The logistics sector historically has been pretty stagnant without any major developments. Inadequate infrastructure and age-old technologies have been commonplace for much of the sector. Now that the sector is willing to catch up to speed due to increased demand, the sector is coming to terms with various pain points that have long held them back in reaching its full potential. Compared to global standards, India’s logistics sector is lacking far behind.
“Logistics companies in India have been mostly small to medium size operators which occupy 90 percent of the logistics sector. For the scale of India, there are very few Indian companies that have achieved scale. If you look at the top 500 companies, only about 26 are logistical companies. The reality is that logistical companies are still smaller in the context of India,” said Prahlad Tanwar, Partner and Global Head, Logistics Services, KPMG in India.
In recent years, particularly aided by the pandemic, the logistics sector has been growing rapidly owing to the strong demand from heavily-logistics dependent sectors like e-commerce, FMCG, D2C, etc., which have been growing tremendously. The sector is now coming to the terms with various pain points, which if not eradicated, the sector would not reach its full potential. Specifically, the McKinsey Global Institute (MGI) had predicted that India's logistics sector would expand at a compound annual growth rate of more than 10 percent, from $200 billion in early 2020 to at least $320 billion in 2025.
Minimize Tech Hassel
Adopting better technology undoubtedly has become the go-to strategy for businesses to amp up efficiency. However, the downside is due to the rapid adoption of technologies across the board from manufacturers, sellers, retailers, etc., logistical companies are now tasked to figure out the most seamless way to conduct the operations.
Yash Jain, Co-founder and CEO of Nimbuspost said, “The biggest challenge was to identify the best possible way to minimize the tech-hassles of e-commerce sellers and recognize the right way to increase their delivery reach. To overcome all these challenges, we used our expertise in the industry and developed a tech-enabled logistics platform that is powered by AI, automation, and other advanced technologies."
Anshul Goenka, CEO and Co-Founder of Quickshift also shared: “For scaling up, one needs technology. In the current e-commerce fulfilment industry, there is no one standard full-stack IT solution, instead, various best-of-breed point solutions are meeting various needs. Thus they need integration and at times need to be customized to processes. This becomes a bottleneck at times.”
According to a report, about 56 percent of Indian logistics companies use map-based solutions for shipment monitoring; IoT, automation, EVs and location technology are among APAC logistics industry’s key investment priorities. Also, it is not just about using those fancy technologies but making logistical points to have basic technologies that enable digitisation, conduct GST operations, and so on.
Challenge of Customer Satisfaction
Of the 700 million Internet users in India, nearly half are millennials who are actively engaging with online shopping to order gadgets, cosmetics, apparel, to almost everything possible. They shop instantly and then demand the spoils of their shopping even quickly. In fact, today’s e-shopper wants the products delivered within hours, in the case of groceries it is 10 minutes, and not in weeks, which was earlier the case. This has led to a fundamental challenge of customer satisfaction.
Gaurav Mangla, CEO and Cofounder Pickrr shared, "While there are plenty of processes involved in bringing perfection and accuracy in the logistics operations, reverse logistics is one such aspect closely related to customer satisfaction. Since huge shipping costs are involved in moving a product from the inventories to the customer’s doorstep, businesses incur significant losses on return orders, without even making a sale.”
On how his company is tackling the challenges, Mangla said, “To help the sellers reduce the percentage of Return-to-Origin (RTO) orders, we have introduced a solution called Pickrr Predict. This value-added service on our platform provides predictive customer analysis to the sellers by considering nearly 50 parameters against every order and identifying their risk percentage."
Besides these specific challenges of the logistical companies, the sector struggles with challenges of lack of skilled labor, fuel cost, high transportation costs over long distances, and so on.
Better Business Strategies
To counteract those challenges, the companies can adopt certain business strategies that will enable a better ROI.
Tanwar stated, “Logistics companies require funding to grow. This is a low margin business so access to funds is very critical. The second, aspect is vertical integration. The logistical companies need to be sophisticated in terms of the industries they want to serve. Rather than grow and scale by serving anybody and anything, they have to focus on one or two industries and try and serve more of the supply chain.”
For instance, not just do trucking for everybody but provide services in trucking, warehousing, value-added services, and so on. Mahindra Logistics, Future Supply Supply chain are some of the companies that have been successfully able to do this. New Age startups can then look at these companies and then model themselves on them to get an edge in the market
“Third is multimodal logistics. In India, companies need to offer different modal solutions. You need to be a full-service company to offer the right combination of solutions to the customer,” Tanwar added. The idea is not just to be active on road, but to build capabilities to deliver to through rail, air, water, and so on. This will take the possibilities for logistics to the next level.
Fourth, is distribution. In India, the biggest opportunity is distribution. Domestic transportation or access has to be built across the network,” Tanwar lastly stated.
Role Of The State
To give a contrast, India’s logistical cost from the budget is 14 percent whereas the sector contributes only 14.4 percent to the country’s income. For other developing countries, the logistical cost is about 10 percent. This entails that there is also a strong need for top-down measures to get things in order for the sector.
This is where PM Gati Shakti comes into the picture which is one of the most talked-about topics currently since the plan was laid down at the recent Budget 2022. The 25-year long plan is targeted to make the movement of people, goods, and services more efficient in India which will be powered by the digital platform.
Tanwar said, “Traditionally you have one ministry focused on building Powerplants and another ministry focused on railways and transportation, there has there been very little coordination. The Gati Sakti can go a long way in integrating the same.”