MUMBAI, INDIA:  The IT spends in the Indian logistics industry will grow to approximately INR 1,000 crores from the existing INR 400 crores in the next five years (CAGR of 20 – 22  percent) revealed the 'Technology Survey for the Indian Logistics Industry – 2008’ conducted by Kale Consultants Ltd. in partnership with Feedback Business Consulting Services Pvt. Ltd. The demand is expected from the Western part of India followed by the North and Southern regions. While 46 percent of the IT investments are currently made towards capital expenditures, the remaining 54 percent is operational.

India spends around 13 per cent of its GDP on logistics, higher than US (10 per cent),  Europe (11 per cent) and Japan (10 per cent). This translates to around INR 150,000 crores in operating costs for the economy and therefore loss in capital formation. India risks missing out on 1 to 2 per cent GDP unless significant strides are made to bridge this gap and improve supply chain efficiencies by effectively using technology.

The key objective of the study was to assess the market dynamics and highlight the technology adoption trends in the logistics industry. "There is a lot of activity happening in this highly fragmented market and the trends are quite revealing. 3PL players are growing at over 25 percent, small and medium family owned enterprises are growing in stature in the integrated logistics space. Global majors have committed to huge investments for their Indian operations. PE funds are increasingly eyeing the sector. The sector has already attracted investments of over Rs.. 20,000 crores in the first half of 2008," said Sumeet Nadkar, Head - Logistics SBU, Kale Consultants Ltd.

Key findings

Freight Forwarding: Technology spends in freight forwarding is expected to grow by 160 percent. This industry presently constitutes 14 percent of the IT demand and is expected to rise to approximately 170 crore (17 percent of overall IT spend by FY 013). The market size is currently at Rs.. 11,000 crores and is expected to reach Rs.. 21, 180 crores by FY 013.

Airports: Current IT spends by Airports is estimated at approximately 1.1 percent of the overall revenues. New investments of INR 28,525 crores are expected in the next four years to boost the IT requirement. This is one of the segments where IT utilization is maximum compared to other segments in the logistics space.

Warehousing: Technology spends is expected to jump from the current INR 48 crore to about INR 120 crore by FY 013. This industry is fast emerging as a strategic function, thanks to rapid growth in retail and expansion by domestic and international players. This requires end-to-end solutions that improve efficiencies in supply chain management. The market size is currently at INR 3000 crores and is expected to reach Rs.. 7,380 crores by FY 013.

Express & Courier Services: Industry will continue to remain the highest technology buyers constituting to 33 percent of the technology spend by 2013 from the present 29 percent.

Radio Frequency Identification (RFID): RFID is expected to grow rapidly with nearly 80 percent of the respondents, indicating that they will be adopting the technology (inspite cost concerns). The demand will primarily be driven by their overseas customers and the domestic retail boom. The ICD/CFS market size together is currently at INR 6,500 crores and is expected to reach INR 7700 crores and INR 12,515 crores by FY 013.

"Technology is expected to be a key enabler to support the Logistics sector in its growth. Influx of capital in the logistics value chain will also depend on the ability of the stakeholders to deploy technology in improving their processes and functions. Investment in technology is expected to result in higher utilization of assets like truck fleet, warehouse, coordination of movement of cargo, etc. Improved customer satisfaction using new generation technology will shape the growth of the Logistics industry. Thus, technology will not only improve efficiencies but is likely to result in higher outsourcing by end user segments" said Nadkar.