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INTRODUCTION In order to remain competitive in todays changing business environment, more and more companies focus on core competencies.

As companies expand into the global marketplace, logistics becomes critical in support of the global supply chain. Inventory carrying cost, transportation, and warehousing are the largest components of the logistics bill. Instead of developing inhouse capabilities in the various logistics disciplines such as transportation planning, warehouse management, and information technology, companies are opting to outsource to third party logistics (3PLs) providers. Those firms are able to concentrate on their own core business, while the 3PLs providers concentrate on inflows and outflows of the global supply chain activities. Some studies showed that the outsourcing of logistics functions had proven to be effective in helping firms to achieve competitive advantages, improve their customer service levels and reduce their overall logistics costs. Eariler research found that 3PLs can add value by creating operational efficiencies and by sharing resources between customers. Third-party logistics is the use of contracted firm(s) to supply services in the planning, implementation and controlling of the flow and storage of raw materials, in-process inventory, finished goods, and related information throughout the supply chain. They may handle all or part of the distribution of merchandise along the supply chain to the consumer. Third party logistics was identified as a separate industry and service in the late 1980s, and started to gain market share in the India only since early 1990s. However the 3PL industry has grown rapidly developing year by year after the globalization. The 3PL market in India is least developed and highly fragmented. However, due to the increasing awareness of the Indian firms towards the benefits of logistics outsourcing there is an immense potential for growth of 3PL in India. The report on 3rd Party Logistics Market in India comprehensively studies all such factors and provides the forecast for the 3PL market in India till 2015. As 3PLs providers become more vital to a companys operations, these arrangements require active participation by both parties. In contracting out the logistics operations, the third party provider is now a significant partner which has significant impacts on the companys quality, service, and dependability. This paper investigates the strategic development of Indian 3PLs services in recent years and studies how 3PLs fulfill their roles in todays global supply chains.

INDUSTRY PROFILE Introduction about logistics market in India The logistics market in India is fragmented predominantly due to the large presence of unorganized service providers. Logistics, which is one of the lifelines of a country the size of India, has been so far considered as a secondary activity. The industry broadly consists of freight consolidators, transporters, warehousing specialists, and organized third party logistics (3PL) service providers, in the increasing order of value addition to the service. Roads carry the bulk of the freight in India. The roads in India have a history of being unsafe and in very bad condition. This is likely to change with the construction of the Golden Quadrilateral and North-South-EastWest (NSEW) highway networks, traversing the entire country. The highway infrastructure is highly strained, comprising around 1.4 percent of the total road network in India, carrying in excess of 50 percent of the country's total freight. Roads are flexible with easy to own assets and door-delivered consignments. Rail freight comprises around 670 million tones, which is around 33 percent of all domestic traffic in India. Even though rail freight is more cost effective in terms of cost per unit distance and per unit weight, the efficiency of the rail freight system in India has for long been low and it has been looked down upon as a secondary freight mode. With the Indian Government announcing plans to open up the containerized rail freight sector to private operators, companies such as APL Logistics, Maersk Logistics, Gateway Distriparks, Central Warehousing Corporation, JM Baxi group, Adani Logistics, and Reliance Logistics are expected to foray into this segment. The barriers to entry for providing this service are rather low and intense competition is likely to be witnessed. The largely unorganized segment of the logistics industry in India poses a formidable challenge to companies in the organized segment. The unorganized segment service providers have lesser overhead costs and are hence in a position to provide extremely competitive rates. This is expected to have a considerably large impact in the future, posing a challenge especially to the 3PL service providers. Entry barriers too are low, leading to the possibility of intensified competition even in the organized sector. Complex tax laws and infrastructure bottlenecks too are challenging issues to be dealt with.

