Logistics Sector Analysis Report 

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The logistics sector plays a crucial role in India's economic landscape by facilitating the efficient movement of goods and services across the country's vast territory.

As India aims to achieve its ambitious economic goal of a GDP of US$ 5.5 trillion (tn) by 2027, transforming its logistics sector has become a pressing issue.

This sector is integral to supporting various industries, including manufacturing, agriculture, and e-commerce. However, it faces numerous challenges and also presents significant opportunities.

In this report, we explore India's logistics ecosystem, examining the obstacles that hinder its efficiency and growth while highlighting the opportunities and recent developments within the sector.

The stringent COVID-19 lockdowns caused the GDP to shrink by 7.3% in 2020. However, the resurgence of the service sector, revival of manufacturing, and growth in agriculture led to a strong recovery in 2021 and 2022, resulting in an impressive 15.3% cumulative growth from 2020 to 2022.

The manufacturing sector, which contributed 17% to the GDP in FY24 stands to benefit further from the government's focus on 'Make in India' and its vision of transforming India into a 'global manufacturing hub.'

Growth in manufacturing will require efficient, technology-enabled supply chain solutions to support both domestic and global companies.

India has the potential to become a reliable supply chain partner by offering effective and complex supply chain solutions.

With technological advancements, the country is revamping its logistics sector by integrating solutions that automate and optimise processes.

Over the past five years, India has consistently improved its rankings in several global manufacturing performance indicators, including logistics and ease of doing business, rising six places to 38^th among 139 countries on the Logistics Performance Index. In July 2017, the Department of Commerce established a logistics division to oversee the integrated development of the logistics sector.

This division, led by the Special Secretary to the Government of India, will create action plans for policy reforms and process improvements, addressing challenges, and embracing technology.

Government initiatives including the implementation of the Goods and Services Tax (GST) and the National Logistics Policy (NLP) are also driving significant changes within the industry.

Digitalization, increased connectivity, and the adoption of advanced innovations such as Radio Frequency Identification (RFID) and Global Positioning System (GPS) technologies are improving operational efficiency and reducing costs.

Moreover, the growth of e-commerce and international trade is increasing the demand for streamlined logistics solutions.

Despite challenges such as infrastructure deficiencies and regulatory complexities, the logistics industry is well-positioned for significant growth.

It offers opportunities for both domestic and international entities to thrive in India's expanding market.

Structure of India's Logistics Market

The logistics market can be classified based on the types of service offerings and logistics solutions available.

This classification includes various modes of transportation, such as rail, road, water (ports and inland waterways), air, warehousing, and related services.

Classification by logistics solutions is as given below:

First-party logistics (1PL) involves direct logistics solutions with no intermediaries between enterprises and customers.

Second-party logistics (2PL) involves using an outside party, usually for specific tasks such as loading or distribution.

Third-party logistics (3PL) provides various services including transportation and warehousing.

Fourth-party logistics (4PL) solution uses technology to coordinate all supply chain activities from one central point.

Integrated logistics solutions combine the services of a 3PL and 4PL provider as well as additional value-added solutions. These solutions help address strategic supply chain challenges in collaboration with the client.

Railways

Indian Railways runs 13,523 passenger trains and 9,146 freight trains daily on its network with passenger trains running at an average speed of 50.6 kmph and freight trains at 24 kmph. Historically freight trains have struggled to breach this range of speed.

This was due to preference given to passenger trains on railway tracks when two trains needed to cross the same track, freight trains were stopped, and passenger trains were allowed to pass through. This led to the slowing of freight trains.

This in turn decreased the competitiveness of railways in the logistics sector and led to Indian railways' share dropping to decadal lows traffic share.

Railways Have Been Losing Traffic Share

The government aims to reach an average speed goal of 75 km/hr in coming years. This will be achieved by the development of dedicated freight corridor (DFC). Indian Railways achieved track laying of 5,100 km during FY24.

Another reason for the decreasing competitiveness of freight trains in comparison to roads is increasing freight rates without a corresponding improvement in service levels.

The increase in freight rates was to subside the passenger trains. With many new government initiatives this is all set to change.

