3PL Report - Frost & Sullivan

Strategic Analysis of the Third Party Logistics Markets in India 4C77-18
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2006 Frost & Sullivan
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Table of Contents
Chapter 1
Executive Summary
Introduction and Overview Introduction to Logistics Market in India Introduction and Overview of the 3PL Market in the India
1-1 1-1 1-3
Market Overview and Research Findings Total 3PL Market in India Size and Forecasts Opportunities for the 3PL Service Providers in India Competitive Analysis Industry Challenges for the 3PL Market in India Drivers for the 3PL Market in the India Restraints for the 3PL Market in India Implications of VAT on 3PL in India Strategic Conclusions
1-3 1-3 1-4 1-4 1-4 1-5 1-5 1-5 1-6
Chapter 2
Strategic Analysis of Total 3PL Market in India
Introduction Introduction and Overview of the Indian Logistics Market
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Introduction to 3PL in India Evolution of 3PL Market in India Awareness and Perception of 3PL in India
2-4 2-5 2-6
Scenario of the Indian 3PL Market Overall 3PL Usage in the Logistics Functions 3PL Usage in Transportation 3PL Usage in Warehousing 3PL Usage in Freight Forwarding 3PL Usage in MIS and Other Value-added Services
2-7 2-7 2-9 2-10 2-12 2-12
Market Size and Revenue Forecasts The Total Logistics Market in India Size of the 3PL Market in the India Growth History of 3PL Market in India Estimated Share of the 3PL Market Revenue Forecasts Revenue Forecasts Breakdown by Different Logistics Functions
Revenue Forecasts for 3PL in Transportation Function Revenue Forecasts for 3PL in Warehousing Function Revenue Forecasts for 3PL in Freight Forwarding Function Revenue Forecasts for 3PL in MIS and Other Value-Added Services
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Industry Challenges and Market Drivers and Restraints Industry Challenges

Geographical Size and Diversity Stiff Competition and Pricing Strategies Multinational 3PL Companies are at a Disadvantage Compared to the Indian Companies Integrating Supply Chains and Providing Visibility Along the Entire Chain Security Concern is a Critical Issue
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Market Drivers
Growth of Multinational Operations Demand Professional Logistics Management Growing Inclination to Outsource Logistics to Specialists Economic Growth Across Different Sectors Necessitates Smooth Flow of Supply Chain Infrastructure Development Facilitates Logistics Implementation of an All India VAT System Declining 3PL Rates is Likely to Cause More Outsourcing
2-26 2-26 2-27 2-28 2-28 2-29 2-29 2-29 2-30 2-30
Market Restraints
High Cost of Logistics in India Existence of Infrastructure Bottlenecks
Non-Uniform Implementation of VAT,Complex Laws and Sales Tax Regulations are not Favored by Compines 2-30 Outsourcing to a 3PL Service Provider Attracts a Service Tax Competition from the Unorganized Segment 2-31 2-31 2-31
Major End-Users of 3PL in India
Implications of VAT on 3PL Introduction to VAT Challenges for 3PL Service Providers due to VAT's impact
Reorganization of IT Infrastructure may be Complicated Maintaining Large Volumes of Transactional Records Could be a Difficult Task
2-32 2-32 2-33 2-34 2-34
Nonuniformity of VAT Implementation Across the Nation and the Co-existence of VAT with the Central Sales Tax system is Complicating Competition from the Unorganized Segment Poses a Significant Challenge to the Growth of these Companies 2-34 2-35 2-36
Opportunities for 3PL Service Providers due to VAT's impact
Chapter 3
End-User AnalysisOverview of 3PL Needs and Practices in India
Overview of 3PL Needs and Practices in India 3PL Usage in the Indian Automotive and Auto Components Sector 3PL Usage in the Indian IT Hardware and Electronics Sector 3PL Usage in the Indian FMCG Sector 3PL Usage in the Indian Pharmaceuticals Sector 3PL Usage in the Indian Retail Sector
3-1 3-1 3-4 3-6 3-8 3-10
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Chapter 4
Competitive Analysis of the 3PL Providers in Indian Market
Industry Size Industry Size in Terms of Number of Companies
4-1 4-1
Industry Life Cycle Current Status of the Industry Life Cycle Current Status of Market Life Cycle
4-2 4-2 4-4
Market Share Comparison and Breakup Competitive Scenario
4-4 4-4
Services Comparison National 3PL Service Providers Regional 3PL Service Providers Local 3PL Service Providers
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Profiles of the Major 3PL Service Providers in India AFL Logistics DHL Dynamic Logistics GATI Geo Logistics Om Logistics Patel Logistics Reliance Logistics
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Safexpress SembCorp Logistics Take Solutions TCI Supply Chain Solutions Total Logistics Transystem Logistics International TVS Logistics
Clientele:
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Chapter 5
Recommendations and Growth Strategies for 3PL Providers in India
Opportunities for 3PL Service Providers in India Types of Services with Potential Potential of Services during the Forecast Period
5-1 5-1 5-2
Business Model Suggested Business Model
5-4 5-4
Pricing and Positioning Suggested Pricing Strategy Suggested Positioning Strategy
5-4 5-4 5-4
Strategic Alliances Joint Ventures and Partnerships Suggested Strategy for Forming Alliances Joint Ventures and Partnerships
5-5 5-5
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Chapter 6
Database of Key Industry Participants
Market Participants3PL Service Providers
6-1
Chapter 7
Decision Support Database
Comparitive Tabulation of Infrastructure and Industry Figures Tabulation of Infrastructural Figures Tabulation of Major Industry Sectors Size
7-1 7-1 7-4
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List of Figures
Chapter 2
2-1 Total Third Party Logistics Market: Breakup by Mode of Freight (India), 2005 2-2 2-3 Total Third Party Logistics Market : Penetration by Logistics Function (India), 2005 Total Third Party Logistics Market: Revenue Breakup by Type of Logistics Function (India), 2005 2-4 Total Third Party Logistics Market: Estimated Shares (India), 2005 2-5 Total Third Party Logistics Market: Revenue Forecasts (India), 2002-2012 2-6 Total Third Party Logistics Market: Revenue Forecasts for Transportation Logistics Function (India), 2002-2012 2-7 Total Third Party Logistics Market: Revenue Forecasts for Warehousing Logistics Function (India), 2002-2012 2-8 Total Third Party Logistics Market: Revenue Forecasts for Freight Forwarding Logistics Function (India), 2002-2012 2-9 Total Third Party Logistics Market: Revenue Forecasts for Value-added Services and Other Services Logistics Functions (India), 2002-2012
2-23 2-21 2-20 2-18 2-17 2-15 2-14 2-1
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2-10 Total Third Party Logistics Market: Impact of Top Industry Challenges (India), 2006-2012 2-11 Total Third Party Logistics Market: Market Drivers Ranked in Order of Impact (India), 2006-2012 2-12 Total Third Party Logistics Market: Market Restraints Ranked in Order of Impact (India), 2006-2012 2-13 Total Third Party Logistics Market: Top End-user Sectors (India), 2005
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Chapter 3
Chapter 4
4-1 Third Party Logistics Market: 3PL Industry Structure by Type of Service Provider (India), 2005 4-2 Third Party Logistics Market: Revenue Breakup by Type of 3PL Service Provider (India), 2005 4-3 Third Party Logistics Market: Revenue Share Breakup Between National 3PL Service Providers (India), 2005 4-4 Third Party Logistics Market: Services Comparison between National 3PL Service Providers (India), 2005
4-7 4-6 4-5 4-1
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Chapter 5
5-1 Third Party Logistics Market: Top Ten 3PL Services with High Growth Potential (India), 2005 5-2 Third Party Logistics Market: Top Ten 3PL Services Ranked in Order of Potential (India), 2006-2012
5-2 5-1
Chapter 7
7-1 Decision Support Database: Tabulation of Economic and Infrastructural Figures 7-2 Decision Support Database: Value of Major Industrial Sectors in India, as of 2005
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List of Charts
Chapter 1
Executive Summary
1.1 Third Party Logistics Market: Market Attractiveness Index by Function (India), 2005
1-2
Chapter 2
2.1 Total Third Party Logistics Market: Breakup by Mode of Freight (India), 2005 2.2 2.3 Total Third Party Logistics Market : Penetration by Logistics Function (India), 2005 Total Third Party Logistics Market: Revenue Breakup by Type of Logistics Function (India), 2005 2.4 Total Third Party Logistics Market: Estimated Share (India), 2005 2.5 Total Third Party Logistics Market: Revenue Forecasts (India), 2002-2012 2.6 Total Third Party Logistics Market: Revenue Forecasts for Transportation Logistics Function (India), 2002-2012 2.7 Total Third Party Logistics Market: Revenue Forecasts for Warehousing Logistics Function (India), 2002-2012
2-20 2-19 2-17 2-16 2-14 2-2
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2.8
Total Third Party Logistics Market: Revenue Forecasts for Freight Forwarding Logistics Function (India), 2002-2012
2-22
2.9
Total Third Party Logistics Market: Revenue Forecasts for Value-Added Logistics Services and Other Services Logistics Functions (India), 2002-2012
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Chapter 3
3.1 Third Party Logistics Market: Logistics Model followed by Leading MNC Automakers (India), 2005 3.2 Third Party Logistics Market: Standard Model of Goods Flow in the IT Hardware and Electronics Sector (India), 2005 3.3 Third Party Logistics Market: Standard Model of Goods Flow in the FMCG Sector (India), 2005 3.4 Third Party Logistics Market: Standard Model of Goods Flow in the Pharmaceuticals Sector (India), 2005 3.5 Third Party Logistics Market: Logistics Model followed Leading Retailers (India), 2005
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Chapter 4
4.1 Third Party Logistics Market: 3PL Industry Structure by Type of Service Provider (India), 2005 4.2 Third Party Logistics Market: 3PL Industry Life Cycle (India), 2000-2015
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4.3
Third Party Logistics Market: Market Life Cycle (India), 2000-2015

4-4
4.4
Third Party Logistics Market: Revenue Breakup by Type of Service Provider (India), 2005
4-5
4.5
Third Party Logistics Market: Revenue Share Breakup Between National 3PL Service Providers (India), 2005
4-6
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1
Executive Summary
Introduction and Overview
Introduction to Logistics Market in India

The logistics market in India is fragmented predominantly due to the large presence of unorganized service providers. Logistics, which is one of the lifelines of a country the size of India, has been so far considered as a secondary activity. The industry broadly consists of freight consolidators, transporters, warehousing specialists, and organized third party logistics (3PL) service providers, in the increasing order of value addition to the service. Roads carry the bulk of the freight in India. The roads in India have a history of being unsafe and in very bad condition. This is likely to change with the construction of the Golden Quadrilateral and North-South-East-West (NSEW) highway networks, traversing the entire country. The highway infrastructure is highly strained, comprising around 1.4 percent of the total road network in India, carrying in excess of 50 percent of the country's total freight. Roads are flexible with easy to own assets and door-delivered consignments. Rail freight comprises around 670 million tones, which is around 33 percent of all domestic traffic in India. Even though rail freight is more cost effective in terms of cost per unit distance and per unit weight, the efficiency of the rail freight system in India has for long been low and it has been looked down upon as a secondary freight mode. With the Indian Government announcing plans to open up the containerized rail freight sector to private operators, companies such as APL Logistics, Maersk Logistics, Gateway Distriparks, Central Warehousing Corporation, JM Baxi group, Adani Logistics, and Reliance Logistics are expected to foray into this segment. The barriers to entry for providing this service are rather low and intense competition is likely to be witnessed.
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The largely unorganized segment of the logistics industry in India poses a formidable challenge to companies in the organized segment. The unorganized segment service providers have lesser overhead costs and are hence in a position to provide extremely competitive rates. This is expected to have a considerably large impact in the future, posing a challenge especially to the 3PL service providers. Entry barriers too are low, leading to the possibility of intensified competition even in the organized sector. Complex tax laws and infrastructure bottlenecks too are challenging issues to be dealt with. The growth of in the Indian economy, especially in the manufacturing sector is one of the key growth drivers for the logistics industry in India. Apart from this, sincere initiatives by the Government to iron out wrinkles in the logistics infrastructure may also drive the growth in this sector expected to grow at a compound annual growth rate (CAGR) of 6.4 percent from 2005 to 2012. Chart 1.1 shows the Market Attractiveness Index by Function for the Third Party Logistics Market (India), 2005. Chart 1.1 Third Party Logistics Market: Market Attractiveness Index by Function (India), 2005
Market Strength (Based on Market Size in 2005) US $Million
800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 -100.0 -200.0
Transportation Warehousing Freight Forwarding MIS and Other Value-added Services
Market Attractiveness (Based on CAGR)
Note: All figures are rounded. Source: Frost & Sullivan
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Introduction and Overview of the 3PL Market in the India

Companies in India generally outsource only a part of their supply chain requirements to a 3PL service provider. Only a small fraction of companies outsource entirely to a 3PL service provider. Most of these companies are multinationals that entered the country and didn't have an established network and have to outsource their logistics due to the lack of assets. The degree and nature of outsourcing of logistics to a 3PL service provider varies significantly between verticals and depends greatly on the nature of the company. In the automotive sector, the trend of end-to-end outsourcing is beginning to significantly catch up as companies have realized the benefits of concentrating on core competencies and delegating the logistics to 3PL service providers. The penetration of 3PL is very high in the automotive sector. Likewise, the IT hardware and electronics sectors have also begun outsourcing to 3PL service providers to a great extent. In sectors such as Fast Moving Consumer Goods (FMCG) and pharmaceuticals, the penetration of the 3PL concept has been fairly low, owing to already strained profit margins. Added to this, there is a great deal of decentralization in the supply chains of these sectors, with many stocking points and strategic distribution centers spread all over the country. This will demand infrastructure capabilities that the 3PL service providers may not be in a position to offer. Outsourcing in these sectors has started in warehousing operations, albeit in a small way. Certain 3PL service providers have their own freight forwarding and customs clearance capabilities. Those that do not have, hire the services of a local freight forwarding agent to liaison with the required authorities to have their consignments cleared. Most 3PL service providers offer good management of information systems (MIS) capabilities to their clients. The provision of value-added propositions along with a 3PL contract is expected to witness a growing trend with increasing demands from the clients and 3PL service providers that want to gain an edge in a highly competitive marketplace.
Market
Overview
and
Research
Findings
Total 3PL Market in India Size and Forecasts

The market for 3PL in India was worth $890.3 million in 2005. The entire 3PL market is expected to grow at a CAGR of 21.9 percent from 2005 to 2012 and reach $3,556.7 million in 2012. In 2005, transportation activity outsourced to a 3PL service provider accounted for a lion's share of the revenues in the market. However, warehousing is expected to grow the fastest among all the logistics functions outsourced to a 3PL service provider. In 2005, it accounted for second largest share of entire market. Revenues from MIS and Other Values Added Services accounted for third largest share of the market revenues with freight forwarding accounting for the lowest share.
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Opportunities for the 3PL Service Providers in India

India has immense opportunities for 3PL service providers. The growth is expected to come predominantly from warehousing, which is likely to be driven to a very great extent by the implementation of value added tax (VAT), a uniform tax regime across the country. The benefits are expected to be witnessed by the year 2010, when the central sales tax is likely to be completely abolished. In the transportation function, the growth of express transport could provide opportunities for the service providers. The growth is expected to be driven by the betterment of infrastructure and increasing client requirements to provide committed and time-bound services. Express transport has a very small share of the entire trucking market, and hence presents immense potential for growth. Freight forwarding and MIS and Other value-added services also present good opportunities in the market. The growth in value-added services is expected to be driven by the growth in transportation and warehousing functions, and as a tool by 3PL service providers to gain a competitive edge in the market. A majority of the revenues from value-added services in the market is expected to be generated from growth in the warehousing function.
Competitive Analysis
The 3PL service providers in India are categorized into three tiers of competition namely national, regional, and local service providers depending on their presence and reach in the market. The major national 3PL service providers are the Tier I companies and they account for the largest share of the revenues generated in this market. This can be attributed to the relatively better rates and value propositions offered by them, which find customers predominantly among large corporations. The regional 3PL service providers, or the Tier II companies account for the second largest share of the revenues generated in this market. These service providers offer basic logistics support and generally operate with corporations and Tier I companies to provide access at a regional level. The local 3PL service providers, or the Tier III companies that account for lowest share of the revenues generated in this market. They have small clientele and provide logistics services that does not have a large reach.
Industry Challenges for the 3PL Market in India

Industry challenges are factors that have the potential to adversely affect the market growth during the forecast period from 2006 to 2012. Though these may not have any direct bearing on the growth of the market, they can be overcome using suitable strategies: Geographical size and diversity Stiff competition and pricing strategies Security concern is a critical issue
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Drivers for the 3PL Market in the India

Market drivers are factors that have the potential to drive the growth of the market during the forecast period from 2006 to 2012. Growing inclination to outsource logistics to specialists Economic growth across all sectors necessitates smooth flow of supply chain Implementation of an all India VAT system
Restraints for the 3PL Market in India

Market restraints are factors that have the potential to slow or retard the growth of the market during the forecast period from 2006 to 2012. High cost of logistics in India Infrastructure bottlenecks still exist Competition from the unorganized segment
Implications of VAT on 3PL in India

