Logistics is a deceptively complex industry, with over 60 sub-segments spanning modes of transport, services and assets. It is also a sector that has seen significant and consistent merger and acquisition activity: $2 billion invested in more than 200 announced deals over 2008-18. But it is also perceived as an industry where high financial returns are elusive—primarily because of the following five reasons:

(1) Uncertain regulations

Several logistics sub-segments are significantly impacted by regulations. Think about cabotage rules and coastal shipping, or unpredictable haulage tariffs and container rail, or the impact of Direct Port Delivery guidelines on Container Freight Stations (CFSs). For financial investors, with 4-7 year investment horizons, regulatory googlies can decimate returns.

Project delays

Execution delays are common in India—be it for warehouse set-up, rail linkage permissions or customs approvals for Inland Container Depots (ICDs). Delays result in deferred cash flows, and lower internal rate of return (IRR). Especially in asset-heavy sub-segments, investors should consider longer investment horizons (7-10 years) to mitigate risk of such uncertainties.

Industry disruption

Technology and business model innovations have had a major impact on the logistics industry, especially in the last five years. New transportation operating models, e-freight forwarding and the “Uberization" of trucks are some examples of disruption. To survive, legacy players need to innovate and invest in technology—which depletes cash flows and impacts returns.

Macro-economic variables

India’s EXIM trade performance impacts sectors such as container rail, ICDs, CFSs, freight forwarding and customs handling. The project logistics business is affected by headwinds in industries such as power, oil and gas and steel. Investors should be cognizant of such macro-economic drivers and perhaps plan for longer investment horizons, when evaluating such businesses.


Several logistics sub-segments—such as road transportation, freight forwarding, customs handling and CFSs—have multiple players (often thousands of them), operating in the same region or targeting the same sets of customers with me-too offerings. This leads to price wars, margin erosion and cash depletion.

However, not all is lost. Investors need to find winners among the crowd, and there are five cues that they can watch for, when picking them:

Backing innovation

Innovation in logistics must result in one of three outcomes: lower prices, lower operating costs or enhanced customer experience. Backing logistics firms which have truly built such sustainable competitive differentiators can be highly rewarding for investors.

Industry expertise

Historically, logistics has been a functionally focused industry but customers are increasingly asking their logistics vendors to speak their distinct industry language, and not just sell space or trucks. The 3PL (third-party logistics) business has grown profitably on the back of its focus on auto, retail, electronics or e-commerce sectors.

Solutions not services

Bundling assets and services also helps in differentiation. Warehousing plus transportation or 3PL plus freight forwarding are two such pairings. A solution-focused approach helps build customer stickiness (“one-stop-shops" are easier to manage) and improves margins for logistics companies.

Gen-next opportunities

Seven years ago, there were hardly any e-commerce logistics companies in India; today, there are several which have delivered rich returns to investors. Investing early, in sub-segments with significant demand-supply gaps—such as bulk or liquid rail transport/storage, inland waterway shipping or last-mile distribution – is an early-stage bet that can be a blockbuster tomorrow.

Tracking the environment

Regulatory, macro-economic or customer need changes can positively or negatively impact the logistics industry. GST is transforming warehousing and e-commerce is changing express logistics. It is possible to find pearls in variants of well-established sub-segments.

In summary, uninformed investment decisions in logistics, like in any other sector, lead to poor returns. However, the opportunities for growth and differentiation, coupled with the need for funding, in logistics, are immense, and a prudent investment approach can definitely be highly rewarding for investors.

Sankalpa Bhattacharjya is partner, deals strategy, and Sanjeev Krishan is partner and leader, deals, at PwC India.