India, one of the largest consumer markets in the world, is heavily dependent on the strength of its transport system for ensuring continued growth. The expanding manufacturing base and growing exports are the key factors driving the demand for a multimodal integrated transport system that includes roads, railways, aviation and ports. At present, India has an extensive network of these systems to support the transportation and logistics requirements of multiple industries like automobiles, pharmaceuticals, FMCG, and retail.

Due to the huge population and the large-scale movement of people and goods, roads are the lifeline of the country. With 4.7 million km, India has the second largest road network in the world, which is used for transporting more than 60 per cent of all goods. It also accounts for 85 per cent of India’s total passenger traffic.

Another important mode of transport in the country is the railway network, which is among the largest in the world. It is spread across 64,600 km, covering 7,146 stations and 19,000 trains operating daily. Indian Railways (IR) carried 906.36 million tonnes (mt) of revenue earning freight traffic during the period April 2014 to January 2015. This is an increase of 40.22 mt and 4.64 per cent over the freight traffic of 866.14 mt that was actually carried by it during the corresponding period in the previous year. During January 2015, the revenue earning freight traffic carried by IR was 97.79 mt, an increase of 1.39 mt over the actual freight traffic of 96.4 mt carried during the same period the previous year.

Along with roads and railways, ports have also emerged as a key mode of transport for leading goods manufacturers over the past few years. According to the Ministry of Shipping, about 95 per cent of India’s trade by volume and 70 per cent by value takes place through maritime transport. As of March 31, 2014, the capacity of all major ports was 800.52 million metric tonnes (mmt) against the cargo traffic of 555.54 mmt that was handled in 2013-14. According to data compiled by JOC.com, the growth in freight movement led to publicly owned major ports in India reporting healthy levels of container throughput growth between April 2014 and February 2015 (the first 11 months of 2014-15), compared to the previous year’s volumes. Container handling in the 11-month period increased by 7.15 per cent year over year to 7.25 million twenty-foot equivalent units (TEUs) from 6.77 million TEUs in the corresponding period in 2013-14. Containerised cargo tonnage grew by 4.4 per cent from 104 mt to 109 mt during the same period. Meanwhile, coal cargo traffic grew by 20.6 per cent from 86.7 mt in 2013-14 to 104.5 mt in 2014-15. With regard to commodities, there was an increase of 25 per cent in the handling of fertilisers in April 2014 as against April 2013. Iron ore handling also grew by 16.8 per cent during the same period. At the end of March 2014, the overall cargo volumes at major ports had grown by 1.78 per cent year over year to 555.5 mt.

There has also been growth in the aviation sector in India, which is expected to become the world’s third largest aviation market by 2020. By 2030, it is expected to become the largest aviation market globally. At present, in terms of market size, the Indian civil aviation industry is among the top 10 in the world with a size of around $16 billion. According to the Directorate General of Civil Aviation, India’s scheduled airlines carried 67.73 million passengers in 2014, compared to 61.42 million passengers in 2013 and 58.81 million in 2012.

Starting from 2003, with the launch of low-cost airlines, air traffic in India grew between 20 and 40 per cent over the next six years, making it possible for more people to travel by air. According to CRISIL Limited, Indian airlines have been projected to record a collective operating profit of $1.29 billion in 2016. As per Airports Authority of India estimates, aircraft, passengers and freight movement at all Indian airports is expected to grow at respective rates of 4.2 per cent, 5.3 per cent and 5 per cent over the next five years.

Key factors

According to an industrial research report titled “India Cargo Handling and Transport Industry Outlook to 2019 – Aided by Infrastructure Development”, rising investments, rapidly evolving regulatory policies and mega infrastructure projects have been driving growth in the Indian transport and logistics industry. With the movement of people and freight increasing at a rapid pace, the government is committed to further expanding, modernising and integrating transport infrastructure. It is aiming to do so through the National Highways Development Programme (NHDP) and by increasing public funding in transport, financing the development and maintenance of roads through a central road fund, and improving access to rural areas by launching a rural roads programme. In addition, the government is pursuing the National Rail Vikas Yojana to reduce the congestion in rail corridors and improve connectivity. It has also taken up the Jawaharlal Nehru National Urban Renewal Mission for improving urban transport infrastructure and services.

