More benefits for logistics industry from 3PL

October 21, 2009 6:38 am

More benefits for logistics industry from 3PL
 
Crisil believes that third party logistics (3PL) service providers will offer phenomenal advantages to the logistics industry. The major benefits would arise from reduction in inventory, lower infrastructure space and reduction in transportation cost, the research wing of the rating agency says having carried out a cost benchmarking across sectors to highlight the same.
Crisil Research expects revenues of the 3PL segment to grow strongly (27 per cent CAGR) over the next
5 years from an estimated Rs 48 billion in 2008-09 to around Rs 162 billion in 2013-14. A major deterrent to the 3PL story is the sad condition of infrastructure. Further, the logistics industry is highly divided, with small truckers manning the scene and many players in the warehousing segment, as a result few players can provide pan India services. Also there is limited scope for value-addition in some sectors and usage across the value chain is not uniform.
On the whole, 3PL has great potential, which will be realized through a change in the mindset of user industries and the ability of logistics players to offer integrated solutions encompassing modes, infrastructure and IT networking. 
The report states that given the flourishing economy and growing exim levels, Indian companies need to enhance the efficiency of their supply chain operations to lower their logistics spend and gain a competitive edge. The supply chain management needs to transform from activity-based function to service-oriented function. The need for efficient logistics operations is creating a demand for third party logistics (3PL) service provider who can integrate operations across segments and minimize inefficiencies.
Currently, big corporates and MNCs are the major users of 3PL services in India as additional investment in IT integration across facilities, vendors and service providers is required to migrate to 3PL. Going forward, the 3PL market is expected to pick up as more companies embrace this concept owing to the logistics efficiencies it provides.
Crisil Research has estimated the overall Indian logistics spend at Rs 2.7 trillion in 2008-09, which includes only primary transport modes and infrastructure, equivalent to around 8.2 per cent of the Gross Domestic Product. And if the secondary movement (from the hub to the various depots) is also included, this shoots up to 10.7 per cent, which is significantly higher than those of developed nations where it averages 5-7 per cent. Higher logistics spend as percentage of GDP can be attributed to overall inefficiency in logistics operations, multiple tax structures, inadequate infrastructure and unorganized nature of the industry in India.