Logistics market in India worth USD 327.68 billion by 2025

The Indian logistics industry is projected to reach USD 215 billion worth in revenue, growing at a CAGR of 16% by 2021 from the current USD 180 billion in 2019.

  • Definition / Scope
  • Market Overview
  • Market Risks
  • Market Trends
  • Industry Challenges
  • Technology Trends
  • Regulatory Trends
  • Other Key Market Trends
  • Market Size and Forecast
  • Market Outlook
  • Technology Roadmap
  • Distribution Chain Analysis
  • Competitive Landscape
  • Key Market Players
  • Strategic Conclusion
  • References

Definition / Scope

Logistic is the blend of infrastructure, technology, and other delivery related services that define logistic industry that help service providers reduce last mile delivery cost and consumers get superior and faster service.

Core Components of Logistic System:

  • Transportation
  • Warehousing
  • Materials & Handling
  • Order Processing
  • Packaging
  • Inventory Control

Transportation is the most fundamental and crucial component of logistics that account for the highest percentage of total logistic cost per unit. Choosing the optimum mode of transportation that will meet customers’ needs at the lowest price possible is the key issue that needs to be taken into account.

Material handling consists of all the activities and equipment involved in the placement and movement of products within storage areas considering the correct mechanical equipment, making the best use of labor, and making the minimum distance products needs to be moved.

Order processing involves filling customer orders. Its importance lies in its relationship with order cycle time, which the time is between when an order is placed and when it is received by the customer.

Keeping inventory at its lowest level while simultaneously placing orders in large quantity and determining economic order quantity is scrutinized by the inventory control force.

Holding of the products until they are shipped to the final consumer is concerned with suitable warehousing in terms of location, number, size, and design of the warehouse.

Packaging depends on the type of product and distance that it needs to be delivered effectively and efficiently beyond the design that just focus on promotional function of it.

Market Overview

India’s position slumped down at 44th in Global Logistics Performance Index in 2018. It stood at 35th ranking in 2016. Indian logistics sector is currently estimated around USD 200 billion driven mainly by emerging ecommerce players, increase in demand, and increasing FDI in FMCG segment.

The logistic sector is growing by 10.5% yearly since 2018 when it was recorded USD 176 billion. The logistics infrastructure has gained momentum from business level as well as from policy level. The industry employs over 45 million people in all Tier I, Tier II, and Tier III cities in India.

The Indian logistic segment is fundamentally divided into four sections involving Transportation (rail, road, air, and water-ways), warehousing (Container cargo stations and Inland Container Depots), Freight Forwarding and value added logistics.

The transportation contributes 60% to the entire pie of logistic segment. The transportation through road and rail together contributes about 56% followed by Warehousing at 24.5% including industrial and agricultural stockpiling in the whole pie of logistics pie.

Trend in cargo traffic
Mode of TransportDetailsUnit2016201720182019
RailwaysTotal freight trafficMillion tones1104110711601221
PortsTraffic at major portsMillion tones606648679699
AirwaysCargo traffic at all airports‘000 tones2705297833573560

Overall, majority of the cargo traffic is handled via railways. The cargo traffic in all three modes is steadily growing up since 2016.  In 2019, railways witnessed a traffic surge of 1923.56 million tones in total, 1221 million tones shipped via railways, 699 million tones transported through land ports, and 3.5 million tones via airways.

The Indian logistics industry is highly fragmented and unorganized. Owing to the presence of numerous unorganized players in the industry, it remains fragmented with the organized players accounting for only 10% of the total market share.

Market Risks

  • Trade risk

The risks of overcapacity, congestion, backlogs and bottlenecking due to recent increase in number of larger ships are some risks that cargo operators face. The fluctuations in freight rates in the container line business due to significant structural imbalances between supply and demand are another risk.

Cyclical nature of business such as seasonal fluctuations also affects volumes. The fluctuation in the levels of imports and exports in the country also affects business.

Market Trends

  • Opportunity from trade tension

The trade disputes between the US and China in 2019 appeared favourable for Indian market. The trade disputes between developed countries is actually the opportunity for Indian export and thus lucrative for logistics business as well. Moreover, overall exports to US grew by 9.46% to USD 52.4 billion in 2019, for China the growth was 25.6% to USD 16.7 billion.

  • Growth in E-commerce retail

The logistics need of e-commerce companies in India is rapidly evolving due to scaling up of last mile deliver to Tier-II and Tier-III cities, Cash on Delivery (COD), which is the innovative payment system introduced first in India, and reverse logistics.

The logistics’ GMV for e-commerce is estimated to reach USD 45 billion in 2020. Logistics pockets 10% of the average ticket value. E-commerce is probably creating the biggest revolution in the retail industry, and this trend is to continue in the years to come.

Online retail business is the next generation format which has high potential for growth in the near future. After conquering physical stores, retailers are now foraying into the domain of e-retailing to leverage the digital retail channels (e-commerce), which would enable them to spend less money on real estate (shops) while reaching out to more customers in Tier II and Tier III cities.

  • Emergence of 3PL and 4PL:

Third-party logistics or 3PL is a concept where a single logistics service provider manages the entire logistics function for a company.

