Industry Report

Logistics - India 2017

Research Conducted by
Sector Report
Logistics India 2017

In this issue
1 / Logistics Sector Global View
2 / Logistics Sector India
3 / Key Drivers & Trends
4 / M&A Transactions
1 / Logistics Sector - Global View

Logistics is an integral activity for economic Technology is being applied and implemented in
growth as it involves the management of different formats; physical automation for
flow of goods from place of origination to trucking and warehousing; automated
place of consumption. The sector comprises documentation and booking of parcels, online
shipping, port-services, warehousing, rail, marketplaces for comparing price and services,
road and air freight, express cargo and other etc. All these technological enhancements have
value added services. The global logistics provided benefits in the form of
market currently generates over USD 8 disintermediation of services, cost
trillion annually and represents around 11% rationalization and curbing inefficiencies.
of global GDP.
2. Shifting of Trade Centers
The growth of the logistics sector is linked to
Demographic profiles of Asian populations
growth in international trade flows and the
coupled with economic growth has triggered
robustness of the economic environment.
demand-led consumption. In Africa, critical
World Trade (% of global GDP) positioning and access to natural resources is
70 incentivizing investments in the region.
60
Population density and ever-increasing
50
aspirational requirements are leading large
40
30 World trade impacted scale producers to migrate to these regions to
20
due to Financial Crisis of build infrastructure and production facilities.
2008-09
10 Accordingly, trade movement has been
- increasing towards these regions to meet the
growing demand and investments.
Source: World Bank Estimates 3. E-Commerce Wave
Trade was severely affected during the The growth of e-commerce has given way to
financial crisis of 2008-2009. Since then, specific logistics channels handling only last
global trade had been recovering and has mile deliveries. These channels ensure faster
returned back to 2009 levels in recent years, delivery and provide assured reverse logistics.
i.e. around 60% of global GDP. They also insure for the consignee collection of
The following key trends are being observed payment. This model is a true 3PL (third-party
in the logistics sector across the globe: logistics) service offering. With the complexity
involved and the level of automation required,
1. Digitization and Automation
big e-commerce companies like Amazon and
Digitization in the logistics sector is currently others have set up their own last mile delivery
in a nascent stage with most processes yet services and are now entering as full fledged
to be automated. The current structure of the 4PL logistics service providers.
logistics sector involves intermediaries,
which lead to leakages in the value chain and
hence, higher costs for consumers.
2 / Logistics Sector in India

The size of the logistics sector in India is Going forward, the trend towards integration of
estimated to be USD 260 billion. Unlike global logistics service providers is expected to continue
trends, the logistics sector in India has been and new players/business models are expected
growing at a healthy rate of ~14% over the last 5 to emerge amid the digitization and automation
years on strong demand drivers. Over the last two of business processes, implementation of the
decades, the Indian logistics sector has evolved new GST (goods and services tax), and expansion
from mere transportation services to fully in the 3PL/4PL service landscape.
integrated service providers.

Evolution of Logistics Sector in India

Before 1990s 1990s to 2000 2000 to 2014 Beyond 2014

Limited to With port Growth in trade Digitization of

outsourcing of modernization, volumes & logistics services to
transportation discharge & loading regulations has led increase
activities for operations at port to emergence of transparency
movement of goods became efficient CFS/ICD operations resulting in
through warehouses disintermediation of
Custom clearance, Third-party logistics
Mainly annual freight forwarding, services.
service providers
contracts and inventory needed to handle Market demanded
Due to complex management movement of cargo total integration of
excise tax and other became more across the logistics logistics services and
duties the focus was structured, restricted value chain outsourcing to
on cargo movement to operations in 3PL/4PL service
Higher outsourcing
for reducing periphery of port providers
and more value
inventory and Focus on integration added services Efficiency and cost
distribution costs of business came into play like rationalization
through physical functions to manage in-plant through adaptation
distribution supply chain, mostly management, and automation of
management multimodal reverse logistics etc. technology on back
including open yard of easing regulations
Focus on integrating
management
supply chain, service
providers to meet
customers
distribution needs
 2 / Logistics Sector in India

