government programs and measures such as establishment oflogistics parks and investment-linked tax deduction will support the industry to speed up its growth.

70% of the total domestic product is transported throughroad 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 representshigher 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 toexpand their efficiency to meet the rising demand globally, according to a study by industry body Assocham.

Logistics Industry

Segment

Industry Size

FY07

(USD billion)

Industry Size

FY12E

(USD billion)

CAGR

Road Freight 10 15 10%

Rail Freight 11 15 8%

Air Freight 2 5 25%

Port Related Logistics 4 6 10%

Express & SCM transportation 4 13 30%

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


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Container Corporation of India, a GOI enterprise, is the undisputed

market leader in inter-modal logistics & transportation space in India

Indian LogisticsMarket

Road Freight Express Logistics Container Logistics Liquid Logistics

Container Haulage

Inland ContainerDepot (ICD) and

Container FreightStation(CFS)

Multimodal TransportOperator (MTO)

Companies Operating Across the Market Segment

Road Freight Express Container haulage CFS MTO Bulk LiquidCONCOR

Blue dart

Gati

Transport Corporation

Gateway Distriparks

All Cargo

Aegis

Logistics Industry Structure

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


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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 initiativessuch as

Abolition of CST Private participationin rail, air and port freight services

Containerization is expanding as the demand for intermodal transport rising in India.Containerization of cargo has been seen mainly in foreign trade while development isexpected in domestic trade. During the period FY07, bulk cargo increased at 8% whereascontainerized cargo grew at 18.5%, which clearly depicts the rising demand for containerizedcargo.

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 ofgoods. Companies are hoping to develop requisite competencies and assetbased networks tooffer end-to-end logistics services.

Countrys logistics market growth is also driven by rising number of multinationalmanufacturers 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 logisticscompanies are set to gain from the infrastructure investment injected by both governmentsand the private sector. Though the valuations of logistics stocks are strained, however, theyare expected to be the best investment opportunity in the long term as the sector is poised togrow 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 marketis estimated to reach INR400bn in 2015. Cold chains comprise two segments - surface storageand refrigerated transport. The industryis expected to grow at 22% per annum.

Factors Driving Growth inthe Indian Logistics sector

Increase in trade: Foreigntrade has been growing at25% CAGR over the past

five years

Reforms in Governmentpolicy

Increased Governmentspending in infrastructure

Rise in domesticconsumption and retail

market

Containerization is agrowing trend in India dueto increasing demand for

intermodal transport

Large investment flow

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


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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

GeographicalCoverage -insufficient

Insufficient distribution channels /infrastructure bottlenecks restrict the scope to reach consumers ofproducts nationwide.

Physicalinfrastructure abottleneck

Though the country has developed the largest road networks in the world, yet the Regional concentration ofmanufacturing in India but geographically diversified distribution activities as well as infrastructurebottlenecks

e infrastructure facility is not comparable to developed countries and few developing countries. Less thanhalf of the roads were paved in India and less than 2000 km were express highways in 2007, which wassignificantly lower than Chinas30,000 kms.

Over-burdenedports

India has a long coastline. However, the countrys port system isntutilized properly. 70% of the seabornetrade is managed by 2 of its 12 major ports . Remaining 185 minor ports in the country is largelyunderutilized.

Warehousinginvestment is low

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 reducedits pace of growth in comparison to rising farm output.

Truckingoperations

Unorganized trucking operations are becoming a key challenge for shippers. Twothirds of truck fleets inIndia have less than five vehicles. Shippers are facing operational issues in handling large number of carriers,which is needed to manage shipment volumes.

Technology Usage Technology usage is still very low in India, which restricts the scope of increasing efficiency and productivity

Skill Gaps Issues Availability of skills and expertise is not a challenge in India. However, sector has very poor image in termsof working condition and salary payment. It is difficult for companies to attract talent, as the sector is highlyunorganized that limits the scope to improve the overall image of working conditions within the sector.

Cost/Quality ofService

According to industry analysts, logistics costs in India are among the worlds highest. Outside of the metrosand a few cities, the delivery time is very uncertain.



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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 Entry Barrier Competition Customer Needs Drivers Opportunities

RoadFreight

High Low HighlyFragmented

market and low

profitability

Low service cost,Non time

sensitive

Demand for higher quality ofroad infrastructure

Phase out of Central Sale Tax

(CST)

Implementation of Value Add

Tax (VAT)

Consolidation is expected in theindustry this will lead to the

emergence of pan- India players

with bigger size and better

profitability; growth in Cold Chain

Warehousing Logistics

Express Capital intensive High High Cost efficiency,

High time

sensitive

High growth in document

shipments

Growth in high-value

products such as mobile

phones, network hardware,

jewelry and branded drugs

Express industry is expected to

continue growth at o ver 25%.

Containerhaulage

C apital intens iv e High entrybarrier in

road

segment

Rail haulagemarket is mainly

dominated by

CONCOR

Scheduledservices and

strong ICD

network

Government approval forprivatization of rail container

operation

Establishment of dedicated

freight corridor

Approval to private players forrail operation and rising demand

from the railways to boost

demand for wagon

manufacturers in private sectors.

CFS CFS business is

characterized by high

capital intensity. The

requirements isdependant on the

facilitating

infrastructure

development such asrailroads etc.

Medium High at key

gateway ports

Quick turnaround

time Standardization of containers

Growing trade volume CFS/ICD that runs its own

container terminal, freight

forwarder or shipping line is

likely to gain from the surge inocean freight.

MTO Less Capital intensive 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 integratedservices,

Being less capital intensive and

with neutral working capital

requirement, the MTO business

gives higher return on equity and

return on capital employed

Bulk

Liquid

Capital intensive High Low Port Connectivity

and Integrated

service offerings

Booming oil demand, and

rising trade flow Less competition in the market



7/7Page 7Confidential & Proprietary 2009 QCaliber-India Services Private Limited.

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Indian Logistics Industry Snippet