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Logistics in-india-part-2 - kpmg

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Logistics in-india-part-2 - kpmg

  1. 1. Logistics in India 1 G lo B a l t r a n S P o rt Logistics in India Part 2 K P MG i nt e r n at i o n a l© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliatedwith KPMG International. KPMG International provides no client services. All rights reserved.
  2. 2. CONTENTS 2 India: Many Investment Opportunities across Transportation, Storage and Services 4 Where and How Foreign Investors Can Play in the Indian Logistics Market 6 Evolution of Transportation in India 10 Evolution of Warehousing in India 14 3PL: A New Logistics Services Paradigm for India 18 Conclusion 19 Acknowledgements 20 About KPMG© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliatedwith KPMG International. KPMG International provides no client services. All rights reserved.
  3. 3. 1 ForewordThis is the second part of a three-part white paper on the Indian logistics opportunity. In the firstpart, we looked at the Indian logistics landscape and its associated complexities and level offragmentation.In this part, we focus on the relative attractiveness of various segments of logistics and a deeperunderstanding of key issues and trends in transportation, storage and service elements of thelogistics value chain.The transportation sector in India is still dominated by the road segment. Over the past 10years, stung by unchanging industry fragmentation, steadily declining profitability and changingcustomer needs, FTL players have veered towards new transportation business segmentssuch as container rail transportation, Less Than Truck Load (LTL) movement, project logistics,warehousing, 3PL and cold chain.Similarly, the modern warehousing industry in India only started to evolve in the early part of thisdecade and the last five years, in particular, has seen a noticeable improvement in the quality ofwarehousing facilities. Legacy warehouses (or ‘godowns’, as they are known in India) have mostlybeen basic structures or sheds, and are gradually evolving to world-class standards, with high bay,modular racking systems, palletization and the usage of automation and information technology.The services side of logistics is also evolving from freight forwarding dominance to moreevolved plays such as Third and Fourth Party Logistics (3PL / 4PL), whereby many logisticsservice providers are promising customers end-to-end cargo management capabilities, whilethey attempt to establish asset ownership in key parts of the cargo value chain.Given this massive need to upgrade infrastructure and know-how, Indian logistics companies areincreasingly looking at forming partnerships with leading global players for expertise, and havealso been accessing private equity and capital markets to fund growth. This presents an excellentopportunity for foreign companies to engage in the Indian logistics industry.In the final part of this study, we will look at some of these investment considerations that maybe of relevance to foreign companies keen on tapping into the Indian logistics industry. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  4. 4. 2 Logistics in India Attractiveness of Some Key Logistics Sub-segments Current Market Competitive Innovation Overall Sub-segment Size Growth Potential Profitability Intensity Potential Attractiveness Container Rail Transportation Road Transportation (FTL) Transportation Express Logistics (LTL) Coastal Shipping Cold Chain Project Logistics Modern Warehousing Logistics Parks Storage Inland Container Depots Container Freight Stations Ports Freight Forwarding Services 3PL / 4PL Courier Services Key: – High – Medium – Low Source: Industry discussions, KPMG engagement experience © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  5. 5. Logistics in India 3 India: Many Investment Opportunities across Transportation, Storage and ServicesThe need to reinvent logistics business models is expected to lead to significantinvestment opportunities, across storage, transportation and services. However,there may be growth opportunities in segments that are seemingly less attractive,if new business models and niches can be created. For example, in the courierservices segment, logistics companies could look at human organ transportationservices, or in the inland container depot segment, companies could set up thirdparty shared terminals that could be accessed by multiple rail operators for a loweraccess fee than they currently pay.Significant opportunities exist across every segment of the Indian logistics industryand several leading international logistics companies have already entered theIndian market, both through greenfield set-ups and acquisitions. To date, due toa lack of scale in both supply and demand in the more value added elements oflogistics, entry has often been into segments that have been perceived as relativelyunattractive (such as FTL trucking). However, this can offer geographic networkbenefits, along with key customer relationships which have the potential to beuptraded to more profitable services (such as warehousing).© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliatedwith KPMG International. KPMG International provides no client services. All rights reserved.