India's logistical costs as a percentage of GDP is Current Issues and Challenges

on the higher side: 13.0% vs. global average of The main issues currently faced by the logistics
11.7%. Logistics in India are plagued by an sector in India are as follows:
inefficient system, lagging infrastructure, lower
1. Connectivity Congestion
average trucking speeds, congestion and
bottlenecks in surface transportation, etc. India is ranked 35th in the Logistics
Performance Index (LPI) by the World Bank
Logistics Costs (% of GDP) which benchmarks efficiency of trade logistics
13,50%
across nations. India's low ranking is due to
13,00%
11,90% slow transit time for the movement of cargo
8,20%
9,20% through road and shipping networks. In terms
of transportation through shipping channels,
transit time is affected due to lengthy custom
clearance processes and the number of
United Europe Asia Pacific South India intermediaries required for bringing products
States America
in/out of the country. The road logistics
Source: CIA, World Bank, Armstrong & Associates network is affected due to poor infrastructure
as national highways constitute only 2% of the
In terms of the relative composition of
overall road network. In addition, toll collection,
transportation and logistics costs, transportation
inter-state checkpoints and other stoppages
costs in the US and China are high due to lead to higher transit times.
widespread geography. Interestingly, costs are
2. Lower Standardization
also high in India but due to a combination of
factors including vehicle quality, stressed drivers, India's logistics market has been impacted by
overloading, poor road infrastructure, and low lower standardization of cargos and
average speeds. In addition, costs are higher due containerization of logistics traffic, hampering
to excessive taxes and toll expenditures. the overall speed and thus increasing cost of
movement.

Transportation Warehousing
Container traffic as % of overall traffic
Inventories Others (incl. losses) 70% 71% 73%

India 35% 9% 25% 31% 50% 51% 51% 52% 53% 54%

China 50% 25% 15% 10%

US 49% 9% 24% 18%

Source: KPMG Analysis Source: KPMG Analysis

2 / Logistics Sector in India

3. Unfavorable Modal Mix 4. Tax Structure and Regulatory

Cargo movement in India is skewed towards Inefficiencies
road networks. India boasts the world's fourth India is currently in the midst of a transition
largest railway network and is cheaper than from a historical state-wise tax regime to a
roads, but suffers from under investment centralized Goods and Service Tax. At present,
resulting in capacity constraints, redundant India has different applicable tax rates within 29
railway sliding, inadequate rolling stocks, and states and multiple taxes levied are by both
non-availability of cargo hubs in proximity to Central and State governments when goods
industrial hubs with a large work-force. Inland move across the state borders. This leads to
waterways, despite being green and cost higher cost and inefficiency/delays on account
effective, are affected due to inadequate transit of inadequate documentation and necessary
gateways between inland waterways and clearances while goods are transiting across
linkages to coastal shipping. Air is the fastest multiple state borders. The planned dual GST
transportation mode but continues to have model (central GST and state GST) proposes to
replace around 29 state and federal taxes with
miniscule (1%) share in the transportation pie
a single tax regime at the point of sale.
and suffers from limited connectivity and an
absence of designated cargo terminals. The
inability to provide last mile connection leads
industries to prefer the road as mean of
transportation of goods.

Modal Mix - Transportation (in %)

Rail Road Water Air

1 1 1 1
8 14
46 43
37
60

30
46
48
31 23
10
India China US Europe
Source: CII & CARE
3 / Key Drivers & Trends

Despite the challenges, the logistics sector in India warehouses closer to consumption centers.
is expected to grow at a healthy rate of close to Currently, small warehouses are operated for
12%-14% going forward. The growth is expected distribution by carry & forward agents to link
along with a transition of the sector from high cost movement of goods for the ease of taxation.
to a leaner cost alternative through rationalization This leads to inability to achieve scale with
of expenses, elimination of intermediaries and pilferage at multiple levels. The GST will give
technology adaptation. This is possible with way to a large hub and spoke model (prevalent
significant development and improvement in developed countries) with large automated
envisaged in infrastructure, adaptation of warehouses aided by technology to achieve
technology and backed by a changing regulatory economies of scale. The hub and spoke model
environment. will enable optimal use of transportation with
room for reverse logistics as well.
Key drivers and trends which are expected to
contribute towards the growth of the sector are:
1. Implementation of Goods and Service Tax 2. Infrastructure Development
The Indian parliament cleared the long pending a) Road Development
implementation of the Goods and Service Tax Over the last two years, the Government of
(GST) which will simplify the tax structure and India has increased its pace of road
improve the turnaround time for trucks, hence construction. Further, the policy has been
easing cargo movement. The GST is expected to strengthened with the Government mandating
be implemented across the country from 1st July that no road project will be awarded until 80%
2017. As discussed earlier, the current tax structure of land is acquired, which increases the
leads to inefficiencies and delays in cargo viability of the project and reduces delays in
movement. The GST is expected to trigger a implementation after award of the project. The
significant change in the warehousing sector with Government has set a target of constructing
the small state-wise warehouses being 15,000 km of roads in FY 2017-18 with
consolidated in large nodal based multi-product budgetary allocation of close to USD 14 billion
for the year. The stage is set to develop a
Changes in Warehousing Structure
Several Warehouses (Current) to Nodal Warehousing (Post GST) more robust road infrastructure network
Existing Scenario Post GST Implementation across the country.
b) Dedicated Freight Corridors/DMIC
The Government approved the construction of
dedicated freight corridors in 2014/15 to
increase freight handling capacity through
railways and reduce transit time. Currently, the
plan is to connect the high container traffic
routes of North to West and North to East
through dedicated freight corridors.

