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f+h Intralogistics 5/2015

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f+h Intralogistics 5/2015

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I for Intralogistics, I for India Sushen Doshi Its favorable location between Europe and Asia, and India itself being a large market with 1.2 billion people, India is now increasingly flexing its economic muscle. With new government now in power, where is India’s economy and logistics sector in particular headed to? Sushen Doshi, Editor, f+h Intralogistics Indian transportation and logistics industry is at the cross roads along its growth trajectory. With the global economic uncertainty that has been impacting the Indian market to an extent, the growth of India’s logistics sector is now more important than ever. India’s lesser dependence on exports, blessings of the lower oil prices and consistent internal demand have made Indian economy resilient in general and the logistics sector in particular are seemingly well positioned to sail through the turbulent global waters. Now let’s talk some numbers that give us an overview of India’s current position and what happens in the coming years. n Currently India’s GDP is roughly more than $ 2 trillion, and expected to grow to $ 3.5 trillion by 2020, at an 8-8.5 % annual growth rate. n Steel, plays a most important role in the growth of any country. For the last 5 years, China, world’s largest steel producer, produced more than 800 Million Metric tons (MMT), followed by Japan, USA and India. In 2014, India produced more 86 MMT. By 2030, this number is projected to increase by a factor of 4. n Like steel, Cement is another important material. India’s demand for cement is expected to be more than double by 2030. n Agricultural output although reduced, in size as percentage of GDP, is set to increase from 200 to 295 million tons by 2020. n With increasing urbanization, rise of e-commerce sector and increase in the purchasing power of India’s gigantic 50 f+h Intralogistics 5/2015

SPECIAL I INTRALOGISTICS MARKET INDIA middle class, the organized retail sector is set to increase from $ 41 billion in 2014 to more than $ 94 billion in 2019. n Obviously, with demand for anything and everything growing continuously, the energy requirement for India is expected to double by 2020. Millions of tons of coal will be mined and more than 75 % of this coal will be transported to its respective power plants. These, and many more factors show us the direction in which India is headed. To drive and sustain this economic growth, the movement of goods will require vastly superior service sector as well as logistics infrastructure. India’s logistics and transportation industry needs massive transformation, a clear long term vision with actors that are proactive rather than reactive to leverage this economic upturn. In short India needs Prime Minister Modi. Strategic aims of government GST (Goods and Services Tax): Currently, decisions regarding inventory and distribution are based on Central Sales Tax (CST) and an inter-state Value Added Tax (VAT). From a macro-economic level, GST will prove to be a game changer. This uniform tax regime will make transaction cost of doing business more competitive and will make the logistics value chain more efficient. Implementation of GST, will give freedom to decision makers of warehousing and distribution companies to make decision based on operational and logistical efficiency. Unlike today, where the tax considerations are prioritized above the operational logic. GST will also largely impact the warehousing, the network & infrastructure associated to warehousing. The location, size and the services provided by the warehouses will increase and improve. The network & infrastructure of the logistics hubs would be drastically realigned, encouraging the hub-spoke model, i.e. ‘Large hubs in strategic locations and smaller spoke warehouses closer to consumption centers. Railways: With more than 64,500 kms of rail network, Indian railways is largest in Asia. However, the railway infrastructure suffers from chronic under-investment, due to which the large potential for freight remains untapped. The economically incorrect policies for the last 60 years have brought down the efficiency of Indian rail. All is not dark and gloomy thou, the dedicated freight corridor seems to be the silver lining here. Some basic but hard steps are being taken in order to transform this rusty giant into a well-oiled machine. From logistics point of view: n Creating additional rail freight capacity is of significant importance as this will improve the service, delivery times and consequently add to the freight volume. From the intra-logistics point of view: n The need of the hour is to create warehousing facilities alongside rail lines to facilitate direct loading-unloading of goods. The ‘transport logistic corporation of India’. This government entity is in-charge of the rail side warehousing. This step avoids the multiple handling costs. Railside warehousing is a win-win for all the stakeholders. They help in further lowering the logistic costs, inventory carry costs, transit time and holding time. Roadways: Considering the large size of the country, the 70,000 km national highways networks is nowhere close to fulfilling it’s needs. National highways account for a mere 2 % of India’s road network but are responsible for almost 40 % of the goods transported. This increasing pressure on the national highways further slows the movement of goods. The average trucking speed in India is 40 kmph, whereas China clocks 60 kmph. However, the National Highway Development Project NHDP, is working on adding another 50,000 km of national highways. Apart from developing the roadways, other factors such as reducing the bottle neck traffic issues is very important. These bottle necks increase the waiting and delivery time for goods and eventually costing the country 2-3 % of its annual GDP. Warehouse A decade ago warehousing meant a 4 walled structure with below-optimal sizes, inadequate ventilations, no racking and no inventory management system. But changes in the business dynamics and entry of 3 rd party logistics (3PL) providers kick started the growth story. According to global property consultant, Knight Frank, in 2014, India’s warehouse requirements were 919 million sq.feet. In 2019, this number is projected at more than 1400 million sq.feet, show casing a 9 % CAGR. The demand for warehousing is mainly driven by India’s large manufacturing sector. According to global property consultant Knight Frank, the manufacturing-based demand for warehousing in 2014 was more than 630 million sq.feet, and demand from export-import sector was 210 million sq.feet. In terms of growth, export-import warehousing demand is set to grow at 13% CAGR from 2014-2019. The major factors driving the growth for the intra-logistics industry are the overall growth in production driven by increased consumption, globalization and arrival of FDI (foreign direct investment) in the intralogistics sector, and the govt. reforms. Prime Minister Modi’s ‘Make in India’ is gaining ever increasing momentum. Now, one year 01 India´s rising warehouse requirements 02 Sector wise market share for Warehousing in India f+h Intralogistics 5/2015 51


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