The logistics industry in India faces multiple challenges ranging from poor infrastructure to stringent regulatory constraints binding growth of various industries. This has kept the industry highly fragmented, with a large number of unorganized providers and a few large technology and process driven service providers with integrated offerings.

India’s logistics costs, estimated at 13% of GDP, are higher than those of the EU, Japan (11%) and US (10%). The higher logistics costs can be attributed to poor infrastructure and operational inefficiencies in the vertical.

Outsourcing in the Logistics Sector

For the majority of the unorganized players, outsourcing is constrained due to small scale or decentralized and non-automated operations. The larger players are increasingly streamlining and standardizing their internal processes. Currently, very few companies are in a position to separate out individual processes that can be outsourced. With enterprise wide IT systems deployment, the outsourceability of activities is expected to increase.

Presently, the low level of outsourcing in the logistics sector is primarily due to low sector maturity. Other restraints for outsourcing are fragmented market, lack of systems and processes and resistance to outsource.

Processes outsourced have a strong correlation with the level of maturity of enterprise IT systems. Currently, due to low maturity in systems and processes only low end services can be outsourced.

Relative Outsourceability and Complexity of Processes 

Source: ValueNotes’ report on Opportunities in the Indian Domestic BPO Market

However, the entry of global logistics players, like TNT, and greater foreign investment in the transport sector is likely to infuse professional and world class management practices. Adoption of technology and professional management practices will help to sustain the growth of outsourcing in the long run.

Service provider maturity key to facilitate outsourcing growth

Currently, there are very few service providers offering outsourcing services to the logistics sector. These providers (Vee Move, Kale Consultants) primarily offer services like data entry for transactions such as purchase orders, invoice entry, etc. Outsourcing in logistics demands close working relationships with the service providers and often directly working on internal IT platforms with dynamic exchange of data.

• Early this year, JM Baxi & Co., a leading maritime logistics provider selected Kale’s Freight Management Solution that encompasses various functions including sales, CRM, multi-modal exports and imports management, tracking and integration with third-party applications, etc.
• More recently, TNT launched a service to provide improved solutions for the service logistics sector in South East Asia.

Software service providers like Kale Consultants, which provide software services to logistics service providers, are best poised to capture the outsourcing opportunity.

As the logistics sector matures over the next few years, the outsourcing potential will be largely determined by the maturity of outsourcing service providers and their ability to build and develop innovative outsourcing solutions around individual client businesses.