Source: Centrum Research

3 / Key Drivers & Trends

Completion of these projects will not only increase Cost of Transportation

the freight handling capacity on these routes but (Rs. per MT per Km)
will also increase the average travelling speed of
freight wagons from the current 25kms/hour to 70
kms/hour. The vast expanse of India would be
interlinked to enable seamless cargo movement
from areas of production to areas of consumption.
2,28

1,41
1,19

Road Transport Rail Transport Waterways

Transport
Source: World Bank Estimates

In 2016, the Government announced 106

new national waterways through enactment
of the National Waterways Act. This will help
realize the potential of inland waterways as
greener and more cost effective options and
establish routes in which adjoining
hinterlands could be serviced. According to
government estimates, inland waterways
Going forward, the Government is further transport has potential investment
committed to developing three additional freight opportunities of around USD 600 million in
corridors i.e. (1) East-West Corridor (Kolkata- the next 3-4 years, towards various
Mumbai, 2328 kms) (2) North-South Corridor ongoing/proposed programs.
(Delhi-Chennai, 2,343 kms) and (3) East Coast
3. Integrated Supply Chain Service
Corridor (Kharagpur- Vijayawada, 1,114 kms).
Provider
Completion of these corridors will improve the
logistics efficiency and reduce costs and transit The logistics sector stands to benefit from
time. the increasing trend of outsourcing. Logistics
functions are traditionally performed by the
c) Inland Waterways Development
organizations themselves. However,
India has about 14,500 kms of navigable corporate entities recognize the benefits
waterways which include rivers, canals, associated in engaging third-party logistics
backwaters, creeks, etc. Currently, only 4,382 kms providers for integration of information flow,
of waterways have been utilized. There is a huge material handling, production, packaging,
potential waiting to be unlocked through inventory, transportation, warehousing and
development of these inland waterways. often security. This allows corporate entities
3 / Key Drivers & Trends

to concentrate on their core business and also penetrated the technology users with much
achieve cost rationalization through outsourcing. affordable terms providing lean investments and
Higher outsourcing of services have further easy upgrades. These providers offer increased
benefited from: versatility and inbuilt flexibility to adapt to
changes and market developments.
a) Shift from 80-20 to 65-35
Traditionally, logistics as a service constitute Robotics is being utilized at warehouses for
80% of cost in the form of transportation (mainly tagging, labelling, sorting, and placing products in
fuel) and 20% in the form of storing and carts and shelves. The role of robotics has
peripheral services. However, over the last 4-5 enabled round-the-clock operations. This has
years with the drop in fuel prices, the logistics helped to rationalize the costs of evacuation
cost had eased considerably. This enabled value during low peak hours of traffic.
added service providers to raise their share of
Similarly, Industrial Internet of Things (IIoT) ,
services and include services like packaging, in-
Internet of Things (IoT) and Big Data Analytics
plant inventory management, etc. The cost shift
are streamlining supply chain functions of
is now gradually moving from traditional 80-20
organizations for just-in-time inventory and
to 65-35, with additional benefits in the form of
provide predictive analysis to manage
service integration.
procurement processes.
b) Unorganized Sector & Asset Lean Business
Technology is enabling logistics firms to
Model
eliminate inefficiencies to boost operations.
Traditionally, logistics providers have been
5. Contingency Preparedness
working on an asset-heavy business model. With
the help of technology, some companies have Logistics solutions are being designed to cater to
migrated to the asset-lean model of providing meet the requirements of emergency
integrated logistics solution with an optimum contingencies, especially natural and manmade
mix of owned and outsourced assets. The disasters. With dynamic geo-political situations
unorganized nature of the transportation sector, and climatic changes, the world is prone to face
which is largely fragmented, benefited the challenges and disasters more often. Logistics
integrated supply chain service provider to justify service providers are getting more attuned to
need of outsourcing partners. providing services to meet emergency needs.

4. TECHNOGISTIC Powered Technology 6. E-Commerce and Emerging Logistics

Reshaping Existing Delivery Systems Channels:
E-commerce is currently a USD 16 billion market
Cloud based systems are replacing legacy
but growing rapidly and expected to reach USD
enterprise resource planning (ERP) systems in
100 billion by 2020. Advent of e-commerce has
manufacturing and logistics organizations.
led to creation of multisource channels for
Software-as-a-Service (SaaS) companies have
vendors, even small sized ones.
3 / Key Drivers & Trends

