Advancing India's Logistics Landscape: Key Trends & Infrastructure Growth

The logistics industry plays a critical role for enterprises and the economy. In our interconnected world, it serves as essential gateways for international trade and business. A robust logistics sector ensures efficient movement of goods and services, contributing significantly to economic growth. This includes managing all aspects of supply chains for manufacturing and service sectors within India.

The demand for India's logistics sector is expected to rise significantly due to several key factors. India's projected GDP growth of US$ 26 trillion by fiscal year 2048 (with US$ 6 trillion by 2030) and the goal of boosting merchandise exports to US$ 1 trillion by 2030 will create substantial opportunities for the transport and logistics industry. Projections suggest that the sector will grow at a CAGR of 4.5% from 2022 to 2050, reaching 15.6 trillion tonnes kilometres. In 2023, the market size was US$ 282.3 billion, and by 2032, it is forecasted to reach US$ 557.4 billion with a growth rate of 7.85% from 2024 to 2032.

India's logistics cost in 2021-22 has been calculated to be around 7.8-8.9% of GDP, which is lower than previous estimates exceeding 10% from private surveys. This assessment was conducted by the National Council of Applied Economic Research (NCAER) at the behest of the Department for Promotion of Industry and Internal Trade (DPIIT).

Additionally, India has shown improvement in the World Bank's Logistics Performance Index (LPI), climbing six positions to rank 38th out of 139 nations. This enhancement is credited to advancements in technology, data-driven decision-making, and legislative measures aimed at fostering top-tier infrastructure within the logistics sector.

Transportation and Logistics Landscape in India

Transport and logistics encompass the processes involved in manufacturing, storage, inventory management, delivery, and distribution of specific goods or services. In India, the logistics sector was projected to contribute around 14.4% to GDP in 2022 and serves as the primary livelihood for over 22 million individuals.

The overall logistics landscape in India comprises 37 export promotion councils, 40 Participating Government Agencies (PGAs), 20 government agencies, and encompasses around 10,000 goods and 500 certifications. Over the period from fiscal years 2015-16 to 2019-20, India invested approximately US$ 10.2 trillion towards infrastructure development.

Freight movement in India is predominantly reliant on road transportation, accounting for 66% of goods moved in ton-kilometres, followed by rail (31%), shipping (3%), and air (1%). To facilitate cargo transport, India has established an extensive support infrastructure network, including 129+ inland container depots, 168+ container goods stations, and warehouse capacity exceeding 300 million square feet.

The logistics sector in India can be divided into the following

1. Transportation

Roadways or Surface Transportation

The surface transport sector in India is poised for rapid growth, with a projected Compound Annual Growth Rate (CAGR) exceeding 8% in 2020. Notably, the trucking sector remains highly unorganized and fragmented, with nearly 70% of truck owners operating fleets of fewer than five trucks.

The Government of India (GoI) has prioritized infrastructure development, earmarking approximately $1.4 trillion for investment in infrastructure by 2025. The roads and highways market in India is forecasted to demonstrate a robust CAGR of 36.16% between 2016 and 2025, driven by extensive government efforts to enhance transportation infrastructure nationwide.

India's road network has expanded significantly, increasing from 62.15 lakh kilometers in FY21 to 66.71 lakh kilometers as of April 2024, reflecting ongoing efforts to bolster the country's transportation infrastructure.

The transportation sector can be further divided into the following categories:

Full Truck Load (FTL)

The Full Truck Load (FTL) market plays a substantial role in the transportation sector. In 2021, the FTL market was estimated to be around US$ 120 billion. Projections suggest that this market is poised to grow at a rate of 7-8% in the coming years from 2022 onwards. This anticipated growth reflects the increasing demand for efficient and reliable transportation services for full truckload shipments across various industries.

Part Truck Load (PTL)

In the Indian surface transportation industry, Part Truck Load (PTL) services rank as the second-largest revenue contributor. In 2021, the PTL market was estimated to be worth around US$ 12 billion, with an annual growth rate of 8-10%. Part truckload services are gaining popularity across India due to their flexibility and cost-effectiveness, catering to diverse transportation needs for businesses and individuals alike.

Express

India's express industry is one of the fastest-growing globally, despite representing less than 2% of the global market share. The market is fragmented, with about 1,000 active players, although the domestic segment is dominated by approximately 15 major competitors. By 2020, the sector was expected to grow at a CAGR of around 15%, reaching a market size of US$ 5.5 billion.