The implementation of a uniform VAT regime and the elimination of the sales tax model is expected to indirectly benefit the supply chain management in the country. Previously state borders were viewed as economic borders, as they posed hurdles to the sale of goods between states. As a tax saving mechanism, companies operated on a highly decentralized model of multiple warehouses spread across states. This ultimately led to management of more resources and manpower, leading to costs that could otherwise have been avoided. The original intention of the Indian Government behind implementation of VAT was to introduce transparency into the taxation system; however, it has indirectly changed the course of logistics in the country. The present model poses a problem of cascading taxes, which VAT is expected to abolish.Companies are expected to move to newer and more centralized hub and spoke distribution models that will be more convenient with lesser hassles. VAT is expected to abolish the economic borders between states and enable sales between points with geographic convenience in consideration, as opposed to the tax planning driven model that was practiced earlier.
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The real benefits of VAT impacting the supply chain management in India are not likely to be witnessed until the central sales tax is eliminated. At present, VAT coexists with the central sales tax, which is expected to be phased out by 2010. The persistence of central sales tax defies the logic behind shifting to the new hub and spoke model, as there is no input tax credit available against the central sales tax in the case of inter state sales. Input tax credit is the reimbursement of tax that can be availed under the VAT system, where tax that has already been paid is reimbursed. This ensures that taxation happens only for the value addition. The central sales tax is expected to be eliminated by 2010, after which companies are likely to witness a drastic reorganization in the way supply chains are managed. The service expected to benefit the most from VAT's implementation is warehousing. Once the hub and spoke type distribution model sets in, large multi-user zonal warehousing facilities could be seen mushrooming. This could see 3PL service providers operate these facilities and leverage economies of scale. This was not observed under the earlier sales tax system, under which the environment was not conducive for seamless logistics The transition to VAT could pose challenges in the form of integration of IT infrastructure and maintenance of records. There is also competition from the unorganized sector comprising clearing and forwarding (C&F) agents, that may reinvent themselves post VAT implementation.
Strategic Conclusions
The 3PL market in India is poised for significant growth till the year 2012. The market has been growing steadily at an estimated Compound Annual Growth Rate of 18.3 percent since 2002 and the growth is expected to accelerate further. Changing economic and business scenarios, along with increasing outsourcing tendencies are expected to be the drivers for the growth in this market. Among the services, the warehousing function is expected to witness the fastest growth. Investing in assets could be important as owning them, could prove to be a healthy competitive edge, particularly in the transportation function. In the warehousing function, companies could build their own warehouses or operate a warehouse built by a third party to specification. Iinvesting in new warehouses may not be advised,, considering high real estate costs. Choice of location of warehouse is also an important factor, considering the constant need to reduce lead and turnaround times, which will enable clients gain a competitive edge. The growth in the transportation is expected to be driven by better infrastructure and the constantly reducing lead times and this is likely to lead to the emergence of express transportation. Along with this growth in revenues from value-added services, driven by the requirement of companies to gain a competitive edge, is also expected.
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2
Introduction
Introduction and Overview of the Indian Logistics Market

Figure 2-1 and Chart 2.1 show the breakup by mode of freight in the total Indian third party logistics market in 2005. Figure 2-1 Total Third Party Logistics Market: Breakup by Mode of Freight (India), 2005
Mode Roadways Railways Pipeline Inland waterways Total Percent Contribution (%) 51.0 33.0 8.0 8.0 100.0
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Chart 2.1 Total Third Party Logistics Market: Breakup by Mode of Freight (India), 2005
Pipeline 8%
Inland waterways 8%
Railways 33%
Roadways 51%
In 2005, the Indian logistics market was worth an estimated $15.5 billion. The transportation logistics function contributed the largest share of the market followed by warehousing. The logistics market in India is fragmented predominantly due to the large presence of the unorganized service providers. Logistics, which is one of the lifelines of a country the size of India, has so far been considered as a secondary activity. The industry broadly consists of freight consolidators, transporters, warehousing specialists, and organized third party logistics (3PL) solutions providers, in the increasing order of value addition to the service Warehouse management in India follows more of a clearing and forwarding (C&F) agent model. Most of the warehouses are in the form of depots or stocking points managed by agents for companies on a contractual basis. These warehouse are not managed very professionally. This segment also forms a significantly large portion of the entire market, as multiple warehousing is a very important cost saving requirement in the Indian scenario. Warehousing has been considered as a storage function, with most companies overlooking it as a secondary activity, neglecting the complexity of the operations involved, and the cost benefits that can be derived. Most of these C&F depots are used by companies to facilitate transfer of goods between stock points. Concepts such as automation, vertical space utilization, and the use of warehouse management systems were quite unheard of; however, these are slowly but steadily gaining prominence.
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Professional management of logistics in the form of 3PL has begun being adopted since the last decade. These 3PL service providers have the capacity to offer a wide array of services to their clients and help them better manage their supply chains. The 3PL service providers assume end-to-end responsibility to manage a part or the company's entire supply chain. The growth of 3PL service providers in India has introduced the use of global supply chain management standards in the country. However, the 3PL service providers form a very insignificant part of the entire market, comprising around 3 percent of the Indian logistics. Roads carry the bulk of the freight in India. The roads in India have a history of being unsafe and in very bad conditions. This is changing with the construction of the Golden Quadrilateral and North-South-East-West (NSEW) highway networks, traversing the entire country. The highway infrastructure is highly strained, comprising around 1.4 percent of the total road network in India and carries in excess of 50 percent of the country's total freight. Roads are flexible with easy to own assets and door-delivered consignments. Even though rail freight is more cost effective in terms of cost per unit distance and per unit weight, the efficiency of the rail freight system in India has for long been low and it has also been considered as a secondary freight mode. Previously, rail was the most preferred mode of freight; however, bad pricing and inflexibility have resulted in the railways experiencing a downturn. With the Indian Government announcing plans to open up the containerized rail freight sector to private operators this is expected to change. Companies such as APL Logistics, Maersk Logistics, Gateway Distriparks, Central Warehousing Corporation, JM Baxi group, Adani Logistics, and Reliance Logistics are expected to enter into this segment. The barriers of entry for providing this service are rather low. Companies need to have a minimum turnover of around $22 million (INR 1 billion) in India. To get a permit license for 20 years they need to pay the Government between $1 million and $10 million, depending on whether they want to operate on a specific route or an all India basis. Rail freight comprises around 670 million tones, which is around 33 percent of the total domestic traffic in India. Companies in the metals, heavy machinery, and engineering and cement sectors are expected to benefit from the opening up of the railways to private participants as these carry bulky cargo over long distances. Previously, costs of trucking were very high as the final destination could be in a remote corner of the country, where a backhaul arrangement would be nearly impossible. In sectors such as these, costs of transportation in the entire logistics spending was as high as 75 percent. Long distance transportation by rail can help cut costs in these sectors. With the Railways Department mulling a separate freight corridor, this sector is likely to experience a growing trend. This is keeping in mind that passenger trains get higher priority over goods trains and the new corridor can run parallel to existing lines to places of heavy activity such as ports.
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The large unorganized segment of the logistics industry in India poses a formidable challenge to companies in the organized one. The unorganized segment service providers have lesser overhead costs and are hence in a position to provide extremely competitive rates. This is expected to have a considerably large impact in the future, posing a challenge especially to the 3PL service providers. Entry barriers are also low, leading to the possibility of intensified competition even in the organized sector. Complex tax laws and infrastructure bottlenecks are also challenging issues to be dealt with. The growth of the Indian economy, especially the rise in the manufacturing sector is one of the key growth drivers of the logistics industry in India. Apart from this, sincere initiatives by the Government to remove bottlenecks in the logistics infrastructure are also drivers for growth in the sector that is expected to grow at a compound annual growth rate (CAGR) of 6.4 percent from 2005 to 2012.
Introduction to 3PL in India

3PL services in India is a relatively new concept compared to other parts of the world. The Indian 3PL market is still in its infancy stage, though it is expected to grow at a significantly fast pace. The major end-user verticals of 3PL services are the automotive and auto components, machinery and heavy engineering, IT hardware and electronics, consumer durables, pharmaceuticals, fast moving consumer goods (FMCG), and organized retailing industries. The 3PL service providers have introduced a dimension of professionalism that was previously lacking in the industry. The Indian business houses have a better established setup in the 3PL market. This is due to existing business relations that were there between the service providers, an already established logistics network, and a better knowledge of the local business environment and processes. Service providers with a prominent presence include multinationals such as Sembcorp Logistics of Singapore, domestic service providers such as Safexpress, GATI, Om Logistics, and TVS Logistics. Service providers such as Caterpillar Logistics have recognized the opportunity for growth and have entered India for setting up operations in partnership with the local service providers. Companies such as TNT, Kuehne Nagel, Schenker, Federal Express, and Panalpina have a global presence; however, they do not have a notable presence, or in some cases, do not operate in the Indian 3PL market, as their main focus may be on international air express or sea freight.
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Evolution of 3PL Market in India

The growth of multinational operations has been one of the key drivers in the Indian logistics market, especially in 3PL. The 3PL services concept was originally introduced by multinational 3PL service providers that entered India to manage the supply chains of their key global clients. With the emergence of India as a global manufacturing hub, there was requirement for seamless supply chains with time-bound deliveries in a cost-effective manner. A number of companies such as Transport Corporation of India, Om Logistics, Total Logistics, and Patel Logistics that were previously pure transporters realized the opportunity for growth in 3PL services and have included it as a part of their portfolio. The evolution of 3PL services has not been rapid; however, the market has been growing at an expected CAGR of 18.3 percent since 2002. The growth has been spurred on as certain companies have had to outsource logistics to remain competitive. Warehousing, a logistics function that was previously unprofessionally managed, has witnessed noticeable growth since 2003. Concepts such as mechanized warehousing and vertical space utilization, which were quite unheard of in India, have now started gaining prominence. 3PL service providers operating such warehouses have been able to significantly reduce the number of employees per warehouse.. The transportation logistics function is also witnessing a gradual shift from pure trucking to containerized transport with vehicle tracking solutions such as a global positioning system (GPS) or GSM mobile telephony network. Though at present GPS is not greatly used due to prohibitive costs of equipment, GSM mobile telephony network is being used. Outsourcing of integrated logistics has not happened to a very great extent in India. Instead, companies have outsourced individual or partial services to a 3PL service provider. There are certain companies that have outsourced their entire supply chains to a 3PL service provider; however, these are few in number. Integrated logistics outsourcing is expected to be implemented in a major manner once the demand for 3PL services grow. This is expected when key industry verticals grow, and sourcing patterns shift from price driven sourcing to sophisticated sourcing that focuses on long-term vendor relationships, larger vendor bases, and technology-driven supply chain innovation. At present, 3PL services have grown as capital, information, and physical movement. These three key aspects of any supply chain are being focused on as very important. The market for 3PL services in India is still in its infancy stage. It is expected to see a strong CAGR of 21.9 percent till the year 2012. Though the unorganized segment will not be completely eliminated, compared to the rest of the total Indian logistics market the share of 3PL is expected to increase as the segment is growing significantly faster.
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Awareness and Perception of 3PL in India

The concept of 3PL was quite unheard of in India until the mid-1990s. It is still in its infancy stage in India compared to the other parts of the world. However, at present there is an increased awareness about 3PL services than in the past. Users of 3PL services have varying perceptions about their service providers. Companies in the automotive sector consider outsourcing logistics to a 3PL service provider as an important cost-saving tool. The same may not be witnessed in the other industry verticals. FMCG companies still follow the dealerstockist distribution model to a very large extent. Outsourcing takes place in individual logistics functions such as warehousing or freight forwarding but not to a very great extent in transportation. This is primarily because FMCG companies opine that for high volume, low-value goods such as FMCG such as personal care products, transportation to a 3PL service provider may be an expensive option. Added to this, for a country as geographically diverse as India, with a large consumer base, companies opine that a single 3PL service provider will not be able to offer an end-to-end solution. Retail firms consider working with a 3PL service provider a very viable option as the key to low cost modern retailing lies in effective supply chain management with electronic surveillance to prevent damage and pilferage in transit. Some companies manufacturing IT hardware and electronics consider outsourcing to a 3PL service provider a very convenient option, as prior to this quite a few companies were facing problems with huge sums of money locked up in inventories and longer lead times. Cost and quality of service are the prime factors companies consider while choosing a 3PL service provider. As a result of this, there tends to be a trade-off quality and cost. Most Indian companies that have started outsourcing consider cost as the primary factory, unlike multinationals that have derived cost benefits from outsourcing. Outsourcing to a 3PL service provider does attract a cost, which may be significantly higher than outsourcing to a trucker and C&F agent; however, companies that focus more on quality do not mind the extra spending to have quality delivered, as it can provide better margins by enabling cost cutting. This is more the case with the larger companies that want to possess sophisticated supply chains to remain abreast with global competition. Companies may hence be willing to hire top quality services that have a commitment to deliver at the highest standards. While cost is a concern for outsourcers, companies, especially multinationals consider it as a long-term proposition to work with a 3PL service provider, considering the total cost of logistics in the whole product life cycle. The reputation of the 3PL serviced provider does act significantly on the outsourcer's choice of service provider. A known 3PL service provider is more preferred giving importance to the requirements of the company. Another issue of concern is the security of the supply chain of a company, considering the high incidences of pilferage and damage in transit in the Indian industries. An efficient supply may in many cases be the difference between some companies being more successful than the others. Some companies may be wary of third party intervention in their supply chain and hence be unwilling to outsource their logistics to a 3PL service provider. This though, is a concern that is greatly unfounded. Meeting service commitments is a concern for a few companies. Flexibility in services and compatibility and scalability of operations are factors that companies focus on when it comes to service-level determination.
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Scenario
of
the
Indian
3PL
Market
Overall 3PL Usage in the Logistics Functions

Figure 2-2 and Chart 2.2 show the penetration by logistics function of 3PL in the total logistics market in 2005. Figure 2-2 Total Third Party Logistics Market : Penetration by Logistics Function (India), 2005
Service Transportation MIS and Other Value Added Services Warehousing Freight Forwarding Penetration (%) 9.0 4.5 4.0 3.0
Chart 2.2 Total Third Party Logistics Market : Penetration by Logistics Function (India), 2005
10 9 8 Penetration (%) 7 6 5 4 3 2 1 0 Transportation MIS and Other Value Added Services Warehousing Freight Forwarding
Service Function
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The penetration of Transportation service outsourced to a 3PL service provider is only 9.0 percent of that in the entire logistics market. This is significantly higher than the penetrations in other services. The fact that transportation function outsourced to a 3PL has such a low penetration and is still the most penetrated services shows how nascent the 3PL market in India is. The penetration of Warehousing outsourced to a 3PL is only around 4.0 percent of the Indian warehousing market. This is because, warehousing is still predominantly considered a pure storage function. Organized 3PL warehousing is a concept that is new to the Indian market, and hence the low penetration.
In India, most companies outsource only a part of their supply chain requirements to a 3PL service provider. There may be only a small fraction of companies that outsource entirely to a 3PL service provider. Most of these companies are multinationals that have entered India and do not have an established network and have to outsource their logistics due to the lack of assets. The penetration of 3PL in the total Indian market is only 5.7 percent. The degree and nature of outsourcing of logistics to a 3PL service provider varies significantly between verticals and depends greatly on the nature of the company. In the automotive sector, the trend of end-to-end outsourcing is beginning to gain acceptance significantly as companies have begun realizing the benefits of concentrating on core competencies and delegating logistics to 3PL service providers. Concepts such just-in-time (JIT) delivery to the assembly line have gained acceptance in this sector, thereby requiring companies to hold only a few hours of inventory. Even companies that have traditionally been known to adopt a very conservative business outlook have started outsourcing their logistics to 3PL service providers. The penetration of 3PL services is very high in the automotive sector. Likewise, the IT hardware and electronics sector has also begun outsourcing to a 3PL service provider to a great extent. In sectors such as FMCG and pharmaceutical industries, the penetration of the 3PL service concept has been fairly low, owing to already strained profit margins that these companies are experiencing. Added to this, there is a great deal of decentralization in the supply chains of these sectors, with many stocking points and strategic distribution centers spread in different parts of the country. This will demand infrastructure capabilities that 3PL service providers may not be in a position to provide. Outsourcing in these sectors has started in warehousing operations. Sector giants such as Hindustan Lever Limited, Marico Industries, Terumo Tenpol, and Dr.Reddy's Laboratories are outsourcing their warehouse requirements to 3PL service providers. Certain 3PL service providers have their own freight forwarding and customs clearance capabilities. Those that do not have hire the services of a local freight forwarding agent to liaison with the required authorities in order to have their consignments cleared. Most 3PL service providers provide good MIS capabilities to their clients. The provision of value-added propositions along with a 3PL contract is expected to witness a growing trend with clients increasingly demanding the same.
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3PL Usage in Transportation

Transportation is the most outsourced service in the Indian 3PL market. In 2005, 71.7 percent of the revenues generated in the total market were from the transportation logistics function. This is considering the fact that in any logistical activity, the prime focus is on moving physical goods along the chain. Investing in vehicles may be a very expensive option for a company. Outsourcing transportation to a 3PL service provider hence obviates the need to invest in them. The 3PL service providers can afford to own vehicles, or outsource vehicles from a local trucking service provider. According to Frost & Sullivan, the transportation logistics function is expected to still be the most outsourced service to a 3PL service provider till the year 2012. At present operating margins in transportation are greatly strained. The reason is that, since 2002, while international oil prices have observed a surge in excess of 150 percent, freight rates have seen an average increase of just over 40 percent. Along with this, severe competition in the market has forced competitors to cut rates to retain clients or acquire the competitors' clients. For this purpose 3PL service providers have had to practice backhauling, sometimes at extremely low rates, where break even has to be obtained to stay from making losses. The traditional mode of transportation has been trucking. Outsourcing transportation to a 3PL service provider has been implemented in a major manner only in a few sectors such as automotive. In a sector where disruptions in the supply chain can drastically affect manufacturing schedules, outsourcing to a 3PL service provider to have consignments delivered just-in-time (JIT) in order to save costs is a viable option. This trend in the automotive sector has been growing since India established itself as an important destination for automotive component and vehicle manufacturing. The express mode of transport is not employed to a very great extent in this market. Only a few sectors such as IT hardware and electronics and retailing, where stocking on shelves is of utmost importance to avoid opportunity costs use express transport. While trucking is expected to still be the most preferred mode of transport, the express mode is likely to experience good growth. This will help companies reduce stocking points along the supply chain, thereby reducing lead times and inventory holding costs drastically. Companies are likely to start preferring the express transport to traditional methods if there are clear cost benefits that can be derived such as reduced lead times and lesser inventories in the pipeline. The growth in this sector is likely to be driven by the needs of the clients. Industries such as pharmaceuticals and FMCG may prefer the express mode of transport to traditional trucking; however, the profit margins are already strained in these sectors. Even though these sectors will prefer shifting to the express mode, the capacity of 3PL service providers to manage the large volumes generated by them is likely to be a constraint. At present, India lacks the type of road infrastructure that can permit companies to use express transport in a cost-effective manner. More than 60 percent of revenues in the express segment in India still come from document couriers. The 3PL activity in express transport account for a very insignificant part of the entire transportation in 3PL services.
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Most supply chain managers in the Indian companies have to negotiate freight rates and track a multitude of trucks from different fleets. With the emergence of lead logistics players (LLPs), this responsibility is now gradually shifting, reducing the number of agencies to manage and thereby saving cost and time. The use of Global Positioning System (GPS) to track vehicles in transit is being employed by selected companies such as Safexpress in a limited number of vehicles, as technology of this nature is expensive. Most 3PL service providers do provide their clients with track and trace facilities, but these are through mobile communication networks such as GSM and CDMA networks. This requires a demonstration effect of the clear economic benefits for companies to start using these services more. Reliance logistics has an in-house telematics division that develops software for enabling vehicle tracking through their own CDMA network. Companies are taking initiatives in this regard; however it is in its early stages of adoption.
3PL Usage in Warehousing

