Indian Retailer

Logistics firms in India are expanding capacity and boosting investments eyeing business from sectors like retail and infrastructure, but high operating costs remain a worry.

Organised players in the largely fragmented industry are expanding operations in warehousing, port and air services, aiming to boost their share of the logistics business to 14% from the current 6%, industry participants said.

One of the major contributors to the logistics industry would be warehousing sector, which, in turn, will be driven by a growth in retail and agriculture, said Abhishek Kiran Gupta, Associate Director, Research, at real estate consultant Jones Lang LaSalle Meghraj.

"The size of warehousing will increase as more niche and specialised stores open and requirement for food increases, the retail sector that had taken a beating, will bounce back," he added.

Future Group, Gati, AFL and Safe Express are among logistics firms pumping in about Rs 50 billion over the next three years to expand warehousing operations across the country, Tushar Jani, Chairman, Confederation of Indian Industry (CII), Western Region Logistics Sub-Committee, said.

Jani, also the former chairman of logistics major Blue Dart, said the investment will lead to development of 30 million square feet of warehousing space in India over three years, even though the country would still face a deficit of 50 million square feet. India's total warehousing capacity stands at around 9,700 million square feet.

Infrastructure is another key driver for the warehousing sector, Jones Lang LaSalle Meghraj's Gupta said.

The government has proposed a USD 494 billion investment under the Eleventh Five Year Plan (2007-12) in developing of infrastructure that would have a directly impact on the sector.

Air, Ports

Blue Dart Express is ramping up air and ground infrastructure by investing Rs 10 billion over 5-7 years.

"We would keep investing in infrastructure and technology to ramp up our operations, reach and transit times. We would invest in air and ground infrastructure with transit hubs, hi-tech material handling equipment and aircraft," Blue Dart Managing Director Anil Khanna said.

Private port developer Mundra Port & SEZ is investing in development of port infrastructure that would help in fostering the logistics industry, said Sandeep Mehta CEO, Container and Logistics business at the firm. But high costs are already beginning to hurt.

"Fuel prices (both ATF and diesel) keep fluctuating, which drastically affect our operational expenses inflationary trends in security, air-side and off-site congestion have also impacted us. All these factors knit together have enhanced our operating costs manyfold," said Blue Dart's Khanna.

Gati is trying to control costs by replacing its existing fleet with younger vessels and reaching out to newer geographies like Rangong (Thailand), said Atul Srivastava, head (commercial).

But despite higher costs, officials agree that the sector is poised for growth as increased consumption will lead to greater demand and supply leading to more movement of goods and the current investments will pay dividends.

"Growth in our economy is driven primarily by domestic consumption and not by foreign trade as is the case with many other economies like China. The government is also playing its part by drawing up robust plans for developing and upgrading infrastructure - both air and ground," Blue Dart's Khanna said.