Transforming Logistics: Market trends and outlook

Over the past few years, the logistics sector has been experiencing an upward trend. Even during the pandemic, the logistics sector showed resilience, and in the post-pandemic scenario, the expansion is still going strong. Numerous policy measures such as the National Logistics Policy (NLP), the Gati Shakti Master Plan, and the modification of the railways’ land use policy, among others, are ex­pected to fundamentally change the logistics sector in the country.

The recently launched NLP is going to be the biggest game changer for the sector. The key objective of the policy is to address issues of high cost and inadequate multimodal connectivity. This can be accomplished by establi­shing a broad, cross-sectoral, multi-jurisdictio­nal and interdisciplinary framework for the growth of the entire logistics ecosystem. With this policy in place, there will be massive effici­ency gains, which in turn would result in impro­v­ed efficiencies across manufacturing and co­mmerce as well as creation of employment in the logistics sector. According to India Infra­structure Research, the logistics industry market size has increased from around $160 billion in 2016-17 to around $230 billion in 2021-22, registering a compound annual growth rate (CAGR) of 7.53 per cent.

Emerging market trends

The use of technology-driven solutions to connect suppliers, third-party logistics (3PL) partners and customers has significantly changed the global logistics sector over the years. New technologies are being embraced by the logistics industry and integrated into daily operatio­ns. The adoption of new technologies is enhancing output, speeding up delivery, in­creasing customer happiness, and decreasing ex­pen­ses and supply chain errors. The Indian logistics sector is also experiencing a measurable focus on technology.

Automation is the future of warehousing. Am­azon has been using automation in its supply chains for increased affordability and efficiency in India. It has been using robots in its warehouses for activities such as moving products, assisting workers and improving overall safety. Similarly, Walmart has been using automated technology in its logistics processes for efficiency. It has moved to an omnichannel st­ra­­tegy, whereby it provides an integrated sho­p­ping experience across online and offline channels. Utilising technology, it is able to track in­ventory, share information across the supply chain, better manage inventory between warehouses and stores, and provide accelerated deliveries for online orders while keeping competitive pricing and quality.

One of the major trends observed after the pandemic has been the substantial rise in e-commerce. This segment is prompting the market to increase the development of Grade A warehousing spaces in the country. The Covid-19 crisis accelerated the expansion of the e-commerce sector. People have gained access to a significant variety of products from the con­venience and safety of their homes, which has enabled firms to continue operations in spite of contact restrictions and other confinement measures. Market players have re-evaluated their logistics footprints and sought a decentralised approach offering greater flexibility and proximity to major urban centres.

India’s logistics sector has been embra­ced by both domestic and foreign private equity fir­ms for investing. Firms such as Delhi­very, Black­buck and Rivigo have seen high private equity funding in the past few years. Private equity funding in transport logistics stood at over Rs 380 billion during 2016-22. GIC, CPP Invest­me­nts and SoftBank are some of the large inves­tors betting on the sector. The past two to three years also witnessed significant ve­nture capital funding in logistics start-ups such as Shiprocket, FarEye and Ripplr. Private equity-backed warehouse companies are also playing an important role in the sector’s development with investors su­ch as ESR, Black­­sto­ne, IndoSpace, LOGOS, Ma­ple­Tree, Ascendas, Morgan Stanley, Xan­der and Welspun. As of July 2022, plastics pack­ager company Ma­­n­­jushree Technopack Limi­ted, which is backed by the US private equity firm Advent Interna­tional, has agreed to acquire Hitesh Plastics, including 100 per cent of the business operations and manufacturing facilities. Further, Kool-ex, a pharma cold chain logistics firm, has entered into a partnership with IndoSpace to develop temperature-controlled warehouses across the country. As a part of the asset-light deal, Kool-ex and IndoSpace will jointly design and set up 10 to 11 warehouses by 2023.

Multimodal logistics parks

Multimodal logistics parks (MMLPs) have evolved over time. As part of the Gati Shakti National Master Plan, MMLPs form a key component of the Government of India’s policy initiative. It will help in overcoming challenges by lowering overall freight costs and time, cutting warehousing costs, reducing vehicular pollution and congestion, and improving the tracking and traceability of consignments through infrastructural, procedural and technological interventions. The development of MMLPs at strategic locations is envisaged as a key policy measure to rationalise the cost of logistics in India from the current 14 per cent to 7-8 per cent of the GDP.

The majority of the MMLPs are being de­veloped by CONCOR, in partnership with either some private developer or a state government authority. CONCOR has developed more than 13 MMLPs, including Tehi in Ma­dh­ya Pradesh, Jharsuguda in Odisha, Naya Rai­pur in Chhatti­sgarh and Visakhapatnam in Andhra Pradesh. Maharashtra and Gujarat ha­ve the highest number of MMLPs in the country. The Jawa­harlal Nehru Port Authority and National Highways Logistics Management Limi­ted have recently signed an MoU for the development of an MMLP at Jalna in Maha­rashtra. This facility will serve as a functional dry port in the region. Steel and allied industries depending on scrap, fruit and vegetable processing units, seed industries, and the cotton sector will benefit from this development.

3PL and express logistics

Express logistics is another segment that has gained prominence in the past few years. The Indian express industry, in 2020-21, declined by 11 per cent over 2019-20 due to the pandemic slowdown. In 2022, the global express market is worth around $225 billion, having grown at a CAGR of 4 per cent. India’s share in the global express industry is less than 2 per cent. India Infrastructure Research has forecasted that the segment will resume recovery and growth, with an upward trend in market size in 2021-22 at a CAGR of 15 per cent. Many express logistics players are collaborating with a number of regional players, outsourcing the majority of their non-core activities such as trucking and last-mile delivery.

However, with an estimated 1,000 active players, the Indian express logistics industry is fragmented. It has around 15 major players in the domestic express market. Many of the players are home-grown, while some have also been acquired by global logistics companies. About 75 per cent of the market is accounted for by large players, with the rest being a combination of small- and medium-sized players.

3PL has witnessed good demand throughout the pandemic per­iod. It is one of the major contributors to growth in the logistics sector. It is also creating a surge in demand for warehouses in India. According to Global Commer­cial Real Estate’s Industrial & Logistics report, in the first half of 2022 the leasing activity of warehouses was led by 3PL players with a lar­ge share of 46 per cent in overall transactions and a year-on-year incre­a­se of 10 per cent. In terms of regions, leasing ac­tivity was led by Delhi-NCR, Mumbai and Bengaluru. Land acquisitions and development are further expected to improve leasing activity in the second half of 2022. Key trends and de­velop­me­nts in the 3PL segment over the pa­st few years include technological innovatio­ns, expansion to Tier 2 and Tier 3 cities, and adoption of com­pressed natural gas-based cargo and mobility vehicles.

In sum

According to India Infrastructure Research, the logistics market is expected to reach $400 billion in the next four to five years from the current market size of $230 billion. Ex­press logistics is also gaining prominence and is expected to grow manifold at a CAGR of 15-17 per cent to reach $14 billion by 2024-25. Many big-ticket projects such as dedicated freight corridors, cargo terminals, industrial corridors, port connectivity and port modernisation under the Sa­garmala programme, and greenfield expressways under the Bharatmala Pari­yojana are expected to create robust demand in the logistics sector in the country and aid its expansion.