Typical Value Chain for Railways

Transporting cargo via trains begins with the shipper preparing goods and coordinating first-mile transport to an inland terminal, which serves as a key hub for connecting rail and road transport.

At the terminal, cargo is consolidated, inspected, documented, and securely loaded onto railcars for long-haul transportation.

The rail operator dispatches the train, monitors the cargo in transit using tracking systems, and ensures safety.

Upon reaching the destination inland terminal, the cargo is unloaded, inspected, and redistributed onto trucks for last-mile delivery to the receiver, who confirms delivery.

Inland terminals also provide value-added services like storage, repackaging, and customs clearance, thereby improving efficiency and reducing road transport costs.

To boost the railway's share in the logistics modal mix and bring down logistics costs as a percentage of GDP, the government has laid out many plans.

Here are a few some points you should know...

• In the Union Budget 2024-25, the government allocated Rs 2.62 lakh crore (US$ 31.5 billion) to the Ministry of Railways.
• Railway Development Authority is redeveloping 60 railway stations across India on a public-private partnership (PPP) model.
• In FY24, freight loading crossed by 1,588 million tonnes (MT) against last year's loading of 1,512 MT in FY23.
• Most of the freight traffic of the railway comes from a few bulk goods such as coal, iron, and cement.
• The freight basket has remained largely unchanged over the last 15 years.
• Coal freight alone constitutes more than 40% of the traffic volume and traffic revenue.
• On a cumulative basis from April-January 2024, railways freight earnings stood at US$ 16.9 bn against US$ 16.3 bn over last year, an improvement of 4%.
• Indian Railways has undertaken a mega-infrastructure project of two Dedicated Freight Corridors (DFC), namely Eastern and Western Dedicated Freight Corridors (EDFC & WDFC), to facilitate faster evacuation of freight traffic.
• A total route length of 2,741 km has been commissioned out of a total of 2,843 km till Dec.2024

• Axle load was increased from 20.3 tonnes to 22.9 tonnes and 25 tonnes for selected routes. Freight discounts were offered to customers offering high tariffs.
• Freight rates on cement, coal, urea, kerosene, LPG and food grain and pulses have been hiked by 10% to bring additional revenue of US$ 655.1 m per year.
• In FY25, Railways' capital expenditure target was Rs 2.52 lakh crore (US$ 30.33 bn)
• 100 PM-GatiShakti Cargo Terminals for multimodal logistics facilities will be developed over next three years.

Since the launch of the policy, railway authorities have received various proposals from private investors and have already given approval (they can now acquire land and begin construction) for 4 port connectivity projects to ease congestion.

Areas proposed for private investment during this period would include elevated rail corridor in Mumbai, some parts of dedicated freight corridor, freight terminals, redevelopment of stations, and power generation/energy saving projects.

• Indian Railways aimed to achieve 100% electrification of all broad-gauge routes by 2024.
• Ministry of Railways liberalised the AFTO policy by reducing registration fees from Rs 50 m to Rs 30 m. Also, the requirement of minimum procurement of at least 3 rakes under the scheme has been relaxed to 1 rake.

The stocks which are expected to benefit from DFC are Container Corporation of India, Transport Corporation of India, and Gateway Distriparks. They are engaged in the business of providing inland transportation of containers by rail.

Road

• The logistics sector is mainly dominated by the movement of goods via roads, approximately 65% of volumes.
• India has the second-largest road network in the world, spanning over 6.7 million km.
• Under the Union Budget 2024-25, the Government of India allocated US $ 32.68 billion (bn) to the Ministry of Road Transport and Highways.

The PM GatiShakti National Master Plan aims to establish comprehensive infrastructure for multimodal connectivity to link different economic zones.

The aim of the plan is to create a digital platform that would enable 16 ministries to collaborate on integrated planning and coordinated implementation of projects.

The plan will also bring together departments such as railways, roads & highways and others. The implementation will be done with the help of geo-satellite imaging, Big Data, land, and logistics.

India's Gati Shakti program has consolidated a list of 81 high impact projects, out of which road infrastructure projects were the top priority.

