Growing demand for IT solutions in logistics industry

Mumbai: The IT spends in the Indian logistics industry will grow to
approximately Rs 1,000 crore from the existing Rs 400 crore in the next five
years (CAGR of 20 to 22 percent) revealed the 'Technology Survey for the Indian
Logistics Industry-2008' conducted by Kale Consultants in partnership with
Feedback Business Consulting Services. The demand is expected from the Western
part of India followed by the North and Southern regions. 46 percent of the IT
investments are current made towards capital expenditures and the remaining 54
percent in operational.

India spends around 13 percent of its GDP on logistics, higher than US (10
percent), Europe (11 percent) and Japan (10 percent). This translates to around
Rs 1,50,000 crore in operating costs for the economy and therefore loss in
capital formation. India risks missing out on one to two percent GDP unless
significant strides are made to bridge this gap and improve supply chain
efficiencies by effectively using technology.

The key objective of the study was to assess the market dynamics and
highlight the technology adoption trends in the logistics industry. "There is a
lot of activity happening in this highly fragmented market and the trends are
quite revealing. 3PL players are growing at over 25 percent. Small and medium
family owned enterprises are growing in stature in the integrated logistics
space. Global majors have committed to huge investments for their Indian
operations. PE funds are increasingly looking at the sector. The sector has
already attracted investments of over Rs 20,000 crore in the first half of 2008,
"said Sumeet Nadkar, Head-Logistics SBU, Kale Consultants.

Technology spends in freight forwarding is expected to grow by 160 percent.
This industry presently constitutes 14 percent of the IT demand and is expected
to rise to approximately 170 crore (17 percent of overall IT spend by FY 013).
The market size is currently at Rs 11,000 crore and is expected to reach Rs
21,180 crore by FY 013.

Current IT spends by airports is estimated at approximately 1.1 percent of
the overall revenues. New investments of Rs 28,525 crore are expected in the
next four years to boost the IT requirement. This is one of the segments where
IT utilization is maximum compared to other segments in the logistics space.

Warehousing: Technology spends is expected to jump from the current Rs 48
crore to about Rs 120 crore by FY 013. This industry is fast emerging as a
strategic function, thanks to rapid growth in retail and expansion by domestic
and international players. This requires end-to-end solutions that improve
efficiencies in supply chain management. The market size is currently at Rs
3,000 crore and is expected to reach Rs 7,380 crore by FY 013.

Express and courier services: Industry will continue to remain the highest
technology buyers constituting to 33 percent of the technology spend by 2013
from the present 29 percent.

Radio frequency identification: RFID is expected to grow rapidly with nearly
80 percent of the respondents, indicating that they will be adopting the
technology (in spite of cost concerns). The demand will primarily be driven by
their overseas customers and the domestic retail boom. The ICD/CFS market size
together is currently at Rs 6,500 crore and is expected to reach Rs 7,700 crore
and Rs 12,515 crore by FY 013.

"Technology is expected to be a key enabler to support the logistics sector
in its growth. Influx of capital in the logistics value chain will also depend
on the ability of the stakeholders to deploy technology in improving their
processes and functions. Investment in technology is expected to result in
higher utilization of assets like truck fleet, warehouse, coordination of
movement of cargo, etc. Improved customer satisfaction using new generation
technology will shape the growth of the logistics industry. Thus, technology
will not only improve efficiencies but is likely to result in higher outsourcing
by end-user segments," opined Nadkar.