Factors Influencing Paradigm Shift in India's Logistics Sector
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Logistics is the backbone of any economy as it affects all-end-user industries in general and is very important for all three sectors of the economy — agriculture, manufacturing and the service industry.
The logistics market amounts to 13% of GDP and is estimated to be at US$ 4 Trillion worldwide. The current logistics market in India is about $250billion. The Indian market is at its nascent stage, only a handful of large, organized players are active across various segments of logistics.
In a $250-billion industry, we don’t have even a single player with more than $2billion revenue, whereas we should have at least 10-15 players with revenues in excess of $5 billion each!
This, in turn, means start-ups are likely to have less resistance from large, established, traditional players to deal with and have huge headroom for growth in the existing market itself.
Technological Innovations in Logistics
In developing countries like India, the development in logistics is quite different from other countries. Technological innovations and advancements are currently the governing mechanisms for selecting supply chain partners, coordinating and monitoring the end-to-end process delivery. Technology has brought several innovations into logistics. There are several recent technologies such as the internet of things, mobile, augmented reality, social media, cloud storage, big data analytics and computing, which improve the efficiency of the logistics operations.
Companies Developing a Competitive Edge
All the relevant changes in technology are being fast adopted by new generation tech logistics companies which have helped in transforming these organizations through electronic means like collecting, moving, storing, and analyzing data, information, and knowledge. It also helped to develop competitive edge with greater ability to deliver customer-configured products and value added services faster than a competition.
Start-ups Deploying Innovations
In India, most of the start-up action has been in the long-haul freight segment with start-ups aiming to enable faster transactions, better truck utilization, providing supply chain visibility to customers and vendors, efficient spot pricing, standardized service levels and agent dis-intermediation.
Ever-increasing internet and mobile penetration in India has meant that businesses can continuously leverage technologies to capture new demand and supply and build a highly scalable network. Start-ups are also deploying innovations like sensor technology, but there is a need for a focused plan for skill development in the wider Indian logistics landscape. At the firm-level, companies are focusing on moving towards reducing cycle times in order to add value to their customers.
Tech-enabled Logistics Helping in Smooth Functioning of Trucking Industry
More than 75% of the trucking industry is unorganized and saddled with inefficiencies like lack of visibility of return load, multi-level intermediaries, and low-quality of information flow leading to truck running less than 5,000 billable km/ month (apart from this non-billable or dry-run where truck moves from point A to B without cargo) and having only 14-15 days of actual run in a month while waiting for cargo on other days. This can change with tech-enabled logistics.
The addressable market for a tech logistic company is of US$40 billion.
India needs more than 10 companies to scale up to more than USD 1 billion in revenues in this space (inter-city full truckload) to make Indian Logistics Industry efficient. Tech logistic start-ups like GoBOLT have given emphasis on the following elements to deliver value to its clients and other stakeholders:
- Unique Hybrid Operating Model: It operates through an innovative model involving a combination of owned, dedicated and marketplace fleet for control over the operation, balanced capital deployment & risk management.
- Scalable Technology Platform: The company has developed a versatile technology platform, “Launchpad”, to deliver scalability, efficiency, and robustness. Aids in automated vehicle selection, improving asset utilization, route optimization, fuel cost saving among others.
- Focus on Operational Efficiencies: Strong operational involvement & tech-enablement leads to faster TAT, higher asset utilization and increasing share of wallet.
- Ability to Grow Profitably: Business model aimed at reducing cost per km and achieve higher operating leverage; currently profitable for most customer engagements.
- Strong Professional Management Team: Tech-savvy management team adapting to changing needs of the industry; experience in leadership roles in large MNC’s.
Industry Tailwinds: Implementation of GST was to push organized logistics industry and also improve cost structure for the industry. ECommerce continues to drive the need for high industry growth. Due to these advancements, PE investments have been seen in this sector. Warburg’s recent investment in Rivigo; Carlyle & Fosun’s investment in delivery are clear examples of the growth of foreign capital, recognizing the need and potential of this particular sector in India.
It is expected that in 18 months or so, these companies may start getting endorsed by large public market investors, once they get on to IPO bandwagon. It is of interest to note that many traditional logistics players took decades to reach a turnover of over Rs 800 crores, which some of these start-ups have achieved in three-five years’ time. Industry experts suggest that some of these may scale up to Rs 6,000 crore in the next two-three years.
Presently, the visible changes the new generation tech logistics companies are bringing in this sector are:
Monitoring the Vehicles & Every Process With the help of technology monitoring of vehicles can be done accurately. One can send the proper updates to customers alongside estimated time of reaching the destination.
Ensuring Timely Delivery: In India, online retailing is making a big wave with the presence of e-commerce companies. E-commerce giants like Flipkart, Amazon, eBay, Shopclues, Myntra, Homeshop18, are doing very well by hiring third party professionally managed logistics companies to ensure their customers with timely delivery. This is beneficial for both companies because the companies are strengthening their goodwill and logistics companies are spreading their market segment simultaneously.
Drivers’ Ecosystem Getting Changed: Life of truck drivers are getting better because there is a fixed rotational shift allocated to each and every driver. Now, the drivers are having proper logo uniforms of their company and having GPS tracker in their vehicles with whom they are reaching to their destination without any problems. Also, trucks are not heavily loaded because of proper segmentation. Hubs have been created to provide them proper shelter, food, and place to rest after a driving span of 8 hours. Another driver will continue the journey and so on. But everyone has to maintain a uniform time for covering a particular distance so that the goods reach the destination in time. The company will monitor the same simultaneously. Trucks are well maintained and have modern facilities which enable the drivers to avoid exhaustion and pilferage or spoiling of the goods to be delivered.