Logistics service is a commercial activity that transfers the orders from the gate of a supplier to the door of customers. This activity includes a variety of tasks viz., material handling, packing, inventory management, warehouse management, subcontracting and even security. Management of these complex tasks in-house turned to be tough for the enterprises in the competitive market; this led to the demand for logistics service providers. Logistics is segregated into 5 layers which are 1PL, 2PL, 3PL, 4PL, 5PL. This segregation is done on the basis of their works.
First layer of logistics is 1PL that stands for 1st party logistics. These are the manufacturers or retailers dealing with their own logistic service needs that are limited to certain geographies and for specific goods. Second layer is 2PL or 2nd party logistics which covers a wider area to serve and a range of activities to offer, mostly transportation and storage service providers such as, express parcel services and FedEx.
Third and the most common among them is 3rd party logistics, examples of this layer are Delhivery and DHL express. These service providers include activities like freight forwarding, warehousing, picking and packing of orders, freight management (organizing delivery of orders to clients), and inventory management as part of their services. This layer has high scope in the Indian market. The approx. median salary of important logistics professionals: Project Manager (Operations) is around Rs 737,500 and that of a Supply Chain Supervisor is Rs 840,000. (source: PayScale)
Fourth layer is 4th party logistics also known as non-asset based provider, as the name suggests they own no assets, no transportation assets, no warehousing capacity, they are just experts with accumulated freight industry expertise and information technology asset. They serve as a consultant for the enterprises in need of a logistic service provider. SCMO, BMT and Deloitte are counted in few 4PLs of India. Fifth layer is more or less similar to the forth one, 5th party logistics too are non asset based providers, their services are extended to supply chain management along with system oriented consulting to their customers.
Logistics sector has a big list of its’ focused customers i.e. healthcare and pharmaceutical industry, auto and auto components industry, lifestyle and ready-made garments, high tech, engineering and mobile telephone (including base towers and mobile telephones). And one of the most important customer of this sector is e-commerce, it is also said that 3PL is the growth driver of e-commerce industry. E-commerce industry is such a crucial customer that a separate layer of logistics is emerging especially to cater the e-commerce industry viz. e-commerce logistics service provider.
Indian logistics market is estimated to be US$ 130 billion (Forbes). India spends 14.4% of the nation’s GDP in logistics sector which is far more than other developing countries who invest less than 8% in this sector (financial express). 9.6% was the CAGR of India in 2010-2015 and for 2015-2020 8.6% CAGR was the forecast (business wire). This decline was expected due to poor physical and communication infrastructure; high dwell time at ports; low levels of containerization; and a multi-layered tax system contributing to significant delays at border crossing points. Global logistics cost is approx 5% of total product cost.
Expectations are high with the upcoming GST reform which would promote manufacturing and trade, improve investment procedure that might help to transform the logistics industry. The change could drive growth of 15-20% CARG between 2016 and 2020 in Logistic sector (financial express). This sector provides a gigantic scope of improvement which turns this sector to be a good point of investment in India. Proper knowledge and appropriate set of skills are a must have for Indian logistics new bees to lead the logistics market.
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