Some recent investments and developments by the government as well as private players in the Indian transport infrastructure segment are:

• The Ministry of Railways has sanctioned the implementation of the Eastern Dedicated Freight Corridor (DFC) and Western DFC with maximum freight train speeds of 100 kmph.
• The government has set aside 20 per cent of the $1 trillion reserved for infrastructure during the Twelfth Five-Year Plan (2012-17) for developing the country’s roads. It plans to develop a total of 66,117 km of roads under different programmes like the NHDP and the Special Accelerated Road Development Programme for the North East and left-wing extremism-affected areas, setting an objective of building 30 km of roads per day, starting from 2016.
• The port sector was awarded 30 projects in 2014 with investment worth $3.16 billion. The government has also allowed foreign direct investments of up to 100 per cent under the automatic route for projects relating to the construction and maintenance of ports and harbours. It has granted 10-year tax holidays to enterprises engaged in developing, maintaining and operating ports, inland waterways and inland ports.
• Government agencies have projected that about 500 airports, both brownfield and greenfield, would be required by 2020. Greater participation of the private sector has also been sought through different public-private partnership models. In addition, substantial state support in terms of financing, concessional land allotments, tax holidays and other incentives will be offered.
• Boeing is planning to set up an aircraft manufacturing base in India. Once set up, it would be part of the Make in India programme, under which the government wants companies to manufacture for India as well as export.

Apart from investments by the government and the private sector, the rise and growth of the third-party logistics (3PL) market is going to lead to dynamic developments in the Indian transportation industry.

According to a report by research and consultancy firm RNCOS, India’s 3PL market is expected to reach Rs 480 billion by 2019, driven mostly by outsourcing in retail and pharmaceuticals. It will grow at a compound annual growth rate of 21 per cent between 2014 and 2019. The research firm underlines that government investment in the development of freight corridors, ports and highways; the increasing demand in the pharmaceuticals industry; and the significant growth in the e-commerce industry will be other growth drivers for the transport sector.

So far, 3PL has proved to be successful in enhancing the logistical efficiency of many organisations and is rapidly gaining popularity among industry players. RNCOS points out that the majority of the overall 3PL market is organised, and currently being utilised mainly in the industrial and automobile sectors, followed by pharmaceuticals, consumer products and retail. As the majority of the industry’s revenue is contributed by the major players, the share of the organised segment is expected to increase due to tie-ups and mergers and acquisitions, which are anticipated to be more within domestic and international 3PL companies.

Leveraging technology

According to RNCOS, 3PL players are placing an emphasis on technological upgrades in order to engage with customers. The transport industry is clearly on its way to adopting fourth-party logistics, which is emerging to support the 3PL business. By and large, big as well as small players in the transport industry have adopted technology to streamline operations and lower costs. All industry stakeholders are keen on automation to simplify processes and improve efficiency. Companies are making significant investments in building intelligent transport systems by using telematics, data collection and storage, and navigation systems. Telecom and IT is widely being used for automated speed enforcement and vehicle control technol-ogies like intelligent cruise control and speed alerts; electronic toll collection; and cargo tracking. Transportation and logistics companies are using the robust telecom network and IT applications to put in place an efficient supply chain for carrying out functions like booking orders, managing inventory and handling cargo.

Industry players are increasingly deploying a host of enterprise and mobility solutions for improving productivity. The most commonly used applications include SAP, instant messaging, customer relationship management (CRM) and enterprise resource planning (ERP). CRM and ERP applications help companies receive electronic orders, leverage bar code scanning, and provide electronic proof of delivery. Sales force automation and empowering the field force with mobility devices are other priorities. To meet communication requirements, companies are also turning to web hosting, voice-over IP, instant messaging and hosted messaging.