In traditional brick and mortar channels To meet this growing demand of e-commerce
distribution is much simpler with products arriving logistics, new channels and companies have
at warehouses in bulk, moved around in pallets emerged with different business models and
and selected by the case, and shipped out to store catering exclusively to e-commerce
in bulk. E-commerce businesses pose a unique companies like DelhiVery, Ecom Express,
challenge to the traditional logistics channel. In e- DotZot, eKart etc. These companies have
commerce, inventory arrives in bulk but needs to attracted significant PE capital as growth
be distributed into different SKUs. The distribution trajectory forecasted to rise on the back of
to onward channels is much more diverse and in growing market size.
smaller parcels. The complexity of this process
7. Green Transition
increases with thousands of suppliers, multiple
warehouses and extensive sales channel across Reverse logistics has become an integral part
geographies, increasing the risk of misplaced of e-commerce transactions. Similarly, a
orders. In addition to that, logistics channel sustainable solution for manufacturing
companies are also expected to process the companies and production plants is
payment through delivery and manage the envisaged in the form of Green Earth
complicated reverse logistics in case of return of initiatives for recycling and disposal of
product. residual plant wastages. In developed
countries, manufacturing units follow
Managing all these activities requires technology
stringent norms with regards to recycling and
and standardization to synchronize business
disposal of residual plant waste. However, in
processes with real-time access and insight to
India, residual raw material and waste like
inventory management.
sludge is often disposed in open yards.
With intense competition in the e-commerce Meeting green standards would require
segment and emphasis on prompt and fast finding logistical solutions for disposal and
delivery of products, the distribution channel has treatment through creation of cluster
been put under immense pressure in all major infrastructure for further processing, recycling
modes of freight movement. "Just in Time" and and finding alternative use of the residual
"Just in Case" strategies in logistics must now plant waste.
meet to the challenge of "Just Do It" demand
created by today's highly impatient customers.
4 / M&A Transactions

The growing size of the Indian logistics market The logistics sector has also seen
has led to investment by domestic and investment from major PE players like
international players in the sector. Several Warburg Pincus, Mandela Capital, Everstone
international logistics companies like Fedex, Capital, Carlyle Capital, CDC, etc.,
DHL, Kinetsu World, UPS, Kuehne and Nagel, highlighting the potential of the sector.
CEVA logistics, etc., have already established
their presence through JVs, acquisitions or
green field projects.
Deal Value
Company Investor Date Type
(Stake)
USD 100 mn
Delhivery Carlyle Mar-17 PE
(Undisclosed)

Incofin,
Sohanlal Commodity USD 20 mn
ResponsAbility Mar-17 PE Takeout
Management (Undisclosed)
Investments

USD 30 mn
Blackbuck SandCapital, IFC Feb-17 PE
(Undisclosed)

USD 30 mn
Sri Kailash Logistics Everstone Capital Jan-17 PE
(majority stake)

USD 4 mn
Letstransport GMO Jan-17 Strategic
(Undisclosed)

Stellar Value Chain Undisclosed

Kelvin Cold Chain Jan-17 Strategic
Solutions Pvt Ltd (majority stake)

USD 75 mn
Rivigo Warburg Pincus Nov-16 PE
(Undisclosed)

Browntape Technologies Pvt. USD 3 mn

Gati Ltd Nov-16 Strategic
Ltd, (20% to 26%)

USD 155 mn
TVS Logistics CDPQ Oct-16 PE takeout
(Undisclosed)

USD 10 mn
FR8 Omnivore Partners Oct-16 PE
(Undisclosed)

USD 21 mn
ETA Engineering Pvt Ltd Vikram Logistics Aug-16 Strategic
(100%)

Stellar Value Chain Solutions USD 125 mn

Warburg Pincus Aug-16 PE
Pvt. Ltd (Undisclosed)

USD 150 mn
Indev Logistics Kerry Logistics Apr-16 Strategic
(50%)
4 / M&A Transactions

Deal Value
Company Investor Date Type
(Stake)
USD 87 mn
Future supply SSG Capital Apr-16 Debt
(50%)

USD 60 mn
Continental Warehousing IFC Mar-16 Debt and PE
(9.7%)

CCI Integrated Logistics Pvt Ltd Allcargo Logistics Ltd. Mar-16 Strategic Undisclosed

USD 37 mn
ColdEx Logistics Asia Climate Partners Feb-16 PE
(Undisclosed)

Ambit Pragma Undisclosed

Mehta Frozen Foods Carrier Feb-16 PE
Ventures (74%)

Sohanlal Commodity Everstone Capital & USD 23.5 mn

Sep-15 PE
management ICICI Bank (32.5%)

Undisclosed
LCL Logistix CMA-CGM Group Apr-15 Strategic
(15%)

USD 25 mn
Pristine Logistics CDC Jan-15 PE
(Undisclosed)

USD 16.7 million

Mahindra Logistics Ltd Kedaara Capital Apr-14 PE
(30%)

Contact:
Rajat Dutta Vishesh Kathuria
[email protected] | +91 9820062488 [email protected] | +91 9769383842