Logistics — understanding the sector and key trends

Logistics industry:

Logistics is a backbone of any economy. An efficient and smooth logistics systems depends on a lot of things — 1)Infrastructure like highways, warehouses 2) Government compliances 3) Skilled resources 4) Integration of technology

For India, logistics constitutes almost ~14% of GDP. The global average is around 8%. The estimated size of logistics sector is 200 Bn$+

How do we reduce the gap:

1. Building better infrastructure. Increase the penetration of national highways. Improve the quality of highways. Remove/reduce the friction like tollbooths.
2. The government is building highways at a speed like never before. As per reports, India will have 1.8 lac kms of national highwayDevelop different kinds of infrastructure. 70% of goods and 86% of traffic use roads. Point to point travel via railways is much cheaper compared to roads. Roads act as a feeder to hinterlands. Suzuki plans to double the use of railways for long haul (https://indiashippingnews.com/suzuki-to-double-cars-transported-by-rail-in-india-cutting-emissions/).
3. The introduction of eway bills, Fasttags have reduced the friction. Fast tags will eventually be replaced by a RFID devices, Sat nav that will ensure there is no stop-go required. Below trends suggests the adoption of eway and Fast tag is on the rise
4. Faster vehicles, newer vehicles help improve the transit time. The scrappage policy ensures that no vehicle above 15 years be allowed on road without a fitness test. An average truck in India travels 300 km — much lower than 700 km for trucks in Europe.
5. Integrated technology platform will help both the supply and demand identify each other in real time, create a unified interface to track shipments much like tracking airlines and help reduce the under utilization of resources. Also, much like roadways ports at most of the countries are quickly trying to automate themselves completely.ex: Qingdao, China, has become the first fully-automated port of Asia. Through laser scanning and positioning, the facilities at the terminal are able to locate the four corners of each container and then accurately pick and load them onto driverless electric-powered trucks, who operate on digitally controlled routes. By eliminating manual intervention, the automated terminal has been able to reduce labour costs by up to 7
6. Also, the national logistics policy recently launched aims to bring the logistics cost down to single digit by 2030. The contours of the program are not very clear yet.

Share of various modes of transport for different countries

Eway and Fast tag growth

Breaking down the logistics jargon:

1. FTL — Full truck load — A mfg co generally charters a full truck. Eg: Maruti takes the entire truck to deliver cars to its consumers/dealers
2. PTL — part truck load — Goods from various customers are aggregated together. This is cheaper for someone who doesnt have enough goods to take the entire truck. However, for the operator this has higher margins
3. Express parcel — This is more B2C. Imagine you receiving your credit card from a bank via Bluedart. or Imagine receiving your clothes from Myntra. These are time critical and the user experience depends on how fast they receive it. Also think Ecommerce
4. Warehousing/supply chain solutions — Imagine you are a business and you want to store your finished product somewhere. This is warehouse as a service, where mega warehouse operators lease out a small portion. At times, they also dispatch the orders directly from their warehouse. Think about an Amazon seller, who uses amazons warehouses to store and when the user places an order, Amazon dispatches it directly from the warehouse.

This was a primer on the logistics space. In the next article, we will do a deep dive on few mega trends and also identify the beneficiaries of these trends.