logistics,supply chain, transportation-industry analysis report

8/13/2019 Logistics,Supply Chain, Transportation-Industry Analysis Report

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Logistics/ Supply Chain/ Transportation Industry Analysis

- Arjun Satya

0. Introduction:

Logistics in India involves a complex chain of activities, spread across multiple modes of

transportation and infrastructure points. The logistics industry in India is evolving rapidly

and it is the interplay of infrastructure, technology and new types of service providers that

will define whether the industry is able to help its customers reduce their logistics costs and

provide effective services (which are also growing). Changing government policies on

taxation and regulation of service providers are going to play an important role in this

process. Coordination across various government agencies requires approval from multipleministries and is a road block for multi modal transport in India. At the firm level, the

logistics focus is moving towards reducing cycle times in order to add value to their

customers. Consequently, better tools and strategies are being sought by firms in order to

enhance their decision making. In this paper, we provide a perspective on these issues,

outline some of the key challenges with the help of secondary information, and describe

some interesting initiatives that some firms & industries are taking to compete through

excellence in managing their logistics.

Sub-sectors:

a) Reverse Logistics

b) Air Transportation

c) Road Transportation

d) Rail Transportation

e) Marine Transportation

f) Express Logistics Industries

g) Cold Chain and Cold Chain Storage

h) Warehousing


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MARKET CONTRIBUTORS:

1.3)- Industry Structure and Key Players:

Industry Structure can be explained this exhibit:


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Key Players of the Logistics Sector:(note the market share percentage and other information is taken while dealing individual sub-sectors.)

Gateway Distriparks LtdGDL is in the business of owning, developing and managing Container Freight

St at ions ( C F S ) a n d I n l a n d C o n ta in e r D e p o t s ( I C D ) . T h e c o m p a n y o p e r a t e s c on t a i n e r f r e i g h t stations (CFS) at Navi Mumbai, Chennai, Vishakapatnam and Inland Container

Depot atGarhi Harsaru. GDL is in the process of expanding capacity at its existing CFSsandsetting up a new CFS at Kochi. Shares are listed on the National Stock Exchange and theBombay

Stock Exchange

CTC FREIGHT CARRIERS PRIVATE LIMITED: This company is known for Freight Transportation

Services and Transportation Warehousing Service. Also this company possess trucks and LCVs for

carrying goods and ODC consignments.

Transocean Express Logistic: The company is a Logistics and Supply Chain management company

and is promoted by Indian logistics professionals.

DHL: This company is one among the major logistics companies in India. It is a market leader

globally in overland transport,air freight and international express. The company ranks No.1 in the

world in contract logistics and ocean freight. The biggest logistics and express network in the world

has a network in about 220 territories and countries,72,000 vehicles,350 Aircrafts,36 hubs and 4,700

bases.

GLOBAL EXPRESS SERVICE: This company deals in international logistics and offers a robust, well-

rounded suite of services to companies doing business in Asia, Europe, the Middle.

Blue Dart: This logistics company is South Asia's top integrated expresspackage Distribution and

courier company. The domestic network of the company covers about 21,340 locations and provides

service to 220 countries by the company's sales alliance with DHL.

Gati : The company is a key leader in then arena of express cargo delivery and a significant one in thesupply chain management solutions and distribution in India since the year 1989.The company

provides services like the WareHousing,Express Cargo etc.

Safexpress: It is one of the largest express company in India. The company offers the best and

integrated logistics solutions. In 2002 the Limca Book of Records declared the company as the

Largest Logistics service Provider in India. The company has a network over 550 locations in 28 states

and 7 countries.

DTDC:The biggest Domestic Delivery Network Company is DTDC. The company offers high class

delivery service in about 3700 Indian locations and 240 international places.

Ashok Leyland: The leading provider of logistic vehicles for the India Army is this company. It is a key
http://www.transoceanexpress.com/http://www.transoceanexpress.com/http://www.dhl.com/http://www.dhl.com/http://www.globeexpress.com/http://www.globeexpress.com/http://www.bluedart.com/http://www.bluedart.com/http://www.gati.com/http://www.gati.com/http://www.safexpress.com/http://www.safexpress.com/http://www.dtdc.biz/http://www.dtdc.biz/http://www.ashokleyland.com/http://www.ashokleyland.com/http://www.ashokleyland.com/http://www.dtdc.biz/http://www.safexpress.com/http://www.gati.com/http://www.bluedart.com/http://www.globeexpress.com/http://www.dhl.com/http://www.transoceanexpress.com/


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leader in the tractor-tailers and multi axle trucks. The company manufactures buses,trucks,engines

and special application vehicles in India. It is promoting a new company called Ashley Transport

Services Ltd.