While the Indian 3PL market is still very much in its infancy compared with other countries, it is experiencing healthy growth and attracting new companies eager to capitalize on the plentiful opportunities it offers,

In fourth-party logistics 4PL, logistics is controlled by a service provider that does not own the assets to carry out logistics activities but outsources to subcontractors, the 3PL.

4PLs facilitate single-point reference for all logistics needs, possess knowledge of logistics to obtain most efficient and effective solutions, have manpower resources of higher quality to supervise vendors and ensure continuous process improvements and, above, all an IT base to network customer systems.

  • Trade Dispute

The geopolitical chaos between US and Iran, have led to some denting of logistics business in the Indian supply chain. Bilateral trade tensions between neighboring countries are also further dampening the demand.

It has mainly affected the Gulf export market. Iran is a key trading partner of India. Its major exports to India are oil, fertilizers and chemicals, while it imports cereals, tea, coffee, basmati rice, spices and organic chemicals, among others. Further, India’s exports to the Gulf nation in 2018-19 were worth USD 3.51 billion.

Industry Challenges

Indian logistics industry is associated with relatively high cost of transportation and storage. India’s logistics cost as a % of GDP stood at 13%-14% as compared to 10%-11% for Brazil, Russia, India and China (BRIC) countries and 8%-9% for developed countries.

The US and Germany spend 9.5% and 8% of their GDP respectively on logistics costs. A significant proportion of the higher cost can be attributed to the absence of an efficient intermodal and multimodal transport systems, poor road infrastructure leading to lowering of the maximum distance that can be covered by any commercial vehicle, old vehicles fleet and higher cess and toll on the highways.

Further, higher warehousing costs are driven by shortage of warehousing capacity in India, non-standardization of warehouses in terms of IT application, etc.

Technology Trends

Last mile express delivery

Logistics service providers have been adopting easy to use and convenient applications to track the parcel. They also have been automating the in-house sorting and dispatching of the orders.

Regulatory Trends

  • Integrated Transport and Logistics Policy

The National logistics policy has passed USD 160 billion fund project and further investments in this sector will amount to USD 500 billion by 2025. Overall, the warehousing sector is assured with investments amounting USD 66.11 billion by end of 2020.

Moreover, the government is planning to set up 50 economic corridors, 35 multimodal logistics parks at 15 locations and 10 intermodal stations.

  • Sagarmala Project

The Sagarmala Project is the largest investment so far led by Indian Government worth USD 114.98 billon (INR 8.7 trillion) to connect about 600 ports. Additional USD 17.18 billion (INR 1.3 trillion) has been spent to provide railway and road connectivity to the ports.

The project estimates potential savings of around USD 2.7 billion to USD 3.5 billion through coastal shipping of 230-280 million tonnes per annum of key commodities such as coal, cement, fertilisers, iron and steel, food grains and petroleum, oil & lubricants by 2025.

Existing cargo handling capacity of 1,500 MMTPA is estimated to reach 2,500 MMTPA through the implementation of the Sagarmala project.

Also the Government has also taken initiatives to Develop 6 new ports.

Other Key Market Trends

The high cost burden of logistics, ranging from 3-15%, is the bottleneck for higher bottom-line in various Indian economic sectors. Cement industry has to bear 15% as a cost of revenue while the least is faced by automobile and apparel sector with just 3% as cost of revenue from logistic operation.

Market Size and Forecast

The global logistics market is expected to hit a value of USD 16,445 billion by 2026 and forecasted to expand at a CAGR of 7.4% during the forecast period of 2018 to 2026, reach over 93,105 million tonnes in volume at a CAGR of 6.6% by 2026.

The Indian logistics industry is projected to reach USD 220 billion worth in revenue, growing at a CAGR of 16% by 2021 from the current USD 180 billion in 2019.

Market Outlook

By 2025, the logistics sector in India will be worth USD 327.68 billion.

E-commerce is a major segment expected to strengthen growth of the logistics industry during the forecast period. Port capacity is expected to grow at a CAGR of 5% to 6% by 2022, thereby, adding a capacity of 275 to 325 MT. Indian Railways aims to increase its freight traffic from 1.1 billion tons in 2017 to 3.3 billion tons in 2030.

Freight traffic on airports in India has the potential to reach 17 million tonnes by 2040.

Technology Roadmap

  • Data Analytics

Real-time route optimization through the intelligent correlation of data from various silos such as shipment information, weather, and traffic, etc. can enable more efficient scheduling of consignments, optimization of load sequences, and very accurately predict the time of arrival that could significantly optimize planning and resource utilization, process quality and performance, and reduce unnecessary costs in the supply chain.

Moreover, this is very useful especially for e-commerce retailers to ship potentially desired products in anticipation based on prediction of what customer buying preference will be. This will save a great of operating cost and could deliver order within a single day or few hours.

  • Advanced cold chain packaging

The basic requirements for pharmaceutical as guided is good storage and distribution practice (USP 1079), which is a key minimum consideration in the distribution and storage of drug product supported additionally via good distribution practice (EMA 2013/C 343/10), WHO Annex 9, and medical package testing (ISTA 3A, 7D, 7E). 

