The Hindu Business Line : Poor infrastructure hampers sector’s growth: Deloitte

Chennai, Aug. 28 The Indian logistics industry is expected to grow at 16 per cent up to 2010. India spends nearly 13 per cent of its GDP on logistics, creating an industry size of around Rs 4 lakh crore, according to a report.

Being driven by rising export and import, Government investment on infrastructure and the entry of private players, the logistics industry is on a high growth path. With the market becoming more competitive especially for manufacturing sector, outsourcing of logistics activities is the preferred option.

The logistics industry is currently suffering due to poor infrastructure. This has resulted in inefficiencies and delay in deliveries, which in turn affects overall productivity of logistics business. However, given the current emphasis on infrastructure, the growth and efficiency of logistics service providers (LSPs) and their customers will be positively impacted, according to a conference paper on ‘SMEs in logistics: Bringing value to the changing Indian landscape’.

The paper prepared by Deloitte Touche Tohmatsu India Pvt Ltd was released at the two-day ICICI Bank SME Expo Logistics and Material Handling 2008 held at the Chennai Trade Centre.

The logistics industry is currently disorganised. Major players can be categorised as pure transport providers, transporters providing certain value added services such as warehousing, and completely integrated players providing 3PL services.

Elements of costs

The major elements of logistics costs for Indian industries include transportation, warehousing, inventory management and other value-added services such as packaging. Transportation and inventories account for 35 per cent and 25 per cent of logistics cost, respectively, indicating their importance in logistics.

The Government has planned investments in infrastructure development amounting Rs 20 lakh crore over the next 5 years. This will prove to be a major benefit for the logistics industry, the report says.

Segment-wise estimate

The logistics industry is estimated to grow in road segment by 13 per cent, port segment by 9.5 per cent and rail segment by 6 per cent. This will be possible with the improvement in road infrastructure, implementation of National Maritime Development programme and introduction of dedicated freight corridors in rails.

The National Highway Development Programme projects, including the Golden Quadrilateral road project and the East and West Rail corridors, are expected to positively alter the response of Indian firms through shorter lead times and lower maintenance costs on the transport equipment. They will also reduce the procedural delays on highways by reducing the number of checks and related stoppages of vehicles.

The air cargo movement is expected to grow at over a CAGR of 11.5 per cent from 2007–08 to 2011–12. This will give a boost to the activities of LSPs. The air cargo business has overtaken the ocean freight and rail freight market by expanding at nearly 19 per cent from 2006 to 2008, against 10.3 per cent growth registered by ocean freight and 9.2 per cent by railways in the same period.

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