Railways

India boasts the world's fourth-largest rail network and handles the second-highest volume of goods globally. Between April and September 2023, Indian Railways achieved a total freight loading of 758.20 million tonnes (MT), showing an increase of approximately 21.52 MT compared to the previous year's loading of 736.68 MT. During September 2023 alone, the railway system transported various commodities, including coal (59.70 MT), iron ore (14.29 MT), pig iron and finished steel (5.78 MT), cement (6.25 MT excluding clinker), clinker (4.89 MT), foodgrains (4.54 MT), fertilizers (4.23 MT), mineral oil (4.0 MT), containers (7.28 MT), and other goods (10.10 MT).

The inauguration of the Dedicated Freight Corridor (DFC) is expected to more than double the average speed of freight trains. In 2021, India committed to investing Rs. 3 lakh crore (US$ 36.04 billion) in the Dedicated Freight Corridor (DFC) project, which involves constructing dedicated rail tracks and related infrastructure to enhance the efficiency of goods train transit.

Waterways

India's expansive 7,500 km (4,660 miles) coastline, surrounded by the sea on three sides, hosts 200 minor/intermediate ports and 12 major ports, which collectively manage 65% of the country's trade value and 95% of its trade volume. The Indian coast presents significant opportunities for cargo movement, with estimated total cargo volume projected to surpass 250 million tonnes per annum (MTPA) by 2025.

Coastal transportation in India handles various commodities such as petroleum, oil, lubricants, building supplies, cereal grains, fertilizers, steel, coal, and minerals. In December 2021, the Government of India (GoI) pledged substantial investments (Rs. 3-3.5 lakh crore or US$ 38-44 billion) in ports, shipping, and inland waterways under the Maritime India Vision (MIV). This initiative aims to unlock potential annual revenue of Rs. 20,000 crore (US$ 2.40 billion) for Indian ports.

To promote sustainability, the Indian government plans to transition at least half of the vehicles and equipment used at major ports from diesel to electricity by 2030, with a goal of achieving 90% electrification by 2047. The shipping ministry is also encouraging the development of liquefied natural gas (LNG) bunkering stations at ports by 2030 and the establishment of electric vehicle charging facilities near port areas by 2025 to reduce reliance on petrol.

In 2022-23, major ports collectively handled a record-breaking 795 million tonnes of cargo, marking a notable 10.4% growth compared to the previous year, underscoring the significance and growth trajectory of India's maritime sector.

Airways

Air transport represents less than 2% of India's total modal mix, primarily serving time-sensitive commodities like pharmaceuticals, healthcare products, and electronics due to its higher cost compared to other transportation modes. For non-time-sensitive freight, alternative transport methods are generally more cost-effective.

As of June 30th, 2023, the Regional Air Connectivity Fund Trust (RACFT) has allocated Viability Gap Funding (VGF) amounting to Rs. 2,729.11 crore (US$ 333 million) to selected airline operators for the operation of the Regional Connectivity Scheme (RCS)-UDAN (Ude Desh ka Aam Nagrik) Scheme. Currently, 479 operational routes connect 74 airports, including two water aerodromes and nine heliports, as part of the UDAN scheme. The initiative has facilitated air travel for approximately 12.3 million passengers, enhancing regional connectivity across India.

In air cargo transportation, there are two primary methods of moving goods:

Dedicated Air Cargo: This involves the use of specifically designed freighter aircraft dedicated solely to carrying cargo. These freighters are designed to efficiently transport various types of goods, including large or specialized items that may not fit in the belly of a passenger plane.

Belly Cargo Movement: This refers to the transportation of cargo in the belly (cargo hold) of commercial passenger planes. Many airlines utilize the cargo capacity of their passenger flights to transport goods alongside passengers' luggage. Belly cargo movement is suitable for smaller shipments and time-sensitive goods that require air transport but may not necessitate a dedicated freighter aircraft.

2. Warehousing Industry

A warehouse is a crucial element of corporate infrastructure and a key facilitator in the global supply chain. The Indian warehousing market is projected to reach Rs. 2,872.10 billion (US$ 34.50 billion), expanding at a CAGR of 15.64% from 2022 to 2027. Over the years, the Indian warehousing industry has experienced increased demand and supply, gaining significant traction.

