logistic industry

Be there on time, honey!

Third Party logistics business is still in its infancy in the country, plagued by many issues.

“Be there at the right time!” This is perhaps what wives across the world shout out to their beloved husbands... to be there at the right time! Moving away from all domestic affairs, you’d hear the same in corporate boardrooms too. More so, even consumers shout out the same to corporate brands, wanting the products and services at the right place and at the right time. We call it logistics, which gives a successful business that shining sustainable competitive edge to achieve excellence in their respective fields.

Today, all MNCs rely on world-class supply chain, in order to both serve the market in time and make their bottom-lines stronger by eliminating unnecessary cost elements through highly efficient supply lines. With globalisation and cost-cutting becoming the buzz-word amongst MNCs, the demand of Third Party Logistics (3PL) business, is increasing in India. And to give you an idea of the growing accountability and presence of 3PL players in India, here are some numbers – the total revenue generated by 3PL players crossed a handsome mark of $1.5 billion in 2008, representing a jump of  68.54% from the 2004 revenue.

Even in India, the consumer markets are growing in dimension, enveloping almost one-too-many corners of the nation. As a result, companies are relying too heavily on product distribution and logistics outsourcing, all pointing out to what we previously termed 3PL. So what really is the functional model of 3PL?

3PL is the outsourcing of a company’s logistics operations to a specialised and professional firm that provides multiple tactical logistics services. This automatically implies a strong focus on overseas production lines for cheap manufacturing, which then also helps in expansion of businesses in other emerging economies like South East Asian nations.

Currently, logistics costs on an average constitute around 14% of the total value of goods produced in India (as per an ASSOCHAM study). Because of such a high cost contributing factor, ‘Made in India’ goods lose out on price competition as compared to ‘Made in China’ or ‘Made in Bangladesh’ commodities. Adding to the problem are policies and procedures in this industry, which are very complex and cumbersome that it becomes virtually impossible for any corporate house to cut cost and save time through logistics. Surveys reveal that cargo trucks commuting from Kolkata to Mumbai waste around 32 hours at various check posts, which breaks down to a 1.5 hour delay every 100 km! “Sick!” is the word, but then that is the truth... the sick truth!

This industry, for long, has faced hurdles in the form of central and state taxation policies, local levies, licenses and registration processes. But the biggest hurdle that this industry faces today is the inter-state tax regime. The procedural delays in getting approval for MTO (Multimodal Transport Operators) licences curbs efficiency and adds to the cost of the companies, both Indian and global. Cost cutting measures demand more sophisticated methods of transport, like  the hub-and-spoke model, build-to-order model and lot-size-of-one shipment model. But with the Indian 3PL industry being still primitive (compared to the western nations) the whole motive of outsourcing logistics to Indian 3PL players gets lost in the delays caused by policy tangles. The Indian 3PL industry is indeed disorganised and one can find many small players with a fleet of just 3-5 trucks operating in the market. Going by various researches, these small truck companies (with less than 5 trucks) account for over 65% of the total trucks owned and constitute 80% of the Indian 3PL industry (truck transport only) revenues. Beat that for small numbers!

The next set of hurdles beside policy issues is the existing lamentable state of infrastructure in the country. The industry is currently facing huge roadblocks due to unimaginably pathetic state of roads and traffic conditions. The national highway that acts as a lifeline for transport companies (40% of the national road traffic) constitutes just 2% of total road network, thus making the delivery time painfully longer. Moreover, lower speed limits of 20-30 miles per hour (speed limit in developed countries is over 60 mph) also plays the devil when it comes to making delivery faster. Additionally, tolls charged on these expressways and duties on state bodies also act as a deterrent to making 3PL business more cost efficient. Club this with high interest rate that NBFCs and private financiers charge (as banks rarely provides these small transport companies with low-interest loans), bribes taken at check posts and volatility in price of fuel, and we have the perfect reason to believe why one should not invest in this business called 3PL!

So, is there some hope? Well, quick progress of the Golden Quadrilateral project (which is 97% complete, NHAI report), airports (6 new airports are
being planned), terminal expansion, east & west rail corridors, port expansion (20 new seaports are being developed), the Indian 3PL may soon see some bright ray of hope. The existing multi-modal licence norms should be scrapped and Electronic Trade Documentation System (ETDS) should be implemented if we are to realise the ‘$385 billion dream by 2015’ for this industry. Logistics is serious business, and if you’re serious about it, you better be on time, honey!