Warehousing is the second most outsourced logistics function to a 3PL service provider in the Indian market. In 2005, It accounted for 16.5 percent of the revenues generated in the Indian 3PL market. It is also expected to be the logistics function where competition. will be the stiffest. In the past warehousing was considered as just another storage function. This is changing with companies beginning to focus on outsourcing warehouses to a 3PL service provider as an effective measure to handle large volumes. Companies increasingly beginning to outsource warehouses, at an expected CAGR of 23.7 percent from 2005 to 2012. One of the reasons companies are willing to outsource to a 3PL service provider is the need for real-time information regarding inventories that are locked up along the supply chain and to provide flexibility in scaling of operations. Warehousing is not as established in India as it is in the developed economies of the west, as each state in India has a different tax regulation. This is expected to change once a nationwide value added tax (VAT) system is implemented, eventually resulting in the growth of 3PL managed warehouses. The 3PL service providers are likely to shift to a new hub and spoke type warehouse model with regional master warehouses feeding the smaller warehouses and depots. This will be in stark contrast to the present system of state wise C&F depots necessitated as a cost saving measure due to the present sales tax system in the country, which is expected to be replaced by a uniform VAT. Once VAT is uniformly implemented, consolidation in warehousing is expected to occur, which can help 3PL service providers leverage economies of scale. Once this takes place and consequentially warehousing costs decrease, technological improvements such as robots and conveyor belts can be possible, resulting in better warehousing. However, this trend is not likely to be witnessed across all sectors. Some verticals such as FMCG operate with a mixed model, persisting with the traditional C&F agent model, as companies they want to retain a strategic distribution hub within a state, in order to avoid opportunity costs. Ultimately, even for the C&F agents to stay competitive, they have to upgrade existing facilities similar to 3PL warehouses.
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The outsourcing of a company's warehousing logistics function to a 3PL service provider is becoming a growing trend. This trend is expected to be a direct fallout of companies realizing the complexity involved in a warehousing logistics function. The automotive sector has been witnessing outsourcing in warehousing logistics function to a great extent, where inventories need to be replenished on an hourly basis than on a daily basis. Companies such as Tata Motors have outsourced their warehousing logistics function to professional 3PL service providers. Maintaining a large number of stock keeping units inside the warehouse, spread over large areas is likely to lead to complexity in operations. In many cases, lead times inside the warehouse can be very critical to a manufacturing or distribution operation, requiring quick retrieval. Moreover, investing in real estate may not be feasible for a company, and hence the best option for them to use a 3PL service. For example, Om logistics, a leading 3PL service provider in India, is providing warehousing logistics function to a leading manufacturer of refrigerators since 2003 at their warehouse in Mohali, in Punjab. Previously, the company had its warehouse in near Mumbai, with material not being able to be tracked easily, effectively wasting around 30,000 sq. ft. of floor space. The 3PL service providers in India have started investing on increasing warehouse capacities and the number of warehouses in the country. This is due to the intention to cash in on the opportunity provided by the implementation of a uniform national VAT system, where it is expected that the present multistage warehouse model will shift to a model with fewer and larger warehouses spread across the country. The 3PL service providers are also trying to expand their warehouses vertically in order to increase the capacity, and hence shift to a 'cubic feet' type one, as opposed to the 'square feet' type that is predominantly present in India. Sembcorp Logistics has four warehouses at Bhiwandi, Chennai, Pune, and Jamshedpur catering to the needs of its clients. GATI has also announced plans to upgrade its warehouses at certain facilities. Companies such as MICO have also clearly drawn out plans for changing its supply chain structure after VAT is fully implemented. A purely variable cost model was not considered a viable option in India when organized warehousing first entered the market around 2001, as manufacturing patterns were not suited to that. In a pure variable cost model, Company 'A' managing inventory turns better than another Company 'B', which keeps a large inventory and tries to respond to market demand, should logically speaking be paying lesser for using lesser warehouse space. That is companies should be paying proportional to space utilization. Lack of uncertainty in demand, lack of proper forecasting, and rigid manufacturing patterns were primarily responsible for this costing model not doing very well. Even today, C&F agents follow a combination of a fixed and variable cost model, where companies pay for rent and manpower at the warehousing facility even if no space is utilized. This is because many facilities are not shared and hence economies of scale are not being created. The 3PL service providers are likely to practice a purely variable cost model once VAT is implemented uniformly.
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The use of information technology has been implemented to a good extent in warehousing. They come in the form of special application warehouse management system This is used to get real time data about stock availability in the warehouse. Along with this 3PL service providers are focusing on the automated storage and retrieval systems (AS/RS) to facilitate easier handling in the warehouse premises. This helps in storage and retrieval of bins, identifying them, and sorting accordingly. Along with it, usage of robots and stacker cranes that move on rails is also expected. These are particularly useful in case of warehouses with vertical space utilization and those that handle large volumes and many stock keeping units such as in the FMCG, pharmaceutical, and apparel verticals. Improvements are expected in the technology used in a warehouse that can reduce human interference and thereby increase warehouse efficiency. At present, in India global technology standards such as radio frequency identification (RFID) have not been implemented to a great extent. These have a great potential to increase warehousing efficiency and security. There is also the possibility of hi-tech automated warehouses with zero human interference in the future, where companies are expected to save a lot in terms of reduced, or at times nil power consumption in the form of zero air conditioning, illumination, and manpower. At present, this is observed in extremely few companies in India, as the cost of technology of this nature is considered to be prohibitive at the present time.
3PL Usage in Freight Forwarding

In 2005, freight forwarding logistics function accounted for 2.2 percent of the revenues generated in the Indian 3PL market.. The 3PL service providers that offer the freight forwarding logistics function to their clients either possess the capabilities themselves or employ the services of an agency that liaisons with the authorities locally. There are multinational freight forwarders such as Panalpina & Kuehne Nagel that offer freight forwarding services to 3PL service providers; however, theses are far outnumbered by the local freight forwarding agents. Complex laws and procedures and at Indian Airports and seaports often require 3PL service providers to outsource their freight forwarding requirements to a local service provider, who in most cases is better acquainted with local authorities and procedures.
3PL Usage in MIS and Other Value-added Services

In 2005, MIS and other Value-added Services accounted 9.6 percent of the revenues generated in the Indian 3PL market. Since 3PL service providers offeradded services, clients can concentrate on their competencies. The growth of these services has been mainly driven by the growth of outsourcing to a 3PL service provider. At present, the provision of these services has become imperative to companies considering that service differentiation is a must in a highly competitive atmosphere.
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After sales support, customs clearance, reverses logistics, kitting, packaging, repacking, labeling, rate negotiation, order management, network planning, site selection, fleet management, vendor management of inventory, and supply chain consulting are among the many value-added services offered by 3PL service providers in India. Vendor managed inventory (VMI) service has witnessed a strong growth in the automotive and auto components, IT hardware, and retail sectors. Companies such as Menlo Worldwide have set up VMI operations in the country to provide services to companies such as General Motors. In the IT hardware sector, VMI services have helped companies decrease inventory levels significantly, thereby helping companies cut costs. VMI provides companies with total visibility about inventories at all points along the supply chain and help in the company maintaining just enough merchandise required along the assembly line or by the customer. However, not all 3PL service providers are in a position to offer all these MIS and other value-added services, placing the ones that cannot offer them at a clear competitive disadvantage when compared to companies that offer them.
Market
Size
and
Revenue
Forecasts
The Total Logistics Market in India

The total logistics market in India is estimated at $15.5 billion. A vast majority of this market is still in the unorganized segment. Companies such as VRL transporters and Navata transporters are very good regional participants but do not have a pan-India presence. Otherwise, the transportation is highly unorganized, with varying fleet ownership patterns. The small fleet owners do not have operating policies and operate at extremely competitive rates. They are generally in the form of open trucks, with no assured time schedules and improper handling of consignments. Warehousing also has for long been in the form of C&F depots and stocking agents, spread across the country in order to gain maximum benefit out of the redundant sales tax system. These depots have usually been positioned more out of obtaining tax benefits than for geographical convenience. There are a very few companies that operate out of a single warehouse or few warehouses in the country. In the Indian warehousing scenario, it is more of a storage function being performed and it lacks sophistication in service. The cost of logistics in India is very high, estimated at around 13 percent of the country's gross domestic product (GDP). Transportation forms a predominantly large part of costs incurred for logistics. The other two most significant cost components of logistics are warehousing and inventory holding costs. Together these three compose around 90 percent of the costs incurred for logistics in the market. The other components involved are administrative and order processing costs.
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The organized 3PL service providers account for a very insignificant share of the market. These are very professionally managed, being able to offer end-to-end logistics solutions for their clients. The concept of a 3PL service is still in its infancy stage in India and is expected to observe a strong growth till the year 2012.
Size of the 3PL Market in the India

Figure 2-3 and Chart 2.3 show the size and revenue breakup by type of logistics function in the total Indian third party logistics market in 2005. Figure 2-3 Total Third Party Logistics Market: Revenue Breakup by Type of Logistics Function (India), 2005
Service Transportation Warehousing MIS and Other Value Added Services Freight forwarding Total Percentage Contribution (%) 71.7 16.5 9.6 2.2 100.0 Revenues ($ Million) 638.3 146.7 85.7 19.6 890.3
Chart 2.3 Total Third Party Logistics Market: Revenue Breakup by Type of Logistics Function (India), 2005
MIS and Other Valueadded Services Freight Forwarding 9.6% 2.2% Warehousing 16.5% Transportation 71.7%
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In 2005, the 3PL market in India was worth $890.3 million. It has grown at CAGR of 18.3 percent since the year 2002. Transportation is the most outsourced service to a 3PL service provider. It accounted for 71.7 percent of all service revenues in 2005. This is greatly due to the fact that companies need not invest in vehicles and manage complex transportation activity. Moreover, India is geographically a very vast country with a large vendor base. Clients are increasingly focusing on better and more secure transportation, with real-time data availability. Soon 3PL companies are likely to witness a healthy growth in the transportation logistics function. The logistics function that contributed the next largest share after transportation in the Indian 3PL market was warehousing, that accounted for 16.5 percent of the revenues in 2005. The market for warehousing is not as mature as it is in the developed economies of western Europe or North America, making the potential for growth immense. Revenues from freight forwarding accounted for 2.2 percent of all revenues in the total market. Value-added services and others accounted for the remaining 9.6 percent of the revenues in 2005.
Growth History of 3PL Market in India

The 3PL market has been growing in India from the year 2002 to the year 2005 at a CAGR of 18.3 percent. The market was worth $538.2 million in 2002 The growth has primarily come from the usage of 3PL services in key industry sectors such as automotive and auto components and IT hardware and electronics where the lead times have to be extremely short to decrease manufacturing and opportunity costs.
Estimated Share of the 3PL Market

Figure 2-4 and Chart 2.4 shows the estimated share of the Third Party Logistics Market in the entire logistics market (India), 2005. Figure 2-4 Total Third Party Logistics Market: Estimated Shares (India), 2005
Category 3PL Service Providers Others (Trucking, C&F Agents, Depots) Total Market Share (%) 5.7 94.3 100.0
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Chart 2.4 Total Third Party Logistics Market: Estimated Share (India), 2005
3PL Service Providers 5.7%
Others (Trucking, C&F Agents, Depots) 94.3%
The Indian logistics market is estimated at $15.5 billion. The Indian 3PL market was worth $890.3 in 2005 and had a share of 5.7 of the total logistics market. This is significantly lower than that recorded in developed economies, where the share of the 3PL market may be much higher. In 2005, the national companies had a 2.7 percent share in the entire Indian 3PL market. The regional companies accounted for 1.9 percent and the local companies accounted for a meager 1.1 percent share of the entire Indian 3PL market in 2005. The share of the national 3PL companies in the total logistics market in India in 2003 was 2 percent. This share grew to 2.7 percent because the 3PL market has been growing at a CAGR of 18.3 percent as opposed to a CAGR 6.4 percent for the entire logistics market. This share is likely to increase further with greater growth and consolidation that is expected to take place in the industry by 2012.
Revenue Forecasts
Figure 2-5 and Chart 2.5 show the revenue forecasts of the total Indian third party logistics market from 2002 to 2012.
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Figure 2-5 Total Third Party Logistics Market: Revenue Forecasts (India), 2002-2012
Revenue Revenues Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Compound Annual Growth Rate (2005-2012): 21.9%
Note: All figures are rounded; the base year is 2005. Source: Frost & Sullivan
Growth Rate (%) --17.8 18.2 18.8 19.5 21.0 21.5 21.3 22.6 23.3 24.0
($ Million) 538.2 634.0 749.4 890.3 1,063.9 1,287.5 1,563.7 1,896.2 2,326.2 2,868.9 3,556.7
Chart 2.5 Total Third Party Logistics Market: Revenue Forecasts (India), 2002-2012
4000 3500 Revenues ($ million) 3000 2500 2000 1500 1000 500 0 2002 2003
Revenues ($ million)
Growth Rate (%)
30.0 25.0 20.0 15.0 10.0 5.0 0.0 Growth Rate (%) 2-17
2004
2005
2006
2007 2008 Year
2009
2010
2011
2012
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In 2005, the total 3PL market in India was worth $890.3 million. It is expected to grow at a CAGR of 21.9 percent from 2005 to 2012, and reach $3,556.7 million by 2012. The market for 3PL is growing significantly faster than the entire Indian logistics market, which is growing at an annual rate of 6.4 percent.
Revenue Forecasts Breakdown by Different Logistics Functions