Third-party logistics (3PL) providers and e-commerce enterprises are prominent players in this industry, expanding their operations into tier 2 and 3 cities and establishing a stronger presence in secondary marketplaces. Together, they account for over 60% of the market share in terms of storage space leasing.

To support this industry expansion, the government is investing in the development of multimodal logistic parks and infrastructure projects that enhance connectivity between urban transit and railways. These initiatives are attracting investments from institutional funds and developers, further driving the growth of the warehousing sector in India.

3. Value Added / Other Services

Value-added/other services in the logistics industry encompass a range of operations, including customs clearing, logistics packaging, inventory management, and material handling equipment.

Customs Clearing

Customs clearance involves complex documentation and coordination, which can be time-consuming. Many businesses, both established and startups, are leveraging technology platforms to streamline this process. Customs automation has significantly improved efficiency within the industry.

Freight Forwarding

Freight forwarding entails organizing shipments for individuals or corporations, facilitating the movement of goods from manufacturers to international buyers. Freight forwarders act as intermediaries between shippers and shipping lines, simplifying the process and providing customers with estimated pricing after adding their margin.

Logistics Packaging

Packaging is crucial in the supply chain to ensure goods are properly protected and presented before delivery to customers. Effective packaging services are essential for businesses to maintain quality and meet customer expectations.

Key Trends

1. Green Logistics Technology

The adoption of green logistics technology, including climate measurement tools, real-time data collection, electric vehicles, green cold chain solutions, electric cargo delivery drones, and logistics resource management platforms, offers numerous benefits. These technologies can help reduce waste, streamline operations, enhance organizational competitiveness, and promote environmental sustainability. Major companies like Spencer, Bigbasket, Amazon, Licious, Myntra, and Flipkart have partnered with Zypp Electric for last-mile delivery using e-vehicles and e-vehicle fleet management.

2. Embracing Digital Ecosystems

Ecosystem Collaboration: Collaborative ecosystems involving technology providers, logistics service providers, and customers foster innovation, knowledge sharing, and digital transformation acceleration. These ecosystems enable seamless integration, streamlined processes, and improved consumer experiences.

Supply Chain Orchestration: Advanced platforms and digital markets facilitate end-to-end supply chain orchestration by connecting businesses with a vast network of suppliers, transporters, and service providers. This connectivity helps streamline logistics processes and reduce time-to-market.

3. Rise of Cross-Border E-commerce

The rapid growth of e-commerce has significantly impacted the logistics industry, leading to increased demand for foreign goods and MSMEs entering international markets. This growth is driven by millennials who prefer online shopping interfaces. Efficient and reliable delivery services have become crucial, resulting in the emergence of cross-border digital markets that contribute to substantial economic expansion.

4. Technological Innovation

Artificial Intelligence (AI) and Machine Learning (ML): AI-powered algorithms and ML models enable predictive analytics, demand forecasting, route optimization, and real-time decision-making. These solutions optimize supply chains, enhance resource allocation, and improve customer experiences.

Internet of Things (IoT): The proliferation of IoT devices provides logistics organizations with increased visibility and control over assets and inventories. IoT sensors and connectivity enable real-time tracking, remote monitoring, and predictive maintenance, facilitating proactive and efficient logistics operations.

Robotics and Automation: Robotics and automation technologies like robotic process automation (RPA) and autonomous vehicles are transforming warehouse operations and last-mile delivery. Automation minimizes errors, increases speed, improves safety, and reduces costs, resulting in higher productivity and output.

Road Ahead

The uneven distribution of transport modes has prompted the Government of India (GOI) to launch logistics-specific initiatives like GatiShakti and the National Logistics Policy. These programs aim to enhance India's logistics sector by promoting environmental sustainability, agility, transparency, and integration. By leveraging technologies such as AI, Big Data, and IoT, traditional manual and offline transporters can improve their operations to compete effectively in international markets with real-time, end-to-end connectivity.

To fully unleash the sector's potential, stakeholders—including service providers, customers, and the Indian government—must collaborate and complement each other. The industry is undergoing significant infrastructural expansion, with a strong focus on digitalization and sustainable logistics practices. The emergence of startups, along with government initiatives like "Make in India" and the Unified Logistics Platform (ULIP), is fostering greater transparency in the logistics sector.

Digitization of workflow processes, enabling paperless transactions and improved shipment tracking, is accelerating goods movement and reducing logistics costs. These advancements are crucial for enhancing efficiency and competitiveness across the logistics ecosystem.