The Hindu Business Line : Logistics: Factoring in increased IT spend

A recent study predicts that while the logistics industry is set for a faster growth, the IT spend in logistics is set to double from Rs 400 crore to Rs 975 crore in the next five years.

Amit Mitra

With cost-cutting having become a dominant mantra across corporates today, especially after the global financial meltdown, Indian business houses are increasingly looking at better logistics management, as part of their efforts to trim costs.

And information technology, which at present plays a meagre role in the logistics spends of different companies, is likely to emerge as an important tool in the logistics sector in the next few years.

A study by Kale Consultants and Feedback Business Consulting Services predicts that while the logistics industry is set for a faster growth, the IT spend in logistics may also double from the present level of Rs 400 crore to Rs 975 crore in the next five years. The logistics industry currently spends a meagre 0.5 to 0.17 per cent of its overall revenue on IT. The major industry segments that use IT in their logistics spends include airports, ports, warehouses, Inland Container Depots and freight-forwarders.

For the study, Kale Consultants and Feedback interacted with a host of airports, ports, freight forwarders, container freight stations (CFSs), inland container depots (ICDs), warehouse operators, IT solution-providers and representatives of the industry and government.

Overall, the study points out, the size of the domestic logistics industry at present is of the order of Rs 2,44,000 crore, with the transportation sector, including road, rail and sea freight, contributing Rs 2,19,655 crore. The other major players are freight forwarders such as AFL and Allcargo, together accounting for Rs 10,000 crore, 3PL players such as Gati and TVS Logistics (Rs 2,500 crore) and the courier industry (Rs 3,000 crore). “Overall, the logistics market is expected to grow at a CAGR of 11 per cent to Rs 4,15,000 crore by 2012-13,” it says.

Adopting more IT

With industries across segments moving towards the outsourcing model, the logistics industry is gaining in size, especially in the organised retail industry. “Foreign investments are also driving the market for logistics companies. Leading MNCs such as LG Electronics, Samsung, Hyundai, Toyota and Hewlett Package today use 3PL companies,” the study said, adding that venture capitalists and private equities plan to invest Rs 8,400 crore in the logistics space in the next five years.

The trend of increased use of IT software across all key user segments, such as airports, ICDs and CFSs has prompted large IT players such as HCL, Satyam and Infosys to make plans to enter the logistics market with software products. Smaller players, however, will have to face competition from established players such as CMC, Softlink and Cyberlog.

“Also, large players, like Om Logistics, which has developed in-house software, have plans to launch their product in the market. The key will be to develop low-price software for the small freight-forwarders with low or zero maintenance,” says the study.

Tracking cargo

Airports, which handled about 1.7 million tonnes of cargo in 2007-08, may provide a big market for IT solutions in logistics spend. Quoting figures released by the Directorate General of Civil aviation, the study points out that airports may handle about 2.8 million tonnes of cargo by 2012-13, reflecting a CAGR of 10.6 per cent.

The Airports Authority of India’s e-portal provides connectivity across all stakeholders, such as Customs and banks, and exporters and importers can track their cargoes through the portal.

On the warehousing front, some 70-80 per cent of the company-owned warehouses are at present integrated with centrally-installed ERP systems, while some large companies also use the WMS module.

Airports, ports, CFSs and ICDs are increasingly moving towards the use of RFID (Radio Frequency Identification Device), which help companies trace and track container or cargo movements. RFID with barcodes and GPS can track and trace a container or cargo in transit, within short and long ranges. Transport firms can track assets such as cars, trucks, trailers, and shipping containers at high speeds of more than 100 kilometres per hour over long distances. RFID can also be integrated with biometrics and smart cards for use in toll collection and ticketing.

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