Achieving Efficiency and Transparency in Third Party Logistics

Vivek Chopra, Acting CEO of the Cluster India and Indian Sub-Continent, DB Schenker, in an interaction with the Industry Outlook team shares his thoughts to overcome the persistent problems, ailing the growth of the 3PL segment in India.

How do you see the position of the 3PL segment in the Post pandemic India? What are the major factors that will drive the growth?

According to a report by the UK-based market research firm Technavio, the 3PL market in India is poised to grow by US$10.74 billion in the period 2021-2025, progressing at a compound annual growth rate (CAGR) of almost eight percent, and witnessing an incremental growth of US$81.73 million by 2024. Driven by recent tax reforms, behavioral shifts in consumer patterns like a preference for online shopping, as well as other industry and government initiatives to build capacity and infrastructure, the 3PL market in India is showing positive signs of growth.

The demand in this market is driven by sectors like fast-moving consumer goods (FMCG), manufacturing, retail, and e-commerce, which require specialized logistics support and complex solutions to bring down their conventional costs as well as build operational efficiencies in their industry-specific activities.

One of the most significant issues that 3PL businesses confront is their inability to satisfy the precise logistical demands of shippers. Shippers are frequently dissatisfied with aspects like ETA. How do you see this situation and how do you think it can be solved?

According to the Ministry of Shipping, around 95% of India's trading by volume and 70% by value is done through maritime transport. With India being the sixteenth-largest maritime country in the world, the Indian ports and shipping industry plays a vital role in sustaining growth in the country’s trade and commerce.

3PL providers are focused on the management of the shipping process from start to finish. With the adoption of a transportation management system (TMS) and integrated freight management services, they can streamline efficiency and automate routine and time-consuming tasks, such as freight payment and accounting. Management of carrier relations, freight data, and matrix reports offer real-time visibility and increased transparency throughout the shipping process.

Small firms typically find it difficult to form a cost-effective collaboration with 3pl enterprises, restricting their ability to utilize 3pl services to their full potential. In terms of India, how can this scenario be resolved?

A third-party logistics provider (3PL) can help you reach your logistics goals and increase the overall efficiency of your organization in the process. Whether your business is big, small, new, or old, a 3PL is well worth considering if shipping is a high priority for your business.

By scaling and customizing services, 3PLs can best meet your specific needs. You can choose the level of involvement one has based on your needs and goals. They can provide a single service or deliver a bundle of services that extend across multiple aspects of your supply chain. These services work with your processes to increase your supply chain visibility. Additionally, leading 3PLs creates value in ways that enhance your operational, financial, and end customer performance.

DB Schenker in India has been amongst the leading supply chain service providers offering tailor-made solutions to our clients. With our core competencies as global 3PL logistics service providers, we offer end-to-end long-term solutions to manage and control the entire value chain between suppliers, manufacturers, traders, and customers.

In comparison to developed nations such as Japan and the United States, India’s logistics partners’ technology is antiquated and in need of upgrading to keep up with the increase in consignments. How do you interpret this issue in terms of Indian 3PL firms? How can a small 3PL firm address this problem?

The rapid pace of digital transformation and infrastructural development is redefining the logistics market in India. Infrastructural development like dedicated freight corridors, free trade warehousing zones, logistics parks, and container freight stations are expected to improve the efficiency of the Indian 3PL market, while Automation, Artificial Intelligence, Machine Learning, Data Analytics, and the Internet of Things (IoT) are significantly contributing to increasing operational efficiency.

The decreasing cost of technologies like cloud computing, GPS trackers, IoT sensors, along with digitization of payments, etc. has found increased adoption in India and is enabling small scale logistics companies to modernize their systems.

A number of recent reports conclude the present warehouse capacity, technology, and management system are inefficient in respect to the current surge in order. How can this situation be addressed?

The market value of warehousing in India is estimated to reach almost US$6 billion in 2025, from US$2.1 billion in 2018. Industry reports also project growth of transportation logistics to be at US$11.9 billion by 2025, witnessing a drastic leap from US$3.5 billion in 2018.

According to industry projections, increased focus on core activities by large businesses and subcontracting logistics to 3PL players has transformed warehousing into an important business segment. Goods and services tax (GST) reforms, in addition, are likely to boost the expansion of this sub-sector in India. With such projected growth, it is essential to have an efficient warehouse capacity, technology, and management system.

The first and foremost is the increase in the adoption of digital initiatives and automation, as it will help in providing higher efficiency, eliminating errors, increasing transparency, as well as ensuring safety. This will result in fast and effective customer service, which is currently the need of the hour. Hence, it is critical to immediately integrate the latest technology, particularly digital technology, to assist warehouse services in adapting to this transformation.

How do you perceive the future of the 3PL segment in India?

The 3PL sector in India is poised for robust growth, sustained by new technological adaptation and enabling infrastructure. According to India market analysts, it is speculated that over the next few years, the 3PL sector might also evolve aggregator models.

Today many 3PL providers offer multimodal solutions to customers which increase cost-effectiveness and provide alternate capacity to air freight, ocean, or road transportation. 3PL’s bring a strong network along with them which allows businesses to focus on core competencies rather than working on supply chain challenges. For instance, large 3PL’s offer scale and efficiency which are critical for supporting business needs. Furthermore, 3PL’s also worked on creating capacity without demand which allows businesses to embark on established capacity instead of scouting for capacity when the need arises.

Additionally, 3PL companies like DB Schenker are continuing to invest extensively into large facilities in major clusters across India. This will drive consolidation to a large extent and allow many large footprints to be established which will allow customers to get scale and efficiency. 3PL providers are also investing heavily into technology, robotics, etc. which will determine the type of warehouses and configuration of storage solutions along with many other areas. This will have a direct impact including the type of material handling equipment used in such large sites.

With the way current road construction activities are underway in the country, we can anticipate quite some up-gradation in the road infrastructure along with building new ports/terminals and modernization of old/minor ports in the next 5 years. The government initiative on ease of doing business and digitalization push is expected to smoothen export import-related customs processes and formalities further.