  6. 6. 4 Logistics in IndiaWhere and How Foreign Investors Can Play inthe Indian Logistics Market Irrespective of whether a logistics segment is nascent, growing, mature or declining, there could be various plays for foreign investors, depending on their risk- return appetite. Strategic Imperative CREATING THE SEGMENT GROWING THE SEGMENT Role of Foreign Investors CHANGING PARADIGMS IN MATURE SEGMENTS TRANSFORMING STAGNANT OR DECLINING SEGMENTS Source: KPMG © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  7. 7. Logistics in India 5Opportunities for Foreign Investors Example Segments• Bringing in know-how from foreign • 4PL markets • Logistics parks and FTWZs• Showcasing proof of concept to • Air cargo complexes customers and building awareness on the • Shipbuilding and shipyards back of a strong global brand• Developing business plans for expansion • 3PL• Capital infusion • Modern warehousing• Providing human resource and • Project logistics management bandwidth • Cold chain• Improving automation and technology adoption • Container freight stations• Migrating existing services to new • Courier services industry segments • Offshore logistics• Access to new geographies or customers • Ports• Streamlining operations• Acquiring leading market players and leveraging their existing capabilities for • Freight forwarding market access or to expand into adjacent • FTL trucking business segments • Shipping• Process improvement • NVOCC• Cost and profitability management• Divestment or asset lightening © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  8. 8. 6 Logistics in India Transportation Long Passenger 4% Pipeline (More than 800 km) Large fleet 5% Coastal (More than XPS Medium 20 trucks) (350 to 800 kms) Cargo <1% Airways Medium fleet LTL Contract (6–10 trucks) Short (50 to 350 kms) 62% Roadways Small fleet FTL Spot (1- 5 trucks) Last mile 29% Railways <50 miles Market segment Transportation Haulage Operators Operations Transactions modes Source: CRISIL Research - Roads and Highways Annual Review (2009), KPMG Analysis The most important mode of transportation in India is Road, and this dominance arises from decades of poor supporting infrastructure development on the coastal, pipeline and air transportation side. Despite having one of the world’s largest rail networks, India’s share of cargo transported by rail has declined steadily from over 85 percent in the 1950s to around 30 percent presently. It is due to the poor quality of service (including last mile access solutions), driven largely by the historic monopoly of the government in this vital mode of transportation, as well as massive investments in road highway projects over the past six decades which have enabled trucks to reach hitherto unconnected parts. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  9. 9. Logistics in India 7 Evolution of Transportation in India Despite the recent privatization of the container rail industry, road transportation continues to grow and gain share from rail — albeit at a slower pace. Primary freight movement through road 150 8 1,280 1,300 1,200 58 1,122 357 1,100 1,000BTKM 900 800 707 700 600 Road freight Increased Increased Road freight Increased Increased Road freight FY03E freight share of FY09E freight share of FY11P movement Road movement Road Note: BTKM – Billion Tonne Kilometre Source: CRISIL Research - Roads and Highways Annual Review (2009), KPMG Analysis Despite this growth, the road transportation sector faces many challenges. The industry is highly fragmented, and with low entry barriers, it has seen significant commoditization leading to intense competition among truckers who find their realizations and margins continuing to be squeezed progressively. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  10. 10. 8 Logistics in India Truck Ownership Medium fleet operator (6-20 trucks) 15% Small fleet operator (1-5 trucks) 74% Large fleet operator (more than 20 trucks) 11% Source: CRISIL Research - Roads and Highways Annual Review (2009) threat of new entrants threat of substitutes bargaining power of consumers Forces Impacting Road Transportation bargaining power of suppliers among competitors High Neutral Low Source: KPMG © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  11. 