Logistics sector, despite the obvious growth in the last two years, has a lot to catch up to the growing demands from sectors heavily dependent on supply chain. The supply chain has gone through drastic changes in recent times induced by the lockdowns and ever-evolving consumer demands. However, from the first observation it seems that a lot of work needs to go into the logistics sector in order to catch up to the demand that the sector is getting.
According to various reports, an increase in demand in the logistics sector, which currently is at $250 billion, is likely to grow India's logistics sector by 10-12 percent CAGR. Experts believe that the reason for growth is the shift from organized sector to the unorganized sector (at 90 percent currently). However, the question arises whether the sector has adopted the necessary strategies and eradicated the painsl points that are holding the sector back.
“Improving visibility and transparency, providing single point view to the customer, integrating the supply chain and easing the documentation, building in reliability and resilience are some of the pain points to be eradicated,” said Sameer Bhatnagar, Partner, Mobility and Logistics Solutions, KPMG in India.
Given the fact the sector has remained unstructured and organized for years with very little intervention, it continued to work as it is. However, in recent years, boom in several sectors like e-commerce, retail, Information Technology (IT), etc. have changed the prospects for the logistics sector. In fact, we see a slew of logistics start-up and enablers that are disrupting this sector with innovative business models and services that solve the industry’s pain-points.
Soham Chokshi, Co-founder and CEO, Shipsy said, "Quick commerce is going to be a game-changer in the logistics space. On-demand deliveries providers will find themselves driving rapid innovation to champion fast and highly customer-centric fulfillment models. Regarding technology adoption, we expect automation, machine learning, and predictive intelligence to become synonymous with supply chain management. It will not be wrong to say that embracing these disruptive technologies is the only way forward when it comes to navigating today’s constantly evolving online delivery ecosystem. Not just that, solutions powered by these technologies will be vital in helping brands build capabilities today that will enable them to capitalize on tomorrow’s customer expectations. Shorter delivery TATs, self-governing logistics processes, and sustainable supply chains will gather immense significance moving forward."
“Higher investment in technologies and adoption of digitized supply chains to reduce manual interventions, improved operational efficiencies and providing data driven insights to the changing customer needs have resulted in tangible benefits both for the customer and service providers,” Bhatnagar added highlighting the changes that have become permanent for the logistics sector.
However, according to another report by Mckinsey, the technological upgradation is far from the optimal level. “The pandemic has made this kind of agility, and the technological sophistication it demands, a necessity for survival, not just a competitive advantage. But almost all of the small, informal logistics players in the country’s supply chains (for instance, the firms that operate 75 percent of India’s trucks) cannot adapt to rapid technological change,” the report stated.
Logically, the larger companies are likely to adopt emergent technologies like artificial intelligence, blockchain, etc. at scale to help solve the pain points and improve efficiency to meet the changing consumer needs.
“Even many of the larger logistics companies may find it a challenge. All of these organizations, large and small, face serious threats,” the Mckinsey report further stated.
Despite the current challenges, the year 2021 has laid the grounds for the logistics sector to scale from here on. Given the rate of developments happening in the sector, it is only likely to be more efficient and strong in the times ahead.
Nilesh Ghule, Co-founder and CEO of Mumbai-based logistics company TruckBhejo shared his views: "An interesting fall out of the pandemic is the shift in buying behaviour of the consumers. Multiple product categories are added on the e-commerce platforms including groceries, medicines, furniture and even meat. This is giving rise to D2C brands and the revolution around it requiring a strong underlying supply chain."
Experts believe that a strong supply chain and customer delight will become the differentiators in days to come than necessity.
Saahil Goel, Co-Founder and CEO of India’s leading tech-enabled logistics and fulfillment platform Shiprocket, said, "While 2020 resulted in large-scale disruptions across the industry and paved the way for multiple innovations, 2021 has been the year of growth and progress for Shiprocket. With the D2C wave sweeping across the country, we have seen an upswing in the number of D2C sellers availing of Shiprocket's services along with the volume of shipments. As we gear up to step into the next year, we look forward to seeing what trends and forecasts in the logistics, e-commerce, and D2C segments manifest.”
What Lies Ahead?
Despite the challenges, the year 2021 has been pretty successful for the logistics sector which is a good sign for what lies ahead. According to RedCore report, India’s inter-city road logistics spend stood at ~$ 209 billion in 2021, ~ 87 percent of total road logistics spend, with the logistics spending contributing to 14 percent of the overall GDP of India, wherein road logistics has the largest share with 60 percent of the overall market spends. ( Logistics costs, in relation to GDP, is an indicator of how efficiently businesses can operate and how competitive India is in terms of transport infrastructure and freight management.)
“The changing customer behavior led by e-commerce is propelling the logistics industry towards higher growth and offers a positive growth outlook for the players who are adopting innovative business models such as tech based demand-supply matching platforms, time-bound service delivery and integrated and customized services which are flexible to match customer needs. Another important aspect that is expected to gain importance in the future is the ESG goals of the companies and their preference to engage service providers who can help them achieve these goals,” Sameer Bhatnagar, Partner, Mobility and Logistics Solutions, KPMG in India further added.
Piyush Sharma, VP-Business of Locus, explained what the year 2022 looks like for the logistics and supply chain sector. "2021 was a year of recovery for supply chains across the globe. The disruptions caused by COVID-19 pushed businesses to revisit their focus areas to strengthen supply chain resilience and optimize last-mile logistics. At the same time, supply chain brands have faced some typical challenges this year such as port congestions, sourcing difficulties, changing customer buying behaviors, and inaccurate demand forecasting. Moving forward, while supply chain resilience and green logistics continue to be vital for supply chains, brands will also invest a lot in supply chain automation and use tech to plan and manage last-mile fulfillment more cost-efficiently."