India Logistics Outlook

2007
An analysis of India and its rapidly growing
logistics industry.
This brief provides an in-depth analysis of the Indian Logistics market and
forecasts of market sizes, as well as the challenges and opportunities facing
companies currently operating in this country or ones looking to invest.

Publication Date: March 2007

India Logistics Outlook 2007

TABLE OF CONTENTS
CHAPTER 1 EXECUTIVE SUMMARY 5
Executive Summary 5

CHAPTER 2 INDIA OVERVIEW 8

2.1 PESTLE Summary 8

2.2 Political: Declining in influence, Indian National Congress still holds the key to
political stability 9

2.3 Economic: Doubts over sustainability of the current rapid economic growth
continues to plague the sub-continent 11

2.4 Social: Recent economic development raises new social issues 13

2.5 Technological: India registers an increasing technological presence globally 14

2.6 Legal: Steps have been taken to improve the system, though a lot still remain 16

2.7 Environmental: Concerns remain buried under economic and social problems 17

CHAPTER 3 INDUSTRY OVERVIEW 18

Overview 18

CHAPTER 4 ISSUES, TRENDS AND CHALLENGES FOR

LOGISTICS 21
4.1 Logistics Industry: From un-organized to organized 22

4.2 Transportation Infrastructure Investments 23

4.3 CAPEX by Logistics Service Providers 24

4.4 VAT Implementation 25

CHAPTER 5 GROWTH DRIVERS 28

5.1 GDP, EXIM and Infrastructure Growth 28

5.2 Industry Verticals 29

India Logistics Outlook 2007

FMCG 30
Auto and Auto Components 31
Textiles 33
Organized Retailing 35
Electronics 36
Pharmaceuticals 38

CHAPTER 6 INDIAN LOGISTICS INDUSTRY – SEGMENTS 39

6.1 Air Freight 43

6.2 CEP Market 46

6.3 Road Freight 48

6.4 Rail Freight 51

6.5 Sea Freight 53

6.6 Multi-Modal Transportation and Container Logistics 55

CHAPTER 7 THE NEXT STAGE 63

Summary and Conclusions 63
India Logistics Outlook 2007

On the other hand, since year 2000, the Indian Industrial sector has also begun to look up, and in
2006, it registered over 10% growth for the first time in decades, primarily driven by the
manufacturing and capital goods segments. In the Indian manufacturing industry, textile plays a
predominant role, while the chemical industry is the second largest industrial sector (12% of the
GDP).

However, India's influence in global trade remains low and the country represents only 1% of the
world's export trade. India mainly exports engineering goods, gems & jewellery (83% of diamonds
sold in the world are cut in India), textiles & fabrics, and leather goods. The major imports are oil,
precious stones, chemical products and machinery/engineering equipment. India's main trade
partners (export and import) are Belgium, China, Switzerland, UAE, the UK, and the US.

Table 3: Logistics industry market drivers ranked in order of impact (India) 2007-2016E
Industry Driver 1-3 Years 4-6 Years 7-10 years
Geographic expansion of domestic markets through
High High High
well spread-out domestic economic activity
External merchandise trade increasing the demand
Medium High High
for multi-modal logistics
Foreign investments across various verticals driving the
Medium High High
demand for improved SCM, transportation and logistics
Companies focusing on core operations
Medium Medium High
and increasingly outsourcing their logistics function
Improved logistics and SCM services
Medium Medium High
driving business for specialist LSPs
Large LSPs to gain from increased inorganic activity and
Medium Medium Medium
consolidation in the logistics industry
Source: Datamonitor

With India’s GDP growing at 9% and the manufacturing sector enjoying double digit growth rates,
the logistics industry is at an inflection point. Strong growth enablers exist today in the form of
€250 billion worth of infrastructure investments, phased introduction of VAT, and development of
organized retail and agri-processing industries. In addition, strong FDI inflows in electronics,
automotive, retail, telecom, and auto component manufacturing will lead to increased market
opportunities for Logistics Service Providers (LSPs).

India currently spends over 13% of its GDP on logistics, which is very high compared to Western
Europe and North America, where logistics cost as a percentage of GDP is in the range of 8-10%.
With growing global competition, improving operational efficiency has become imperative and
India Logistics Outlook 2007

Auto and Auto Components

The Indian auto industry has the potential to emerge as one of the largest in the world. Presently,
India is the world’s second largest two-wheeler market, fourth largest commercial vehicle market
and eleventh largest passenger car market. With over 17% CAGR, the passenger car market is
set to become the seventh largest in the world by 2016.

Figure 9: India Automobile Production (‘000)

CVs Cars & UVs Two-Wheelers

14000

12000

10000
Production ('000)

8000

6000

4000

2000

0
2004 2005 2006 2007 2008

Source: Datamonitor

The growth in domestic demand is driven by a number of factors including the rising income
levels and easy availability of low-cost finance. The Auto sector is key to the Indian economy from
both the perspective of economic contribution as well as that of employment generation. The
sector employs 13 million people and contributes to around 17% of the direct taxes kitty.
India Logistics Outlook 2007

Figure 17: Key Players in the Indian Logistics Industry

Express Warehousing
Express Courier industry Warehousing
industry Courier industry industry
industry industry

Road express Air express Courier industry - CWC

- Gati - Bluedart - Bludart - DHL logistics
- Safexpress - Gati - Firstflight - AFL
- TNT (Speedage) - Safexpress - AFL - Om Logistics
- TCI - DTDC - Safex
- Overnite
- Professional couriers

3PL service
Trucking industry 3PL service
Trucking industry providers
providers

- DHL
- Delhi Assam Roadways - Schenker-BAX
- Patel Roadways - SembCorp
- Panalpina
- Agility

Source: Datamonitor
India Logistics Outlook 2007

Figure 26: Current and Estimated Capacity hikes in Indian ports (FY04-14E)

10 Million Metric Tons

Source: Datamonitor

Due to lower draft, the average size of the Indian ports is much smaller than prevailing sizes
internationally. As most Indian sea ports consume higher time in loading and unloading
operations, the ships are trapped for a much longer time, increasing the cost for shippers by 10 to
20 per cent. As the shipping industry has been granted an infrastructural status by the
government, this is expected to give financial and tax Benefits for the much needed development
in this sector in the coming years. The privatization of ports and the resultant improvement in port
performance will also play a crucial role in the development of this sector.