Indian logistics saw better growth while globally there was muted demand

Consolidated warehousing is the way forward, says Manish Panchal – Sr. Practice Head, Chemicals & Supply Chain Management, TATA Strategic Management Group.

Is ´Big´ going to be better business as far as warehousing is concerned? Kindly elaborate on this aspect to show how the scale and size of warehouses will impact the warehousing and logistics businesses in India.
Big is definitely better for the warehousing services focusing on serving organised sectors. Economies of scale, cheaper land costs, more automation and higher labour utilisation are some of the key benefits. Also reduction of supply chain complexity helps companies ease operations and serve customers better. Based on our experience of working with several companies across industries, our observation is that warehouse consolidation directly helps in reducing cost on transportation by 5-8 per cent, warehousing by 10-12 per cent and inventory holding up to 25 per cent, leading to an overall savings in the range of 10-12 per cent of the total logistics and warehousing costs.

The manufacturing sector is still struggling and exports are dwindling. How has this affected the logistics sector?
In India, due to robust domestic consumption, the logistics sector has seen consistent growth in the recent past despite lower than expected growth in manufacturing and exports. But even so, the Indian logistics sector has seen better growth prospects as compared to the global scenario where companies are struggling with muted demand, higher costs and lower realisations.

We feel that the Indian logistics sector is still poised to almost double to ~$200 billion by 2022 due to the various initiatives such as GST rollout, the aggressive campaign for ´Make in India´, focus on creation of enabling infrastructure aimed at boosting manufacturing competitiveness and increasing exports.

How is the third party logistics (3PL) market in India? What are the growth drivers and inhibitors for the logistics market in India?
In India, the 3PL players constitute only 15-18 per cent of the total market, but are poised to grow about twice as fast as the market, in the coming years. With changing consumer behaviour influenced by e-commerce, we have seen increasing customer expectations such as quicker delivery times, need for more product variety, customised SKU mix etc. Coupled with technological advancements, these would result in 3PL and 4PL players offering even more customised solutions to companies. With increasing investments in the organised logistics space by incumbents as well as new entrants, there is definite excitement in this sector in India.

On inhibitors I would say, logistics in India suffers from a slew of problems such as inadequate infrastructure, complicated policies, improper modal mix and low technology penetration. This ultimately leads to a high cost for consumers with India spending 13 per cent of its GDP on logistics as compared to developed economies who spend 8 per cent of their GDP.

However, numerous government initiatives such as Dedicated Freight Corridors, Sagarmala and Doubling Road Network by 2022, which are under implementation, are aimed at addressing these problems. Assuming that only 60 per cent of the promises are delivered, we feel it will definitely be enough to give a boost to the logistics sector.

How will the move of this government to focus on infrastructure benefit the industry? What is your opinion about this year´s budget?
As part of the ´Make in India´ plan, the government aims to boost the share of manufacturing in the country´s GDP from 16 per cent to 25 per cent by 2022. We believe the current and future investments in developing modern transport and industrial infrastructure will improve Indian manufacturing and export competitiveness to achieve the 2022 vision.

We feel the Union Budget will focus on boosting domestic demand and improve manufacturing and export competitiveness. The groundwork has already been laid down in the past two years, so the focus should be on speedy execution of key policies such as GST, channelising investments to speed up Dedicated Freight Corridors, road development and ports modernisation.