The major highway projects include the Delhi-Mumbai expressway (1,350 kilometres), Amritsar-Jamnagar expressway (1,257 kilometres), and Saharanpur-Dehradun expressway (210 kilometres).

The main aim of this program is a faster approval process which can be done through the Gati shakti portal and digitized the approval process completely.

Highway construction in India is also going at a good pace with FY24 recording 12,349 kilometres of construction taking place.

India's logistics and supply chain industry is experiencing a major transformation, led by several government initiatives aimed at boosting the sector.

Notably, implementing GST and recognising logistics as infrastructure status are two critical moves that have been instrumental in driving this change.

Big initiatives that have been implemented to streamline goods movement and reduce turnaround times are listed below:

Dedicated freight corridors: To facilitate the seamless transportation of goods and commodities across India, high-speed, large capacity railway corridors - known as dedicated freight corridors - have been established.

Multi-modal logistics parks: The development of multi-modal logistics parks is a strategic step towards providing comprehensive freight-handling facilities. Spread across at least 100 acres, these parks offer access to various modes of transportation, including road, rail, and air.

They also provide advanced storage solutions such as mechanised warehouses, cold storage facilities, and essential services like customs clearance and quarantine zones.

These parks aim to optimise logistics operations and enhance overall supply chain efficiency by lowering freight costs, warehouse expenses, and vehicle congestion.

Multi-modal logistics parks have been established at 35 important strategic sites, with a total investment of Rs 500 bn. These parks facilitate smooth transportation of goods using various modes of transport.

Parivahan portal: To standardise processes and promote seamless information sharing across locations, the government has introduced the Parivahan portal.

This digital platform encompasses 'SARATHI' for driving license processes and 'VAHAN' for vehicle registrations.

Both functionalities are consolidated within a user-friendly mobile application, 'mParivahan.'

This initiative streamlines administrative procedures and provides easy access to information related to registration cards and driver's licenses, facilitating smoother logistics operations.

Introduction of e-way bill: Implementing the e-way bill system mandates using electronic documentation for truckloads valued above Rs 50,000.

This digital documentation eliminates the need for physical paperwork and state boundary check posts, simplifying inter-state vehicle movement.

The e-way bill initiative enhances logistics efficiency and expedites overall supply chain movement by shortening turnaround time and bureaucratic hurdles.

National Logistics Policy: The Indian government released the National Logistics Policy 2022 (NLP). NLP aims to boost economic growth by making the logistics sector more seamless and integrated.

It plans to create a single-window e-logistics market and make MSMEs more competitive. This would lower logistics costs as a percentage of GDP.

Logistics Efficiency Enhancement Programme (LEEP): LEEP is designed to improve freight transport efficiency. Associated cost, transportation time, and logistics practices like goods transferring and tracking through infrastructure technology and process interventions.

The Ministry of Ports, Shipping and Waterways has developed a comprehensive plan for port connectivity. It aims to address infrastructure gaps at the first and last mile, ensuring smooth goods movement.

Additionally, 60 projects by the Ministry of Road Transport and Highways (MORTH) and 47 by Indian Railways have been approved to strengthen port connectivity.

Such initiatives are laying the foundation for future infrastructure and provides a strong base for new-age logistics companies to fully exploit this infra and provide excellent services at lowest cost possible.

Many new-age logistics companies are using a mesh network instead of a traditional hub and spoke model.

Mesh Network consists of higher proportion of point-to-point connections with dynamic shipment routes determined typically based on an automated algorithm.

On the other hand, Hub-Spoke Model consists of a mother node which is centrally connected to multiple other nodes. This results in fixed shipment paths and relatively lower flexibility compared to a Mesh network.

As a result, Mesh network enables faster turnaround time, higher route flexibility and better reliability vs the Hub-Spoke topology.

According to Delhivery DRHP The total road transportation market was estimated at US$ 124 bn in FY20 and is expected to grow at a CAGR of 8% to reach US$ 200 bn in FY26.

Further segmentation in the road transportation subsegment can be done based on the weight and speed of the load that is to be transported.