11. Logistics in India 9 These challenges have led road transporters to adopt various de-risking strategies, and this creates an opportunity for foreign players to partner with leading Indian road transportation companies on this transformation journey. Key Trends Diversification by truckers Industry-focused 3PL across the logistics value solution approach (e.g. single chain (e.g. warehousing, window cargo management container rail) solutions) Trucking Industry Transformation Focusing on higher value Leveraging transportation to business segments deliver higher value solutions (e.g. project logistics, cold (e.g. secondary and tertiary chain) transportation) Source: KPMGCase StudyTransformation of a leading Indian Road Transportation CompanySituationXYZ is one of the largest cargo transportation companies in Asia and handles over 5.5 million tonnes of cargoannually. The company operates a fleet of over 3,000 trucks, moving 15,000 consignments daily, and has aclient base of 150,000, which includes a number of top 500 Indian companies.ComplicationXYZ was faced with declining margins in its traditional FTL business and despite its scale and customerrelationships, it was unable to resolve this problem. The company faced intense competition from both largeFTL competitors who constantly negotiated bargains with their larger customers to wean away those accounts,and from smaller fleet owners whose lower-cost structures and scant regard for regulations allowed them toundercut prices to smaller and mid-tier customers.ResolutionXYZ diversified into other segments of logistics which offered higher margins as well as better control overcargo, leading to improved customer stickiness. The company moved into the express logistics segment andoffered single window, time-bound, door-to-door distribution services to LTL customers across India. It alsoventured into 3PL supply chain solutions, with a focus on key industries, such as automotive, retail, telecomand pharmaceuticals — this allowed XYZ to offer solutions to customers rather than just services. Further, thecompany set up a global freight forwarding and customs clearing presence — with branches across India andkey international locations — and this helped the company originate cargo more effectively. XYZ was also oneof the first entrants into the small but highly profitable businesses of cold chain and coastal shipping in India.The company’s transformation was supported by selective acquisitions across these new business segmentsand selective tie-ups with global partners — including a leading Japanese conglomerate. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  12. 12. 10 Logistics in IndiaEvolution of Warehousing in India Until a decade ago, warehousing in India was a synonym for basic four-walled structures with sub-optimal sizes, inadequate ventilation and lighting, lack of racking systems, poor hygiene conditions and lack of inventory management or technology solutions such as Warehouse Management Systems (WMS). Although modern warehouses have begun to develop across the country, there is still a significant growth story that remains to be played out in India. Comparative Analysis of Key Variables in Warehousing Space Parameters India China USA Market Maturity (Fragmentation by • Unorganized, fragmented • Highly fragmented, top 20 • 20 largest companies control contribution of key players to the warehousing industry companies contribute to 7% of less than 30 percent of the total industry cost) revenue market Warehouse Infrastructure: • Godowns with approximate size of • Market is fragmented in terms of • Warehousing companies operate <10,000 sq.ft operators geographical presence a single facility of 200,000 sq ft • Size • Multiple warehouses, one in every • Average level of infrastructure • Excellent infrastructure • Centralisation of warehouses state with small godowns • Poor infrastructure • Infrastructure • High pilferage and loss Value Added Services Level of outsourcing Skilled Labour • Labour available but with poor • Labour available but with poor • Highly skilled trained labour training training Technology used Consolidation: Level of usage of Large scale logistics parks and Free Trade & Warehousing Zones Very poor Neutral Excellent Poor Good Source: KPMG in Hong Kong Report on Transport in China (2008), Industry discussions Although large, most of the warehousing space in India lies with unorganized players — largely on the domestic side. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  13. 