Till a few years ago, the domestic logistics industry had been making relatively small investments in information technology. But today, with both foreign and domestic players scaling up their businesses, IT spend has been increasing, leading to better delivery.“It is significant that companies bullish on their investment outlay for IT are either planning to increase their investments in the next 12 months or are still working on their budgets,” a latest study by Mumbai-based Softlink Logistics has revealed. The study has covered about 500 companies, including international logistics companies.

This is in contrast with a study undertaken by Kale Consultants, a global solutions provider for airline, logistics and travel industry, in 2009. The study revealed that the logistics industry is growing at about 10 per cent, but its investment on IT was not keeping pace. The Indian logistics industry is estimated at $130 billon and is expected to grow to $385 billion in the next four-five years, with foreign players such as DHL, AFL Logistics, CEVA and Expeditors ramping up operations here.

The 2009 study by Kale had pointed out that the logistics industry spends a meagre 0.5-0.17 per cent of its overall revenue on IT, with major industry segments that use IT as a tool including airports, ports and inland container depots.

Barrier and benefits

However, the Softlink study undertaken two months ago has revealed there is an increase of 41 per cent in the number of companies planning to invest above Rs 1 crore on IT. “A significant aspect of our findings is that return on investment is not seen as a major criterion for adopting IT, with 43 per cent of the respondents citing improved operational efficiency, reducing labour costs, making shipments secure and customer service as the motivating factor[s],” Mr Amit Maheswari, Chief Executive Officer of Softlink, told Business Line .

While 16 per cent of the respondents said they were undecided on their IT investment plan for 2011, a majority of them from the large, small and medium enterprises segments indicated that they will either increase their budget this year.

“Another finding in the survey has shown that 37 per cent of the large companies (with turnover over Rs 250 crore) felt that not finding suitable software is a barrier in adopting IT. The key areas that the respondents were looking at for IT application is quick response, access to information, customer service and track-and-trace facility,” he said.

The study has further shown that 67 per cent of the large companies felt that a streamlined process would be a benefit. The other benefits included reduced paper work (58 per cent) and control over various functions (38 per cent). Indeed, IT players such as HCL, Mahindra Satyam and Infosys, are increasingly looking at the logistics market for innovative software. Airports, which are expected to handle 2.8 million tonnes of cargo by 2012-13, will be one of the biggest markets. As far as use of IT with customers is concerned, 91 per cent of the respondents depend on email, and 54 per cent use daily reports for keeping clients updated. Web-based tracking is used by 37 per cent of the respondents — mostly the large companies — and electronic data interchange is fast catching up.

UPGRADING SERVICES

With companies across sectors such as FMCG, retail, pharma and automotive increasingly outsourcing their logistics requirement to third- and fourth-party service providers, it is vital that logistics infrastructure in the country is strengthened.

Freight traffic on three major arteries of transport — rail, road and air — is expected to grow significantly in the coming years. The Ministry of Railways has estimated that rail freight is likely to touch 1,100 million tonnes by the end of 2012, and road traffic is expected to increase from 3,000 million tonnes last fiscal to 3,700 million tonnes by 2013.

It is, thus, vital that logistics company upgrade services with sufficient doses of IT.

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