Agarwal Packers and Movers: This popular Indian logistics company provides logistic services like

the home shifting,car packing etc. across India. The company believes in keeping technology andpeople and of course heart and soul in the movement of the individuals respective items.

1.4) Growth Dr ivers

Rising Outsourcing and consolidation:

Companies in India currently outsource an estimated 52 percent of logistics, but many more

companies are increasingly considering outsourcing and Third Party Logistics (3PL) models as they

seek to reduce costs and focus on their core businesses. Logistics is a highly fragmented industry,

and with this rising outsourcing trend, the industry is also consolidating.

As companies seek to focus on their core businesses, improve customer satisfaction levels and

expand their logistics needs which can be achieved by working with external logistics expert.

Rapid su pply s ide changes are helping to awareness and demand:

Private Investment in modern warehousing and a dramatic improvement in transportation systems is

leading to many more logistics end users moving away from legacy 'store-and transport' mindsets to

true supply chain management.

As more MNCs increase their scale operations in India, there is a rising demand for world-class

logistics infrastructure and services.
http://www.agarwalpackers.com/http://www.agarwalpackers.com/http://www.agarwalpackers.com/


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Regulatory CHainges are helping to drive private participation and efficiency improvements

- The impending introduction of a goods and services tax (GST) in April 2011, aimed at

bringing in a uniform tax regime acroos all India's state will lead to wide spread

rationalization of warehousing.

- The government incentives to infrastructure developers are expected to futher improve

supply-side inefficiencies.

- The privitization of the container rail segment and private-public partnership (PPP)

programs in key sectors have open new logistics segments for private Participation.

Significant government spending in infrastructure

The government has earmarked over INR 14,000 billion of infrastructure investment in its

11th five year plan. Around 27 percent of its investment is expected to be in roads, rail,

aviation and port project.

1.5) Global Comparison:


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1.6) Investment Opportunity:

Major Investments are driven by private equity (PE), with very few strategic investments and

even fewer foreign investments.

Investors have historically invested in asset-heavy sectors as transportation and


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2.2) Extent of FDI allowed in the sector:


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2.2) Impact of key upcoming fiscal reforms:


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3. Market and Investment Opportunities:

3.1) Role of Investors:


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3.2) Investors Activity:


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3.3) Return on Capital employed for selected Players:


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3.4) Private Equity and Mergers and Acquisitions in the industry:

Private Equity:

Mergers and Acquisitions Deals:


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NOTE: The data for 2011-12 will published by Venture Intelligence, VC circle in October,2012

3.5) Challenges :

4) Reverse Logistics:

6.1) Overview:

Reverse logistics potential has been realized only recently in India, it is at a very nascent stage and is

expected to grow rapidly in the future

o It has been estimated that 14% of Indian companies are expected to outsource their reverse

logistics functions

Indian reverse logistics industry is pegged at INR 1.2 bn

o Globally reverse logistics is pegged at INR 56 bn

o Furthermore, 7% of an enterprise's gross sales are captured by return costs

o It has been estimated that 1.2% of GDP is lost to supply chain inefficiencies

Advantages of having a well functioning reverse logistics system include:

o Expected reduction in supply chain costs by over 2%

o Increase set recovery by over 3.1%

o Improve productivity by over 9.2%

o Provide complete customer satisfaction

6.2) Infrastructure:


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7) Air Transport:

7.1) Introduction:

Aviation holds a small share of India's freight market.

Air Freight is very expensive in India in comparison toroad and rail.

India accounts for meagre 3% of the global air cargomarket.

As per an expert estimate, Indian air cargo industry is

going to be double by the year 2012.

7.2) Market Size and Growth:

According to the Planning Commission, Indias air cargo movements would

grow at over a CAGR of 11.5% from 2007-08 to 2011-12.

Foreign Direct Investment (FDI) limit in cargo airlines having been raised by

the Government from 49% to 74% is attracting major overseas players to

expand their Indian networks and capacity.

Air Cargo business has overtaken the ocean freight & rail freight market by

expanding at nearly 19% in the last 3 years, as against 10.3% growth

registered by ocean freight and 9.2% by railways.