Vendors of temperature-controlled products are facing stringent regulatory restrictions in parallel with technological advancement to transport pharmaceutical products safely.

UPS Healthcare Logistics that provides 3PL services has started offering a Temperature True line, ranging from an insulated envelope (for direct-to-patient delivery of single doses) to carton sizes to handle refrigerated, frozen and CRT shipments.

The range of sizes and temperature control covers many applications in clinical trials, diagnostic specimens, direct-to-patient or -physician deliveries of single doses and commercial-scale shipments. Controlled Room Temperature (CRT) package is a fairly new development in the North American and European market.

Another innovation by NanoCool which has been offering an innovative chilling technology for cold chain shipments, based on evaporative cooling rather than refrigerant packs or dry ice is bringing the global reach to its side through a partnership with Cold Chain Technologies (CCT) and Topa Thermal Packaging. CCT is now offering the KoolTemp GTS Instant container.

The NanoCool technique uses a bladder of very low-pressure water as part of the container. When the bladder is punctured, the water begins evaporating, and the heat consumed in that phase change generates “on demand” cooling.

The rest of the package uses fairly standard packaging and insulation materials. These innovations will take some years to enter Indian logistics market and to take the mainstream.

Distribution Chain Analysis

Generally the service delivery by an air cargo goes through 3-5 hands before reaching last mile, however, in the Indian logistics scenario, it goes through as many as 7-10 hands before reaching final customer.

These deliveries are generally categorized as next day, second day, or deferred delivery for e-commerce related shipment, and with several time deadlines for other sort of category. Consumer prices depend on delivery speed, delivery distance, and shipment weight. Air cargos process items for shipment through a network of operating centres and airport hubs.

Items are first retrieved by the operator provider at the sender’s location, or are brought by the sender to a drop-off location, and are then transported in bulk by truck to an operating centre, where they are sorted. Items that are carried over short distances are transported from the operating centre by truck and delivered to their final destinations.

Items that are transported over large distances are carried from an operating centre to an origin hub, where they are again sorted. These items may travel further through one or more intermediate hubs before they reach another operating centre near the recipient’s location.

There, items are once again sorted, loaded onto trucks, and delivered either directly to the recipient or to a pick-up location.

Competitive Landscape

There has been a surge in the number of new entrants in the logistics industry in the last few years after the advent of e-commerce in India. Logistic businesses face different levels of competition in each segment, from domestic as well as multinational companies.

The Indian logistics market is highly unorganized leaving the industry fragmented with organized players accounting for merely 10% of total market share. Within the e-commerce logistics segment, 70% of the deliveries are handled by Blue Dart and ekart owned by Flipkart and Amazon respectively.

Another 30% market is captured by third-party LSPs.

Key Market Players

  • Allcargo Logistics

Allcargo Logistics Limited (Allcargo) is the largest private sector Logistics Company originated in India and having diversified presence in ocean & airfreight-forwarding, container freight stations (CFS), inland container depots (ICD), project cargo, equipment rental, coastal shipping and contract logistics worldwide.

The company operates mainly into three segments i.e. (i) Multimodal Transport Operations; (ii) Container Freight Stations/ Inland Container Depots and (iii) Project and Engineering Solutions.The company was founded was 1993.

Total income from operation was USD 9.18 billion (INR 6895 crore) in 2019, 13.81% up from the previous year. Logistics segment contributed 19% of the total income.

Moreover, Asia Pacific is the largest market for Allcargo Logistics, representing 39% of its business, followed by African market (25%). Its market capitalization as of May 2020 was USD 214.32 million.

  • Transport Corporation of India

Transport Corporation of India Limited (TCI) is an integrated supply chain and logistics solutions provider.

The Company’s segments include Freight Division, Supply Chain Solutions Division, Seaways Division, Energy Division and Global Division. It offers multimodal transportation solutions. Its divisions include TCI Freight Division, TCI Supply Chain Solutions Division, TCI Seaways Division and TCI Global Division, among others. TCI Freight is a surface transport entity.

TCI Supply Chain Solutions division offers services to sectors, such as auto, retail, telecom, electrical and pharmaceuticals. TCI Seaways division caters to coastal cargo requirements for transporting container and bulk cargo.

TCI Global division provides customs clearance, international inbound and outbound freight handling (air and sea), third-party logistics, multimodal (air, surface and sea) services and project cargo.

It has a fleet of customized vehicles and over 10.5 million square feet of warehousing space. It made total operating revenue of USD 341.43 million (INR 258, 514 lakhs) in 2019 and its market capitalization was USD 153.66 million as of May 2020.

Strategic Conclusion

Over the last 4-5 years India has made significant progress in infrastructure, road, rail, port, and airport development.

The government has also initiated many major investments to promote the logistics sector, for instance, the plan to open 50 economic corridors, 35 multimodal logistics parks, and 10 intermodal stations.

Technological boost in the field of logistics from modern e-billion to robotics and data analytics in the field will further strengthen the business efficiency. The logistics sector will grow by double digit for another five years for Indian market.


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