The growth of in the Indian economy, especially in the manufacturing sector is one of the key growth drivers for the logistics industry in India. Apart from this, sincere initiatives by the Government to iron out wrinkles in the logistics infrastructure may also drive the growth in this sector expected to grow at a compound annual growth rate (CAGR) of 6.4 percent from 2005 to 2012. Introduction and Overview of the 3PL Market in the India Companies in India generally outsource only a part of their supply chain requirements to a 3PL service provider. Only a small fraction of companies outsource entirely to a 3PL service provider. Most of these companies are multinationals that entered the country and didn't have an established network and have to outsource their logistics due to the lack of assets. The degree and nature of outsourcing of logistics to a 3PL service provider varies significantly between verticals and depends greatly on the nature of the company. In the automotive sector, the trend of end-to-end outsourcing is beginning to significantly catch up as companies have realized the benefits of concentrating on core competencies and delegating the logistics to 3PL service providers. The penetration of 3PL is very high in the automotive sector. Likewise, the IT hardware and electronics sectors have also begun outsourcing to 3PL service providers to a great extent. In sectors such as Fast Moving Consumer Goods (FMCG) and pharmaceuticals, the penetration of the 3PL concept has been fairly low, owing to already strained profit margins. Added to this, there is a great deal of decentralization in the supply chains of these sectors, with many stocking points and strategic distribution centers spread all over the country. This will demand infrastructure capabilities that the 3PL service providers may not be in a position to offer. Outsourcing in these sectors has started in warehousing operations, albeit in a small way. Certain 3PL service providers have their own freight forwarding and customs clearance capabilities. Those that do not have, hire the services of a local freight forwarding agent to liaison with the required authorities to have their consignments cleared. Most 3PL service providers offer good management of information systems (MIS) capabilities to their clients. The provision of valueadded propositions along with a 3PL contract is expected to witness a growing trend with

increasing demands from the clients and 3PL service providers that want to gain an edge in a highly competitive marketplace. FINDINGS Total 3PL Market in India Size and Forecasts The market for 3PL in India was worth $890.3 million in 2005. The entire 3PL market is expected to grow at a CAGR of 21.9 percent from 2005 to 2012 and reach $3,556.7 million in 2012. In 2005, transportation activity outsourced to a 3PL service provider accounted for a lion's share of the revenues in the market. However, warehousing is expected to grow the fastest among all the logistics functions outsourced to a 3PL service provider. In 2005, it accounted for second largest share of entire market. Revenues from MIS and Other Values Added Services accounted for third largest share of the market revenues with freight forwarding accounting for the lowest share. Opportunities for the 3PL Service Providers in India India has immense opportunities for 3PL service providers. The growth is expected to come predominantly from warehousing, which is likely to be driven to a very great extent by the implementation of value added tax (VAT), a uniform tax regime across the country. The benefits are expected to be witnessed by the year 2010, when the central sales tax is likely to be completely abolished. In the transportation function, the growth of express transport could provide opportunities for the service providers. The growth is expected to be driven by the betterment of infrastructure and increasing client requirements to provide committed and timebound services. Express transport has a very small share of the entire trucking market, and hence presents immense potential for growth. Freight forwarding and MIS and Other value-added services also present good opportunities in the market. The growth in value-added services is expected to be driven by the growth in transportation and warehousing functions, and as a tool by 3PL service providers to gain a competitive edge in the market. A majority of the revenues from value-added services in the market is expected to be generated from growth in the warehousing function.

Competitive Analysis The 3PL service providers in India are categorized into three tiers of competition namely national, regional, and local service providers depending on their presence and reach in the market. The major national 3PL service providers are the Tier I companies and they account for the largest share of the revenues generated in this market. This can be attributed to the relatively better rates and value propositions offered by them, which find customers predominantly among large corporations. The regional 3PL service providers, or the Tier II companies account for the second largest share of the revenues generated in this market. These service providers offer basic logistics support and generally operate with corporations and Tier I companies to provide access at a regional level. The local 3PL service providers, or the Tier III companies that account for lowest share of the revenues generated in this market. They have small clientele and provide logistics services that does not have a large reach. Industry Challenges for the 3PL Market in India Industry challenges are factors that have the potential to adversely affect the market growth during the forecast period from 2006 to 2012. Though these may not have any direct bearing on the growth of the market, they can be overcome using suitable strategies: Geographical size and diversity Stiff competition and pricing strategies Security concern is a critical issue