R e v e n u e F o r e c a s t s f o r 3 P L i n Tr a n s p o r t a t i o n F u n c t i o n Figure 2-6 and Chart 2.6 show the revenue forecasts for the transportation logistics function in the total Indian third party logistics market from 2002 to 2012. Figure 2-6 Total Third Party Logistics Market: Revenue Forecasts for Transportation Logistics Function (India), 2002-2012
Note: All figures are rounded; base year is 2005. Source: Frost & Sullivan
Growth Rate (%) --17.5 17.8 18.3 19.7 21.0 21.2 20.8 22.3 23.0 23.7
($ Million) 389.5 457.8 539.7 638.3 763.9 924.1 1,120.2 1,353.2 1,655.0 2,035.7 2,518.7
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Chart 2.6 Total Third Party Logistics Market: Revenue Forecasts for Transportation Logistics Function (India), 2002-2012
3000 2500 Revenues ($ Million) 2000
Revenues ($ Million)
Growth Rate (%)
25
20 Growth Rate (%) 2-19
15 1500 10 1000 500 0 2002 2003 2004 2005 2006 2007 Year 2008 2009 2010 2011 2012 5
In the 2005, the transportation logistics function outsourced to a 3PL accounted for 71.7 percent of the revenues in the market, valued at $638.3 million. It is expected to grow at a CAGR of 21.7 percent from 2005 to 2012 to reach $2,518.7 million in 2012. R e v e n u e F o r e c a s t s f o r 3 P L i n Wa r e h o u s i n g F u n c t i o n Figure 2-7 and Chart 2.7 show the revenue forecasts for the warehousing logistics function in the total Indian third party logistics market from 2002 to 2012.
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Figure 2-7 Total Third Party Logistics Market: Revenue Forecasts for Warehousing Logistics Function (India), 2002-2012
Growth Rate (%) --20.9 21.5 22.2 23.7 23.3 23.8 24.5 25.0 25.1 25.7
($ Million) 81.7 98.8 120.0 146.7 175.1 215.9 267.3 330.9 413.6 517.4 650.2
Chart 2.7 Total Third Party Logistics Market: Revenue Forecasts for Warehousing Logistics Function (India), 2002-2012
700 600 Revenues ($ Million) 500 400
Growth Rate (%)
30 25 20 15 Growth Rate (%) 2-20
300 200 100 0 2002 2003 2004 2005 2006 2007 Year 2008 2009 2010 2011 2012 10 5 0
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Warehousing is expected to grow the fastest among all functions outsourced to a 3PL service provider. In 2005, it accounted for 16.5 percent of the revenues of the entire market, that was $146.7 million. The warehousing operations to a 3PL company are expected to grow at a CAGR of 23.7 percent from 2005 to 2012, to reach $650.2 million in 2012. Revenue Forecasts for 3PL in Freight Forwarding Function Figure 2-8 and Chart 2.8 show the revenue forecasts for the freight forwarding logistics function in the total Indian third party logistics market from 2002 to 2012. Figure 2-8 Total Third Party Logistics Market: Revenue Forecasts for Freight Forwarding Logistics Function (India), 2002-2012
Growth Rate (%) --7.7 7.9 7.9 8.0 8.7 10.8 11.6 12.3 13.6 14.2
($ Million) 15.7 16.9 18.2 19.6 22.9 24.9 27.6 30.8 34.6 39.3 44.9
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Chart 2.8 Total Third Party Logistics Market: Revenue Forecasts for Freight Forwarding Logistics Function (India), 2002-2012
50 45 40 Revenues ($ Million) 35 30 25 20 15 10 5 0 2002 2003 2004
Growth Rate (%)
16 14 12 10 8 6 4 2 0 Growth Rate (%) 2-22
2005
2006
2007 Year
2008
2009
2010
2011
2012
In 2005, the freight forwarding operations outsourced to a 3PL accounted for 2.2 percent of the market, that was $19.6 million. It is expected to grow at a CAGR of 12.6 percent from 2005 to 2012, to reach $44.9 million in 2012. Revenue Forecasts for 3PL in MIS and Other Va l u e - A d d e d S e r v i c e s Figure 2-9 and Chart 2.9 show the revenue forecasts for the value-added and other services logistics functions in the total Indian third party logistics market from 2002 to 2012.
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Figure 2-9 Total Third Party Logistics Market: Revenue Forecasts for Value-added Services and Other Services Logistics Functions (India), 2002-2012
Growth Rate (%) --17.8 18.2 18.8 19.0 20.2 21.2 22.0 23.0 23.9 24.0
($ Million) 51.3 60.5 71.5 85.7 102.0 122.6 148.6 181.3 223.0 276.5 342.9
Chart 2.9 Total Third Party Logistics Market: Revenue Forecasts for Value-Added Logistics Services and Other Services Logistics Functions (India), 2002-2012
400 350 300 Revenues ($ Million) 250 200 150 100 50 0 2002 2003
Growth Rate (%)
30 25 20 15 10 5 0 Growth Rate (%) 2-23
2004
2005
2006
2007 Year
2008
2009
2010
2011
2012
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In 2005, revenues from the value-added and other services logistics functions were worth $85.7 million and is expected to grow at CAGR of 21.9 percent from 2005 to 2012, to reach $342.9 million in 2012
Industry Challenges and Market Drivers and Restraints
Industry Challenges
Figure 2-10 shows the impact of the top industry challenges for the total Indian third party logistics market from 2006 to 2012. Figure 2-10 Total Third Party Logistics Market: Impact of Top Industry Challenges (India), 2006-2012
Rank Challenge 1 2 3 4 5 Geographical Size and Diversity Stiff Competition and Pricing Strategies Multinational Companies are at a Disadvantage Compared to the Indian ones Integrating Supply Chains and Providing Visibility along the Entire Chain Security Concern is a Critical Issue 1-2 Years High High 3-4 Years High 5-7 Years High
Medium /High Medium /High Low/Medium Low/Medium Low
Medium /High Medium Medium /High Medium Medium Low/Medium
Source: Frost & Sullivan
Geographical Size and Diversity India is geographically the seventh largest country in the world, with over more than 25 states and a consumer base spread all over the country. With the Indian economy booming, virtually every region in India is witnessing growth in economic activities, requiring seamless supply chains. Incidences of disruptions in supply chains may be relatively higher than in the other developed economies. Manufacturing industries source from a multivendor base from various parts of the country, sometimes even from one end to the other. For example the General Motors factory in the western Indian state of Gujarat sources a lot of components from vendors in South India. Vehicles carrying these components may in most cases have to pass through multiple states, each having different tax laws. Managing supply chains and providing a good geographical reach is likely to be one of the biggest challenges 3PL service providers face.
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Stiff Competition and Pricing Strategies There is stiff competition among 3PL service providers in the Indian f. Service providers would be willing to offer extremely competitive rates to companies to seize existing businesses held by their competitors. Pricing may be one of the key issues companies consider when choosing 3PL service providers. In order to stay competitive companies may have to constantly monitor pricing strategies. Multinational 3PL Companies are at a Disadvantage Compared to the Indian Companies Indian 3PL service providers, by virtue of better knowledge of the local markets dynamics, are at an advantage when compared to multinationals. Local 3PL service providers have a better know-how of the processes and can liaison better with 2PL service providers to provide their clients with better services. Moreover, domestic 3PL service providers have better network access than their multinational counterparts, giving them a greater presence. Integrating Supply Chains and Providing Visibility Along the Entire Chain Companies are beginning to demand increased visibility along the supply chain to get information about their inventories in the transit and storage points. Though service providers do provide information services to their clients, there is definitely a lot of room for improvement. This can specifically be the case where clients operate with more than one service provider at different points along the supply chain. Enabling the smooth flow of information from one service provider to another and provision of IT integration remains a key challenge. Security Concern is a Critical Issue Considering that supply chains are a very key area in gaining a competitive edge, companies may prefer managing them in-house, rather than outsource it to a 3PL service provider. Other concerns such as product theft and improper handling continue to be the dominant issues to be addressed. Addressing these issues and reassuring the client about product safety and confidentiality are key challenges. This is not a very formidable challenge though and over the years the impact of this is expected to gradually wane as the market is poised for healthy growth.
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Market Drivers
Figure 2-11 shows the market drivers ranked in order of impact for the total Indian third party logistics market from 2006 to 2012. Figure 2-11 Total Third Party Logistics Market: Market Drivers Ranked in Order of Impact (India), 2006-2012
Rank Driver 1 2 3 4 5 6 Growth of Multinational Operations Demands Professional Logistics Management Growing Inclination to Outsource Logistics to Specialists Economic Growth Across Different Sectors Necessitates Smooth Flow of Supply Chain Infrastructure Development/ Facilitates Logistics Implementation of an All India VAT System Declining 3PL Rates is Likely to Cause More Outsourcing 1-2 Years High High High 3-4 Years High High High 5-7 Years Very High Very High High Medium /High Medium /High
Low/Medium High Low/Medium Medium Low
Medium /High High
Growth of Multinational Operations Demand Professional Logistics Management With the opening up of the Indian economy to foreign companies, entrants may not consider it a very viable option investing in logistics infrastructure. Hence,they are likely to outsource their logistics operations in the country to a 3PL service provider. Local 3PL service providers such as GATI, AFL, Safexpress, and Om Logistics have excellent expertise in providing solutions for a variety of industry verticals. In certain other cases 3PL service providers holding key global partnerships with multinationals enter India together, thereby making an attempt to establish a base in the country. Moreover, companies entering the country may not be conversant with the complex business and tariff laws and so they require a 3PL service provider with a grasp on such aspects.
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Growing Inclination to Outsource Logistics to Specialists Frost & Sullivan observes an increasing trend toward outsourcing of logistics operations of a company to professional 3PL service providers. This is a positive trend for the 3PL service providers and it is taking place because companies have realized the importance of concentrating on their core competencies, leaving logistics to the experts. This trend is still in a fairly early stage. At present the level of outsourcing of services may vary between industrial sectors, with some of them opting for either a partial or a full service depending on the need. In the Indian FMCG sector, outsourcing of warehousing operation is likely to grow. This is due to the industry giants such as Hindustan Lever and Marico Industries outsourcing a part of their warehousing to multinational 3PL service providers such as Exel logistics and Sembcorp Logistics. In the Indian automotive sector though, professional logistics management is likely to witness a fairly strong growth, with concepts such as JIT delivery becoming standard. The retail sector is also experiencing a trend in logistics outsourcing. With the opening up of the Indian market? to foreign investment in the retail sector, it is expected that international giants such as Wal-Mart, Carrefour, and TOPS are likely to make it mandatory for their suppliers to supply to them through a dedicated 3PL service provider. In fact, existing retail chains such as Lifestyle International have outsourced the vast majority of their supply chain to dedicated 3PL service providers such as Exel and Om Logistics. It may not be long before the entire supply chain management process is outsourced, as the volumes handled by the retail chains are massive. In the IT hardware and electronics sector also outsourcing is expected to be on the rise with the multinational companies such as Thomson Electronics and Samsung and even Indian business houses such as the Apcom Group outsourcing their logistical requirements in part or in whole. Outsourcing of logistics to a 3PL service provider is beginning to be regarded as a move in the right direction as companies focus on cutting costs and reducing product delivery times significantly, thereby increasing customer satisfaction.
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Economic Growth Across Different Sectors Necessitates Smooth Flow of Supply Chain The Indian economy has been consistently growing at 7 to 8 percent annually for the past couple of years. The sectors that have been driving the growth to a very great extent include the automotive and auto components and engineering, which are the biggest users of 3PL services, considering the criticality of time involved in their operations. The use of 3PL services in the automotive sector is expected to grow in excess of 20 percent annually. In the engineering and auto sectors, the vendor base is large, and is likely to possibly result in greater logistical activity. India, along with China and Thailand is expected to be an attractive destination for manufacturing industries. In other sectors such as FMCG, even though growth has been relatively stagnant at an annual rate of around 4 percent, a trend in outsourcing individual services such as warehousing is witnessed. The Indian pharmaceutical sector is expected to be one of the more promising in the world. The large volumes generated by the pharmaceutical companies are likely to need a professional logistics management system in the near future. There have been several instances in the past where large consignments of spurious drugs have been recovered, necessitating the use of 3PL service providers that have the necessary technology and expertise to tackle fake drugs and manage the consignments. Another area of growth is Textiles. Textiles find a very large market in India itself and the country is one of the top exporters in the world. A lot of the textiles reach supermarkets and hypermarkets around the world, requiring very complex supply chains that need to be managed efficiently and professionally. Other sectors such as IT hardware and consumer electronics have a great potential for outsourcing as these are in the high-value category. The Government of India has opened up cargo transportation by rail to the private sector also, ending the monopoly previously enjoyed by Container Corporation of India (CONCOR) a subsidiary of the Indian railways. Rail freight in India is expected to grow at around 20 percent annually and 3PL service providers such as Reliance Logistics an APL Logistics have expressed a keen interest in setting up inland container depots and operating trains. Infrastructure Development Facilitates Logistics The present day Indian roads meet international standards. Though this is confined to only the national highways and certain state highways, an initiative by the Government to upgrade infrastructure is likely to be taken as a step in the right direction. The building of the Golden Quadrilateral network of roads, connecting the four major metropolises of India along with other major cities, and the NSEW corridor, which traverses the length and the breadth of the country, has facilitated easier and quicker transportation. The roads in the country are a lot safer than what they were previously. The communications infrastructure has also made major improvements enabling services such as vehicle tracking, which are now becoming trends across the industry. Patel Logistics has tied up with a leading mobile phone service provider to use the existing setup available for enabling tracking through SMS.
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I m p l e m e n t a t i o n o f a n A l l I n d i a VAT Sy s t e m The Indian Government decision to repeal the existing sales tax system and replace it with a uniform nationwide VAT is expected to alter the way supply chains are managed.Companies are likely to move from an existing setup of multiple warehouses to larger and fewer warehouses, with even multiple companies using a single warehouse. The reorganization of the warehouses needs professional management and this provides an opportunity 3PL service providers. Declining 3PL Rates is Likely to Cause More Outsourcing As competition increases between the 3PL service providers in the Indian market, pricing of services becomes a key issue. Even today, clients are not hesitant to show a 3PL the rates they have been offered by competitors. This may lead to stiff competition in the industry, with companies reducing service rates significantly to stay competitive. These declining rates are likely to increase outsourcing. Reducing rates may greatly strain profit margins; however, this can be well offset by a larger customer base.
Market Restraints
Figure 2-12 shows the market restraints ranked in order of impact for the total Indian third party logistics market from 2006 to 2012. Figure 2-12 Total Third Party Logistics Market: Market Restraints Ranked in Order of Impact (India), 2006-2012
Rank Restraint 1 2 3 High Cost of Logistics in India Existence of Infrastructural Bottlenecks 1-2 Years High High 3-4 Years High 5-7 Years Medium /High
Medium /High Medium
Non Uniform Implementation of VAT, Complex Medium /High Medium /High Medium Laws, and Sales Tax Regulations are not Favored by Compines Outsourcing to a 3PL Service Provider Attracts a Service Tax Competition from the Unorganized Segment Medium Medium Medium Low/Medium Low/Medium Very Low
4 5
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High Cost of Logistics in India The cost of logistics in India is relatively higher than the developed economies of Europe and North America. It is estimated at 13 percent of the GDP of the country, and even a small reduction can lead to major savings. The cost of logistics in Europe and North America is generally around 7 to 8 percent of the GDP. The rising fuel prices, improper management of resources, and lack of initiatives have been responsible for this to a great extent. Existence of Infrastructure Bottlenecks The development of infrastructure by the Government of India may have started; however, the country still has certain troubles with its logistics infrastructure. The national highways that carry the bulk of the country's freight comprise less than 2 percent of the total road network but it carries in excess of 40 percent of the country's freight. Due to this 3PL service providers may not be in the best position to serve the needs of their clients. With regard to the rail networks, until very recently, before the sector opened up, there were not many inland container depots to cater to the need of companies. Moreover, companies that sent consignments over long distances had to wait days before they knew the status of their shipment as they were not in a position to track their delivery. Though these are concerns on the short term, a growing economy such as India is expected to leaven out these issues in the long term. N o n - U n i f o r m I m p l e m e n t a t i o n o f VAT, C o m p l e x L a w s a n d S a l e s Ta x R e g u l a t i o n s a r e n o t F a v o r e d b y C o m p i n e s The existing octroi laws in the country are not favored by 3PL service providers. This can be observed in the Indian state of Maharashtra, where octroi is applicable to goods entering an octroi zone. Moreover, a state can have multiple octroi zones resulting in unnecessary cost addition. This tax is regressive in nature and has a relatively low restraining effect as states that continue having the tax are likely to repeal it very soon. Moreover, it is not also not practiced in many states. The present day 3PL service providers are forced to maintain warehouses in multiple states, thereby losing the advantages they can derive by achieving economies of scale. The impact again is expected to be low as the sales tax system is likely to be eliminated.
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Outsourcing to a 3PL Service Provider Attracts a S e r v i c e Ta x Outsourcing to a 3PL service provider, especially services such as Express Transport attracts a service tax. Express transport, which is a very efficient mode for time bound safe shipment, attracts a service tax of 12 percent. However, this is not the case with traditional trucking services. Express transport therefore tends to become more expensive, and companies that wish to outsource the service to a professional party may have to reconsider their decision to outsource. This is extremely disadvantageous for 3PL services as these have tremendous potential for growth. However, the same service tax is not applicable to rail freight and traditional trucking, hence putting 3PL service providers at a disadvantage. Competition from the Unorganized Segment Companies in the unorganized sector do not offer sophisticated services or have human resources with a great amount of technical expertise. These may own real estate or vehicles and provide trucking and storage to companies at extremely competitive rates. Though this may not be very professionally done, it still greatly serves the customers purpose. For example, a trucking agency with just five trucks could be on a contract with a local FMCG company for local distribution. The rates may be extremely competitive and overloading of the vehicle may be permitted, which in certain cases may not be legal. These are not applicable with a 3PL service provider as it would be violation of policy issues such as using only containerized trucks. Instead, if the above needs to be done, 3PL companies may use the services of a local 2PL provider, to make processes more convenient.
Major End-Users of 3PL in India

Figure 2-13 shows the top end-user sectors for the total Indian third party logistics market in 2005. Figure 2-13 Total Third Party Logistics Market: Top End-user Sectors (India), 2005
Automotive and Auto components Sector IT Hardware Consumer Electronics and Durables Pharmaceuticals Healthcare Retail
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The industry sector that generates the maximum revenue for the 3PL market in India is the automotive and auto components. The need of this sector for seamless logistics have caused a relatively higher penetration of 3PL services as opposed to others. Concepts such as JIT and Kanban have caught up fairly well with automobile manufacturers. Outsourcing in this sector is mainly considered as an important cost-saving measure, as manufacturers do not wish to maintain more than a few hours of inventory along the assembly line. With India becoming the next manufacturing destination for global automobile manufacturers such as BMW, Honda, and Suzuki, the growth potential in this sector is very good. Most of the present day automobile manufacturers partly or fully outsource their logistical requirements to 3PL service providers. After the automotive and auto components sector, the revenues generated in the Indian 3PL market is highest in the IT hardware and electronics sector. The level of outsourcing to a 3PL service provider in this sector is very high. The logistical challenges faced by the sector make it imperative to outsource to a 3PL service provider. A lot of companies have benefitted from outsourcing to a 3PL service provider in this sector. Other sectors that employ 3PL services in India are the consumer durables, pharmaceuticals, FMCG, and retail sectors.
Implications
of
VAT
on
3PL
Introduction to VAT
The recent decision of the Government of India to implement a nation wide VAT system, as opposed to the existing system of sales tax, may be seen as a step in the right direction. The sales tax system in India until now was highly regressive in nature. There were two types of sales tax namely the local sales tax and the central sales tax. The local sales tax had to be paid for a sale made within a state, while the central sales tax had to be paid in the case of inter state sale of goods.The local sales tax may vary from state to state. The company can accordingly bill the goods in a state depending on the tax saving it can obtain. Hence, goods manufactured in one state are shipped to a depot or a warehouse in the state where the sale is to be made. This system has had a negative effect on supply chains in India. It has forced companies to maintain warehouses or depots in several states spread across the country with an intent to save tax. Hence, the supply chain management in India has for long been governed by tax saving motives than geographical convenience. For example a company that needs to transfer goods from a depot to a retail outlet in cities close to each other but in different states, may find it more economical to do the same from a depot in the same state, even if the distance is greater. This is with a motive to avoid the applicability of the central sales tax. This is also not desirable as a large number of warehouses will hold more inventories, more manpower and resources to be managed, thereby leading to costs that may otherwise be avoided. The whole system has contributed to high levels of inventories in the manufacturing sector, resulting in the working capital getting locked for long durations of time, and reducing inventories by even a small amount can release capital that is hard to come by. A company's IT infrastructure will also need to be in position to synchronize the vast pool of resources spread across the country.
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Transportation, inventory, and warehousing account for the three largest cost components in any supply chain activity. In India there are a number of taxes such as central sales tax, local sales tax, octroi, and entry tax. Many of these taxes are governed by individual states in India, and may hence vary between them. State borders in India are notorious for being centers of illegal trafficking and harassment by corrupt authorities. Trucks drivers have to wait long hours at borders for completing inter state formalities and paperwork, in the process consuming a lot of precious corporate resources and time. The system has necessitated the presence of C&F agents that are an extra step in the supply chain. At present, the sales tax system requires that tax be paid at every stage of the value chain, resulting in a cascading tax effect. Transactions within a single company do not attract sales tax and hence cascading can be avoided. This would require the company to integrate backwards thereby, making it less efficient as compared to a value chain containing multiple firms working in harmony. The elimination of the sales tax system and consequentially, the implementation of VAT can help in making changes to the present scenario. The system of VAT is expected to replace the redundant sales tax system in the near future. Though VAT has been implemented in certain states in the country, it is yet to take effect in the others. This is likely to take place in the near future. The VAT system is expected to eliminate the inherent deficiencies in the Indian tax system. Tax at any point along the value chain may be charged only for the value added at each stage, as opposed to a whole taxation. This would make taxation more transparent, with companies requiring and recording a sale in order to benefit a tax credit from the government. This also helps the Government to prevent tax evasion by traders. On the whole the supply chain management in the country is expected to benefit from the implementation of VAT.
Challenges for 3PL Service Providers due to VAT's impact