13. Logistics in India 11 Structure of the Indian Warehousing Industry (2008) 85% 367 mn sq. ft. 8% 36 mn sq. ft. Godown-like and run by small C&F agents Domestic Organized 433 mn sq. ft. • High Quality Indian Warehousing 27% 107 mn sq. ft. • Private sector Industry owned Unaccounted supply 15% 66 mn sq. ft. 92% 398 mn sq. ft. 29% 117 mn sq. ft. EXIM Unorganized Public sector • Medium to low 44% 173 mn sq. ft. quality In-house warehousing Source: KPMG Analysis The industry is experiencing a number of supply and demand side changes, including the following: i) Resurgence of the Indian Economy and Demand-Supply Gap – after a subdued 2008 – 09, India is again witnessing a surge in the need for storage space. According to KPMG in India estimates, an additional 120 million square feet of warehousing space is needed by 2012 to bridge the demand-supply gap (after accounting for announced projects), and this translates to a massive opportunity for private investment. India Warehousing Market Opportunity – by 2012 800 120 734 74 615 600 52MN SQFT 55 433 400 200 0 Existing Supply Supply from Key Supply from Supply from Expected Untapped Market Projected (2008) Players expansion proposed proposed Supply (2012) Opportunity Demand (2012) plans development of development of various Logistics various FTWZs Parks Source: Company reports for Arshiya, MJ Logistics, DRS Warehousing Corp and others C&W Report - Logistics Industry: Real Estate’s New Powerhouse (August 2008), KPMG Analysis © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  14. 14. 12 Logistics in India ii) Implementation of Goods and Service Tax – currently, owing to multiple and differential state-level taxes, companies in India have set up multiple warehouses, often one per state (to minimize intra-state movements and associated taxation), servicing various parts of the country. This is highly inefficient and leads to higher unit and inventory carrying costs. Effective April 2011, the Indian government plans to introduce a uniform Goods and Service Tax (GST)1, which is expected to level these state taxes and obviate the need )) for multiple warehouses. As a result, there is expected to be a significant reorganization of warehousing space in India, with large hubs being developed in key locations, coupled with smaller spoke warehouses nearer to production and consumption centers. This reorganization is likely to lead to significant investments in modern warehousing infrastructure, and is expected to be the largest driver for warehousing industry in the past several decades. Several leading companies and logistics services providers have already set up these large warehouses, but many more are in desperate need of capital and know- how from foreign investors to capitalize on the opportunity. GST driven Warehousing Reorganization Several Fewer consolidated distributed warehousing warehouses clusters Source: KPMG Analysis iii) Development of infrastructure – the development of key infrastructure projects related to ports, highway and rail projects — such as the Golden Quadrilateral or GQ project, North-South-East-West or NSEW project and the Dedicated Freight Corridor or DFC project — is expected to result in the creation of new warehousing hubs aligned to these infrastructure points. Of the US$350 billion infrastructure investment planned by the Indian government, as per the 11th Five Year Plan (2007 – 12), an estimated US$75 billion will be spent on airports, ports, road and railway projects, which is expected to significantly improve the quality of supporting backbone infrastructure for logistics activity. 1 Source: Government of India press release (2010) © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  15. 15. Logistics in India 13 Key Infrastructure Points in India iv) Emergence of new storage models – several players in India — such as Multi Modal Logistics Parks (MMLP), Mega Food Parks (MFP) and Free Trade Warehousing Zones (FTWZs) — have announced next- generation storage models2. These large- New Delhi scale projects are expected to significantly Gorakhpur improve the quality of warehousing and Jaipur Hajipur Gauhati storage space in the country, while allowing customers to reduce costs throughMundra Ahmedabad economies of scale, government incentives Kandla Jabalpur Bilaspur Kolkata offered and optimal usage of multiple Pipavav Bhubaneswar Haldia modes of transportation. Paradip JNPT Mumbai Pune Vishakhapatnam Secunderabad Mormugao Hyderabad Hubli GQ Major ports Bangalore NS Corridor Major airports EW Corridor Chennai Zonal railway HQs New Mangalore Railways DFC Ennore Cochin Tuticorin Source: KPMG Analysis Case Study Building Out Modern Warehousing Infrastructure across India Situation ABC is a 20 year-old logistics company and started with the business of relocation services. It thereafter expanded into the transportation business through an acquisition and also began offering 3PL services. The company, with 850 trucks, has a turnover of US$100 million and is growing 20 – 25 percent per annum. Complication ABC was constrained by the lack of quality warehousing facilities in key locations across India, to support its core transportation and 3PL business. This led to poor storage services being offered to customers which reduced their stickiness to ABC. Resolution ABC realized that the only way to become an integrated logistics player was