Truckload Freight (TL) refers to delivery of a full truck/trailer load of freight, moving directly from shipper or origin point to consignee or point of destination.

This is the largest segment of road transportation, with a market size of US$ 109 bn in FY20 that is expected to reach US$ 163 bn by FY26.

PTL freight refers to delivery of consignments with weights of between 10-2,000 kg.

PTL providers operate a network of pick-up and delivery points and terminals where freight from different customers that is traveling in similar directions is consolidated.

This consolidation leads to lower transportation costs for individual customers, while providing faster delivery times and greater flexibility.

The PTL market, which was estimated to be US$ 13 bn in FY20 is expected to double to US$ 26 bn in FY26.

There are two key segments in this market:

Express PTL: Turnaround times of 3-5 days, typically focused on smaller consignment sizes.

Traditional PTL: Turnaround times slower than Express PTL. Used by relatively time-insensitive shippers who are comfortable with waiting for carriers to consolidate freight loads.

Express Parcel: refers to delivery of parcels weighing less than 40 kg. These are typically e-commerce orders or business documents, with standard turnaround times of less than 3-4 days.

The express parcel delivery market was estimated to be US$ 2.3 bn in size in FY20 and is expected to reach US$ 10-12 bn by FY26 at a CAGR of 28-32%.

Some notable listed companies operating in this space are: Delhivery, Blue Dart Express, TCI Express, Allcargo Logistics, VRL Logistics etc.

Water (ports)

Ports in India handle around 95% of the international trade volume of the country. Increasing trade activities and private participation in port infrastructure are set to support port infrastructure activity in India.

India has 12 major ports. Under the National Perspective Plan for Sagarmala, six new mega ports will be developed in the country.

• In the interim budget 2024-2025, US$ 84.42 m has been allocated for the Sagarmala programme.
• India's key ports had a capacity of 1,617 million tonnes per annum (MTPA) in FY23.
• In Union Budget 2024-25, the total allocation for the Ministry of Shipping was US$ 281.23 m (Rs 2,345.45 crore).
• Out of India's 200 non-major ports, 44 are functional and strategically located on the world's shipping routes.

India plans to establish a new shipping company to expand its fleet by at least 1,000 ships in the next decade.

The aim is to reduce freight costs and capture more revenue from increasing trade, with joint ownership by state-run oil, gas, and fertilizer companies, along with the state-run Shipping Corporation of India and foreign companies.

The target is a reduction of at least one-third in foreign freight outgoings by 2047.

On 26 July 2024, the Government of India announced an update to the Shipbuilding Financial Assistance Policy (SBFAP). This has provided financial aid totaling US$ 40.4 m to enhance India's competitiveness against foreign shipyards and revitalize the shipbuilding industry.

Since the policy's inception, 313 vessel orders valued at approximately US$ 1.26 bn have been secured. The plan is to invest US$ 82 bn in port projects by 2035.

India has a coastline of more than 7,517 km, interspersed with more than 200 ports.

Most cargo ships that sail between East Asia and America, Europe, and Africa pass through Indian territorial waters.

This presents a great opportunity to become a critical part of global logistics supply chain and improve national logistical infrastructure.

If we look at the whole logistical value chain, ports are the most profitable part. Although asset heavy but they provide big and long sustainable cashflows.

There are some notable trends that are playing out in ports segment such as increasing private participation.

Strong growth potential and favourable investment climate provided by state governments have encouraged domestic and foreign private players to enter the Indian ports sector.

In addition to the development of ports and terminals, the private sector is extensively participating in port logistics services.

The Indian government has invited bids to sell its 63.75% stake in the Shipping Corporation of India (SCI) to private investors.

Adani Ports and Special Economic Zone Ltd. has secured a five-year operation and maintenance contract at Kolkata Port, which will help the company enhance synergies with its transshipment hubs in Colombo and Vizhinjam.

Special economic zones (SEZ) are being developed near several ports, thereby providing strategic advantage to industries within these zones.

Development of SEZs in Mundra, Krishnapatnam, Rewas and a few others is underway. APSEZ handled a record 420 m tonnes of cargo in FY24, achieving a 24% YoY increase in domestic port operations. The company has expanded its infrastructure and operational capabilities across 15 ports in India.

