Changing Dynamics in Logistics Industry

The Indian Logistics market is poised to gather greater momentum with the emergence of India as a manufacturing hub and improving multimodal transportation infrastructure.
By Harpreet Singh Malhotra, MD, Tiger Logistics

Harpreet Singh
India's third-party logistics market can be segmented into transportation 3PL market, and cold chain market, which has seen a healthy growth. This upsurge in the cold chain market was due to growth in the e-commerce industry, especially in the e-retail sector. Cold Chain is one of the highest growing markets, yet it constitutes a minor proportion to the growing logistics industry of India.

The 3PL logistics market is expected to be worth US$ 301.89 billion by 2020. 3PLs specialize in certain industries such as frozen food. Auditing freight bills and warehousing are now providing logistics related software, which is bringing about greater efficiencies.

The global LPI rank of India was 44 in the year 2018 and nine positions up from the previous LPI ranking. India is seeing much growth in the manufacturing sector which is also highly significant for the growth of the logistics sector. This trend is likely to gather momentum with the gradual revival of the global economy and India emerging as one of the earliest major economies to recover from the economic downturn.

Taxation

As we know, the excise duty and service tax were levied by the Central Government while the VAT was levied by the State Government, which was one of the reasons why such a cross-utilisation of credits was not allowed. However, this does not constitute a valid reason that justifies the cascading effect of taxes. For the people, it makes no difference if a tax is levied by the Centre or the State – a tax is a tax, and there is a tax on tax.

Logistics Industry Project

GST was introduced to combat this problem, among many others. With the implementation of GST, the logistics companies, which were forced to set up many small warehouses across multiple cities, are setting up just a few, big warehouses region-wise, and also following the hub-and-spoke model for freight movement from the warehouses to the different manufacturing plants, wholesale outlets, retail outlets and the various POS.

India's logistics industry spends around 14% of the GDP on different types of costs incurred in operations. The amount of cost incurred is very high in comparison to the logistics cost incurred by other nations. This increased rate is also dependent on the GST regime. 3PL logistics companies are optimizing their operations to reduce cost and increasing their margins.

Technology

To tap the potential opportunity in logistics, Logistics Service Providers (LSPs) must implant and improve their ERP (Enterprise Resource Planning). In fact, ERP has become the buzzword in the industry as there is a growing necessity for technologies for better process efficiency. However, a common dilemma faced by key project evaluation teams at leading global LSPs today is whether to customise their existing ERP for their logistics business, or to choose a best-of-breed and proven logistics solution, which is readily available in the market.

Each approach has its own merits and the best way to go about it is to look at the critical success factors (CSFs) that impact business. In evaluating an enterprise IT solution, apart from CSFs like project cost, implementation timeframes and risks related to vendor's capability, the project manager needs to also consider whether these IT options are aligned with the larger business goals.

Logistics Industry Project

In case of a customised ERP involving development with a System Integrator (SI), most of the generic Sis have limited domain knowledge of logistics business, thus the cost of project will not only shoot up, but also cause further delays in system rollout. Also, such developers have a high sourcing cost. Therefore, one needs to invest in a vendor who has an established product and has the inherent capability to enhance the solution based on industry needs. This is crucial in reducing the Total Cost of Ownership (TCO) for the LSP.

Third-party logistics (3PL) is a business process followed by companies to outsource their logistics and supply chain activities to a service provider specialized in handling different logistics functions. 3PL services help companies to concentrate on their core business activity. The 3PL market in India can be divided into segments based on the logistics function, which includes transportation, warehousing, freight and forwarding, and value-added services based on the end-user industry. Freight forwarding is the third largest segment in the services mix of Indian logistics.

Logistics Industry Project Machine

3PL service providers, like us, are specialized in handling the different logistics functions mentioned above. In addition, we provide various value-added services such as MIS in the supply chain.

Challenges

The logistics industry deals in the disorganized nature of logistics. India is a manpower, heavy industry, where lack of adequate training institutions has led to a shortfall in skilled management and client service personnel. This is a growing concern across the industry, affecting both 3PLs and shippers faced with a shortage of supply chain and skilled personnel.

Companies need to have the right levels of qualified labor, working capital, and equipment to successfully manage their growth and be profitable. If they aren't prepared in advance, they will find that these key resources (labor, capital, and equipment) are in short supply. Finding skilled labor is already an issue across many sectors, and one can't get new capital equipment at the drop of a hat. Companies that have to scramble to create capacity won't be as profitable as the ones that plan ahead.

Tiger Logistics is an international logistics company involved in Freight Forwarding, Custom Clearance and Trade Compliance, Transportation, Warehousing and Distribution, Air Freight Services, Ocean Freight Services, Heavy Lifts and Turnkey Projects, RORO Operations, Charter Services and Cold Chain Logistics – all under one roof. In 2018, Tiger Logistics opened 3 new branch offices in Veraval, Vadodara and Hazira, and has covered almost all the states that have a port.

Lifting & Specialized Transport - April - June 2019

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