to invest in warehousing assets themselves. Using Special Purpose Vehicle (SPV) structures, ABC separated the warehousing asset business from the services business. Through each SPV, ABC set up warehouses in key regions, often with the help of private equity funding. The company initially set up 1 million square feet of warehousing space across four prime locations in North India at a capital expenditure of US$50 million with private equity backing from a leading global fund. The company is currently planning to double its warehousing capacity in North India with a proposed investment of US$50 million to expand into more locations. Recently, ABC also set up another SPV which will invest US$70 million to add 2 million square feet of warehousing space across three locations in South India. The company is expected to get private equity funding for this SPV soon. With a planned footprint of 4 – 5 million square feet, ABC is today one of the largest modern warehousing players in India. Its warehouses have features, such as racking systems, temperature control, fire and seismic resistance, leak proof structures, water harvesting, round-the-clock security, adequate office space and integrated retail operations. Currently, the company services leading clients across industries — such as retail, consumer products, chemicals and petrochemicals.2 Source: Industry discussions, news releases (2010) © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  16. 16. 14 Logistics in India The Indian 3PL market is estimated to grow rapidly, as customers increase the level of outsourcing, encouraged by the ability of 3PL companies to provide quality services. This growth is expected to be further augmented by the penetration of 3PL services in India, which still lags many countries of the world. Evolution of the Indian 3PL Market L RO Domination | Full global / national supply chain management and control NT CO Innovation | Deep supply chain ownership and improvement proposition AND Adoption of Customers | Industry focus and end-to-end logistics service capability TY I EX Beginnings of 3PL | Limited value addition, cargo control and asset ownership PL M CO Exposure to Global Models | Bringing in global models and technology paradigms G IN AS Limited Innovation | Multimodal transport solutions and warehousing E CR Achievement of Scale | Companies growing regional / national presence IN Basic Logistics Need Fulfilment | FTL trucking and godowns Source: Indiastat, KPMG Analysis Share of 3PL Logistics Market Japan 80% US 57% Europe 40% As compared to the developed nations 3PL contribution in overall logistics activity in India 9% India is still at a nascent stage 0% 20% 40% 60% 80% 100% Source: Indiastat database, KPMG Analysis © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  17. 17. Logistics in India 15 3PL: A New Logistics Services Paradigm for India The penetration of 3PL and the propensity of customers to outsource have been most pronounced in transportation, followed by warehousing, as these have been historically easy-to-implement point solutions that most service providers can readily offer to customers. Customers still retain, in-house, the highest value- adding activities, such as production process alignment, invoicing and spare parts management, as 3PL vendors often lack the capabilities to deliver full supply chain solutions. Recently, some 3PL vendors have begun offering customers limited value added services centered around transportation and warehousing — such as packaging solutions within warehouses, tertiary transportation, production line feeding, spare parts testing and minor repairs. Propensity to Outsource to 3PL Transportation 67% Warehousing 33% Production 16%Spare-parts Management 12% Invoicing 6% Order Processing 6% Inventory Management 4% 0 10 20 30 40 50 60 70 % respondents Source: Managing 3PL relations, B.S. Sahay, Int. J. Integrated Supply Management, Vol. 2, Nos. 1/2, 2006 © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  18. 18. 16 Logistics in India However, this level of 3PL activity has been limited to only a few industries — such as automotive, IT hardware, telecom and infrastructure equipment — with adoption across other mainstream industries such as consumer products being restricted due to limitations in the customers’ ability to pay, and the lack of logistics vendors’ ability to deliver high service levels at low cost. HIGH R E T A IL INFRASTRUCTURE EQUIPMENT Growth of Sector MEDIUM CHEMICALS AND PHARMACEUTICALS IT HARDWARE TELECOM INDUSTRIAL PRODUCTS LOW CONSUMER PRODUCTS AUTOMOTIVE LOW MEDIUM HIGH Profitability of 3PL Current 3PL Penetration High Neutral Low Size of the bubble indicates the logistics spend for that segment (not to scale) Source: KPMG Analysis As companies increasingly focus on costs and asset returns, while focusing on their core business and building customer-centric business models, the share of 3PL is expected to rise further. From a 3PL service provider’s perspective, there are several critical success factors to be considered while offering end-to-end industry focused solutions to customers, and many of these can be delivered only with the assistance of international experts. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  19. 19. Logistics in India 17 Relationships Industry specific value-added solutions Manpower Ownership / control over assets Systems and processes Efficient operations Source: KPMGCase StudyUsing 3PL to drive growthSituationPQR started business as a mid-sized regional FTL company several decades ago. The company currently hasa fleet of over 100 owned and leased trucks and is focusing on the automotive sector.ComplicationDriven by the need to maintain or marginally grow vehicle prices, while facing significant price increases on thecomponent side, Indian automotive companies began squeezing logistics vendor margins in order to controltheir own profitability. Automotive companies also began dissociating various parts of the value chain — beit transportation, storage or services — and offering these to multiple vendors, often on a lowest cost basis.PQRs inability to invest in assets, on the back of this uncertain demand, also affected their growth. As a result,the company started losing business to smaller, unorganized players.ResolutionPQR decided to focus on a two-pronged strategy to win back and retain customers. Firstly, the companybegan following an asset light model, whereby it leased trucks and warehouses on short-term contracts, whichhelped it avoid spot rate variations while allowing it the leverage to grow supply in conjunction with demand.PQR followed this up with back-to-back matching duration contracts with key customers, while passing onsome of the price gains from sourcing.Secondly, the company decided to add warehousing and services to its portfolio. It leased a handful ofwarehouses near automotive clusters and began performing basic value-addition activities in these warehouses— such as component unpacking, testing, minor repairs, packing, loading and direct line feeding to the plant— which improved customer stickiness, differentiated it from point service providers and helped it improve itsmargins significantly (at times, two or three times its margins on the transportation side).Currently, PQR is positioned as an automotive 3PL player, with a predominantly asset light scalable model. Thecompany has significantly higher profitability than many of its FTL peers, and serves some of India’s leadingautomotive clients who have been its steady customers for the past two years. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  20. 20. 18 Logistics in India Conclusion In this paper, we have seen that there are various segments of logistics which differ in their levels of attractiveness, and that there are several niche sectors where there is an opportunity for foreign investors to participate. We have seen how road has been the dominant mode of transportation in India but, faced with threats to business models and profitability, how trucking companies are transforming their business models to play across the broader logistics value chain – in segments such as warehousing, multimodal transportation, project logistics and 3PL. The warehousing market in India, which is currently highly fragmented, is likely to get increasingly organized, with the evolution of new business models such as modern warehouses and logistics parks. Lastly, the 3PL market in India, though nascent, is rapidly evolving as customers in industries such as automotive, IT hardware and telecom use outsourcing to control cost. In the next part of this white paper, we will be covering key aspects around the main investment themes that foreign investors could focus on in India, as well as the associated risks and regulatory processes that they need to be aware of in order to participate in the Indian logistics growth story. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  21. 21. Logistics in India 19AcknowledgementsFor the purposes of this study, we relied on KPMG industryknowledge and prior engagement experiences. We also spokewith a number of logistics industry participants, who we wouldlike to thank for their time and insights.This white paper has been authored by Sankalpa Bhattacharjya.© 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliatedwith KPMG International. KPMG International provides no client services. All rights reserved.