The transition to a uniform national VAT system is expected to be chaotic and it is likely to be surrounded by a significant degree of confusion. At present, many 3PL service providers are still in the process of gathering information on VAT. This has prompted many companies to have multiple tax modules in place, in order to comply with the VAT system right from the day it is implemented. Once complete, the transition is expected to set supply chains of the country in perfect working order.
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Reorganization of IT Infrastructure may be Complicated One of the challenges that 3PL service providers may face during the transition to a fully VAT compliant system is the reorganization of the IT infrastructure in order to maintain records and transactions to meet VAT standards. Companies will need the right IT infrastructure to track transactions at every stage along the supply chain to gain maximum advantage from VAT. Synchronization of IT systems on a national level may pose a formidable challenge.The sales tax departments in various states will also need significant IT restructuring to cope up with the new tax system. M a i n t a i n i n g L a r g e Vo l u m e s o f Tr a n s a c t i o n a l R e c o r d s C o u l d b e a D i f f i c u l t Ta s k The VAT system taxes only the value addition at each stage along the value chain, as opposed to whole taxation under the previous system. To avail input tax credit for a transaction there needs to be proof that a sale has been made by maintaining records of same. This will entail additional paperwork that poses as a considerable challenge. The new system will require companies and dealers to maintain two separate records of sales and purchases. Ensuring minimum flow of documents and paperwork could be one by enhancing IT infrastructure which could ultimately replace all document flow. Moreover, states have varying requirements to maintain records under the new system. With the non-uniform implementation of VAT across the country, the documentation requirements can vary between states, requiring companies to maintain two sets of documents. All these will affect 3PL service providers offering invoicing services to their clients as record keeping costs have to reach new highs. N o n u n i f o r m i t y o f VAT I m p l e m e n t a t i o n A c r o s s t h e N a t i o n a n d t h e C o - e x i s t e n c e o f VAT w i t h t h e C e n t r a l S a l e s Ta x s y s t e m i s C o m p l i c a t i n g VAT has not been implemented throughout the nation uniformly, with some states reluctant to implement the system. These states are continuing with the outdated local sales tax system. As a result, there exist certain confusion about the VAT system. These include deciding the appropriate supply chain model for sales between states. For example, for a sale to be facilitated from state A to state B, one complying with VAT and the other not complying, supply chain models that enable maximum profitability need to be worked out. Certain states may have shown a reluctance to implement VAT as it has not been very popular among the trading community. This is likely to change after elections in states going to the polls, as political parties in power may not want to invite the wrath of the traders. Change is likely to be expected and by 2008 the country is expected to have a uniform VAT regime.
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At present the central sales tax payable for a sale has not been eliminated. It continues to exist along with the VAT in the states where it has been implemented. This defies the logic behind shifting to a new warehousing model as the motive behind having C&F agents in each state was to avoid the applicability of the 4 percent central sales tax on the invoiced amount. Input tax credit is presently available on purchases made; however, it cannot be claimed on central sales tax payable on inter state transactions. Central Sales Tax is expected to be completely phased out by 2010. Competition from the Unorganized Segment Poses a Significant Challenge to the Growth of these Companies The unorganized segment that predominantly comprises the C&F agents may be seen consolidating gradually and moving into organized 3PL service providers. The threat from this segment though may not be significant considering the fact that 3PL service providers have greater technical expertise than the former. The only real competition may be in the form of pricing strategies employed by the C&F agents, which could also be offset by the quality of services the 3PL service providers offer. Even though a nationwide implementation of VAT could witness reorganization in the distribution of warehouses from plenty to just a small number of zonal warehouses. In certain industries such as pharmaceuticals and FMCG, the C&F model is likely to be used for some more time. This is due to the fact that companies will want to maintain a state wise strategic distribution point to stay ahead of competition. Apart from the challenges mentioned above, there could be certain sentimental issues associated with shifting to the new system. Long-term relationships with C&F agents could come to a halt, resulting in loss of employment. Added to this, many C&F agents have service-level agreements with companies and shifting to the new system will be gross violation of the agreements. In many cases, C&F agents are also distributors for companies and cannot be removed within a short time frame for strategic reasons.
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Opportunities for 3PL Service Providers due to VAT's impact

The implementation of VAT is expected to witness 3PL warehousing specialists move into a space perviously occupied by the highly unorganized C&F agents. With the implementation of a nationwide VAT expected to be completed very soon by 2008,and the abolition of central sales tax by 2010, many companies may try to reorganize their supply chains in order to cut costs. Previously, companies maintained stocking points at multiple locations across the country as the sales tax gains obtained outweighed the costs of setting up and running additional stocking locations. Multiple stocking points meant extra usage of resources and hence additional costs in terms of manpower, resources, and inventories. With the elimination of central sales tax expected to take place in the near future, companies are moving fewer zonal warehouses, as it is more economical. Companies are expected to start consolidating their warehouses and possibly try to outsource some of their warehouses. The 3PL service providers can take advantage of this opportunity. Companies can also gain by outsourcing their warehousing to 3PL service providers as they have the required expertise in maintaining warehouses and can handle fluctuating volumes. The present system of C&F agents, who have been thriving under the previous sales tax system, are likely to remain for some more time. Eventually, it is expected that they will ultimately upgrade the existing facilities to a 3PL warehouse or consolidate with 3PL service providers, or get eliminated from operating in certain sectors. Companies are likely to find it more convenient to manage one or more 3PL service providers compared to the past. Post implementation of VAT, consolidation of warehouses from many spread across different states to just a few zonal hubs is expected to take place. There is expected to be greater volumes of goods to handle and information from fewer warehouses, which is likely to lead to the implementation of technologies and tools such as robots, conveyor belts, cranes, and fork-lifts imperative. The C&F agents may not be able to provide services with this level of sophistication, placing 3PL service providers at a clear advantage. The apparel industry may need to operate out of high capacity warehouse facilities considering the large volumes being handled. Investing in these facilities may not be economically viable and leading brands may occupy multi-user warehouses operated by a 3PL service provider. This can also take place in the pharmaceuticals and FMCG sectors, where margins are already strained greatly. The retail sector is also expected to benefit as direct factory to retail shipping will become more viable. The 3PL service providers can take advantage of the opportunities opened up by these sectors. Large multi-user warehousing facilities can help 3PL service providers leverage economies of scale. Implementation of VAT is also expected to start automating the supply chains in India greatly as companies will need to record financial transactions at every point along the supply chain and information about the physical movement of goods. This will need appropriate technology implementation, which 3PL service providers in India have already started offering. An indirect result of this could be better managed supply chains, which is something 3PL service providers could offer to their clients.
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3
Overview of 3PL Needs and Practices in India
3PL Usage in the Indian Automotive and Auto Components Sector

Chart 3.1 shows the logistics model followed by a leading MNC Vehicle Manufacturer in the Indian third party logistics market in 2005. Chart 3.1 Third Party Logistics Market: Logistics Model followed by Leading MNC Automakers (India), 2005
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The automotive and auto components sector is the largest revenue generator in the Indian third party logistic (3PL) market. The entire automotive and auto components sector in India is estimated at $40 billion. With the growth of India as one of the next destinations for automobile manufacturing outside Europe and North America, the growth of 3PL operations in this sector is driven with the increasing need for professionally managed supply chains. Indian manufacturers are beginning to adopt global best practices and have started realizing cost benefits that can be derived by concentrating on core competencies and delegating logistics to professional agencies. The penetration of the 3PL concept is one of the highest in this sector with manufacturers demanding seamless logistics. Most Original Equipment Manufacturers (OEMs) source from a large and geographically diverse vendor base. Integrating the supply chains of these vendors seamlessly poses a formidable challenge. Inbound logistics was previously not greatly focused on because of the complication and criticality involved in operations, considering that late deliveries could disrupt manufacturing schedules and early deliveries could result in unnecessary inventory holding costs. One of the reasons for this was the wide geographical spread of the vendor base. Some companies in places such as the west Indian state of Maharashtra had vendors located as far as the south of the country. Consolidation of the same was difficult considering the varying sales tax rates in states. Outsourcing to a 3PL service provider has reduced these problems considerably, as these companies slightly tweaked the sourcing patterns and managed transporters and freight providers to make the supply chain more efficient. Concepts such as Kanban and just-in-time (JIT) delivery to the assembly line are gaining acceptance, Certain companies hold only a few hours of inventory and replenish stock regularly. As a result, professionally managed inbound logistics solutions is being increasingly considered as a viable cost saving option. This can be witnessed on a regular basis with leading automobile manufacturers, where daily milk runs by 3PL service providers are conducted to provide seamless inbound logistics, instead of waiting for the vendor to supply it, thereby helping in reducing the number of vehicles entering the factory premises and maintaining optimum levels of inventory. Another trend that is beginning to be observed is the growth of vendor managed inventory (VMI). VMI is a means of optimizing supply chain performance wherein suppliers have access to manufacturing schedules and inventory data and are accordingly responsible for maintaining inventory as required by the customer. In the past, OEMs have been known to carry inventories of several days or even months, owing to the lack of visibility along the supply chain, leading to very high levels of working capital. It increases the transparency along the supply chain. In VMI, the 3PL service provider plays a very critical role in ensuring that consignments are brought to the satellite warehouses for putting in bins and transporting to the factory just-in-time (JIT) for assembly. It can be said that The level of IT integration along automotive supply chains is higher than that in other sectors; however, there is definitely a great amount of room for improvement.
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Outsourcing of warehousing operations to a 3PL service provider is witnessing a growing trend in this sector. With inventories getting replenished at very short intervals in the warehouse, a large number of stock keeping units to maintain the use of 3PL managed warehouses could become imperative. These are highly technology driven warehouses with high-end use of sophisticated material handling equipment. IT usage in warehouses has also gained acceptance with the implementation of warehouse management solutions to provide real-time visibility about inventories in the warehouse. Adoption of technologies such as the use of Radio Frequency Identification (RFID) tags in warehouses may just be witnessing a growing trend. This being followed in certain warehouses of Ashok Leyland Limited at Hosur and Maruti Udyog Limited. At present local sourcing is rife in the Indian automotive sector. India is one of the next component sourcing destinations for global automotive giants such as General Motors (GM). In fact GM have announced plans to source $1 billion worth of auto components from India annually by 2008. Growth in internationally linked supply chains is expected to be a key growth driver for 3PL services in this sector. Currently, more than 60 percent of the demand for auto components is from the aftermarket with most OEMs having well established supply chains to cater to the same. The export channel accounts for the smallest demand while the other demand comes from the OEMs. The uniqueness of logistics for the automotive sector has witnessed the growth of many 3PL service providers that operate in this niche segment. Companies such as TVS Logistics and Transystem Logistics International are pure auto logistics companies. There are other companies such as Om Logistics that predominantly operate in the automotive sector. Pricing strategies in the segment are highly competitive leading to increasingly lower rates offered to clients. The implementation of a uniform VAT system and the elimination of the present sales tax system is expected to make auto supply chains a lot more leaner. Sourcing from other states is expected to become cheaper and more efficient as bottlenecks such as inter-sate border legalities are expected to be eliminated. Hence, there is a major potential for growth of 3PL services in the automotive and auto component sector. The sector continues to be one of the key drivers for the growth of 3PL services in India. Leading 3PL companies in this sector include Om Logistics, Total Logistics, Transystem Logistics, and TVS Logistics.
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3PL Usage in the Indian IT Hardware and Electronics Sector

Chart 3.2 shows the standard model of goods flow in the IT Hardware and Electronics sector of the Indian third party logistics market in 2005. Chart 3.2 Third Party Logistics Market: Standard Model of Goods Flow in the IT Hardware and Electronics Sector (India), 2005
The India IT Hardware and electronics sector was worth $11.0 billion in 2005. The logistics of the Indian IT hardware and electronics sector is very challenging. The competition in the industry sector is very intense and companies consider their supply chains as a means of gaining a competitive edge.The challenges are several. Logistics will be carried out with minimal disruptions at the same time help in the growth of revenues and profits. The growth of 3PL managed logistics in the sector is on a growing trend and the penetration of 3PL service providers in the logistics of the industry is very high.
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In the IT sector, getting the goods to the retail shelves is of critical importance as, in many cases, time literally translates to sales and hence capital. Opportunity costs involved in the sector are very high. At present one of the key areas of focus in logistics of this sector is effective planning of inventory. The most affected along the supply chain in terms of inventory costs are the value-added re-sellers and the distributors. These are experimenting with different forecasting models to decide on a model that is most economical. Distributors and vendors are generally inclined to plan their inventories on a monthly cycle, while the Value Added Re-sellers (VAR) prefer it on a daily cycle. Inventory holding costs in this sector are high. This has led to a growth in the outsourcing of inventory management in the industry. Companies that were previously maintaining inventory levels of up to 30 days have benefited by outsourcing to a 3PL service provider, which has helped in reducing inventory levels to a week. Companies now determine minimum order quantities and ordering is done in three to four cycles every month to maintain optimum inventory. Product life cycles in the IT hardware sector are very low, thereby requiring very effective forecasting. Selling stocks of leading companies is not an easy task as products have to be available with the distributor for it to be sold. This requires very effective forecasting and logistics management. Freight constitutes around 60 percent of the costs in the logistics. With the cost of transportation increasing annually due to hike in fuel prices worldwide, it will be cost effective to outsource logistics management to a 3PL service provider. Distributors such as Redington, Rashi Peripherals, and Savex have tied up with 3PL service providers such as Gati, Safexpress, and AFL. One of the concerns expressed by companies is that there are only a few logistics service providers that provide committed delivery schedules. Warehousing operations are also beginning to be outsourced to 3PL service providers. Companies generally maintain warehouses at multiple locations to enable tax savings under the existing sales tax system. This requires large IT support infrastructure in terms of inventory forecasting and control. Warehousing costs in the industry are high due to cost of storage, insurance, depreciation, and obsolescence. Companies generally tie up with 3PL service providers to use warehouse space and pay a fixed amount every month. In the future, more sophisticated warehouses enabled with warehouse management systems software and tracking devices are expected. With the implementation of VAT,there is likely to be a change in the distribution strategies adopted by companies as the industry will be relieved from the effects of cascading taxes and companies could shift to centralized distribution models. Warehousing in this sector is then expected to witness a healthy growth after the uniform VAT is implemented. Skilled management of logistics in the industry needs effective procurement at the right price and time. Controlling physical movement of goods is of utmost priority and hence there is a necessity to provide track and trace facilities. Outsourcing to a 3PL service provider will help clients achieve seamless logistics with visibility along the chain.
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One of the disadvantages of outsourcing to a 3PL service provider is the applicability of service tax, especially on express transport, a service that is of importance to the IT Industry. The logistics of the sector need professional management and hence companies are increasingly outsourcing to professionals. The penetration of 3PL services in the logistics of this sector is among the highest across all verticals. Leading 3PL companies in this sector include AFL Logistics, Exel Logistics, Safexpress, and SembCorp Logistics.
3PL Usage in the Indian FMCG Sector

