Contract logistics has been growing at a healthy clip through the economic slowdown. The sunrise segment is growing at 15% in India, says Reiner Allgeier, managing director of Schenker India, the local arm of DB Schenker, the transport and logistics division of the 39-billion-euro Deutsche Bahn Group. Allgeier is extremely bullish about the segment?s growth prospects in India, despite the several constraints the Indian market faces.
?Logistics expenditure in India is almost double compared with the developed countries because of India not having a fully developed infrastructure and its over-dependency on road for domestic transportation?, says Allgeier. However, he sees the road ahead as promising.
?With the proposed development of infrastructure for road, rail and other transportation for inland movement, and some other initiatives by the government, like implementation of a uniform tax structure across India, opening new logistics parks and warehousing facilities, developing dedicated freight corridors, and promoting special economic zones, are likely to bring the logistics cost at a proportionate factor of the product costs?, Allgeier adds.
The DB Schenker, he says, ?has identified India as a growing market and as a place for future investments.?
That is true for other logistics companies of the world. According to the Agility Emerging Market Logistics Index 2013?an index developed by Transport Intelligence(TI) for Kuwait-headquartered global logistics player Agility??for the second consecutive year, logistics and trade professionals ranked China, India, Brazil and Russia as the likely places to emerge as logistics hubs over the next five years.? (see table)
However, in terms of growth, Indonesia (climbed to No. 5 from No. 10); Bangladesh (to 12 from 25); and Thailand (to 14 from 29.) showed more agility. The TI report says while BRIC countries ?need to do more to address underlying weaknesses that could hurt performance and dim their attractiveness as an increasingly competitive group of second-tier markets (Saudi Arabia, Indonesia, UAE, Malaysia, Mexico and Turkey) becomes more alluring. While China confronts rising labour costs, a skills shortage, and a growing gap in income disparity, India?s weak infrastructure and bureaucracy threaten its prospects.?
As India emerges as a logistics hub of the emerging markets, contract logistics will have a neat share in the overall pie, since many logistics players now opt for an asset-lite model. Globally, contract logistics providers do not own any physical freight distribution assets like trucks, storage trailers or warehouses. They would rather outsource these functions to local players, and provide other services like freight/stock tracking, customer service, consultation on packaging and transportation, freight quoting and auditing. Such non-assets-based providers come with a team of domain experts and IT assets.
?The contract logistics market is around $3.5 trillion globally and in India it is growing at 10-15%, as companies are increasingly outsourcing their logistics and warehousing functions?, says Allgeier.
“The market has been cautious in recent times because of the economic factor, yet we have a renewed focus on India in terms of warehousing and domestic transportation capabilities. Notwithstanding the market scenario we build our capabilities for contract logistics. For example, we have almost doubled our Schenker Logistics Centers (multi-client warehousing facilities) in India in the last one year.?
Schenker follows an asset light model in India, as it does globally. ?We have dedicated warehouses on a long-term lease of 15-20 years. We have sub-contracted the fleet for road services, where we manage the fleet…We provide our clients not just with the warehousing facility but we also manage their stocks and back-end services like keeping an update of where the next fleet of goods is required and in which part of the country,? Allgeier said.
The current size of India?s logistics industry is estimated at $225 billion (2013) and is expected to reach $350 billion by 2015, translating into a growth of 15%.