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Domestic air cargo traffic has been growing at CAGR of 12.80% from 2007-08

to 2011-12, whereas international air cargo traffic has been moving at CAGR

of 13% during the same period.

Riding high on export of gems and jewellery, special chemicals and high value

pharmaceuticals, international air cargo traffic at all Indian airports has been

growing rapidly.

7.3) Challenges:

7.4) Key Players:

Blue-Dart, the only dedicated freight carrier in domesticsector.

Air India plans to increase cargo revenue from current10% to 15-20% in 3yrs.


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Jet Air, GoAir, Kingfisher Airlines charting out plans to playbigger role in Indian domestic air cargo.

International Airlines-Cathay Pacific and BA increasing

cargo capacity to and from India.

8) Road Transport:

8.1) Introduction:

The most important mode of transportation in India is road, and this dominancearises from decades of poor supporting infrastructure development on the rail.

Despite having one of the worldslargest rail networks, Indias share of cargo transported by railhas declined steadily.

It is due to the poor quality of service (including last mile access solutions) driven largely by thehistoric monopoly of the government and the resultant overbearing focus on passenger services aswell as massive investments in road highway projects over the past six decades that have helpedposition roads as the most significant, even if suboptimal, means of transportation.

8.2) Market Size and growth:

The following exhibit will explain the market size and growth of Roadways


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8.4) Issues and Threats:

- Threats faced due to new entrants:

- Threats faced due to substitutes:

-- Threats faced due to bargaining power of consumers:

- Threats faced due to bargaining power of suppliers:


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- Threats faced due to rivalry among competitors:

8.5) Road Freight Trends:

These threats have led road transporters to adopt various de-risking

strategies.

This creates Opportunities for investors and operators to invest in and

partner with leading road transportation companies on this transformation

journey.


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8.6) Major Players:

Transport Corporation Of India

Patel Integrated Logistics

Gati

Delhi Assam Roadways Corporation

9) Rail Transport:

9.1) Introduction 9.3) Market Size and Growth

The Indian Railways boasts of being the worlds 2ndlargest rail network spread over81,511 km and covering 6896 stations.

The freight segment accounts for roughly two thirds of railwaysrevenues.

The tonne/kilometre costs for Indian rail freight at three timesthat of China. [Tata Iron& Steel].

Rail services have been liberalized since 2006.

9.2) Key Freight Players

Container rail business opened up to private freight operators:

Indian Railways (IR) opened up the container rail business to private operators in 2006. Sincethen, 15 new players, besides the incumbent Concor, have joined the fray.


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Private players have already made huge investments in the business and have further plansto scale it up. The entry of private players in the segment has intensified the competition inthe segment and improved efficiency.


India has a large freight market estimated at 3.7 bn tonnes in volumes, which have beenexpanding (8% CAGR over the past three years, source:IR/Industry) in line with the rapideconomic growth.

Interestingly, only 30% of this cargo is estimated to be handled by the railways despite railbeing a cheaper, faster and more efficient mode of freight movement against roads due to

lack of focus by IR on aggregation of cargo. Indian railways are trying to address the loss of market share through containerized

operations.

9.4) Infrastructure:


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9.5) Issues and Threats:

Issues:-

The domestic segment is extremely fragmented with limited penetration of containerized railmovement, which is estimated to be 1% (~6m tonnes) currently.

Penetration of container rail is relatively higher in port volumes (Exim cargo) with 30%, or~2m TEUs, being transported by rail. Currently, the container rail industry has a capacity of~300 rakes, of which Concor accounts for 220 rakes with the remaining being with privateplayers.

Threats in Indian Rail Freight:-

Exim segmentcongestion on key routes (JNPT-NCR)

With the everincreasing number of rakes (by container rail operators and for bulk cargo) to service thegrowing cargo at these ports and locations, the route has become saturated as no new railway trackshave been added. Moreover, double stacking is not possible on the routes connecting the ports toNCR as they are largely electrified. Consequently, we believe the congestion for connectivity to thewestern ports will impact turnaround time of rakes on the Exim route. We believe turnaround time ofrakes can improve substantially once the dedicated freight corridor is operational. The IR isaddressing this by setting up a Dedicated Freight Corridor (DFC), which is currently underimplementation. We believe once the DFC is operational, it will significantly improve the turnaroundtime of rakes.

