Financial Times

Mumbai, India – Following the sanction of foreign direct investment (FDI), the retail sector in India has been thriving and numerous local and international companies have been thronging to the organized segment. The increasing levels of disposable incomes have catalyzed the growth of the retail sector, creating a need for efficient and cost-effective logistics operations.

In such a scenario, third party logistics (3PL) service providers are expected to receive a huge boost from the retail segment.

New analysis from Frost & Sullivan on the Strategic Analysis of 3PL Markets in the Indian Retail Sector, reveals that the market earned revenues of US$49.5 million in 2005 and it is estimated to reach US$140.0 million in 2012.

Currently, even organized retailers such as those of apparel and lifestyle, consumer durables, food and grocery, footwear and leather, as well as stationery and gifts have not taken well to the concept of 3PL due to their apprehensions of losing control over the supply chain. The transportation is carried out partly by organized service providers and partly by truckers and local transporters.

3PL service providers have to prove their competency by offering cost effective services and building long-term synergetic relationship with the retailers, which will also encourage market entrants to outsource. The service providers will have to prove their expertise since Indian retailers place considerable emphasis on their service providers’ trustworthiness, timeliness, and cost effectiveness.

“The economical services offered by the unorganized logistics participants discourage retailers from outsourcing to organized service providers,” says Frost & Sullivan Research Associate Aarthi Nandakumar. “Hence, there has to be a marked difference in the quality of service offerings, cost, and other value-added services before the retailers begin to work with organized 3PL providers.”

3PL service providers need to customize the service offerings and offer them at competitive rates to truly take advantage of the retail boom in India. Market participants will have to strategically position themselves and work closely with the retailers to understand their specific logistics requirements and deliver high-quality service.

Retailers’ rising need to maintain fewer inventories is yet another factor that will drive the market toward outsourcing. The increasing requirement of forwarding and information management functions will help the retailers to achieve greater productivity and efficiency, encouraging them to outsource to 3PL providers.

“Moreover, with the implementation of value-added tax (VAT), 3PL service providers have more opportunity to market their offerings for warehousing services,” notes Aarthi Nandakumar.

“There will be more scope for alliances and joint ventures with foreign service providers that can establish healthy relationships with retailers in order to strengthen the supply chain process in Indian retailing.”

The Strategic Analysis of 3PL Markets in the Indian Retail Sector is part of the Asia Pacific Logistics Subscription, which also includes research in the following markets: Strategic Analysis of the ASEAN 3 Third Party Logistics Markets, Strategic Analysis of 3PL Markets in the Indian FMCG Sector, Strategic Analysis of Third Party Logistics Markets in India. All research services included in subscriptions provide detailed market opportunities and industry trends that have been evaluated following extensive interviews with market participants. Interviews are available to the press.

Frost & Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 40 years. The company's industry expertise integrates growth consulting, growth partnership services, and corporate management training to identify and develop opportunities. Frost & Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics, and demographics. For more information, visit www.frost.com.