Chart 3.3 shows the standard model of goods flow in the FMCG sector of the Indian third party logistics market in 2005. Chart 3.3 Third Party Logistics Market: Standard Model of Goods Flow in the FMCG Sector (India), 2005
Indian FMCG Sector - Standard Goods Flow Model
Manufacturing Unit
Central Warehouse
State/ Regional Warehouse Owned by C&F Agent
District Level Stock Point Owned by Distributor
Town Level Stock Point Owned by Wholesaler
Retailer
Owned by Company
Owned by Company
The Indian fast moving consumer goods (FMCG) sector was valued at $14.5 billion in 2005. The logistical requirements of the sector are huge. The logistics of this sector has for long been dominated by participants in the unorganized segment, with small time truckers and C&F agents playing a very crucial role. This unorganized format of logistics is because the volumes of goods manufactured and the geographical diversity of India's consumers. This cannot be handled by any single logistics company. There is a very high degree of decentralization in the logistics of this sector with stockists and dealers spread all over the country.
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There are around 3.3 million retail outlets to cater to by these companies. The logistics of the FMCG sector demand that stock keeping units be made available on retail shelves to a great extent to prevent customers switching brand loyalty. Distribution strategies employed by companies are also very aggressive. In spite of the nature of competition that exists in the industry, professionally managed logistics is hardly seen. There could be several reasons for this. Firstly, as FMCG companies operate on slim margins, outsourcing to a 3PL may hike up distribution costs as these service providers charge high rates. This can result in slimming margins further. Secondly, the supply chain is one of the most critical components of an FMCG company's operations, and outsourcing the entire chain would mean investing all its resources with one service provider. Any disruption in the chain could have disastrousconsequences on distribution activity and this is something that FMCG companies cannot afford in such a competitive scenario. Clients are also not convinced about the infrastructure capabilities of the 3PL service providers to manage the large volumes produced. Transportation activity in the logistics of the FMCG sector is predominantly in the done by the unorganized sector. The activity is outsourced to local truckers who generally have a long-term working relationships with local company depots. The activity is managed very unprofessionally and the trucks run on full loads. There is no proper weather proofing available and the vehicles are covered with tarpaulin covers in the event of rain to prevent water from seeping in. The disadvantages with the unorganized segment are very high. There is a lack of accountability, and malpractices such as fuel pilferage are common. In spite of this companies do not mind operating with the unorganized segment, as it is cost effective and also honors a long-term relationships with the truck owner. The warehousing operation is predominantly in the form of clearing and forwarding (C&F) agents, whose presence has been necessitated because of the redundant sales tax system in India. The C&F agents have flourished under the past system. Companies have used them to effect stock transfers between states. Some companies find it very convenient with C&F agents due to long standing relationships with them and these agents also release scarce working capital. This type of warehousing lack professionalism and is more of a storage function only. Organized 3PL warehousing can be seen on the growing trend with industry leaders such as Hindustan Lever Limited, Dabur, and Marico outsourcing their requirements, albeit in a small way, to 3PL service providers such as Exel Logistics and Sembcorp Logistics. Most companies have started outsourcing on purely an experimental basis. In fact Hindustan Lever has outsourced their warehouse at Bangalore to Exel logistics after a successful experiment at their Hyderabad warehouse.
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The implementation of VAT is likely to witness supply chains being altered in the FMCG sector. One interesting opportunity that 3PL service providers can look forward to is occupying a position previously held by C&F agents. The margins in the FMCG sector are already low and hence 3PL service providers cannot expect very high margins. The growth in this sector is expected to come from professional warehousing, with leading companies increasingly outsourcing to 3PL service providers. Leading 3PL companies in this sector include Exel Logistics, Gati, Reliance Logistics, Sembcorp Logistics, and TCI Supply Chain Solutions
3PL Usage in the Indian Pharmaceuticals Sector

Chart 3.4 shows the standard model of goods flow in the pharmaceuticals sector of the Indian third party logistics market in 2005. Chart 3.4 Third Party Logistics Market: Standard Model of Goods Flow in the Pharmaceuticals Sector (India), 2005
Indian Pharmaceuticals Sector - Standard Goods Flow Model
Manufacturing Unit
Central Warehouse
State/ Regional Warehouse
District Level Stock Point
Medical Representatives
Retailer
Owned by Company
Owned by Company
Owned by C&F Agent
Owned by Distributor
Owned by Wholesaler
The Indian pharmaceuticals sector is one of the fastest growing in the country. It was valued at $8.3 billion in 2005. The average spend on logistics is around 3.8 to 4 percent of the total industry turnover. The average cost of logistics is greater in the case of companies that operate cold chains.The penetration of 3PL service providers in this sector has been fairly low, considering that they may not be equipped with the infrastructure to handle the large volumes and diverse distribution networks that pharmaceutical companies need.
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A majority of companies manage their logistics themselves, either using a network of C&F gents or through their own depots.This can change if some good 3PL service providers enter the market. At present, penetration is very low, where there are only a few companies that outsources the entire distribution to only one party. C&F agents work at a commission of 1 to 1.5 percent of the invoiced amount. They provide only space while all the billing is done in the name of the company. All the other responsibilities lie with the company. In a vast majority of the cases, the penetration of the 3PL service provider has been extremely low. On an average, a little more than half of the total cost of a pharmaceutical product in India is in the form of raw material costs. The sourcing of raw materials for the manufacture of bulk drugs is characteristically complex, due to the large vendor base. Certain special chemicals required for manufacture are available only outside the country, with long lead times. Procurement of certain chemicals from alternate sources generally tends to be a more expensive process, as tax and duty structures tend to make imports significantly cheaper than chemicals sourced locally. Hence there are formidable inbound logistics challenges to be met such as reducing the sourcing costs. Transportation in the pharmaceutical sector is highly unorganized. Most of the transportation is in the form of traditional trucking. The unorganized truckers treat expensive pharmaceutical consignments just as an ordinary one. Generally the whole consignment is carried on full truck loads and just covered with a tarpaulin cover. Extreme weather conditions such as heavy rainfall can damage consignments. The pharmaceutical sector in India is in great need of professionally managed cold chains for drugs that need controlled storage environments. Growth of the express mode of transport could happen if companies realize the benefits of using it. Presently the penetration of express transport in the transportation requirements is low. This is expected to change once the road infrastructure of the country develops and becomes more conducive for express transport. Currently, there is requirement for express transport, considering the highly competitive nature of the pharmaceutical sector. However, highly strained margins may deter companies from outsourcing to a professional 3PL service provider.l. The hidden costs involved in logistics of the pharmaceutical sector are high and these are often overlooked. It will be possible to eliminate these costs by outsourcing to a 3PL service provider. For example the time and effort of accountants, who are directly not connected but still perform a very important role in the managing of supply chains is greatly overlooked and this is a component that can be avoided by outsourcing to a 3PL service provider. IT infrastructure along the supply chain is very poor. The way stocks are rotated poses a huge challenge. Clearing near expiry date stocks faster is of paramount importance and most of it is done manually. Presently, a large pharmaceutical company may have in excess of a hundred distributors spread all over the country, an integrating them remains a major challenge. Due to the drug price control orders imposed by the government, it is economical to adopt technologies such as RFID.
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Outsourcing to a 3PL service provider has started in warehousing operations. Many companies such as Lupin Laboratories, Dr. Reddy's Laboratories, and Ranbaxy have shown a willingness to outsource their warehousing operations albeit to only a small extent. This is expected to grow once a nationwide VAT system is implemented, eliminating the necessity of a C&F agent to a great extent. The C&F agents manage their resources very unprofessionally, and generally do not have IT systems of their own. They are mostly provided by the company itself. Outsourcing to a 3PL service provider is expected to gain acceptance soon as there is an increasing requirement for professional management of logistics. Companies may operate on very low margins and 3PL service providers may need to operate with a critical mass of at least five to six companies to stay competitive. Leading 3PL companies in this sector include Safexpress, Gati, and Sembcorp Logistics.
3PL Usage in the Indian Retail Sector

Chart 3.5 shows the logistics model of leading retailers in the Indian third party logistics market in 2005. Chart 3.5 Third Party Logistics Market: Logistics Model followed Leading Retailers (India), 2005
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The Indian retail sector is currently worth $200 billion and it contributes to around 6.0 percent of the employment in the country. Although there are 12 million outlets across the nation, majority of them are mom and pop shops with the organized segment contributing to around 3.0 percent of the total retail market. The logistical needs of the retail sector depends largely on the scale of operations, the product category, and retail format. The unorganized segment of retailing still employs truckers and fleet operators to carry out their transportation activity and maintain very less inventory in their own warehouses, which in most cases is a part of their shop. The penetration of 3PL service providers in this segment is as low as 2.0 percent. This can be attributed to the fact that the small shops also form a part of the distribution network of a major 3PL service provider and hence use their services in rare occasions. The organized segment of retailing, which is the main driver for the 3PL market in India is expected to have a high growth rate of around 30.0 percent by 2012. The organized retailing segment is marked by foreign direct investment, entry of multinationals, and rapid expansion of existing outlets across the nation. This is a direct result of the increasing levels of disposable incomes among the middle class consumers and their aspiration to raise their standard of living. With the increasing need of the organized retailing in India, the 3PL needs are also expected to be on the rise accordingly. Currently there is a low level of 3PL service adoption even among the organized retailers. The transportation is partly carried out by organized service providers and partly by truckers and local transporters. With the implementation of VAT, the warehousing activity is expected to be streamlined, which is an added advantage for the retail sector. It is expected to increase outsourcing of warehousing operations in the future. The multinationals entering the Indian retail market are expected to take the expertise of 3PL service providers to meet their logistical needs at a low cost with minimal investment in the infrastructure. The need for information management is also increasing in order to stay competitive. It essentially helps the local and multinational participants to track their inventory and maintain minimal stocks and achieve greater cost efficiency in their supply chain. These factors are expected to drive the retail sector toward outsourcing their logistics activities to a 3PL service provider till 2012.
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The organized retail participants include different segments such as apparel and lifestyle, consumer durables, food and grocery, footwear and leather, home furniture and fixtures, health and beauty-based multi-brand retailers, stationery and gifts, watch, and jewelry. The logistics model for each of these segments varies significantly due to the nature of product and the product life cycle. The future opportunities of 3PL service providers depend on their ability to customize their services to suit the unique needs of each participant of this segment and offer competitive rates. The opportunities offered by the retail sector are large and the expectations are high; however, the attitude is not so favorable. The Indian retailers are still not open to outsourcing for fear of losing control over their supply chain. The 3PL service providers therefore have to prove their competency by offering cost effective services and build a longterm synergetic relationship with the retailers, which will attract the new entrants into the market to outsource as well. Though the stabilization period for the 3PL market is expected to continue for the next five years till 2010, the growth of the market after that period is likely to be phenomenal with the increasing need and confidence of the retailers. Leading 3PL service providers in this sector include Safexpress, Gati, Sembcorp Logistics, and TCI Supply Chain Solutions.
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4
Industry Size
Industry Size in Terms of Number of Companies

Figure 4-1 and Chart 4.1 show the industry structure by type of service provider in the Indian third party logistics market in 2005. Figure 4-1 Third Party Logistics Market: 3PL Industry Structure by Type of Service Provider (India), 2005
Category National 3PL Service Provider Regional 3PL Service Provider Local 3PL Service Provider TOTAL Number of Companies 40 30 360 430
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Chart 4.1 Third Party Logistics Market: 3PL Industry Structure by Type of Service Provider (India), 2005
National 3PL Service Provider 40
Regional 3PL Service Provider 30
Local 3PL Service Provider 360
In 2005, the total number of service providers in the Indian 3PL market was estimated at 430. National 3PL service providers accounted for around 47.7 percent of the revenues generated in the market. In 2005, there were around 40 national 3PL service providers in the market. They have very strong distribution networks on a national scale and are highly known and often used by large corporations for their logistical needs. There were around 30 service providers in the regional 3PL market. The regional 3PL service providers accounted for around 43.5 percent of the revenues generated in the market. These 3PL service providers deal with companies on a regional or state level basis and cater to the needs of clients in local areas, as well as to places where national 3PL service providers do not have a reach. There were around 360 local 3PL service providers in the market. The local 3PL service providers accounted for around 8.8 percent of the revenues generated in the market. These service providers have relatively much smaller scales of operations compared to the regional and the national 3PL ones. They also have very well established networks on a district or town level.
Industry
Life
Cy c l e
Current Status of the Industry Life Cycle

Chart 4.2 shows the life cycle of 3PL service providers in the Indian third party logistics market from 2000-2015.
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Chart 4.2 Third Party Logistics Market: 3PL Industry Life Cycle (India), 2000-2015
The Third Party Logistics (3PL) Industry today comprises many companies competing with each other. In 2005, there were around 360 local 3PL service providers that operated at a level not penetrated by participants with a purely regional and national-level presence. The 30 regional service providers have well established networks in the state and deal with the local service providers for access in remote areas. The service providers with national operations, liaison with the regional operators, in areas accessible by the latter. This shows that there are three tiers of companies, each operating at a different level. As a result, it can be noted that the industry is highly fragmented, as has been the case for many years now. This fragmented scenario is expected to fade away slowly once the consolidation phase sets into the industry. Consolidation has not set in the industry and it is expected that it will start take place, driven by a requirement to manage fewer logistics service providers. Till then the number of 3PL service providers in the market is expected to grow. The smaller companies are likely to ultimately start consolidating with the bigger companies in the market, failing which, they may be not be in a position to survive in the highly competitive environment and eventually ceasing to exist. Mergers & Acquisitions by companies, especially multinational 3PL service providers to gain local network access is expected to take place. Mergers & Acquisitions are already taking place on a global level, and the scenario is likely to be replicated in India, where several 3PL service providers are catering to the needs of their clients, assisted by smaller companies. This is likely to witness the emergence of fourth party logistics (4PL) service provider. Though consolidation is expected to take place, the market is still likely to remain fragmented to a substantial extent.
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Current Status of Market Life Cycle

Chart 4.3 shows the market life cycle of the Indian third party logistics market from 2000-2015. Chart 4.3 Third Party Logistics Market: Market Life Cycle (India), 2000-2015
The market for 3PL is experiencing a growing trend. This is expected to be witnessed till the year 2012, considering the various factors that are driving the market are likely to have a greater impact than those restraining the growth. The growth is expected predominantly from multinational companies entering India, and their increasing tendency to outsource logistics to a professional service provider, while concentrating on core competencies. The growth is expected to continue well without recording any retardation until the end of forecasted life cycle period 2015.
Market
Share
Comparison
and
Breakup
Competitive Scenario
Figure 4-2 and Chart 4.4 show the revenue breakup by type of service provider in the Indian third party logistics market in 2005.
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Figure 4-2 Third Party Logistics Market: Revenue Breakup by Type of 3PL Service Provider (India), 2005
Category National 3PL Service Provider Regional 3PL Service Provider Local 3PL Service Provider TOTAL 2005 (%) 47.7 43.5 8.8 100.0
Chart 4.4 Third Party Logistics Market: Revenue Breakup by Type of Service Provider (India), 2005
Local 3PL Service Provider 8.8% National 3PL Service Provider 47.7%
Regional 3PL Service Provider 43.5%
Figure 4-3 and Chart 4.5 show the revenue share breakup between national 3PL service providers in the Indian third party logistics market in 2005.
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Figure 4-3 Third Party Logistics Market: Revenue Share Breakup Between National 3PL Service Providers (India), 2005
Company Gati Safexpress Om Logistics TVS Logistics SembCorp Logistics AFL Logistics Reliance Logistics Patel Logistics Transystem Logistics DHL Take Solutions Others (Bax Global, Kochi Logistics, Prologis, Lemuir, Linfox etc.) Total 2005 (%) 11.8 9.4 8.2 7.0 6.1 5.6 4.7 4.2 3.6 2.6 1.4 35.4 100.0
Chart 4.5 Third Party Logistics Market: Revenue Share Breakup Between National 3PL Service Providers (India), 2005
Others (Bax Global, Kochi Logistics, Prologis, Lemuir, Linfox etc.) 35.4%
Gati 11.8% Safexpres 9.4%
Om Logistics 8.2%
TVS Logistics 7% Take Solutions SembCorp Logistics 1.4% DHL 2.6% Transystem AFL Logistic 5.6% 6.1% Logistics 3.6% Reliance Logistics Patel Logistics 4.7% 4.2%
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The national 3PL service providers accounted for 47.7 percent of the revenues generated in the market in 2005. They have the largest share of the market and generally cater to large corporations. This can be attributed to the relatively more expensive rates offered by them, which find customers predominantly among the large corporations. The regional 3PL service providers accounted for 43.5 percent of the revenues generated in the market. The local 3PL service providers accounted for 8.8 percent of the revenues generated in the market.
Services
Comparison
National 3PL Service Providers

Figure 4-4 shows the service comparison between national 3PL service providers in the Indian third party logistics market in 2005. Figure 4-4 Third Party Logistics Market: Services Comparison between National 3PL Service Providers (India), 2005
Range of Services Offered for FMCG Sector in each Function Company Name DHLExel Warehousing Distribution Consolidation and Mega Warehouse Management Transportation Partial-Primary Transportation from Factory to Regional Warehouse Freight Forwarding MIS/Others Complete export Import Logistics Management MIS, Back Office Operations, Procurement Logistic, Reverse Logistics Major Verticals Served Service Parts LogisticsSpare Parts LogisticsMedical ElectronicsTelecommunicationsFMCGRetailTextile and Apparel FMCGRetail IT Hardware & ElectronicsPharmaceuticals and HealthcareConsumer DurablesAutomotive and Auto Components FMCGRetailChemicals and PetrochemicalsConsumer Durables
SembCorp Logis- Warehouse tics Management and Storage Solutions
Partial-Primary Transportation from factory to Regional Warehouse
Complete export Import Logistics Management
MIS, Customer Support, Packaging Solutions
Reliance Logistics
Warehousing and Distribution Management Warehousing Services
Multi-modal primary Transportation Management
ExportImport logistics support
Customized MIS Services
TCI Supply Chain Solutions
Primary and Secondary Transportation Services up to Distribution Centers Primary and Secondary Transportation Services up to Distribution Canters
Standard Freight Forwarding services
MIS, e-Logistics, Kitting, Reverse Logistics
FMCGConsumer DurablesAutomotive and Auto Components
Gati
Customized Warehousing Solutions
Customs clearance MIS solutions, and cargo Manage- Returns Management Services ment, Supply Chain Consulting
AutomotivePharmaceuticalsRetailConsumer ElectronicsConsumer DurablesIT HardwareFMCG
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Figure 4-4 (Continued) Third Party Logistics Market: Services Comparison between National 3PL Service Providers (India), 2005
Range of Services Offered for FMCG Sector in each Function Company Name Om Logistics Warehousing Transportation Freight Forwarding MIS/Others Customs clearance Standard MIS and Cargo Manage- Services ment services Major Verticals Served AutomotiveConsumer DurablesRetailConsumer ElectronicsPharmaceuticalsFMCG
Standard Ware- Primary and Sechouse Manage- ondary Transporment tation Management up to Distribution Centers Warehousing and Distribution Services Multi-modal Primary Transportation Management
AFL Logistics
Standard Freight Forwarding Services
MIS, Sales Promotion
Automotive & Auto componentsIT HardwareConsumer ElectronicsTelecommunicationsFMCGPharmaceuticalsRetail
Safexpress
Centralized Warehouse Management
Primary and Secondary Transportation Management up to Distribution Centers Primary and Secondary Transportation Services up to Distribution Centers
Customs clearance Standard MIS Retail & ApparelIT and Cargo Manage- Services, Consult- Hardware & Electronicment Services ing sAutomotive & Auto componentsPharmaceuticalsFMCGConsumer Durables Basic Freight Forwarding Services through Partners Basic MIS AutomotiveEngineeringFMCG
Patel Logistics
Basic Warehousing and Distribution Services
The national service providers have the capacity to offer end-to-end supply chain solutions to their clients, acting as a single point stop for all logistics requirements. They have pan India operations.They offer extremely sophisticated services and provide solutions such as vehicle tracking and vendor management of inventory. Other 3PL service providers may not be in a position to offer these service. Their services are highly professional in nature and are generally with large corporations whose supply chain performances are extremely critical and time bound. The level of technology adoption by these service providers is relatively higher than the service providers in the other two tiers. The warehousing solutions offered by these service providers also meet global standards. There is use of material handling equipment such as fork-lifts, cranes, and conveyor belts for facilitating better logistics inside the warehouse. The use of equipment to manage space more effectively inside the warehouse to enable utilization of vertical spaces is also gaining acceptance. The adoption of technologies such as Radio Frequency Identification (RFID) too is expected to witness a growing trend with these service providers, as the demand is expected to be driven by increasing requirements to provide visibility along the supply chain. In areas not accessible by them, they liaison with the regional 3PL service providers to provide reach. The level of Information technology usage is relatively higher than in the other two tiers.
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Regional 3PL Service Providers

