Logjam to liftoff: India’s logistics sector soars

Shadowfax is an Indian startup named after a horse in the Lord of the Rings that possesses fabulous speed. For India’s galloping economy – projected to surge 7.5 per cent this fiscal year – the Bengaluru-based company is a leading player in an explosive growth sector: logistics.

Shadowfax, a kind of Uber for delivery, deploys scooter drivers across India to serve clients including e-commerce company Flipkart and McDonalds. It’s one of a new crop of companies that help explain why many see India as on the cusp of a logistics revolution. Tech innovation and middle-class demand are meeting an urgent need for efficient distribution systems across the subcontinent.

India’s logistics sector is expected to soar in value from $160 billion today to $215 billion by 2020, according to a government survey – as the Goods and Services Tax (GST), which went into effect in July last year, ushers in an era of efficiency to ease decades of logjam.

Until last year, each of India’s 29 states had its own value-added tax, holding up delivery lorries at checkposts at each state border. Now that GST turns India into a single common market, new energies are coursing through the economy – and one of the biggest winners is logistics. The recent granting of infrastructure status to logistics also gives the sector a boost: advantages include preferential interest rates and reduced red tape for setting up facilities.

With favourable conditions in place, India’s startups are transforming an industry still seen as an inefficient, low-skill sector. Deploying Internet of Things, cloud computing and big data analytics in this fast-growing field is adding a new economic dimension. Companies such as Locus (a machine learning startup offering route optimisation) and Boxmyspace (a provider of on-demand warehouse services) are shrinking distances. Foreign investors are paying heed. Last year, Australia’s Logos Property Group and Singapore’s Assetz Property Group launched a joint venture to invest up to $800 million in India’s logistics sector.

All of this will make India’s exports more competitive by reducing costs, as well as breathing greater vitality into e-commerce. The momentum will spread through the overall economy and translate into job growth. TeamLease Services, a job placement firm, expects the logistics sector to add more than 3 million jobs over the next four years to 13.9 million, a 28 per cent jump.

To be sure, challenges abound for modernising India’s logistics landscape. Digital skill-sets need to catch up with digital technologies, making training and attracting talent a critical priority. Logistics costs represent 14 per cent of India’s GDP, the World Bank says, against 8 to 10 per cent for most advanced economies – a drag on competitiveness. The Associated Chambers of Commerce & Industry of India says India could save up to $50 billion if logistics costs came down to 9 per cent of GDP.

“Policy changes and opening up capacity, together with increase in speed for transportation of goods and services through various modes – rail, road, water and others – is imperative for the growth of cargo and logistics industry in India,” says D.S. Rawat, the group’s secretary-general.

There’s little doubt, however, about where the trends lie. India jumped from 54th in 2014 to 35th in 2016 in the World Bank’s global ranking of logistics performance. India can expect an even more impressive boost in the years to come. GST will lead to more centralised production and storage systems, allowing distribution to fan out like the spokes of a wheel, instead of criss-crossing in a chaotic jumble. Crucially, new government infrastructure projects will turn rail and waterways into major distribution channels.

Shadowfax is an example of a company that shows how logistics vision can breed economic success. This month the startup raised $22 million in funding. It plans to use the capital to scale up, aiming to grow its client base from 40,000 to 400,000 within three years.