Dealing with the Indian Railways (IR)

-Erratic increase in haulage charges-No turnaround time guarantees-Initial movement of bulk cargo by container rail operators-Absence of a regulator

9.6) Infrastructure

To grow the container rail market and drive a shift in volumes from road to rail,operators should possess the ability to provide reliable and cost-effective solutions.


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10) Marine Transport:

10.1) Introduction

While roads continue to remain the dominant mode of transportation for domestic freight

movement in India, maritime transportation is yet to realise its full potential with respect toports, coastal transportation and inland waterway connectivity.

The over-7000 km long Indian coastline has 12 major ports and about 187 minor ports.

India's West Coast ports handles almost 70% of traffic.

10.2) Market Growth, Trends and Major ports:

India now has the largest merchant shipping fleet among the developingcountries

India ranks 17th in the world in shipping tonnage.

Indian share of maritime transport services is 1% of world market.

The container traffic has registered an impressive growth of 15 per cent overthe last five years.


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Port traffic to grow to a level of 650 Million Tonnes Per Annum by2008-Ministry of Shipping.

Port Privatization is picking up momentum--USD1.39 billion worthprojects approved.

Private Players ---P&O, PSA, Maersk, Gammon India, CWC and theDubai Port Authority.

Major Players' Profiles: Chennai Port Trust, Cochin Port Trust, Ennore Port,Jawaharlal Nehru Port Trust, Kandla Port Trust, Kolkata Port Trust, Mormugao PortTrust, Mumbai Port Trust,New Mangalore Port Trust, Paradip Port Trust, TuticorinPort Trust, Visakhapatnam Port Trust, Non-Major Ports.

10.4) Issues and Concern:

Given capacity expansion limitations within major ports, focus has increasingly shifted towardsdevelopment of private greenfi eld ports or expansion of minor ports mainly in the west and southeast of India.

The state of Gujarat leads the pack consistently retaining over three-fourth majority share onaccount of highest number of operational minor ports and business-friendly regulatoryenvironment.


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11) Express Logistics:

11.1) Introduction:

Express industry in India offers distribution services of documents, small packages andfreight on time definite

basis carried by fleets of fully owned or dedicated aircraft, trucks, trains and delivery vansboth in domesticand overseas.

The industry is highly fragmented with large number of domestic players from unorganizedsegment and few global players.

11.2) Market size and Growth:

The express industry handles two types of consignments, i.e. documents andnon documents. Documents accountfor~60% of the total organized sector revenueswhile non-documents constitute only 40% of the market. Given their extensivenetworks and high service standards, organized players have captured65% of the express business, while unorganized or semi-organized players account

for ~25% of the total market. The remaining 10% is serviced by EMSSpeed Post.

However, within the domestic sector, unorganized players offer a price advantageover organized players. As a result, organized sector has only 45% share ofthe market with unorganized player shaving comparable41% share. The remaining

14% market share lies with EMS Speed Post

11.3) Key Players:


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A warehouse is a commercial building for storage of goods. Warehousesare used by manufacturers, importers, exporters, wholesalers, transportbusinesses, customs, etc.

They come equipped with loading docks to load and unload trucks; orsometimes are loaded directly from railways, airports, or seaports. Theyalso often have cranes and forklifts for moving goods, which are usually

placed on ISO standard pallets loaded into pallet racks. The direction and tracking of materials in the warehouse is coordinated by

the WMS, or Warehouse Management System, a database drivencomputer program.

Warehousing in India has been marred by very low penetration of automation, technologyand other effi ciency-enabling facilities.

Its highly fragmented nature has prevented optimal space utilisation and the much neededinfrastructural investments. As high as 92 percent (of the overall 433 mn sq. ft.) of theIndian warehousing industry is unorganised, characterised by medium to low qualityinfrastructure and services.

13.2) Types of Warehousing:

Private Warehouses - The warehouses which are owned and managed by themanufacturers or traders to store, exclusively, their own stock of goods are known asprivate warehouses. Generally these warehouses are constructed by the farmers neartheir fields, by wholesalers and retailers near their business centres and by manufacturersnear their factories. The design and the facilities provided therein are according to the

nature of products to be stored. Public Warehouses - The warehouses which are run to store goods of the

generalpublic are known as public warehouses. Any one can store his goods in thesewarehouses on payment of rent. An individual, a partnership firm or a company mayown these warehouses. To start such warehouses a licence from the government isrequired. The government also regulates the functions and operations of thesewarehouses. Mostly these warehouses are used by manufacturers, wholesalers,exporters, importers, government agencies, etc.

