Transport and
Logistics
Pulse
Industry insights

September 2013

kpmg.com/in
India-China: leading growth economies of the world
Introduction
India and China have attracted significant investment in r...
Overview of the logistics market (contd.)
As per the Global Competitiveness Report 2012–13, published by the World Economi...
Key trends in India
The transport and logistics sector in India is expected to evolve at a rapid pace in coming years. Key...
Outlook
India and China are among the leading growth centres of the global economy. Both follow different
growth models, w...
For any queries, please
contact Prahlad Tanwar 
prahladtanwar@kpmg.com

Key contacts
Manish Saigal
Partner and Head
Trans...
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Transport & Logistics Pulse - September 2013

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The ‘Transport & Logistics Pulse’ report is our periodic insight into the transport and logistics sector in India.

The report aims to provide succinct insights across a range of industry segments. It comprises of both interesting developments as well as our perceptive on them, giving the reader an informed, analytical take on the sectors news and affairs.

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Transport & Logistics Pulse - September 2013

  1. 1. Transport and Logistics Pulse Industry insights September 2013 kpmg.com/in
  2. 2. India-China: leading growth economies of the world Introduction India and China have attracted significant investment in recent years driven by their robust decadal economic growth (7.1 percent and 10.2 percent, respectively, during 2001–2012). During the recent downturn, both nations fared better than several global economies and are expected to register modest growth over the next five years buoyed by multiple domestic factors. Annual GDP growth, in percent y-o-y 16 14 Five-year growth - China: 8.2% - India: 6.6% Decadal growth - China: 10.5% - India: 7.6% 14.2 12.7 11.3 12 10 9.1 8.3 10.1 10 8.4 8.4 9.3 9.8 9.3 10.4 9.2 9.6 9.6 8.5 7.8 6.9 8 6 9.3 8.2 6.4 7.8 7.3 7.7 2014f 2015f 7.2 5.3 5.2 3.9 3.8 4 2 0 2001 2002 2003 2004 2005 2006 2007 India 2008 2009 China 2010 2011 2012 2013f Source: Economist Intelligence Unit, KPMG in India analysis Both India and China have some common strengths — large domestic markets, increasing middle class populations and an evolving regulatory landscape — that have helped endure the global crisis. At the same time, they face unique challenges. For example, China could balance its economic dependence on exports by stimulating domestic consumption while India requires rapid transformation of its regulatory mechanism, to improve physical infrastructure and to ease foreign investment norms. Both nations seem focused on developing several areas crucial for sustained growth including infrastructure development, domestic production and consumption. This report provides an over-view of the transport and logistics sector in the two countries, including deeper insights into their market, key trends and outlook. “Despite economic uncertainties, India and China have sustained their reputation as growth hubs of the global economy. The focus on infrastructure development and expected improvements in the regulatory environment in both the countries should continue to create opportunities for the logistics sector.” Manish Saigal Partner and Head Transportation and Logistics msaigal@kpmg.com KPMG in India Overview of the logistics market At USD8.2 trillion, China’s gross domestic product (GDP) is 4.5 times that of India’s GDP. In comparison, China’s logistics market is estimated at USD1,241 billion* while India’s logistics market is estimated at USD92 billion, reflecting a 13.5 times multiple in industry size. Over the past five years, increasing private sector participation, growing propensity to outsource transport and logistics services and overall mobilization of these giant economies have driven the growth of the logistics sector in China and India at CAGR of 10.6 percent and 9.5 percent respectively. Foreign direct investment (FDI) inflows in the transport and logistics sector contributed approximately 2–3 percent to the two countries’ GDP in the last decade, driven by the entry of several global logistics players in both markets. Market structure: share by mode of transportation India 60% China 30% 0% 10% 31% 23% 20% Road 30% 40% Rail 8% 1% 46% 50% 60% 70% Water 80% 1% 90% Air 100% Source: Logistics Game Changers — KPMG in India, 2013 Sources: KPMG in India analysis, primary research *Exchange Rate Used: 1 RMB = 0.16 USD; Logistics market size mentioned above denotes 2012 statistics © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 1
  3. 3. Overview of the logistics market (contd.) As per the Global Competitiveness Report 2012–13, published by the World Economic Forum, China ranks 48 (out of 144 countries) on the quality of infrastructure. The Government of China’s consistent efforts to boost growth is evident from its emphasis on infrastructure in the 12th Five Year Plan (2011– 2015) highlighted by plans to invest USD64 billion annually towards the expansion of rail networks, including high-speed rail network (the 8,000 km-long network is already the largest in the world) to about 16,000 km by 2020. It also plans to extend the highway network to 83,000 km and build a new hub airport in Beijing. In comparison, India ranks 84 on the quality of infrastructure, with the Government of India planning to invest USD1 trillion for infrastructure enhancement during the 12th FYP period (2012–2017) creating