Regional 3PL service providers operate only at a regional level. Hence, they do not provide services of high standards set by the national 3PL service providers. They have lesser resources at their behest, and hence the scale of operations is also much lower than that of national 3PL service providers. These companies generally operate a fleet of trucks and operate warehouses that predominantly serve as stocking points as opposed to technologyenabled warehousing activity. They have hubs in major towns in various states and cater to the regions surrounding them. The level of technology adoption here is restricted to the use of information management systems and (Enterprise Resource Planning) ERP systems linked by Very Small Aperture Terminals (VSAT) to the client's location.The use of technology t is relatively lower when compared to the national companies. For transportation activity, these companies generally own a small feet of trucks that operate regionally. The portfolio of value-added services is also not vast as they do not have the capacity to provide these services. Most of these companies provide logistical services to companies that cater to regionspecific markets and to national level 3PL service providers that do not have access to these areas.
Local 3PL Service Providers

The local 3PL service providers operate in the interiors of a state or district where other national and regional service providers do not have any reach. They offer very basic trucking and storage solution. They generally operate out of a depot and own a small fleet of trucks. The level of technology adoption is very low with these companies and there is relatively much lower visibility along the supply chains they manage, when compared to the national and regional 3PL service providers. The warehousing services offered by them are in the form of very small depots, where deployment of warehouse management solutions( WMS) may not be economically viable.
Profiles in India
of
the
Major
3PL
Service
Providers
AFL Logistics
Name of the Company: AFL Logistics Estimated 3PL Revenues in 2005: $24 million
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Industry Segment Focus: Automotive and Auto components IT Hardware Consumer Electronics Telecommunications FMCG Pharmaceuticals Retail Clientele: Sona Koyo Steering MICO BOSCH Tata Motors NEI APCOM HP Sansui Blue Star Venky's LG Warehousing Capacity: Around 45 warehouses in 29 states with over 1 million square feet of warehousing space. Company Background: AFL Logistics is a part of the AFL Group of companies consisting of two other companies namely AFL WIZ couriers and AFL Cargo services. The company occupies a leading position in the 3PL services market in India and boasts of a prestigious clientele. Around 7 to 10 percent of the its revenues are generated from providing logistics solutions to the automotive sector. The dominant part of company's revenues are from the IT hardware sector, which contributes around 40 to 45 percent of the its revenues. The company is one of the oldest integrated logistics solution providers and has established networks and serves a prestigious clientele.
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DHL
Name of the Company: DHL Estimated 3PL Revenues in 2005: $11 million Industry Segment Focus: Service Parts Logistics Spare Parts Logistics Medical Electronics Telecommunications FMCG Retail Textile and Apparel Mergers & Acquisitions: Global Acquisition of Exel Logistics Clientele: Siemens Hewlett Packard Cisco Nortell Networks General Electric Company Phillips Medical Exel Logistics' Clientele: Hindustan Lever Limited Hindustan Motors Mahindra & Mahindra Daimler Chrysler Lifestyle International
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Warehousing Capacity: 500,000 square feet Company Background: DHL-Exel was created by the DHL's global acquisition of the UK-based Exel Logistics. The acquisition has created the world's single largest 3PL service provider. Prior to the acquisition, DHL's Indian operations were primarily focused on International Air Express, which still forms a significant portion of the company's revenues in the country. DHL does provide service parts logistics and spare parts logistics to its multinational clients operating in India. The company is in the process of setting up warehouses and is reported to have imported material handling equipment to install in the same. Exel logistics is one of the leading warehouse solutions providers in the country, and is reported to be investing innetworks to strengthen its foothold in the country. The company also specializes in managing clients' inbound supply chains. The company also manages aftermarket operations for its certain clients. This strategic acquisition is expected to witness DHL-Exel emerge as a market leader in the future.
Dynamic Logistics
Name of the Company: Dynamic Logistics Estimated 3PL Revenues in 2005: N/A Industry Segment Focus: Automotive Pharmaceuticals Retail Consumer Electronics Consumer Durables Metals FMCG
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Clientele: Alpha Laval Atlas Copco India Bajaj Electricals Limited Behr Coca Cola Crompton Greaves Ltd. Delphi DGP Hinoday Industries Ltd. Emerson India Finolex Fleetguard Inc. Ford India Private Limited Godrej Industries Ltd. HLL Hoechst Roussel Vet.Pvt. Ltd. Kirloskar ISSAL Lipton Nestle Shree Precoated Steels Ltd. Tata Sons Ltd. Tetra Pak Thermax Timken India Whirlpool Voltas Limited
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Warehousing Capacity: Over 1 million square feet of warehousing space Company Background: Dynamic Logistics is a part of the Talera Group. The company is widely regarded as one of the pioneers of 3PL services in India, The company offers a wide variety of logistical and value-added services and provides good technological support to its clients. It has an established network in place. The company is a specialist in the automotive and auto components sector, though it serves other verticals also. It has its own in-house technology services division responsible for producing systems such as warehouse management systems and transportation management systems. The company also operates a container freight Station, thereby facilitating import-export logistics.
GATI
Name of the Company: Gati Ltd. Estimated 3PL Revenues in 2005: $50 million Industry Segment Focus: Automotive Pharmaceuticals Retail Consumer Electronics Consumer Durables IT Hardware FMCG Clientele: Ashok Leyland 3M Ford Maruti Udyog Limited General Motors Rane TRW Steering Indian Terrain Whirlpool
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Lifestyle Titan Industries Pantaloon Retail Godrej GE Appliances Sony Hitachi Home and Life Solutions Warehousing Capacity: Around 600,000 square feet spread over 27 modern warehouses. Fleet Size: Over 2,000 vehicles Company Background: Gati is one of India's largest express distribution service providers. The company aims to achieve 25 to 30 percent Year-on-Year growth in revenues in the coming years. A majority of the its profits come from the express distribution and supply chain and the company is in the process of building express distribution centers to cater to the needs of its 3PL clients. The company is focusing on better warehouse space utilization and is investing in mechatronic warehouses to enable sophisticated material handling. It is investing close to $10 million to upgrade certain facilities. With a presence in 580 out of 590 districts in the country, Gati has the best network in the country. The company's main industry focus is the retail sector, which contributes around 30 percent of its 3PL revenues. The company has also invested heavily in information technology to provide clients extensive IT support and visibility along the supply chain.
Geo Logistics
Name of the Company: Geo Logistics Industry Segment Focus: Consumer Electronics Consumer Durables IT Hardware Automotive and Autocomponents
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Clientele: Sansui India Ltd. Hyundai Electronics Limiteg ETA General Air-conditioners India (Pvt.) Ltd. Crompton Greaves Hewlett Packard Akai Goodyear Tires Warehousing Capacity:Over 1 million square feet Company Background: Geo Logistics started operations in India around 1998 as a C&F and Freight Management Company and has ever since grown into providing end to end supply chain solutions for Indian Industry. They were globally acquired by PWC Logistics in 2005.The company provides excellent warehousing facilities and reach to its clients. The company operates out of more than 18 offices located at key transportation hubs in the country and offers a whole gamut of value added services to clients.
Om Logistics
Name of the Company: Om Logistics Estimated 3PL Revenues in 2005: $35 million Industry Segment Focus: Automotive Consumer Durables Retail Consumer Electronics Pharmaceuticals FMCG
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Clientele: General Motors Tata TVS Group Subros Ltd. Mahindra & Mahindra Bajaj Auto Limited Eicher Motors Skoda 3M Yamaha Escorts Hero Honda Maruti Udyog Limited Ashok Leyland Motherson Sumi LG GEC Zydus Cadilla Glaxo Smithkline Auro Textiles ITC Pepsi Godrej
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Warehousing Capacity: Around 5 million square feet Fleet Size:Over 3,000 vehicles Company Background: Om Logistics is one of the leading providers of 3PL services in India. The majority of Om Logistics' revenue comes from the automotive sector. It is a company that specializes in automotive logistics, with the sector accounting for nearly 65 percent of their revenues. It is among the market leaders in providing logistics solutions to the automotive industry. Om Logistics has the advantage of owning assets that give it a competitive edge. The company has access to around 1,000 strategic locations in the country. It operates out of 240 branch offices and 200 franchisees. With a fleet size exceeding 3,000 vehicles, and a pan-national presence Om logistics is a definitely a big force to reckon with in the Indian 3PL market.
Patel Logistics
Name of the Company: Patel Logistics Estimated 3PL Revenues in 2005: $18 million Industry Segment Focus: Automotive Engineering FMCG Clientele: Tata Motors OTIS FAG Bearings Maruti Udyog Limited Parle Ltd. Emami Ltd. Warehousing Capacity: Around 14 warehouses with area in excess of 2,0000 square feet and 380 stocking points with areas in the range of 500 square feet and 7000 square feet. Fleet Size: Around 94 vehicles owned by company, other transportation requirements outsourced
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Company Background: Patel Logistics is a division of Patel Roadways Limited, which was founded in 1959. The company adopts a highly customer-centric approach and caters to a highly prestigious clientele. The company has the advantage of a strong and well-established network in the country, covering over 1,000 locations. The company provides containerized trucking solutions for high-value consignments.
Reliance Logistics
Company: Reliance Logistics Estimated 3PL Revenues in 2005: $20 million Industry Segment Focus: FMCG Retail Chemicals and Petrochemicals Consumer Durables Clientele: Hindustan Lever Limited Metro Parle Nestle Cargill Reliance Industries Limited Godrej ITC IPCL ISPAT Warehousing Capacity: Around 460,000 square feet spread over 55 warehouses Fleet Size: Around 5,000 vehicles
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Company Background: Reliance Logistics is a company that operates mainly on the full truck load segment, though they do offer 3PL services and 4PL services. A fairly big part of the company's revenues is from inside the Reliance Group of companies, the company offers solutions for companies in other verticals also. Though the entire revenues of the company exceed $400 million, the company's 3PL revenues contribute a relatively small share to the total revenues. Reliance Logistics through its sophisticated setup of 55 warehouses all over the country, caters to the needs of its prestigious clientele. The company offers a host of services that include warehouse start-up and management, distribution management, inventory management, provision of IT support, and other value-added services.
Safexpress
Name of the Company: Safexpress Estimated 3PL Revenues in 2005: $40 million Industry Segment Focus: Retail and Apparel IT Hardware & Electronics Automotive and Auto components Pharmaceuticals FMCG Consumer Durables Clientele: NIIT Acer Benetton Blue Star Canon ColorPlus Dell Computers Escorts Communication Ford
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General Motors Hilti Hewlett Packard Hughes IBM Kirloskar Oil LG FMCG Madura Garments Reebok Ricoh Sansui Wipro Fleet Size: Around 3,100 trucks Warehousing Capacity: Around 4 million square feet Company Background: Safexpress has an extremely strong presence in the Indian 3PL market and caters to a wide range of industry segments. The apparel and automotive sectors contribute an estimated 20 percent of the company's 3PL service revenues, while the IT hardware segment contributes another 20 percent. The company's presence in the retail sector is also very strong and it boasts of a prestigious clientele. The company has witnessed very strong growth in a short period of time and expects to have a growth of 35 percent in its revenues annually.
SembCorp Logistics
Name of the Company: SembCorp Logistics Estimated 3PL Revenues in 2005: $26 million
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Industry Segment Focus: FMCG Retail IT Hardware and Electronics Pharmaceuticals and Healthcare Consumer Durables Automotive Clients: Coca Cola ITC Ltd Marico Industries Ltd. Dabur Ltd. Colgate Palmolive Duncan Tea Lupin Laboratories Toshiba Nortel Ranbaxy Phillips Glaxo Smithkline Winsome Group TCL (Thomson) DuPont Warehousing Capacity: Around four logistic centers at Pune, Chennai, Jamshedpur, and Bhiwandi. Managing in excess of 1 million square feet of warehousing space.
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Company Background: Sembcorp Logistics India is a wholly owned subsidiary of Sembcorp Logistics Singapore. The company was set up in India in 1996, and has since established a strong pan-India network, enabling them provide seamless solutions to clients. The company is a force to reckon with in the FMCG sector, where volumes are large. The major logistics centers of the company are shared facilities equipped with state-of-the-art material handling equipment and racking systems. The company possesses the expertise to develop a customized supply chains solution for its clients and it offers a host of other value-added services as a part of its portfolio.
Take Solutions
Name of the Company: Take Solutions Estimated 3PL Revenues in 2005: $6 million Industry Segment Focus: Food Retail Automotive and Auto components Consumer Durables Machinery and Engineering Clientele: Pizza Corner India Hatsun Agro Whirlpool Saint-Gobain Glass India Limited Philips India Limited Parle Products Private Limited MK Electric (India) Limited ITC Limited Ashok Leyland Ltd CavinKare Private Limited
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Company Background: Take Solutions offers a wide gamut of Supply Chain Management services, helping clients concentrate on their core competencies.It is a company following a model where they take title to the goods and execute logistics. The company is presently concentrating on the food retail sector and may loot to venture into the Engineering retail sector, with an increased focus on niche services The company offers a wide scope of end to end services that inlcude inventory management, expiry management and temperature management.. It is a multinational company with offices in South East Asia and the Middle east. The company offers warehousing solutions of very good quality. The company adopts a highly customer focused, process enabled and technology driven approach to supply chain optimization. Other services include Strategic Sourcing, Product Availability Management and Transaction Processing.
TCI Supply Chain Solutions

Name of the Company: TCI Supply Chain Solutions Estimated 3PL Revenues in 2005: N/A Industry Segment Focus: Automotive Telecommunications FMCG Clientele: Bridgestone Tires Goodyear Nestle India Ltd. ITC Limited Hindustan Lever Limited Company Background: TCI Supply Chain Solutions is a part of the Transport Corporation of India Group. This division of the group handles the 3PL services and caters to clients across different verticals. Services offered include offerings of vendor managed inventory solutions for automotive clients, cross-docked warehousing, and stock buffering for FMCG clients, and telecommunications equipment distribution. The company offers end-to-end supply chain solutions and services such as transport management, warehouse management, C&F management, and other value-added services.
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Total Logistics
Name of the Company: Total Logistics Estimated 3PL Revenues in 2005: $11 million Industry Segment Focus: Automotive and Auto components Retail Consumer Durables Machinery and Engineering Clientele: TELCON Ltd. L.G. Electronics Ltd. Voltas Ltd. Goodyear India Ltd. Modicare India Ltd. Thermax Ltd. Electrolux Ltd. Rane Brakes Ltd. SKF Bearing Ltd. Kirloskar Oil Engines Ltd. Akzo Nobel Explosives Ltd. Lifestyle Tata Steel Josts Engg.Company Ltd. Bombay Swadeshi Stores Atul Ltd. Eureka Forbes Ltd. Exide Ltd.
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Tata Motors Limited Larsen & Toubro Ltd. ABB Limited. Bharat Forge Limited. Warehousing Capacity: Around 900,000 square feet Fleet Size: Around 600 trucks Company Background: The company has a formidable network of 74 branches and hence has an excellent market reach. Total Logistics has experience in the field of logistics and has the requisite expertise in handling all statutory requirements. The company offers clients good MIS support to enable demand planning and ensure visibility. Total Logistics created a speciality automotive logistics business unit in 2005 to cater to the needs of the automotive sector, which is the largest contributor to 3PL services revenue of the company.
Transystem Logistics International

