Third Party Logistics (3PL), the concept of a single professional logistics service provider managing the entire logistics

functions of a company, had originated in the developed economies of Europe and America, to relieve industries from huge logistics costs apart from the hassles of dealing with multiple in-coherent logistics service providers. It proved to be immensely successful in improving logistics efficiency of majority of industries and quickly gained popularity, spreading across the globe. In the process, several professional logistics service providers offering that kind of services have emerged to be leading 3PL providers with operations in multiple continents.

In the initial stages, 3PL providers offered only basic logistics services such as warehousing and transportation. But with growing logistics needs of organizations to remain competitive in globalized economies, 3PL providers have evolved to offer several other value added services ranging from packaging to supply chain planning.

Advent and Growth of 3PL Industry in India 3PL industrys origin in India can be traced back to mid 1990s. The industry was pioneered by global logistics majors as a part of extending these services to the Indian subsidiaries of multinational companies in automobile, electronics and FMCG sectors. Indian subsidiaries of multinational companies in these sectors took cue from their parent companies and began to outsource a share of their logistics functions to these specialist service providers. Though insignificant in the first few years, Indian 3PL industry is experiencing a rapid growth after year 2000. The number of participants in this industry had grown to be more than 400 by year 2005.

The Indian 3PL industry can be divided into three distinct tiers - National Major 3PL companies with nationwide presence, Regional 3PL companies with strong presence in one or two regions, and Small Remote 3PL companies. 3PL Market in India Poised for a Remarkable Growth The 3PL market in India is still in a relatively nascent stage, with multinational companies in all industries being the predominant users of these services. However, domestic major companies in leading industry sectors have also begun to follow the footsteps of their multinational counterparts, starting with outsourcing their basic logistics functions. Realizing the significant cost reductions and several other benefits gained by these companies, the large

numbers of small to medium companies in all the industries are gearing up to use 3PL services in their logistic functions, resulting in a tremendous potential market for the 3PL market in India.

The opportunities for growth of 3PL usage could be varied among different types of companies. The multinational companies that are already using 3PL in basic logistic functions might graduate to outsourcing value-added advanced services such as customer support, inbound logistics, and reverse logistics. Whereas, the domestic major companies might increase their 3PL usage in the basic logistic functions and occasionally experiment with the value-added advanced services. On the contrary, the small and medium companies could just begin to use 3PL services for their basic logistic functions.

Nevertheless, considering that the most important logistics functions for Indian industries still are transportation and warehousing, which are likely to be outsourced to 3PL in increasing share, a high level of growth is estimated for the Indian 3PL market in coming years. The Indian 3PL market is expected to grow at a compound annual growth rate of 21.9 percent to reach US$3,556.7 million in 2012.

A lot of multinational automobile makers, like Suzuki, Honda, and Ford, have set up manufacturing bases in India, and have been major users of 3PL services. Expansion of manufacturing facilities by most of these companies indicates huge potential for 3PL services in this industry. Other sectors that have shown substantial contribution to 3PL market and significant growth potential include the information technology (IT) hardware and electronics, Fast Moving Consumer Goods (FMCG), and retail sectors.

A Few Challenges to be addressed for Maintaining the Momentum Geographic diversity of India needing varied logistics expertise for each region is a major challenge to be addressed by 3PL service providers. India has a diverse geographic scenario coupled with a diverse consumer habit scenario in each of its 25 states. Logistics operation in each state requires a suitable model that facilitates the effective storage and transportation of goods mostly sold in that state, making it very difficult for adopting a uniform logistics model. 3PL service companies interested in serving a particular company would have to offer multiple solutions to fulfill the nationwide logistics needs of that company.

Infrastructure limitations in India, which limit the scope of logistics services package, are another concern for 3PL service providers. The congested roadways and ports resulting in significant delay in movement of goods, affect the performance of 3PL service providers. Similarly, a lack of sufficient warehousing and specialized storage facilities beyond major cities of the country result in 3PL service providers to restrain from offering warehousing services across the country which resulting in their failure to become the complete logistics service providers for clients. Building own warehousing facilities in strategic geographic locations that would serve as hubs for specific regions, could address this problem.

The complicated tax structure, deep-rooted corruption and high bureaucratic control are some other hassles faced by 3PL service providers in providing the best of logistics solutions for their clients. However, despite the existence of challenges, several factors are driving the growth of Indian 3PL market.

Some Factors that are Driving Indian Logistics towards 3PL Value Added Tax (VAT), the Indian Governments proposed uniform tax regime, has driving Indian industries towards using more 3PL services. Introduced partially in 2005, a full implementation of this regime is expected to necessitate having centralized large warehouses in regional hub cities, to achieve best efficiency in logistics. Since building such large warehouses requires huge investments, most Indian companies are likely to outsource the warehousing function, creating immense potential market for 3PL service providers. Leading companies in major industries have already started planning for the new scenario and the required warehousing capacity to be outsourced. Others are expected to follow them soon. The government of Indias increased focus on improving logistics infrastructure is expected to have a huge positive impact on 3PL market. The government has invested US $17 billion to upgrade highway networks, with the implementation of two major projects, namely the Golden Quadrilateral network and the North-South-East-West (NSEW) Corridor. Apart from this, in a remarkable infrastructure related decision, the government has opened up rail freight operations to private players, thereby creating opportunities for cheaper and faster movement of goods. Transportation by rail is definitely cheaper than by road, as trains are faster and have lower costs per unit distance travelled. This is expected to enable 3PL

service providers in offering more cost-effective services to clients, thereby increasing the 3PL usage by all industries.

Apart from these factors, the increasing list of multinational companies starting operations in India is expected to fuel the growth of 3PL market. Entry of giants like BMW, Flextronics, and Wal-Mart are expected to contribute to considerable growth of 3PL usage in their respective industry sectors. The opening up of the Indian economy to foreign investments is expected to attract more companies into the country, thereby adding momentum to 3PL market growth. The wide-spread information technology awareness and expertise in India is also expected to help 3PL companies in offering several value added services using IT such as Fleet Management Systems, Warehouse Management Systems, and integrated Supply Chain Management systems.