— Mukesh Shah, Country Manager (India), BDP InternationalBDP International, a
leading freight logistics and
transportation management
firm based in USA, operates
freight logistics centres in
over 20 cities throughout
North America and a
network of subsidiaries,
joint ventures and strategic
partnerships in 122
countries including India.
Mukesh Shah analyses
the Indian logistics market
in this interview with
Sandeep Menezes.
Only 8 per cent of India's current
1,800 million sq. ft of warehousing
space is owned and
operated by organised players.
Do you foresee the share of
organised players increasing in
next 10 years?
Yes, we project the private sector
will be increasing its investment
in warehousing space over the
next decade, a trend that has been
underway since last year. The private
sector had been disinclined
to enter this capital-intensive
business, and banks were wary of
financing its high funding
requirements. This scenario
changed about 10 years ago when
the Indian government began
creating more favourable conditions
for private investment.
The 2009-10 budget has
extended the capital interest subsidy
to investors in agri-warehouses,
and similar incentives
are likely to be extended to the
cold chain logistics segment in
the near term. We're hoping the
government will provide fiscal
concessions to other segments of
the logistics industry as well.
With the growth in the logistics
sector, India needs around 25-30
million sq. ft of additional warehousing
space annually.
Partnerships between the private
and public sectors can provide
more incentives for warehouse
construction. Increased
foreign trade and upcoming
government incentives are
accelerating demand for warehouses
and logistics services.
To help meet this demand, four
logistics parks are planned for a
400-acre site in eastern India, and
five more are being established on
a 220-acre site in south India
(Hyderabad). The latter complex,
with its concentration of textile,
engineering and pharmaceutical
firms and excellent connections to
large markets in southern and
western India, will provide
approximately 10 million sq. ft of
warehouse space by 2012.
Logistics infrastructure spend
has tripled from $10 billion in
2003 to an estimated $30 billion
this year. How do you see logistics
infrastructure developing
in near future?
The Government of India has
made this the top priority in its
next five-year plan. With millions
of retailers catering to the
needs of more than one billion
people, logistics management in
India is very complex. Yet, the
infrastructure development has
not kept pace with the nation's
growing economy.
Logistics is rapidly evolving as
a strategic function beyond mere
transportation and storage services
to provide end-to-end solutions
that improve efficiencies.
As a result of the boom in commodities
and retailing, India's
warehousing sector is growing
at an annual rate of 35-40 per
cent, and is expected to become
a $50-billion industry in the near
future. By that time, the country
is projected to have around 45
million sq. ft of warehousing
space and more than a hundred
logistics parks.
The entry of third-party global
logistics players is leading to
the reshaping of the logistics
services in India.
India spends around 13 per
cent of its GDP on logistics,
higher than USA (10 per cent),
Europe (11 per cent) and Japan
(10 per cent). With inefficient
practices inflating the industry
size, how can supply chain
efficiency be improved?
The recent global economic meltdown
has served to shift the
emphasis to reducing costs and
improving the efficiency of supply
chains, where there are ample
opportunities to value engineer
processes and even the slightest
improvements would yield considerable
savings for India.
Upgrading the roads will result
in lower vehicle turnover, which
in turn will reduce operating costs
and improve efficiency. With
transportation accounting for
nearly 40 per cent of total logistics
costs, these improvements will
benefit both logistics service
providers and their clients.
National highways also are being
upgraded for increased efficiency.
India's overall logistics market,
including transportation and
warehousing, is expected to go
up from $75.19 billion in 2009
to $120.4 billion in 2014. What
will be the main drivers leading
to this growth?
The main drivers are: Change in
government tax structure; GST
implementation; infrastructure
development; national GDP;
and production growth.
Despite challenges, the logistics
industry in India is positioned
to grow. Industries such as
chemicals, pharmaceuticals,
metals, FMCG, cement, textiles
and, above all, the retail segment
have been identified as the top
contributors to the projected
growth of the economy and by
extension to logistics revenues.
The new generation of Indian
corporations is looking at outsourcing
non-traditional logistics
functions such as reverse logistics,
inventory management,
order processing, distribution,
and labelling and packaging.
What will be the main challenges
facing the logistics industry?
The biggest challenges will be
complex tax laws and poor infrastructure.
Inadequate technological
support for the huge volume of
paperwork in this fragmented
market is also driving costs. In
addition, individual truck owners
dominating the market and
unable to make direct contact with
the customers rely on commissionable
freight consolidators and brokers
to generate business. Only
several thousand vehicles out of
millions have tracking systems.
What is the current size of project
logistics in India and what will be
the estimated growth rate?
The current project logistics market
is around Rs 200 billion, which
is expected to double by 2012.
Accordingly, project logistics
activity is expected to grow by 20-
30 per cent in next two to three
years. To keep pace with its rapid
economic growth, India needs
power generation, oil and gas,
and alternative energy projects.
In addition, enormous government
investment is planned for
infrastructure, ports and
telecommunications, which will
support continued growth in
core industries such as steel,
cement and automotive.
What is the aim of the new JV
company set up by BDP and
Unique Global Logistics?
The objective of the joint ventureis to service BDP's global customers'
needs in India, providing
integrated logistics primarily to
existing global chemical customers
and to expand to Indian
corporations. Our key services
include import-export freight
management, customs brokerage,
trucking and warehousing.
What is your company's longterm
strategy in India?
We want to provide world-class
service to our customers, meeting
their global supply chain and
logistics requirements, including
IT capabilities for greater supply
chain visibility. Specifically, we
want to partner with Indian corporations
in chemical, healthcare,
life sciences and retail industries
that are expanding their operations
outside of India and could
benefit from our global network
and expertise in these sectors.
Our logistics strategy is to create
a pool of supply chain resources
that understand the processes and
complexities of chemical logistics
and can provide world-class services
to global standards.