Government Warehouses -These warehouses are owned, managed andcontrolled

by central or state governments or public corporations or local authorities. Bothgovernment and private enterprises may use these warehouses to store their goods.

Central Warehousing Corporation of India, State Warehousing Corporation and FoodCorporation of India are examples of agencies maintaining government warehouses.


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Bonded Warehouses - These warehouses are owned, managed and controlledby

government as well as private agencies. Private bonded warehouses have to obtainlicence from the government. Bonded warehouses are used to store imported goodsfor which import duty is yet to be paid. Incase of imported goods the importers arenot allowed to take away the goods from the ports till such duty is paid. These

warehouses are generally owned by dock authorities and found near the ports. Co-operative Warehouses - These warehouses are owned, managed and

controlledby co-operative societies. They provide warehousing facilities at the most economicalrates to the members of their society.


India is again witnessing a surge in the need for storage space.According to KPMG estimates, an additional 120 million square feet of warehousingspace is needed by 2012 to bridge the demand-supply gap (after accounting forannounced projects), and this translates to a massive opportunity for investors and

operators.

The Indian government plans to introduce auniform Goods and Service Tax (GST), which is expected to level these state taxes

and obviate the need for multiple warehouses. As a result, there is expected tobe a significant reorganization of warehousing space in India, with large hubsbeing developed in key locations, coupled with smaller spoke warehouses nearer

to production and consumption centers.

13.4) Key Players:Central Warehousing Corporation,

Gateway Distriparks, Container Corporation of India, FoodCorporation of India, Sical Distriparks, Balmer Lawrie and

Company, Allcargo Global Logistics


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14.3) Propensity to outsource to 3PL:

1

4.4)Attract

iveS


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14.4) Attractive Segments for 3PL:

14.5) Critical Success Factors for 3PL vendors:

15). INDUSTRY-WISE DEMAND(only the role of supply chain in other

concerned sectors across the globe) :


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National structure of Logistics in FMCG Industry:

15.3) - High Tech Electronics Industry

Overview and Structure of the industry:


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High-tech industry supply chains span the globe and often include thousands of

suppliers, manufacturers, logistics companies, and other participants.

Product variety is also high, ranging from build-to-stock, fast-moving consumer electronics

goods sold through retailers such as Best Buy, to engineer and configure to order high-end

systems sold through a lengthy, consultative process.

Matching supply and demand in each market and product segment, while balancing costs

with customer service objectives, is an extremely complex activity. Sales and operations

planning may now include teams of geographically and organizationally.

15.4) Pharmaceutical Industry

Overview and structure:


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The role of logistics in Pharmaceutical industry:

Logistics is regarded as a crucial part of the pharmaceutical industry since the

activities are highly time sensitive.

In addition, pharma products need temperature-controlled storage anddistribution.

From the beginning of its evolution, the pharmaceutical industry in India has beenfocusing on the development of innovative activities like high quality products,research and development, etc.

The most important supply chain factors in pharmaceutical industry are inventory

reduction and reduction of order cycle time. This is because, operational

performance could be directly linked to logistics costs, while inventory reduction

and the demand to decrease order cycle time are related to just-in-time deliveries

and supply chain speed.

15.5) Retail Industry

Overview, Introduction and role:

The role of supply chain in Indian organized retail is very significant for on it depends the growth of thissector. The Indian Supply Chain Councilhave been formed to explore the challenges that a retailer

faces and to find possible solutions for India.

The role of supply chain in the organized retail sector in India should be a shelf- centric partnershipbetween the retailer and the manufacture for this will create supply chains that are loss free. This will

also give rise to top and bottom line growth. In the organized retail sector in Indiathe presence of fresh

produce (vegetables and fruits) is very small. This is so for the nature of supply chain is very fragmented.

This shows the important role of supply chain in the organized retail sector in India.

In the organized retail market in India, the role of supply chain is very important for the Indiancustomer demands at affordable prices a variety of product mix. It is the supply chain that ensures to the


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customer in all the various offerings that a company decides for its customers, be it cost, service, or the

quickness in responding to ever changing tastes of the customer.

15.6)Textile Industry