E-commerce has seen an unprecedented rise in business in the past year, with Paytm joining

Flipkart and Snapdeal in the eight-member unicorn club. A report by Bank of America Merrill
Lynch in 2015 stated that the e-commerce market in India will be worth $220 billion by
2025. Yet, e-commerce is beyond just sales and GMV numbers. Speed of delivery is as important
as the product quality for a customer. It would not be wrong to say that logistics could be the
defining factor for success of e-commerce companies in retaining their customers.
At present, the countrys logistics industry is worth $300 billion, according to the Logistics
Market in India 2015-2020 by market researcher Novonous . In fact, the report states, Indian
logistics market itself is estimated to grow at a CAGR of 12.17 per cent by 2020. Innovations are
very important in this sector, as the demand is always for more reach and faster shipping at lower
costs. Yet, the companies will need to invest in automation, while utilising existing resources
well.
YourStory takes a look at how e-commerce majors have built a solid ground for advancement in
logistics in 2016, and how this year will pan out for Indian e-commerce in terms of logistics.

Frost & Sullivans Indian Logistics Industry 2016 Outlook provides a glimpse
into the Indian Logistics Industry
Economic Reforms, Trade Co-operation, Improved Transportation Infrastructure, Key to
Drive Growth Opportunities for Indian LSPs and other aspects
Economic reforms, trade co-operation, improved transportation infrastructure, and industrial
growth are ushering in increasing opportunities for the logistics service providers (LSP) in India.
Presently, the Indian logistics industry is witnessing development and expansion of its existing
infrastructure and emergence of e-commerce-specific logistics solutions; it has strong focus on
manufacturing, but also has large presence of unorganized service providers.

In the Indian Logistics Industry 2016 Outlook, Frost & Sullivan finds that the industry is likely
to grow at a CAGR of 8.6% between 2015 and 2020; it grew at a CAGR of 9.7% during 20102015. Transportation and Communication accounted for 7% of the nations GDP in 2015,
accounting for around US $130.44 billion. The key drivers of this growth are infrastructure
investment associated with ports, airports, and other logistics development plans, domestic
demand growth, and increasing trade.
Growth prospects for the Indian logistics sector looks promising in 2016 with support from
numerous Government initiatives in the areas of trade and industry promotion, logistics
infrastructure development, and tax reforms. In addition to this, the booming e-commerce sector
is likely to support strong growth in the warehousing segment. Dedicated freight corridor,
increased port connectivity, and proposed auto hub are likely to increase share of railways in land
transport. Despite economic uncertainties, the Indian logistics sector is likely to grow above 6%
in 2016.
Gopal R., Global Vice President, Supply Chain & Logistics Transformation Practice, Frost
& Sullivan says, Indias freight volumes are still not justifying our economic size. Ideally, we
should be handling three to four times the freight volume that we handle today, in comparison to
other countries with similar economic activity. This translates to huge potential, which can lead
to transformational growth of the Indian logistics industry. We need to focus on ways to build
this freight volume through enhanced infrastructure capacity, productivity, and process
efficiency.
Frost & Sullivans 2016 outlook also brought forth trends observed in the Indian logistics
industry, such as:
1.

Government initiatives to promote the manufacturing sector and exports are likely to
increase the demand for logistics functions. Trade with Asia, Europe, and North America
are likely to remain the major drivers for freight forwarding and transportation companies
in the region.
2.
Major investments by both the public and private sectors in the last five years on
infrastructure, technology upgrades, and expansion of sea and airport facilities, and a
dedicated logistics corridor in the rail network are likely to strengthen the Indian logistics
infrastructure.
3.
The booming e-commerce market in India is bringing in new opportunities for LSP. The
evolving business model(s) in this space focuses on containing logistics and delivery costs.

4.

The existing multi layered tax system is contributing to significant delays in the road
transportation sector, and proposed implementation of GST is likely to simplify tax
structure and lower logistics costs.

The industry outlook highlighted Indias trade scenario and its contribution to the logistics
industry, with details on port traffic, sea, air, and road freight. Indias exports are primarily driven
by manufacturing products, fuel, minerals, and agriculture products. The Government of Indias
Foreign Trade Policy (2015-2020) aims to increase the value of trade to US $900 billion by
2020, by aligning with Government initiatives such as Make in India, Digital India, and
Skills India to promote growth of exports. Asia leads the share of trade for India, while North
and South America and Europe are the other key regions. Exports to Asia, Europe, and America
accounted 88% of the total exports in 2014.
Sea freight in India is a major contributor to the freight movement as more than 70% percent of
international trade is through sea ports. It is expected to grow by 5.7% driven by the demand
from Asia, Europe, and Africa. Major ports contributed 55% of the total sea freight and the
capacity will expand as three additional ports are planned in West Bengal, Maharashtra, and
Tamil Nadu. Containerized cargo tonnage is likely to cross 123 million ton in 2016 and is likely
to grow by 4% driven by port modernization and expansion plans.
Port traffic in major Indian ports has grown by 1.8% between 2010 and 2015. But there has been
uneven growth with ports located in the Western Coast and Gujarat witnessing consistent growth
due to port privatization and industrial growth (Kandla has the highest share of port traffic
more than 15%). The infrastructure challenges at Indian ports include limited capacity, preberthing delays, longer ship turnaround time, inadequate draft, etc.
Moving to air freight, the domestic air cargo comprises one-third of air cargo volume and is
likely to grow by 2.3% in 2016, while international air cargo is likely to grow at 12.5%. Under
the 12th Five Year Plan (2012-17), an estimated US $11.4 billion has been allocated for airport
modernization and expansion. Currently, 13 regional airports have been targeted with focus on
expanding its infrastructure; the number of airports in the country is likely to increase to 250 as
per targets of Airport Authority of India.
Share of road transport in total freight volume has been increasing in recent years. The road
freight volume in India is forecast to be 2,211.24 billion freight ton kilometer, growing at 4.7%.
As per the Government target, an additional 50,000 km of national highway is likely to be added
by 2020. The Ministry of Road Transport and Highways plans to award close to 5,000 km to
private companies during 2016-17, which is worth approximately US $7.69 billion.

Frost & Sullivan analysis finds that the potential market for LSP in India is approximately US
$445 billion. The factors that can drive this growth include high costs of maintaining in-house
logistic activities, rising complexity in supply chains due to growth in global sourcing and
distribution practices, increasing orientation of manufacturing industries to focus on core
competencies, and growth in online retailing. Along with the growth drivers, improving weak
infrastructure, connectivity and distribution networks, developing specialty storage facilities,
bringing in uniform regulations, and removal of administrative hurdles to prevent loss of time to
deliver across borders are required to achieve the desired results.
This Industry Outlook is part of Frost & Sullivans Supply Chain & Logistics Transformation
Practice, which works closely with logistics service providers, logistics infrastructure
developers, Government institutions, and development agencies to help address their business
challenges in a constantly changing industry environment. To know more about this Outlook,
write to Ravinder Kaur / Priya George, Corporate Communications
at ravinder.kaur@frost.com / priyag@frost.com with your full name, designation, company
name, telephone number, company e-mail address, company website, city, state and country.