The Hindu Business Line : Logistics market may see rise of fourth party players

WITH Indian corporates increasingly hitching on to the outsourcing ride to take care of the entire gamut of its logistics requirements, the domestic logistics services market may see the emergence of a new set of players in the form of fourth party logistic (4PL) service providers.

While a clutch of third party logistic (3PL) service providers are hooking on to corporates spread across a wide spectrum of sectors, from automobile, computer hardware, pharmaceuticals, telecommunication to FMCG, consumer durables and fertilisers, the new generation corporate houses are looking for outsourcing of non-traditional logistic requirements. This, market analysts feel, may lead to the 4PL service provider concept, envisaging the service provider to act as a single interface between the client and multiple logistics service providers so as to manage all the aspects of the supply chain.

Having tasted profits by outsourcing their traditional logistics requirements such as outbound/inbound transportation, custom clearing, import/export management and outbound/inbound warehousing, corporate houses are at present thinking in terms of outsourcing their non-traditional logistics requirements such as reverse logistics, inventory management, order processing, distribution, labelling and packaging.

Some market players in the logistics services business, however, feel that the shift would take some time. "4PL service provider concept will emerge, but it will take time in India, as the domestic 3PL service market potential is still to be tapped fully. Also, for the 4PL concept to click, there has to be a strong network of 3PL service providers, handling all the aspects of supply chain management," says Mr Vineet Agrawal, Executive Director of Transport Corporation of India (TCI).

He told Business Line that the 4PL service providers might mostly emerge from the consultancy sector, offering corporates to handle their entire supply chain management and then offloading them to a multiple 3PL service providers, as has been the trend in developed markets.

Present trends indicate that the cement sector has reaped the maximum benefits by outsourcing logistics requirements to 3PL service providers, especially as logistics constitute between 10 to 15 per cent of their operating costs. Likewise for the automobile and engineering sectors, logistics account for 5 to 10 per cent of their operations costs, while that for FMCG ranges between 3 to 7 per cent, as it gets the benefit of volumes, analysts point out.

Says Dr B.S. Sahay, chairman of the Centre for Supply Chain Management of the Management Development Institute (MDI), Gurgaon: "Although the 3PL service providers are providing a whole gamut of supply chain services, none of the service providers is able to satisfy the total corporate logistics requirements of corporate houses. The result is that companies have to assemble a combination of in-house and outsourced service components to effectively manage their supply chain requirements. It is to counter this problem that the new structure is evolving in which a primary client and some other members come forth to form a 4PL service provider."

Meanwhile, however, the 3PL service providers should broaden their operations and sharpen their efficiencies to gain further confidence of the corporates, say analysts. For, according to a recent survey undertaken by the MDI and TCI, it was seen that out of the 130 companies spread over 15 sectors that were studied, only 55 per cent are subscribing to 3PL services, as compared to 75 per cent globally. The survey has further revealed that more than 50 per cent of the companies have outsourced activities like transportation, warehousing and custom clearing/forwarding, while outsourcing of the rest of the supply chain activities is not common because of "fears related to poor infrastructure and concern about 3PL service provider's capability."

Even the extent of outsourcing is not as significant as it could have been. For, 64 per cent of those companies that are subscribing to 3PL service have outsourced less than 20 per cent of their total logistics requirements, while 7 to 14 per cent of them had outsourced to the extent of 20 to 80 per cent of their requirements.

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