All the greenfield ports are being developed at shores with natural deep drafts and existing ports are investing on improving their draft depth.

Higher draft depth is required to accommodate large sized vessels. Due to the cost and time advantage associated with the large sized vehicles, much of the traffic is shifting to large vessels from smaller ones, especially in coal transportation.

Terminalisation is becoming a trend in India. This refers to the process of organising port operations into specialised, efficient, and well-managed terminals, each dedicated to handling specific types of cargo.

This is useful for handling specific cargo such as LNG that requires specific equipment and hence high capital costs.

Forming specialist terminals for such cargo result in optimal use of resources and increased efficiencies.

To promote private investment, the government has reformed the organisational model of seaports - from a 'service port' model.

Here the port authority offers all the services to a 'landlord port' model where the port authority acts as a regulator and landlord while private companies carry out port operations.

Many new initiatives are being taken for improving operational efficiency of whole logistics chain such as the 'Direct Port Entry Facility' at the V.O. Chidambaranar port.

This facility enables direct movement of containers from factories, without intermediate handling at any CFS (Container Freight Station).

This facilitates shippers to get their exports directly to the container terminal (24x7), increasing efficiency and ease of doing business.

The average turnaround time at major ports has fallen from 127 hours in 2010-11 to 48 hours as of 2023-24.

Jawaharlal Nehru Port (JNPA) set a new standard in operational efficiency, reducing turnaround time to 0.9 days, surpassing counterparts globally and highlighting India's maritime progress.

Inland water transport is a critical part of logistics for any country as it is one of the most economical means of transporting goods and efficient mode of transportation for bulk goods and passengers.

Utilising rivers, canals, and lakes reduces traffic congestion on roads and railways, lowers fuel consumption, and minimizes greenhouse gas emissions.

It supports regional connectivity, especially in areas with limited access to road or rail infrastructure, fostering trade and economic development in remote regions.

India has negligible infrastructure for inland water transport but there is renewed focus on this segment on the policy front.

The government aims to increase Inland Water Transport (IWT) share to 5% by 2030 as per Maritime India Vision (MIV) 2030. This vision emphasises its cost-effectiveness and sustainability for bulk cargo transportation, particularly along National Waterway No. 1 (River Ganga).

Under the Sagarmala initiative, the Ministry has initiated Ro-Pax Ferry operations connecting Ghogha to Hazira in Gujarat and Mumbai to Mandwa in Maharashtra.

These services have facilitated the transportation of over 24.15 lakh passengers, 4.58 lakh cars, and 36,300 trucks.

Air

The air segment is the segment with highest growth rates, but total market size is very limited due it being most expensive way to transport something.

Between FY16 and FY24, freight traffic increased at a CAGR of 2.75% from 2.7 MMT to 3.136 MMT.

Freight traffic in airports in India has the potential to reach 17 MMT by FY40. Growth in import and export in India will be the key driver for growth in freight traffic as 30% of total trade is undertaken via airways.

From FY16 to FY24, domestic freight traffic increased at a CAGR of 3% and international freight traffic increased at a CAGR of 2.7%.

In FY24, domestic freight traffic stood at 1.32 MMT and international freight traffic was 2.04 MMT.

Porter Five Forces Analysis for the Logistics Sector

The logistics sector encompasses transportation through various modes like rail, road, water (port), and air.

Applying Porter's Five Forces framework helps analyse the competitive landscape and profitability potential of each mode.

Threat of New Entrants

• Road: High threat due to relatively low capital requirements for starting trucking operations. Many small and unorganised players exist in the market, making entry barriers low.
• Rail: Low threat because of significant infrastructure investment and regulatory hurdles. Existing players like CONCOR dominate, making entry for new players challenging.
• Water (Port): Moderate threat. Establishing port infrastructure requires substantial capital and government approvals. However, trends like increased coastal shipping and the emergence of private players may increase the threat.
• Air: Moderate threat due to high capital expenditure for aircraft, specialised infrastructure like airports, and stringent regulatory frameworks. But high growth rates in industry attracting many established players.

