Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Logistics sector: A look at road freight transport I - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 22, 2009

    Logistics sector: A look at road freight transport I

    In our previous article we had highlighted the importance of the logistics sector and had discussed different segments. Now, in this article we would concentrate our discussion on the road freight industry, which accounted for 4.6% of the country's GDP in FY08 (as per data released by CSO).

    Why does road transport play a dominant role in India's domestic transportation sector? What factors support the growth of the sector? How has the road freight industry growth been? What factors are likely to drive growth of this sector going forward?

    These are some of the questions that we would be addressing in this article.

    Road freight industry: The industry is highly fragmented and largely unorganised. The unorganised sector accounts for nearly 80% of the market share. However, changing policies with regards to tax structure are likely to give a competitive edge to the organised sector. Road transport comprises of freight and passenger traffic. It accounts for over 60% of goods traffic and over 80% of passenger traffic.

    Source : CII, KPMG Logistic report
    Road freight transport can be further classified into primary and secondary transportation. Primary transportation is one that covers distance not less than 50 kms and over 1,000 kms. Primary road freight accounts for over 70% of the Rs 1.42 trillion road freight industry. In the past ten years the road freight segment has reported a compounded annual growth rate of 8.9% and is expected to sustain this growth momentum in the coming years. The same has been on account of earlier infrastructural investments. The capital expenditure was primarily focused on building network of roadways to enable transportation, which has resulted in a vast network of roads. It is also well connected in comparison to the other modes of transport. Thus, road transport gains on account of route flexibility that enhances reach.

    The growth prospects of the sector

    • In the past the growth of road freight business was supported by ongoing investments in road infrastructure, which will drive growth in the future as well. In the XI five year plan, Rs 3.6 trillion investments have been outlined, which will be utilised to develop and re-develop road infrastructure across the nation. This will reduce the time of transportation. Better road infrastructure will also lower maintenance cost for transporters. Thus, it will lead to enhanced reach and improvement in efficiency in road transportation.
    • Gradual proposed phase out of CST by 2010 is likely to reduce burden of multiple taxes. Taxes are levied both at the centre and state with no provision of set off. This leads to cost and price escalation. This dampens competitiveness of domestic goods. The move to phase out CST will provide competitive edge to suppliers catering to markets across regions. The customers would also stand to benefit as burden of taxes on MR would be reduced.
    • Implementation of VAT would also enable companies to move from a state-wise warehousing system to a hub-and-spoke warehousing system. Currently, companies prefer state-wise warehousing system to reduce tax burden. This also facilitates inter-state sourcing and distribution networks. Multiple warehouses lead to cost inefficiencies in terms of warehousing space, employee costs, IT connectivity etc. Removal of CST would enable interstate transport through centralized warehousing facility, which in turn would consolidate supply chain network. Even though few states have replaced state sales tax by state VAT, it does not provide tax credit for movement of goods across states. Implementation of state VAT has not reduced the need for border check points. With the new tax regime, stocking points would be reduced. While that will involve a one time cost and considerable time and effort, eventually it is expected to lead to cost efficiencies and a better supply chain system. The improved logistics would not only help sustain the quality of products dispatched but would also reduce delivery delays.
    • The growth of the organised retail sector has slowed down to single digits in 2009. However, the long term growth prospects of the sector are intact. The same is on account of expectations of revival in economic growth.
    • India enjoys demographic dividend. The same is likely to boost demand of electronic goods, automobiles etc. Increased demand for these products is likely to uphold growth of the manufacturing sector. Also, the demand is likely to be driven by increasing population. With the increase in population, demand for daily necessities and houses (increase in demand of commodities such as cement, steel and other building materials) would increase. This in turn will necessitate transportation of goods.

    While these are a few factors that are expected to drive the growth of the sector, the growth path will not be so smooth. In our next article, we will discuss various factors that can prove to be a snag.



    Equitymaster requests your view! Post a comment on "Logistics sector: A look at road freight transport I". Click here!

    1 Responses to "Logistics sector: A look at road freight transport I"


    May 25, 2009

    these articles are very helpful, but it would be added advantage for readers if you can mention the stocks which make up the sector - not any recommendation, but just a mentioning or listing of stocks so that if users wish to do their own research, they can do so.

    Equitymaster requests your view! Post a comment on "Logistics sector: A look at road freight transport I". Click here!

    More Views on News

    Container Corporation: A Weak Quarter (Quarterly Results Update - Detailed)

    Dec 7, 2016

    Container Corporation of India Ltd has announced results for the quarter ended September 2016. The company has reported 8.2 % year on year (YoY) decline in sales, while bottom-line is down 31.9% YoY.

    Container Corporation : A disappointing quarter (Quarterly Results Update - Detailed)

    Aug 17, 2016

    Container Corporation of India Ltd has reported a decline of 6% and 14% in the topline and bottomline respectively for the quarter ended June 2016.

    Concor : A muted quarter (Quarterly Results Update - Detailed)

    Nov 9, 2015

    Container Corporation of India Ltd has reported 11% year on year (YoY) growth in the topline for the quarter ended September 2015 while the bottomline for the quarter grew by 21% YoY.

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms