Customisation, competence, costs drive Indian contract logistics

The demand for contract logistics is rising as the Indian economy is on a growth trajectory. While e-commerce is churning out new dimensions and customers want to focus on their core competence, the demands for customised solutions and cost efficiency are pushing the players out of their comfort zone.

The Indian contract logistics landscape has been experiencing significant evolution in the last decade, largely driven by the rise of the Indian economy. The market is even attracting foreign players. For instance, in August 2023, CMA CGM subsidiary CEVA Logistics announced acquiring 96 percent of Mumbai-based Stellar Value Chain Solutions has become a key player in contract logistics with omni channel fulfilment services in the e-commerce, automotive, food products, consumer, fashion and retail, healthcare and pharmaceuticals market segments with 7.7 million square feet of space across more than 70 facilities in 21 cities across India.

The Indian contract logistics market was valued at $19 billion in 2022, and it is expected to witness a CAGR of more than 5 percent during the forecast period till 2029, according to Mordor Intelligence.

Ajit Jangle, managing director, FM Logistic India, the Indian arm of the French family-owned contract logistics company, opined that the Indian contract logistics landscape has been experiencing an evolution in tandem with the rise of the Indian economy and manufacturing sector.

“India's manufacturing sector has been steadily growing, fueled by initiatives such as Make in India. This growth has led to increased outsourcing of logistics activities by manufacturers, including transportation, inventory management, and order fulfilment,” he said.

“Contract logistics providers are adapting their operations to support multiple sales channels seamlessly, ensuring consistent customer experiences across online platforms, brick-and-mortar stores, and mobile apps.”
Ajit Jangle, FM Logistic India

This surge in manufacturing activity has also translated into a booming warehousing market, points out Varun Gada, director of LP Logiscience. In fact, the sector boasts a projected Compound Annual Growth Rate (CAGR) of 15.64 percent from 2022 to 2027, according to Research And Markets.

He also noted that with a 35 percent year-on-year surge in total space take-up during H1 2023, third-party logistics (3PL) companies played a pivotal role, representing 43 percent of leasing activity, as reported by CBRE.

“This growth is further propelled by supportive government policies like the National Logistics Policy (NLP), which has provisions for strategically located logistic parks and warehousing parks, enhancing the efficiency of supply chains, reducing time and costs. Moreover, the rising manufacturing sector has also given rise to expansion of warehouses in tier 2 and tier 3 markets,” he added.

Naveen Kulkarni, commercial director of Rhenus Warehousing Solutions India sees a trend of extended outsourcing of service and value-driven supply chain outsourcing with forward and backward integration, which helps companies to get real-time visibility of their products.

He said, “Over the last few years, India has seen significant investment in developing warehousing facilities and infrastructure. Today we have A-grade high-spec compliant facilities available in all biz clusters. The government has launched Gati Shakti to standardise logistics policies and bring transparency.”

Certainly, the Indian economy has emerged as one of the fastest-growing economies, driven by multiple factors like increased consumer demand, efficient and result-driven government policies and technology driving rapid transformation.

Meanwhile, Nikhil Agarwal, president, CJ Darcl Logistics, noted that the contract logistics providers have tailored their services to meet the growing demand of each industry, by offering customised warehousing and distribution services, swifter transportation, enhanced visibility, and efficiency across the supply chain.

“Government schemes including NLP, Bharatmala, Sagarmala and so on have been covering the entire India, from improving port connectivity to developing multimodal logistics parks for better logistic operations,” he said.

“Contract logistics requires more than technological ability. It demands a keen understanding of regulatory requirements, scalability, and a commitment to sustainability.”
Sushil Rathi, Allcargo Supply Chain

The e-commerce factor
Beyond the growth of Indian manufacturing, infrastructure and policies, the rise of online shopping has become one of the most important factors influencing contract logistics players in the country. E-commerce has been growing at a steady pace in the last decade with increased adoption. During and after the Covid-19 pandemic, customers prefer convenience and doorstep delivery as through e-commerce they have access to a variety of products at their fingertips. And that had an impact on contract logistics demand, fundamentally reshaping the way goods are handled in warehouses, distributed, and delivered.

Jangle opined that e-commerce has blurred the lines between traditional retail and online channels, leading to the emergence of omnichannel logistics. “Contract logistics providers are adapting their operations to support multiple sales channels seamlessly, ensuring consistent customer experiences across online platforms, brick-and-mortar stores, and mobile apps,” he said.

“E-commerce necessitates flexible and scalable warehousing solutions to accommodate fluctuating demand patterns, seasonal peaks, and SKU proliferation. E-tailers require sophisticated inventory management solutions to optimise stock levels, minimise stockouts, and prevent overstocking. The digitalisation of logistics processes is enabling greater transparency, collaboration, and data-driven decision-making throughout the supply chain,” he added.

“Customers are now exploring control tower solutions which help them get visibility of their products worldwide on a real-time basis, thereby improving overall service quality and customer satisfaction.”
Naveen Kulkarni, Rhenus Warehousing Solutions India

Also according to Kulkarni, e-commerce as a trend has helped other industries to explore omnichannel distribution models and increase their market penetration. “There has been a significant change in the adoption and usage of Warehouse Management Systems (WMS) and Transportation Management Systems (TMS), providing real-time visibility to our customers, which will only increase with time. With technologies like RPA, AI & Blockchain coming into the supply chain industry, we see a whole new dimension in the way the industry operates. Customers are now exploring control tower solutions which help them get visibility of their products worldwide on a real-time basis, thereby improving overall service quality and customer satisfaction,” he said.

On the same line, Agarwal points out that e-commerce companies and online marketplaces are joining hands with the contract logistics providers to manage their custom warehousing needs, inventory management and swift delivery operations catering to the need for budding quick commerce or growth time bound deliveries.

He reported that contract logistics is infusing chatbots, customer portals, and predictive analysis for mapping the growing demand. “All of this is to stay afloat in this competitive e-tailing market,” as he puts it.

“Contract logistics is undergoing a huge change due to the rise of e-tailing, digitalisation, and the advent of new technologies. This includes adopting warehouse automation, which eases out the daily tasks of inventory management, custom order packing and picking, improving accuracy, and reducing labour costs. Moreover, as part of the growth phase, contract logistics providers are offering enhanced last-mile delivery solutions by providing GPS for real-time tracking and route optimisation techniques to save time and costs incurred. Furthermore, e-tailing and digitalisation have increased the customer expectations for reliable and seamless, personalised experiences in contract logistics,” he added.

Further developing on it, Agarwal noted that the retail industry is adapting to the rise of e-commerce by growing its online presence, to reach its target audience who now has a wider range of perspectives and options to choose from.

“With the rise in demand, the logistics and transportation industry are also noticing a surge in tailored approaches to the warehousing and distribution, air cargo and last-mile delivery for better connectivity in urban delivery operations. As we have quick commerce as an emerging participant, the need for dark stores and micro fulfilment centres is also a responsive measure. As we proceed, we also have the manufacturing and production sector that has shaped the rising demand for e-commerce. Technologies like 3D printing, customised packaging, specific machinery to deal with shorter batch sizes and innovative customisation are a part of the change e-commerce has brought. The need for attention towards reverse logistics and swifter short haul deliveries has also become increasingly popular,” he said.

“With the rise in demand, the industry is also noticing a surge in tailored approaches to the warehousing and distribution, air cargo and last-mile delivery for better connectivity in urban delivery operations.”
Nikhil Agarwal, CJ Darcl Logistics

Meanwhile, Gada reports that industries across various verticals are redefining their logistical needs in response to the e-commerce boom.

“Once predominantly focused on traditional brick-and-mortar retail, contract logistics is now rapidly adapting to cater to the dynamic requirements of e-tailing, spurred by digitalisation and the integration of new technologies. With e-retail sales reaching an estimated $84 billion in 2023, according to industry reports, the demand for efficient logistics services has surged. This shift necessitates agile and scalable solutions to meet the fast-paced nature of online shopping, including efficient last-mile delivery and real-time tracking systems,” he said.

“The size of warehousing facilities dedicated to e-commerce has also witnessed a remarkable expansion. Warehousing spaces tailored for e-commerce fulfilment operations have grown by over 40 percent in the past two years alone, with an estimated total floor space exceeding 150 million square feet across the country. Sectors such as FMCG, healthcare, and electronics are increasingly prioritising speed, reliability, and cost-effectiveness in their supply chains, prompting a paradigm shift in how logistics providers operate and innovate to meet evolving demands in India's rapidly growing digital economy,” he added.

Sushil Rathi, director, Allcargo Supply Chain pointed out that, with the rise of e-commerce, logistics providers are compelled to cater to specialised needs such as last-mile delivery optimisation and seamless integration of digital technologies. While there is growing demand for contract logistics in India, Rathi also notes that this necessitates a meticulous approach, understanding the intricacies of each industry and tailoring solutions accordingly.

“Contract logistics requires more than technological ability. It demands a keen understanding of regulatory requirements, scalability, and a commitment to sustainability. Investments in infrastructure, including warehousing facilities and transportation networks, are essential to meet the growing needs of clients and support the expansion of logistics capabilities.,” he said.

Looking ahead, Rathi thinks the future of contract logistics in India is bright, characterised by continued innovation and growth opportunities. “As technology continues to advance and consumer preferences evolve, logistics providers must stay agile, embracing change and seizing opportunities for collaboration and value creation. Together, they are shaping the future of logistics, driving efficiency, sustainability, and excellence across the industry,” as he puts it.

“Clients now seek more than just storage solutions; they demand strategic partnerships that offer value-added services such as inventory management, order processing, and supply chain optimisation.”
Varun Gada, LP Logiscience

Demands for customised solutions
Cost optimisation and efficiency enhancement are paramount for contract logistics providers. This includes initiatives such as route optimisation, inventory optimisation, and automation of warehouse operations to minimise costs and improve service levels. But this challenge also comes along with customers seeking customised logistics solutions tailored to their specific requirements. Different industries have unique logistics requirements. Since each customer’s needs are dynamic, solutions are tailor-made to meet each of their specific business requirements.

For instance, Jangle gave some examples of how the customisation demands differ.

He said, “In the pharmaceutical sector, there's a growing demand for temperature-controlled storage and distribution to ensure the integrity of sensitive drugs and vaccines. In the automotive industry, just-in-time (JIT) and just-in-sequence (JIS) delivery models are critical to support manufacturing operations and minimise inventory holding costs. In the food and beverage sector, compliance with food safety regulations and maintaining product freshness are paramount, driving the need for specialised handling and storage capabilities. In the fashion and apparel segment, rapid product turnover and seasonal trends require agile supply chains with quick replenishment cycles and efficient returns management processes.”

Meanwhile, Kulkarni noted that customers are transparently sharing their current and future business plans and have a dialogue with 3PLs to build their network and further penetrate the market. He also pointed out that discussions have evolved from operational KPIs to service delivery and partnership topics.

“Contract logistics operations are expected to deliver Just in Time (JIT) & Just in Sequence (JIS) basis. Grocery and household items are now delivered within minutes of ordering through the micro fulfilment centres. Although this has yet to evolve in other verticals, the B2B segment is expected to deliver on the same day if not within hours,” he said.

In the past, contract logistics operations primarily revolved around basic storage and transportation services, with limited technological integration and strategic planning. Client interactions were transactional and focused on fulfilling immediate needs rather than long-term collaboration. However, Gada points out that, over the past decade, with the advent of advanced technologies and globalisation, the landscape has transformed significantly.

“Clients now seek more than just storage solutions; they demand strategic partnerships that offer value-added services such as inventory management, order processing, and supply chain optimisation. As a result, contract logistics providers are now adopting emerging tech solutions to offer tech-enabled services like real-time tracking systems, data analytics, and predictive maintenance to optimise supply chain operations. There has also been a notable evolution in client engagement and delivery agreements. This evolution signifies a shift from being perceived merely as a storage vendor to becoming an integral partner in clients' business success,” he said.

The Indian contract logistics industry has a long way to go. As the economy grows along with online shopping making penetrations into the Indian population, the way ahead is customisation, optimisation and helping customers to focus on their core business competence.

This article was originally published in Indian Transport & Logistics News' Mar-Apr 2024 issue.