Bargaining Power of Buyers

• Road: High bargaining power due to a fragmented market with numerous transporters. Buyers can easily switch providers based on price and service levels.
• Rail: Moderate bargaining power. Limited rail operators and increasing demand for rail logistics provide some negotiating leverage for the operators. However, large buyers can still influence pricing.
• Water (Port) : Moderate to high bargaining power. Large shipping lines and importers/exporters can influence pricing, particularly in bulk cargo segments. However, specialised ports and limited capacity in certain regions may reduce buyer power.
• Air: Moderate bargaining power. Buyers, especially in the cargo segment, have some leverage due to competition among service providers. However, factors like speed and reliability limit their negotiating power.

Bargaining Power of Suppliers

• Road: Moderate bargaining power. Suppliers include truck manufacturers and drivers. While individual suppliers have limited power, driver shortages, and truck inventory shortages can increase their influence.
• Rail: High bargaining power. Key suppliers include rolling stock manufacturers and fuel providers. The limited number of suppliers and specialized nature of equipment give them significant influence over pricing.
• Water (Port): Moderate bargaining power. Suppliers include shipbuilding companies, port equipment providers, and labour unions. Specialised equipment and skilled labour can grant them negotiating leverage.
• Air: High bargaining power. Aircraft manufacturers, fuel suppliers and airports exert considerable influence on air transport companies due to the limited number of suppliers and the specialized nature of products and services.

Threat of Substitutes

• Road: High threat from rail, particularly for long-haul and bulk cargo transportation where rail offers cost advantages.
• Rail: Moderate threat from road transport for shorter distances and door-to-door deliveries where road offers flexibility. Water transport can also be a substitute for certain bulk cargo.
• Water (Port): Moderate threat from road and rail depending on cargo type, distance, and infrastructure availability. However, coastal shipping is gaining traction with government initiatives.
• Air: Limited threat as it caters to time-sensitive and high-value goods. However, technological advancements in other modes may challenge air's dominance in specific areas.

Competitive Rivalry

• Road: High rivalry due to a fragmented market with many players vying for business. Price wars, aggressive marketing, and service differentiation are common.
• Rail: Moderate rivalry. Limited players and increasing demand for rail logistics make the competition less intense. However, players compete on service quality, network reach, and technological advancements.
• Water (Port): Moderate rivalry. Competition exists among ports and shipping lines, particularly for attracting large clients and specific cargo types. Factors like port efficiency, connectivity, and value-added services influence competitiveness.
• Air: High rivalry in cargo segment face competition based on price, speed, and reliability. Differentiation strategies focus on route networks, specialized services.

	Particulars			Name of the company
	(Rs in m, consoli-dated)	Adani Ports & Special Economic Zone	JSW Infra-structure	Container Corporation Of India	Delhivery	Blue Dart Express	Transport Corporation of India
	CMP	1,107	283	772	326	6,547	1,039
	Market Cap	2,391,060	593,780	470,440	242,780	155,360	80,970
	P/E	23	47	36	772	55	21
FY24	Net Sales	267,110	37,630	86,530	81,420	52,680	40,240
	Operating Profit	155,890	19,680	19,590	1,270	8,530	4,110
	OPM (%)	58%	52%	23%	2%	16%	10%
	Net Profit	81,040	11,610	12,620	-2,490	3,010	3,540
	Net Margin (%)	30%	31%	15%	-3%	6%	9%

Conclusion

The Indian logistics sector landscape is very diverse with varying levels of competition and profitability across its different modes.

Road transport is characterised by a fragmented market with numerous players and experiences intense rivalry and high bargaining power of buyers, ultimately leading to compressed margins.

The rail segment presents a more favourable environment for established players with moderate rivalry and increasing demand, particularly due to government initiatives like the DFC.

Overall, the Indian logistics sector is poised for continued growth, driven by factors such as e-commerce expansion, infrastructure development, and government initiatives like the National Logistics Policy.

A well thought out business model with the management's ability to focus on its core competencies and focus on technology can enable companies to capitalise on these trends and maintain a competitive edge in the evolving market.

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