Outsourced
In-house
India’s developing Logistics Sector 48%
52%
Logistics Industry Overall
10% 60% 90% Warehouse
Transportation
Source: CSO (2008), KPMG Analysis (2006)
The key logistics trends to look out for in India. By Sankalpa Bhattacharjya, Associate Director, strategic & commercial intelligence, KPMG in India
A
t 13 percent of GDP, India’s spending on logistics is both significant and inefficient. These inefficiencies are largely a result of India’s diverse geographic conditions, poor core infrastructure, complex tax policies and supply side constraints — all of which result in high transportation, storage and service costs. However, India’s logistics story is indeed an attractive one, based on its rapidly growing economy, the increase in outsourcing of logistics, steady supply side changes, significant government investment in core infrastructure projects and landmark changes in tax and regulatory policies. Growth in Indian economy, key logistics sectors and Exports-Imports (EXIM) The growth in India’s GDP translates directly into growth in the logistics sector, there being a ~2x relationship between growth rates of GDP and the logistics industry. The post-recession resurgence of domestic sectors such as retail and manufacturing is expected to drive volume growth again. Based on industry discussions, EXIM is estimated to grow at over 15 percent per annum, and this will have a direct impact on port-oriented logistics. 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.
Source: International Monetary Fund, World Outlook Database ( 2010) 9.6 9.4 9.0 9.0 10 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------8.5 8.4 7.5 7.4 8 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------6.7 6
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Many manufacturing companies in India have legacy in-house logisOutsourced In-house tics set-ups, which have historically been perceived as a support func10% tion and, as a result, have grown 60% 40% 48% 52% unwieldy and cost-inefficient over 90% Logistics Industry time. Also, as companies seek to Warehouse Overall Transportation focus on their core businesses, imSource: CSO (2008), KPMG Analysis (2006) prove customer satisfaction levels and become more nimble in managing and expanding their logistics needs (often complicated further by multimodal or international requirements), they are realizing that working with external logistics experts is often the best or only way to achieve these objectives. 40 MAY/JUNE 2011
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