Demand pickup, infrastructure creation to grow logistics sector

 A pick-up in demand along with reforms and construction of support infrastructure is expected to grow India`s logistics sector by 10-12 per cent CAGR.

At present, India`s logistics market is pegged at $250 billion.

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The growth is expected to be supported by the shift from organised to the unorganised sector (90 per cent currently).

According to Motilal Oswal Financial Services, the demand for value added services is also on the rise.

"Most logistics spends are towards transportation, followed by warehouse."

"Based on the reforms undertaken over the last few years, the industry is expected to grow faster over the next few years. Some new business models like a3PL` and aExpress Logistics` would grow faster than the overall sector."

Accordingly, the brokerage house said that driven by reforms such as GST and the construction of support infrastructure will shift the perspective of logistics from just transportation to a specialised function.

"The transport industry is highly unorganised with several small local fleet operators. With GST taxing all levels of value added, the industry would gradually move towards formalisation."

"The higher levels of compliance with GST, along with the reduction in cost competitiveness, would result in smaller players moving out of the system and market share moving towards organized players."

Besides, it predicted that organised players, with large warehousing capacity and the ability to invest would see strong market share gains going forward.

Furthermore, it said that e-commerce and organised retail sector has accelerated the growth of a3PL` market in India.

This segment was largely dominated by the automotive sector, wherein, there is a heavy requirement for warehousing and transportation.

In the past few years, the `3PL` segment is estimated to have clocked over 20 per cent CAGR, with increasing customer adoption and more players entering this space.