Consolidation and recovery in industrial activity to drive logistics growth: India Ratings

India Ratings and Research (Ind-Ra) expects the inflation-adjusted revenue of logistics service providers to grow 8-9 per cent y-o-y in FY19 as against the estimated real Gross Domestic Product growth of 7.4 per cent. Ind-Ra expects a recovery in global trade volumes in FY19, coupled with a higher demand for automobile, retail and FMCG, construction material, coal and metals, to support volume growth across the logistics space.

According to Ind-Ra, the logistics space would undergo substantial consolidation over the medium to long term. Integration of goods and services markets through GST may help create a hub-and-spoke model for logistics players. This is likely to be accompanied with a realignment of supply chains from the one based on tax incentives to those based on proximity to pockets of demand and supply. The operational efficiency arising out of such realignment in supply chain designs is likely to translate into 15-20 per cent lower logistics expenses for major FMCG and white goods players over the next two to three years. The synergies from such consolidation are only to be realised FY20 onwards. Also, the introduction of e-Way bills is likely to enhance the speed of freight transportation and would thus support asset turnover for transport operators, albeit some near-term challenges will exist for smaller players.