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November 2011
For the era 2010-2020, the Indian logistics market is likely to witness consistent annual growth of around 8-9 per - Can be provided without assets. cent and reach to the revenue level of about $190-200 billion by 2020. This target will be achieved with the help of steady growth of the economy and major industries like engineering, pharmaceuticals, automotive, food processing and others.
Logistics in India
India has hardly been able to position itself on the economic market despite its favorable location between Asia and Europe and a populace of 1.21 billion. The World Bank in its Global Logistics Report, 2007 has ranked India 39 among 150 countries in terms of logistics performance with its future potential. India needs an integrated infrastructure and logistics policy to keep up the growth of its gross domestic product. The major export countries for Indian products are the United States, the United Arab Emirates, China, Singapore and Great Britain. The major import trading partners are China, the United States, Switzerland, the United Arab Emirates and Belgium. In recent years, BRIC countries have become vital players in the world economy as a result of their high growth rates.
Infrastructure development is essential for the growth of an economy. Logistics infrastructure covering the road, rail, waterways and air network is the backbone on which the nation marches ahead. Indias logistics infrastructure was developed in the colonial era to transport troops and agricultural products. Since then, India has become one of the fastest growing economies in the world, but its logistics infrastructure remains woefully inadequate to meet the demands bestowed on it by the countrys newfound status. Recognizing the importance of logistics infrastructure, the Indian government will have trebled annual spending from about $10 billion in 2003 to $30 billion in 2010.
Road Transport
Road and highways serve as the arterial network of a nation. For a country as large and diverse as India, efficient road connectivity is essential for both, national integration as well socio-economic development. Roads are the most common mode of transportation in the country which reporting for about 86 % of passenger traffic and 73% of freight movement. Road transport comprises a major share of cargo movement as it is a competitive choice even at higher prices on account of flexibility, frequency and point-to-point delivery. Road transport is the largest segment in the logistics sector and it recorded for ~ 73% of the freight movement in 2008 2009. The total length of roads in India is at about 3.34 mn kms, comprising of National Highways, Expressways, State Highways, Major District Roads, Other District Roads and Village Roads. The Road investment charts shows that the contribution of private sectors is in increasing trend while the State and Centre highlights the constant trend. Recently, the government has launched a major initiatives to upgrade and strengthen the national highway network through various phases of the National Highway Development Project (NHDP), the largest road development programme ever undertaken in India and one of the largest undertaken by a single agency in whole world. The below table highlight the status of National Highway Development Project (NHDP) as on September 2011.
Sr. No. 1 2 3 4 5 6 7
NHDP Component GQ NS- EW NHDP Phase - III NHDP Phase - IV NHDP Phase V NHDP Phase VI NHDP Phase VII Total
Total (km)
Length Completed laned (km) 5,846 7,300 12,109 14,799 6,500 1,000 700 48254 5,829 5,831 2,617 655 14,932
4 Under Implementation Bal. for (km) Award (km) 17 891 6,112 1,744 2,538 41 11,343 420 3,380 13,055 3,307 1,000 659 21,821
Source: NHAI
Rail Transport
The Indian Railways is the worlds second largest rail network under a single board. The Railways in India provide the principal mode of transportation for freight and passengers. The growth of Indian Railways in the 155 years of its existence is phenomenal. It has played a crucial role in the economic, industrial and social development of the country. The Railways record for about 2.30% of the GDP and employs approx 1.5 million people directly. Indian Railways run over 63,273 km, of which 28.6% is electrified with a fleet of 8,330 locomotive units, 53,555 coaches and 2,04,034 wagons as on March, 2008. The freight segment accounts for about 70% of the revenue. The freight capacity has increased from 521 mn tons in 2003 to 779 mn tons in 2009.
Source: Indian Economic Survey 2007 2008
In India, the most significant way of transportation is Road (~62%). This supremacy arises on account of poor infrastructure growth in other ways of transport such as air (< 1%), coastal, pipeline etc. India is having world largest rail network, yet Indias contribution of cargo transported by rail has decelerate from 85 percent in 1950 to ~ 30 percent in 2010. This is on account of miserable quality of services as well as huge investment in road highway projects over the past six decades.
Air Transport
According to the Planning Commission, Indias air cargo movements would grow at over a CAGR of 11.5% from 2007-08 to 2011-12. Foreign Direct Investment (FDI) limit in cargo airlines having been raised by the Government from 49% to 74% is attracting major overseas players to expand their Indian networks and capacity. Air Cargo business has overtaken the ocean freight & rail freight market by expanding at nearly 19% in the last 3 years, as against 10.3% growth Rising ATF registered by ocean freight and 9.2% by railways. Prices Domestic air cargo traffic has been growing at CAGR of 12.80% from 2001-02 to 2006-07, whereas international air cargo traffic has been moving at CAGR of 13% during the same period. Riding high on export of gems and jewellery, special chemicals and highvalue pharmaceuticals, international air cargo traffic at all Indian airports has been growing rapidly.
Challenges
Air freight in India ('000 tonnes) Particulars Domestic International 2001 288 558 2002 294 560 2003 334 649 2004 375 693 2005 459 822 2006 484 920 2007 530 1021 2008 568 1147 2009 548 1149
The chart highlights International as well as domestic Air Cargo traffic at six major airports which carry 88% of the total air cargo while more than 60% of the domestic as well as international cargo is handled at Delhi & Mumbai Airport.
Bombay 36%
Delhi 32%
Trivandrum 1%
Sea Transport
India, which is bordered by Bay of Bengal, Arabian Sea and Indian Ocean, has a vast coastline of appox 7,600 kms, scattered with 12 major ports (Calcutta, Haldia, Paradip, Visakhapatanam, Ennore, Chennai, Tuticorin, Cochin, New Mangalore, Mormugao, JNPT, Mumbai, Kandla) and 187 minor ports that facilitate the movement of goods through sea. These ports handle more than 95 percent of the cargo entering into the India. The use of coastal shipping is limited to a few industries despite being reasonable and energy efficient mode of transportation. Costal shipping reports a very little share of the Indian logistics industry. In 2008-09, costal shipping reported for merely 2% of the total logistics industry. Cargo throughput at the 12 major ports has been rising by a compound annual growth rate of 9.5% over the past three years. Container throughput at India's 12 major ports has increased by 19% in 2008. The 12 major ports handled 6.60 million TEUs (Twenty-Foot equivalent Units) in the twelve months till March 2008. Navi Mumbai's JNPT (Nhava Sheva) handled 4.06 million TEUs, which was above 61 % of the overall throughput. The container traffic at JNPT port has increased by 23 %, making it India's largest and busiest port. Indias overall container traffic posted a Y-O-Y growth of 19 % during 200708, with the throughput touching 6.7 million TEU at its ports. The value of costal shipping industry is at Rs. 46.4 billion and believes it to grow at a CAGR of 8.3 % over the next 5 years to reach Rs. 69.3 billion in 2013-14.
Major M & A
The year 2010 witness a few remarkable acquisitions in the logistics Industry like FedExs acquisition of AFL Logistics, and Transport Corporation of Indias (TCI) 51 per cent equity stake buy in Infinite Logistics Solutions. Besides, firm such as Toll Global Logistics, Allcargo Global Logistics, and FH Bertling have been actively looking to expand their size in India through the inorganic way.
RESEARCH TEAM Mr. Amit Gupta Ms. Binal Vora Ms. Sandhya Tungatkar amitg@iseindia.com binalv@iseindia.com sandhyat@iseindia.com
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