Drivers for the 3PL Market in the India Market drivers are factors that have the potential to drive the growth of the market during the forecast period from 2006 to 2012. Growing inclination to outsource logistics to specialists Economic growth across all sectors necessitates smooth flow of supply chain Implementation of an all India VAT system

Restraints for the 3PL Market in India Market restraints are factors that have the potential to slow or retard the growth of the market during the forecast period from 2006 to 2012. High cost of logistics in India Infrastructure bottlenecks still exist Competition from the unorganized segment

Implications of VAT on 3PL in India The implementation of a uniform VAT regime and the elimination of the sales tax model is expected to indirectly benefit the supply chain management in the country. Previously state borders were viewed as economic borders, as they posed hurdles to the sale of goods between states. As a tax saving mechanism, companies operated on a highly decentralized model of multiple warehouses spread across states. This ultimately led to management of more resources and manpower, leading to costs that could otherwise have been avoided. The original intention of the Indian Government behind implementation of VAT was to introduce transparency into the taxation system; however, it has indirectly changed the course of logistics in the country. The present model poses a problem of cascading taxes, which VAT is expected to abolish.Companies are expected to move to newer and more centralized hub and spoke distribution models that will be more convenient with lesser hassles. VAT is expected to abolish the economic borders between states and enable sales between points with geographic convenience in consideration, as opposed to the tax planning driven model that was practiced earlier. The real benefits of VAT impacting the supply chain management in India are not likely to be witnessed until the central sales tax is eliminated. At present, VAT coexists with the central sales tax, which is expected to be phased out by 2010. The persistence of central sales tax defies the logic behind shifting to the new hub and spoke model, as there is no input tax credit available against the central sales tax in the case of inter state sales. Input tax credit is the reimbursement of tax that can be availed under the VAT system, where tax that has already been paid is reimbursed. This ensures that taxation happens only for the value addition. The

central sales tax is expected to be eliminated by 2010, after which companies are likely to witness a drastic reorganization in the way supply chains are managed. The service expected to benefit the most from VAT's implementation is warehousing. Once the hub and spoke type distribution model sets in, large multi-user zonal warehousing facilities could be seen mushrooming. This could see 3PL service providers operate these facilities and leverage economies of scale. This was not observed under the earlier sales tax system, under which the environment was not conducive for seamless logistics The transition to VAT could pose challenges in the form of integration of IT infrastructure and maintenance of records. There is also competition from the unorganized sector comprising clearing and forwarding (C&F) agents, that may reinvent themselves post VAT implementation. CONCLUSIONS The 3PL market in India is poised for significant growth till the year 2012. The market has been growing steadily at an estimated Compound Annual Growth Rate of 18.3 percent since 2002 and the growth is expected to accelerate further. Changing economic and business scenarios, along with increasing outsourcing tendencies are expected to be the drivers for the growth in this market. Among the services, the warehousing function is expected to witness the fastest growth. Investing in assets could be important as owning them, could prove to be a healthy competitive edge, particularly in the transportation function. In the warehousing function, companies could build their own warehouses or operate a warehouse built by a third party to specification. Iinvesting in new warehouses may not be advised,, considering high real estate costs. Choice of location of warehouse is also an important factor, considering the constant need to reduce lead and turnaround times, which will enable clients gain a competitive edge. The growth in the transportation is expected to be driven by better infrastructure and the constantly reducing lead times and this is likely to lead to the emergence of express transportation. Along with this growth in revenues from value-added services, driven by the requirement of companies to gain a competitive edge, is also expected.

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