New Delhi: The logistics industry, a key driver of the country’s economic growth, is expected to see huge investments in the near future, with the trucking sector alone projected to rake in Rs 2,00,000 crore in the next two years, says a latest study.
According to a white paper by consulting firm Orkash Services, the logistics sector is at a potential inflection point in its growth and service maturity model, driven by an unprecedented economic boom and fast evolving market dynamics.
The largest sector of the logistics industry is trucking, which holds great potential but it is very fragmented, unorganized and not well positioned to leverage opportunities.
The $55-60 billion, highly fragmented trucking industry has 2.5-3 million trucks moving within the country per day. Transporters with a fleet less than or equal to five trucks constitute a share of around 80% of the total revenue.
“We estimate the Indian trucking industry would need a growth capital of Rs2,00,000 crore over the next two years. The scenario presents vast opportunities for the financial institutions and private equity,” Orkash Services CEO Ashish Sonal told PTI.
“By our estimates, trucking industry can take in $6-7 billion of PE investments by 2010,” he added.
Meanwhile, the study said the trucking industry is riddled with deficiencies such as high level of fragmentation, low penetration of technological advancements and lack of skilled manpower. The deficiencies if not solved may impede the sector’s growth.
“The Indian trucking industry has the potential to touch $85-90 billion of market size in the next two years. However, with the current constraints, the sector can scale up to only $70 billion by 2010,” Sonal said.
Currently, trucking market size is $55-60 billion with around 2.5-3 million trucks moving within the country per day. Transporters with a fleet less than or equal to five trucks constitute a share of around 80% of the total revenue.
Interestingly, the logistics industry is expected to touch $125 billion in 2010 from $90 billion in 2007.
However, the study questions whether the trucking industry would be able to absorb the capital effectively for capacity building and has also provided technology based solutions and a collaborative business framework for answering the problems.
Highlighting the critical issues the Orkash report said that the highly fragmented and the unorganized industry structure has lead to low profit maximization for re-investment as growth capital and lack of economics of scale.
Besides, around 80% of the trucks are owned and run by very small operators having five trucks or less. This supply-demand mismatch, and lack of intermediaries has resulted into high transaction costs and business inefficiencies.
The sector is also prone to operational inefficiencies such as lack of logistic clusters, high maintenance costs, high idling time, transit losses, illiterate and unskilled work force, among others.
Comparing the developed nations’ trucking industry to India’s, Sonal said in the country a truck covers 300km a day on average , against 800km in western countries.
The Orkash study reveals that in the long term, a gradual consolidation leading to a more organised structure would happen in the trucking industry. However, for the sector to truly exploit its potential, it is imperative to focus, in the short-mid term, on the challenges of reform, modernisation and adoption of new business models.