  22. 22. 20 Logistics in India About KPMG To meet the challenging demands of the transportation industry, KPMG member firms deliver a range of global Audit, Tax and Advisory services geared to industry needs. Think of KPMG’s global Transportation and Logistics practice as an extra resource — one that aims to be available as and when you need it. We understand the financial and operational drivers of the transportation and logistics sector and can assist clients in dealing with current and emerging issues. The Indian industry, as a whole, faces a fiercely competitive and volatile business environment. It must fund high levels of ongoing investment to overcome infrastructure constraints and accommodate technological innovation, as well as changing customer demands. Few transport entities possess the resources to manage all these issues. This is where KPMG’s Transportation & Logistics practice can help. Our professionals can complement in-house capabilities, contribute to improved business decision making and performance, help reduce business risk and enhance management confidence as well as peace of mind. KPMG professionals can assist you with the following: Planning an India market entry KPMG’s Strategic and Commercial Intelligence (SCI) practice advises international companies on their India market entry plans, by helping them evaluate the attractiveness of various segments of the logistics industry (in terms of size, growth drivers, competitive landscape, profitability and returns), and assists them with the development of their strategy and business plan for the Indian market. KPMG’s Tax practice, in parallel, can help companies devise an optimal tax and corporate structure for market entry. Creating value through transactions KPMG’s global Finance and Transaction professionals help realize the potential of mergers, acquisitions, divestments and other capital transactions. If you are seeking to acquire a company in India, we can help you find suitable targets, evaluate them, negotiate and close transactions, and even assist with post-merger integration services. Driving the audit further KPMG’s independent insight and robust audit methodology aims to provide high quality audit opinions. Managing tax strategically KPMG’s Tax practice advises clients on effective tax management and compliance. Managing risk to create value KPMG firms can help organizations adopt an enterprise-wide approach to identify, prioritize, manage and monitor risk. Enhancing internal controls Internal audit is the foundation of a comprehensive assurance framework. KPMG firms can increase existing internal capabilities, either on a project basis or on a continuing basis. Improving performance KPMG firms can help organizations enhance their strategic and operational performance. Responding to regulatory change KPMG firms assists organizations in transforming regulatory compliance from just another cost and management issue to an important business value driver. Funding infrastructure KPMG’s Advisory professionals work with public and private infrastructure providers to create funding strategies. © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  23. 23. Logistics in India 21Contact Us Dr Ashley Steel Partner Global Chair - Transport KPMG in the UK +44 20 7311 6633 ashley.steel@kpmg.co.uk Justin Zatouroff Partner Global Head of Logistics KPMG in the UK +44 20 7311 8415 justin.zatouroff@kpmg.co.uk Manish Saigal Executive Director National Industry Leader - Transport & Logistics KPMG in India msaigal@kpmg.com Tel: +91-22-3090 2410 Sankalpa Bhattacharjya Associate Director Strategic and Commercial Intelligence KPMG in India sankalpab@kpmg.com Tel: +91-124-334 5089 © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. All rights reserved.
  24. 24. kpmg.comThe information contained herein is of a general nature and is not intended to address the © 2010 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of thecircumstances of any particular individual or entity. Although we endeavor to provide accurate and KPMG network of independent firms are affiliated withtimely information, there can be no guarantee that such information is accurate as of the date it is KPMG International. KPMG International provides no clientreceived or that it will continue to be accurate in the future. No one should act on such information services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-viswithout appropriate professional advice after a thorough examination of the particular situation. third parties, nor does KPMG International have any suchThe views and opinions expressed herein are those of the author and do not necessarily represent authority to obligate or bind any member firm. All rights reserved.the views and opinions of KPMG International or any KPMG member firm. KPMG and the KPMG logo are registered trademarks of KPMG International Cooperative (“KPMG International”), a Swiss entity. Designed by Evalueserve. Publication name: Logistics in India Publication number: 173083 Publication date: November 2010

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