The Hindu Business Line : A guide to global logistics and freight forwarding

Who's Who in Global Logistics & Freight Forwarding provides a comprehensive picture of the logistics and freight forwarding industry based on key operating statistics of the most prominent service providers.

Ireland-based Research & Markets has published a new report — Who's Who in Global Logistics & Freight Forwarding — providing a comprehensive picture of the global logistics and freight forwarding industry based on the key operating statistics of the most prominent service providers.

The urgency to bring out such a report is understandable. Of late the global logistics and freight forwarding markets have been experiencing significant changes and widespread consolidation, dramatically impacting the dynamics of the market as well as the competitiveness of many players. The report offers some interesting insights. In an environment that is considered challenging to say the least, the service providers have still managed to achieve revenue growth, some as much as 33 per cent year-on-year. This is presumably because most customers now recognise the importance of global supply chain as the key to acquiring competitive advantage.

The globalisation and the increasingly global capability of larger service providers have led to a situation where efficiency, quality service and customer-focused solutions are becoming crucial both in the logistics and freight forwarding markets. Yet, as the report notes, the market continues to be volatile and unpredictable, regardless of the size, penetration and capability of some of the service providers.

THE INDIAN SITUATION

India is being touted as the land of opportunity for logistics service providers all over the world. The demand for logistics services in India has been largely driven by the remarkable growth of the economy, projected to grow at 9-10 per cent in next few years. The Indian logistics market, valued at $14 billion a couple of years ago, is expected to grow at a CAGR (compounded annual growth rate) of 7-8 per cent. It is felt that the growth will continue, and might even scale newer heights, as the economy is experiencing a retail boom with Western companies such as Metro, Wal-Mart planning to start operation in this country, and large local retailers such as Shoppers Stop, Pantaloon, RPG and Big Bazaar planning to expand their operations in smaller cities.

But, then, logistics management in India too is complex, with millions and millions retailers catering to the requirements of more than one billion people and the infrastructure yet to develop to cater properly to a growing economy.

The poor condition of roads translates directly to higher vehicle turnover, which in turn pushes up the operating costs and reduces efficiency. The reduced efficiency is passed on the logistics service providers, with transportation costs accounting for nearly 40 per cent of the total logistics cost. The National Highways are being upgraded but these highways account for a meagre two per cent of the total road network in the country.

The Government of course is trying to execute a large number of road and other infrastructure projects through PPP (public private partnerships) initiatives to ease the pressure on the government coffers. However, the experiences reveal that the PPP scheme, as it exists today, is not a foolproof arrangement, with the several States complaining about its inadequacies.

There are other problems such as complex tax laws and insufficient technological aids. The fragmented market increases costs due to huge paperwork and the individual truck owners, dominating the market, are unable to contract directly with customers, with the result freight consolidators and brokers take a commission to generate business for the truck owners. Only about a few thousand vehicles out of a total of several millions have tracking system. The use of IT, thus, is limited.

Neglected modes

According to some experts, the country needs to invest in railways, which are cost effective as well as environment-friendly. Inland waterways, neglected over the years, too are to be developed. The capacity constraints in the port sector are formidable. Fortunately, the government has paid attention to the development of the railways, inland waterways and ports, both major and minor, but it will be few more years before the government initiatives start yielding results.

In India, the logistics costs are still higher than those in developed countries — an estimated 13-14 per cent of GDP compared to 8 per cent in the US. The inventory costs are approximately 24 per cent of the logistics costs and the order processing and administrative expenses account for another 10 per cent or so. Warehouse management is often done manually, increasing inefficiencies and adding to the cost.

A characteristic feature of the local express and logistics service providing companies is that many players offer homogeneous services, with the result there is near- commoditisation of services where the demand is price sensitive. The top-end of the market is controlled by a handful of multinationals and large domestic players.

Despite these challenges, the country's logistics industry is set to grow. Industries such as chemicals and pharmaceuticals, metals, FMCG, cement, textiles and capping it all the retail segment have been identified as the top contributors to the projected growth of the economy and therefore to logistics revenues. The new generation corporates are looking to outsource non-traditional logistics requirements such as reverse logistics, inventory management, order processing, distribution, and labelling and packaging.

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