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Indian express industry: An overview

Dec 18, 2006

In an earlier article we made an attempt to give our readers a perspective of the global express industry. In this piece, we will try to analyse the Indian express industry, which along with China, is one of the fastest growing express markets in the world.

Industry size and structure
Though the size of the Indian express industry (US$ 1.6 bn) is miniscule when compared to the global express industry (US$ 149 bn), it is one of the fastest growing sectors in India and has attained a size almost equivalent to the shipping industry (Source: CARE). However, the Indian express industry is characterised by fragmented and unorganised players. The share of organised players is estimated at 65%. Of the balance, while the EMS (Indian Postal Department) holds a 10% share, 25% is held by the unorganised segment.

The Indian express industry can be broadly classified into organised, semi-organised and unorganised segments. The semi-organised and unorganised players mainly operate at intra-city level and niche domestic market. The structure of the industry can be gauged from the fact that although there are more than 2,000 players operating in the country, only 20-25 players operate on a national level.

Organised segment - This includes large domestic companies and MNCs like Gati, DHL and AFL. Since MNCs cannot match the wide distribution network of large domestic players within the country, they typically cater to the international express business. On similar lines, domestic companies cater to the large domestic express market. Some of the domestic companies have tie-ups with international service providers. Organised players score over their unorganised peers in the following areas:

  • Reach (distribution network)

  • Speed of delivery (major operation through air, own fleet for surface delivery)

  • Reliability (time bound delivery, insurance facility)

  • Technology (tracking facility, web enabled services)

Semi-organised segment - Players in this segment operate within a limited geographical area. The operations could be within the geographical regions like North-East, East-West or between specific sectors like Mumbai-Ahmedabad and Delhi-Jaipur. Semi-organised players have their own network in which they operate, as in they tie-up with other similar players in the neighbouring region(s). Some semi-organised players also accept international consignments, which are shipped through co-loaders, who act as wholesalers accepting sizeable lot of consignments from small players and handing it over to organized players. Some players operate independently, without any distribution network of their own. Such companies book the consignments for any destination and then hand them over to organised or semi-organised players.

Unorganised segment - Here, the operations are limited to a city. Such companies are largely found in metropolitan and semi-metropolitan cities. They have dedicated personnel for collection and distribution of consignments. The delivery schedules are based on the urgency of consignments. Almost the entire market is accounted for by documents. Major centers for intra-city business in India are Mumbai, Delhi, Chennai, Indore and Jaipur.

There are opportunities…
As was mentioned in the previous article, the prospect of express industry is primarily dependent upon the growth in GDP and world trade. With the Indian economy expected to grow at 7% to 8% annually, coupled with an average annual growth rate of 16% in India's global merchandise trade (Source: Foreign Trade Policy), the Indian express industry is expected to grow at an impressive annual rate of 20% to 25% over the next few years. Moreover, with India being recognised as an outsourcing destination, manufacturing sectors like textiles, automobiles and pharmaceuticals are likely to witness increased activities in medium to long term. In order to maintain its competitiveness, companies operating in these industries are expected to outsource their logistics requirements to third party logistics service provider (3PL) and concentrate on their core-competency of manufacturing.

Further, the opening up of banking, insurance, telecom and retail sectors would boost the demand for value added express services in India as these are the major users industries. Development of infrastructure and opening up of Indian aviation sector are other positives for the industry. Value added tax (VAT), which is likely to replace state and central taxes, is likely to enhance the efficiency of the logistics industry and subsequently lead to a shift of contract logistics business form unorganised players to organised players.

…but not without challenges
Though the Indian express industry is poised for impressive growth in the future, we believe there are significant challenges that industry might face in the coming years. Increase in fuel cost, shortage of skilled manpower and increasing competition are some of the major challenges for the industry. Furthermore, the amendments to the Indian Postal Act, if enacted, will pose a major threat to the industry. Some of the significant changes proposed include restricting FDI in the industry, granting the postal department an exclusive right to handle shipments upto 300 grams, annual renewal of players of the industry and contribution of 10% revenues towards universal obligation fund (as in the case of telecom sector). However, it will be pure courier companies (which are primarily involved in the business of handling documents) who will bear the brunt of regulations rather than large express firms, which primarily operate higher in the value chain.

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