Name of the Company: Transystem Logistics International Estimated 3PL Revenues in 2005: $15.5 million Industry Segment Focus: Automotive and Auto components Clientele: Toyota Kirloskar Motor Limited Fleet Size: Around 270 trucks Company Background: Transystem Logistics International is a joint venture between Mitsui Logistics, which holds a 51 percent equity in the company and Transport Corporation of India (TCI), which holds the rest of the 49 percent. The company was created exclusively to cater to the logistical needs of Toyota Kirloskar Motor Limited, and handles the complete supply chain, right from component procurement from vendors to transporting built-up vehicles. The company has the advantage of TCI's geographical reach and Mitsui's expertise in automotive Logistics. The company offers its clients inbound logistics involving procurement, segregation, and transportation of parts just-in-time (JIT) to the assembly line, knock down logistics, and spare parts logistics.
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TVS Logistics
Name of the Company: TVS Logistics Estimated 3PL Revenues in 2005: $30 million Industry Segment Focus: Automotive and Auto components Clientele: Pricol Delphi TVS Ashok Leyland Ford JCB Mahindra & Mahindra Royal Enfield TVS Motor Company Tata Motors Rane Group Cummins Sundram Fasteners Warehousing Capacity: Around 17 warehouses Fleet Size: Around 3,100 trucks Company: TVS Logistics is a wholly owned subsidiary of TV Sundaram Iyengar and Sons. The company was started initially as a backward integration to cater to the logistics needs of the TVS group, majors in Auto Ancillaries. The company has now diversified its client portfolio to include leading vehicle manufacturers. The company is a niche participant in the automotive sector and holds a very dominant position in it. Though a significantly large chunk of the company's revenues are still from within the TVS group. This scenario is expected to change and more companies are likely to be included from outside the group. TVS logistics aims to be a $100 million company in the near future. With the increase of India's automotive exports, the company is expected to witness a good growth and strengthen its position to become the market leader for 3PL solutions in the automotive sector.
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5
Opportunities India for 3PL Service Providers in
Types of Services with Potential

Figure 5-1 shows the top ten services with high growth potential in the Indian third party logistics market in 2005. Figure 5-1 Third Party Logistics Market: Top Ten 3PL Services with High Growth Potential (India), 2005
Rank 1 2 3 4 5 6 7 8 9 10 Service Inbound/Outbound Warehousing Consignment Tracking And Telematics Vendor Managed Inventory End-To-End Supply Integrated Supply Chain Management Procurement Logistics Reverse Logistics Customer Service/Support Import/Export Logistics Order Processing Marketing And Sales Promotion
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The warehousing service has the greatest potential for growth is in the Indian third party logistics (3PL) market. It is expected to grow at a compound annual growth rate (CAGR) of 23.7 percent from 2005 to 2012. Value-added services are expected to be having similar potential as warehousing. Transportation too is expected to grow at a healthy pace, though not as fast as warehousing. The growth in transportation is expected with the rise in express transport and increasing requirements by customers to get committed deliveries by 3PL service providers. The potential in freight forwarding is relatively lesser compared to the other services. Value-added services are expected to have a strong growth potential over the forecast period from 2006 to 2012
Potential of Services during the Forecast Period

Figure 5-2 shows the top ten services ranked in order of potential in the Indian third party logistics market from 2006 to 2012. Figure 5-2 Third Party Logistics Market: Top Ten 3PL Services Ranked in Order of Potential (India), 2006-2012
Rank Service 1 2 3 4 5 6 7 8 9 10 Inbound/Outbound Warehousing Consignment Tracking and Telematics Vendor Managed Inventory End-to-end Supply Integrated Supply Management Procurement Logistics Reverse Logistics Customer Service/Support Import/Export Logistics Order Processing Marketing And Sales Promotion 1-2 Years High Medium/High Medium/High Medium/High Medium/High Medium/High Medium/High Medium/High Medium/High Medium/High 3-4 Years High High High High High Medium/High High Medium/High High Medium/High 5-7 Years Very High High Very High Very High Very High High Very High High Very High High
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Increasing requirements for vehicle telematics are expected during the forecast period from 2006 to 2012.Global Position Systems (GPS) systems are likely to become less expensive with the introduction of Galileo, which is the European version of the same. Vendor managed inventory (VMI) is presently witnessed in industries such as automotive and auto components. The trend is expected to catch up with other sectors where supply chain processes are extremely critical. In the present day it is observed that most companies outsource only a portion of their supply chain processes to 3PL service providers. This is likely to change over a period of time, and companies could be seen outsourcing their entire supply chains. This trend is expected to witness only a gradual growth in services such as procurement logistics, reverse logistics, customer service and support, marketing promotions, and rate negotiation. Import-export logistics also have a good potential for growth and are expected to perform well. Warehousing, the service with the greatest growth potential has a high growth potential in the short term. This is due to a general trend where many companies are accepting the services of professionally-managed warehouses. This trend is expected to witness a surge post 2010, when a national uniform VAT system is implemented, bringing with it a new hub and spoke warehousing and distribution model. After the implementation of VAT, companies are expected to shift to multi-user facilities, which could lead to the emergence of better warehousing facilities. The 3PL service providers can leverage on the economies of scale once VAT is implemented uniformly. After 2010, the growth is expected to continue, though the increase in growth rate is not likely to be very significant, as the initial effects of VAT may subside gradually. Value-added services are expected to experience similar growth as warehousing. Moreover, there is good growth potential from value-added services.A strong growth in revenues from value-added services is expected in the short term. In the medium term, the growth is expected to be accelerated faster due to increased outsourcing and increasing requirements of clients for provision of the same. Transportation is still expected to remain in the unorganized sector to a great extent. The growth in transportation in the short term is expected to be relatively slower than in warehousing. This is due to the infrastructure and increasing fuel prices.. Transportation by a 3PL service provider is significantly more expensive than outsourcing to smaller truckers. Transportation by a 3PL service provider is expected to witness growth once there is an increased demand for express transport and efficient multi-modal transport. This is likely to be driven by development infrastructure.
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Business
Model
Suggested Business Model

In transportation, some companies such as Om logistics predominantly follow an asset-based model. The owning of assets can prove to be a healthy competitive edge as it obviates the need to approach 2PL truckers to a great extent and hence lesser problems. Companies need to have a balance between owned and outsourced infrastructure. Multinational 3PL service providers generally prefer outsourcing their transportation to second party logistics (2PL) companies. Managing the 2PL service providers is a formidable task and most multinationals are disadvantaged compared to domestic participants regarding transportation. In warehousing, companies may build their own warehouses or operate a leased third party warehouse built according to their specification. Cost of investing in warehousing may be prohibitive, and hence outsourced real estate managed by the 3PL service provider is a better option. Choice of location of warehouse is also an important factor, considering the constantly reducing lead and turnaround times and thus helping clients to gain a competitive edge.
Pricing
and
Positioning
Suggested Pricing Strategy

Companies are suggested to initially operate at extremely competitive rates to gain market access. The rates offered may be extremely low; however, at the same time it is likely to capture more customers. Profit margins are likely to be very lean initially; however, it can help the company gain market share. Such a strategy is not advisable to be applied for long, as due to the leaner margins, employees are likely to get paid lesser and hence may switch companies. Companies should concentrate on increasing their client base as a means of increasing revenues and profits. Focusing on minimum profit margins is advisable. Aiming very high margins can directly mean expensive rates, and consequentially lesser revenues.
Suggested Positioning Strategy

One of the key areas needed to be addressed by companies is the range of value-added services. The provision of these services is expected to be a part of the standard portfolio offered by service providers in the future. One of the key aspects to be focused on is the ownership of assets. Till the introduction of 3PL services in India, companies approached small fleet owners and truckers. After outsourcing, if a 3PL service provider were to approach the same category of truckers,then there would be no value addition for the client. Service quality is of utmost importance and it would be apt if the companies can show the cost savings they derive by outsourcing to the 3PL service provider.
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Strategic
Alliances
Joint
Ve n t u r e s
and
Pa rt n e rs h i p s
Suggested Strategy for Forming Alliances Joint Ventures and Partnerships

It is highly recommended that multinational companies seek joint ventures and alliances in order to establish themselves in India. Companies willing to enter joint ventures and partnerships need to consider the presence and capabilities of their prospective partners. These include asset capabilities, network capabilities, IT support, reputation, and clientele. The companies should look for service capabilities that they do not possess and should accordingly ally with freight forwarders, local transporters, distributors, and other such agents. The 3PL industry in India is moving toward consolidation and it has already started. Although there is no specific strategy that can be suggested, there are a few trends that can be well observed and that which have a major impact in the industry. Currently, the Indian logistics market is opened for foreign investments. The existing local giants in the country are striving to expand their business in two ways. One is the acquisitions of regional or local companies, thereby consolidating the industry size and making the market less fragmented. Another is that, the domestic companies are looking forward for alliances and joint ventures with multinationals in order to combine the best of the expertise and technology and thereby offer customized integrated services for customers. This in a way helps the multinationals also, since the domestic knowledge, asset utilization, and the domain expertise of the local giants brings them the competitive advantage.
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6
Database of Key Industry Participants
Market Pa rt i c i pa n t s 3 P L Service Providers
A F L P V T. LT D . AFL House, Lok Bharati Complex, Marol Maroshi Road, Andheri (East), Mumbai 400 059. India Phone: 91-22-5646 3500 Website: www.afl.co.in APL LOGISTICS (INDIA) PVT LT D 3rd Floor A-11, Kailash Colony New Delhi 110 048. India Phone: 91-11-5163 4190/ 4197 Website: www.apllogistics.com D H L - E X E L S U P P LY C H A I N SOLUTIONS INDIA 8th Floor, Leela Galleria, Andheri Kurla Road, Andheri (East), Mumbai 400 059, India Phone: 91-22-5695 5000 Website: www.dhl.co.in PAT E L L O G I S T I C S A Unit of Patel Roadways Limited Patel House, Plot No 48, Gazdhar Bandh, North Avenue, Santa Cruz (W), Mumbai 400 054, India Phone: 91-22-2605 0021/ 2605 3915/ 2605 2915 Website: www.patel-roadways.com OM LOGISTICS LIMITED 130, Transport Center Ring Road, Near Punjabi Bagh Flyover, New Delhi 110035 India Phone: 91-11-5433222/5116143 Website: www.omlogistics.co.in G AT I L I M I T E D H.No: 1-7-293,M.G.Road, Secunderabad - 500 003. A.P., India Phone: 91-40-2784 4284 Website: www.gati.com
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RELIANCE LOGISTICS LIMITED 17 ST Road, near Khira Industrial Estate, off SV Road, Santacruz (W) Mumbai 400 054, India Phone: 91-22 - 30611700 Website: www.reliancelogistics.com
TVS LOGISTICS #54, Mount Poonamalle Road St. Thomas Mount Chennai 600016 India Phone: 91-44-22320605 Website : www.tvslogistics.com G E O L O G I S T I C S P V T LT D
S A F E X P R E S S P R I VAT E LIMITED Safex Cargo Complex, National Highway No. 8. Mahipalpur Extension New Delhi 110 037, India Phone: 91-11-26783281 (10 lines) Website: www.safexpress.com/home.asp SEMBCORP LOGISTICS ( I N D I A ) P R I VA T E L I M I T E D 2nd floor, No.51, Montieth Road Egmore, Chennai 600 008, India Phone: 91-44-28542000 Website: www.semblogindia.com T C I S U P P LY C H A I N SOLUTIONS TCI House, 69, Institutional Area Sector-32, Gurgaon 122001 Haryana, India Phone: 91-124-2381603 to 07 Website:www.tcil.com L E E & M U I R H E A D P V T LT D 10 GN Chetty Road, T.Nagar, Chennai 600 017, India Phone : 91-44-2828 1844 Website: www.lemuir.com
3rd Floor, Vaman Centre, Makwana Road Andheri-Kurla Road, Marol, Andheri East Mumbai India 400 059 Phone: 91-22-28596646 Website: www.geologistics.com G E O D I S O V E R S E A S P V T. LT D . 2B & 2C, Ega Trade Center, New No. 318, Old No.809 Poonamallee High Road, Kiplauk, Chennai 600 010 India Phone: 91-44-30513030 Website: www.geodis.com T O TA L L O G I S T I C S P V T LT D Viraj Impex House,47 p.d'mello road, Mumbai 400009, India Phone: 91-22-375 9595 Website: www.tlipl.com DY N A M I C L O G I S T I C S P R I VA T E LIMITED 14, Motilal Talera Road, Pune 411 001, Maharashtra, India Phone: 91-20-26113572 Website: www.dynamiclogistics.com
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S C H E N K E R I N D I A P R I VAT E LIMITED 93-94, Kapashera, New Delhi 110 037, India Phone: 91-11-5102 5102 Website: www.schenler.com MAERSK LOGISTICS INDIA P R I VAT E L I M I T E D #57/58, Transport House, IInd Cross, Kalasipalayam New Extension, Bangalore 560002, India Phone: 91-80-22222311-13 Website: www.maersk.com TRANSYSTEM LOGISTICS I N T E R N AT I O N A L L I M I T E D #57/58, Transport House IInd Cross, Kalasipalayam New Extension Bangalore 560002, India Phone: 91-80-22222311-13 Website: www.tcil.com/trans.asp B A X G L O B A L I N D I A P V T. LT D . Gr. Floor, Wing - B, Radisson Commercial Complex, Radisson Hotel, Mahipalpur, New Delhi 11 00037 India Phone: 91-11-55118200 - 04 Website: www.baxworld.com
P R O - L O G I S T I C S I N D I A P V T. LT D. C-8,Laxmi Towers Bandra-Kurla Complex Mumbai 400 051 India Phone: 91-22 5679 1111 Website: www.pro-logistics.com
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Comparitive and Industry Ta b u l a t i o n Figures of Infrastructure
Tabulation of Infrastructural Figures

Figure 7-1 presents the comparative tabulation of economic and infrastructural figures of India such as the GDP, road network, rail network, airports, pipeline network and marine capacities.
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Figure 7-1 Decision Support Database: Tabulation of Economic and Infrastructural Figures
GDP AND ECONOMIC GROWTH FIGURES Measure GDP (Purchasing Power Parity) Real GDP Real GDP Growth Percapita Income
Country Airports Heliports Total Airports and Heliports Inter national Airports
2004 $3.100 trillion $690 billion 6.90% $620

Internati Inter onal national Seaports Ports Total Domestic Sea Ports Domestic Sea Ports by State
2005 $3.678 trillion $740 billion 7.10% $740

Total Sea Ports
Infrastructure India 334 27 361 Bangalore, 12 Chennai, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi and Thiruvanan thapuram Chennai, Cochin, Ennore, Jawaharlal Nehru, Kandla, Kolkata, Mormugao, Mumbai, New Mangalore, Paradip, Tuticorin and Visakhapatnam 188 Andhra Pradesh (13) Andaman & Nicobar (23) Daman & Diu (2) Goa (5) Gujarat (40) karnataka (10) Kerala (13) Lakshadweep (10) Maharashtra (54) Orissa(2) Pondicherry(1) Tamil Nadu (15) 200
Country Airports India Country Road Network India
Paved Runways
Unpaved Runways
235 Type Paved Roadways Un Paved Roadways Total Roadways Network
39 Kilometres 2.41 million 1.44 million 3.85 million
Note: India's road network is the second largest in the world after US with 6.4 million km, and ahead of China with 1.8 million km Country Rail Network India Type Broad Guage (1.5 m) Metre Guage (1.0 m) Narrow Guage (0.75 m) Electrified (16,693 km) Total Railway Network 63,230 Kilometres 45,718 14,406 3,106
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Country Pipeline Network India
Type Gas Liquid Petroleum Gas Oil Refined Products Total Pipeline Network
Kilometres 6,171 1,195 5,613 5,567 18,546 Number 10 30 299 339 Number
Country Merchant Marine Capacity India
Type Foreign Owned Registered in Other Countries Domestic Owned Total Sea Ports
Country Domestic Merchant Marine Split India
Type
Roll On / Roll Off Petroleum Tanker Passenger Passenger / Cargo Container Liquified Gas CombinationOre/Oil Chemical Tanker Cargo Bulk Carrier
1 91 3 9 7 14 1 13 75 85
These figures are useful in ascertaining the capability of each of India in offering a conducive environment for logistics activities
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Tabulation of Major Industry Sectors Size

Figure 7-2 provides the size of major industrial sectors in India, in terms of value, as of 2005. Figure 7-2 Decision Support Database: Value of Major Industrial Sectors in India, as of 2005
Sector Size ($ billion) Name of the Industry Sector in India Auto Components Consumer Durables Consumer Electronics IT Hardware and electronics FMCG Pharmaceuticals and Healthcare Retail (in 2005) $9.50 $4.44 $3.82 $7.32 $14.50 $6.00 $6.00
Note: All Figures are rounded. Source: Frost & Sullivan
These values are useful in understanding the potentiality of each industrial sector for logistics activities.
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3PL Report - Frost &amp; Sullivan

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Strategic Analysis of the Third Party Logistics Markets in India 4C77-18

2006 Frost & Sullivan

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Industry Challenges and Market Drivers and Restraints Industry Challenges

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Major End-Users of 3PL in India

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Opportunities for 3PL Service Providers due to VAT's impact

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Market Share Comparison and Breakup Competitive Scenario

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Business Model Suggested Business Model

Pricing and Positioning Suggested Pricing Strategy Suggested Positioning Strategy

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Third Party Logistics Market: Market Life Cycle (India), 2000-2015

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Introduction to Logistics Market in India

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Market Strength (Based on Market Size in 2005) US $Million

Transportation Warehousing Freight Forwarding MIS and Other Value-added Services

Market Attractiveness (Based on CAGR)

Note: All figures are rounded. Source: Frost & Sullivan

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Introduction and Overview of the 3PL Market in the India

Total 3PL Market in India Size and Forecasts

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Opportunities for the 3PL Service Providers in India

Industry Challenges for the 3PL Market in India

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Drivers for the 3PL Market in the India

Restraints for the 3PL Market in India

Implications of VAT on 3PL in India

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Introduction and Overview of the Indian Logistics Market

2006 Frost & Sullivan

Note: All figures are rounded. Source: Frost & Sullivan

2006 Frost & Sullivan

2006 Frost & Sullivan

Introduction to 3PL in India

2006 Frost & Sullivan

Evolution of 3PL Market in India

2006 Frost & Sullivan

Awareness and Perception of 3PL in India

2006 Frost & Sullivan

Overall 3PL Usage in the Logistics Functions

Note: All figures are rounded. Source: Frost & Sullivan

2006 Frost & Sullivan

3PL Report - Frost & Sullivan

3PL Report - Frost & Sullivan