opportunities for the private sector in projects such as metro rail, roads, airports and ports. Infrastructure Length of highways (km) China 97,500 India NH: 80,000 SH: 131,899 Length of expressways (km) 84,946 700-1,000 Length of railways (km) 66,239 64,456 Total number of airports 182 136 Annual container handling volume at ports (million TEUs) 150 10.5 Number of ports in global top 10 (by container handling volume) 7 None Source: Basic road statistics of India, MoRTH; World Bank; China Ministry of Transport; KPMG in India analysis China’s intensive focus on enhancing physical infrastructure over the past decade has resulted in superior quality transport and logistics infrastructure. In 2011, China’s infrastructure investment of USD3,228 billion (largely supported by the government stimulus package of USD0.64 trillion) was 31.5 times that of India’s. Similarly, its transportation infrastructure investment in the current five-year plan is approximately nine times (at USD1,984 billion) higher than India’s transportation infrastructure investment (at USD222 billion). Ranking on quality of infrastructure China India Quality of overall infrastructure 69 87 Quality of roads 54 86 Quality of railroad infrastructure 22 27 Quality of port infrastructure 59 80 Quality of air transport infrastructure 70 68 Quality of electricity supply 59 110 Source: Global competitiveness report 2012-13, World Economic Forum Note: Ranking out of 144 countries Sources: KPMG in India analysis, primary research © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 2
  4. 4. Key trends in India The transport and logistics sector in India is expected to evolve at a rapid pace in coming years. Key trends driving this include: − Higher levels of outsourced logistics − Increasing complexity of logistics services requirements − Increasing orientation towards global best practices Overall, the sector is expected to register growth at 1–1.3 x GDP, with EXIM expected to grow at 10 percent. On an average, companies in India currently outsource an estimated 52 percent of their overall T&L activities. T&L — level of outsourcing Warehousing 60% Transport 40% 90% T&L overall industry 52% 10% 48% Outsourced In-house However, several companies are increasingly leaning toward outsourcing and third-party logistics (3PL) models to optimise costs and focus on the core business. This trend is catalysing consolidation and development in the highly fragmented transport and logistics industry. Source: KPMG in India analysis In addition, evolving regulatory changes are expected to boost private participation buoy by providing incentives to investors and operators — in the form of tax breaks — which will enhance supply-side infrastructure and capabilities. Key trends in China The transport and logistics industry in China is expected to continue registering strong growth driven by: Logistics demand coefficient, 2007–2011 Road daydefinite freight 3.6 Growth 3.3 3 FTL Low 2.7 Rail freight 2.4 2007 2008 2009 2010 Low 2011 Note: logistics demand coefficient refers to the logistics value‐to‐GDP ratio; Source: China’s Logistics Industry Update 2012, Li & Fung Research Centre o In 2011, the logistics demand coefficient was 3.4, up from 3.2 in 2010. Value‐added services were worth USD512 billion, up by 13.9% y-o-y in real terms. These increases denote a growing logistics market in China. Road express LTL International transportation Air express Profit Margin High Bubble size represents approximate market size Source: China 2015: Transportation and Logistics Strategies, AT Kearney o New and emerging segments can assure modest profit margins for T&L players, as consolidation is expected to gather pace. Also, international express is expected to grow at a higher rate than international freight. • Increasing focus on improving the domestic transport infrastructure, particularly in western and northern China. o Total fixed assets investment in the logistics industry grew by 19.4 percent to USD490 billion in 2010. o Investment in transportation accounted for 75.7% of the total fixed assets investment in the logistics industry in 2010. Sources: 1. Adding Wheels: Investing in the Indian Transportation & Logistics Industry, KPMG in India, 2011 2. China’s Logistics Industry Update 2012, Li & Fung Research Centre © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3
  5. 5. Outlook India and China are among the leading growth centres of the global economy. Both follow different growth models, which are complemented by a host of factors including policy support and favourable demographics. With constantly changing regulatory environment and increasing private sector participation, both countries are expected to evolve at an encouraging rate albeit dismal global economic scenario. While both the countries have taken determined steps to mitigate concerns related to infrastructure capacity and strenuous regulatory mechanism, much needs to be done in order to create world-class logistics ecosystem that would help achieve global competitiveness in the long term. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4
  6. 6. For any queries, please contact Prahlad Tanwar  prahladtanwar@kpmg.com Key contacts Manish Saigal Partner and Head Transportation and Logistics T: +91 22 3090 2410 E: msaigal@kpmg.com Prahlad Tanwar Associate Director Transportation and Logistics T: +91 22 3091 3417 E: prahladtanwar@kpmg.com kpmg.com/in The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2013 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

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