Third-Party Logistics Sector in India: An Overview

Posted by Written by Naina Bhardwaj Reading Time: 4 minutes

We look at India’s third-party logistics sector, including its key segments and overall market profile. E-commerce, digitization, and infrastructure modernization are the main growth drivers for the 3PL sector in India.

According to various reports, the Indian third-party logistics (3PL) market is slated to witness high growth in the coming years. According to a report by the UK-based market research firm Technavio, the 3PL market in India is poised to grow by US$10.74 billion in the period 2021-2025, progressing at a compound annual growth rate (CAGR) of almost eight percent, and witnessing an incremental growth of US$81.73 million by 2024.

Another study from Mordor Intelligence pegs this growth at 11 percent during the same forecast period.

Globally, the 3PL market was valued at US$1027.71 billion in 2019 and projected to reach US$1789.94 billion by 2027, registering a CAGR of 7.1 percent from 2020 to 2027.

In 2019, the Asia-Pacific (APAC) region claimed majority share in the global 3PL market. Within this region, India’s 3PL market continues to show promise, driven by recent tax reforms, behavioral shifts in consumer patterns like preference for online shopping, as well as other industry and government initiatives to build capacity and infrastructure.

Reports suggest that in India, the 3PL market is likely to be driven by growth in sectors like fast-moving consumer goods (FMCG), manufacturing, retail, and e-commerce, which demand specialized logistics support and complex solutions for better management of their supply chain processes.

These respective industries are keen on outsourcing logistics support to not only bring down their conventional costs but also to build-in operational efficiencies in their industry-specific activities.

What are third-party logistics (3PL) providers ?

Third-party logistics is the function by which a manufacturer subcontracts tasks related to logistics, distribution, and management of customs, which are essential to the supply chain.

A 3PL provider offers dedicated services, such as inventory management, transportation management and brokerage, warehousing, consolidation, distribution and fulfillment, international logistics management, such as air and ocean freight forwarding, and customs brokerage, etc.

Key segments of 3PL support: 

>> Transport

  • Railways
  • Roadways
  • Waterways
  • Airways

>> Service type

  • Dedicated contract carriage (DCC)
  • Domestic transportation management
  • International transportation management
  • Warehousing and distribution
  • Others

>> Industry

  • Technological
  • Automotive
  • Retailing
  • Elements
  • Food and groceries
  • Healthcare
  • Others

Surge in demand for industrial warehousing driven by 3PL firms

Recent reports show that leasing of industrial and warehousing areas crossed 10.1 million sq ft in H1 2021, in the Indian metro cities of Bengaluru (Karnataka), Chennai (Tamil Nadu), Delhi NCR, Mumbai (Maharashtra), and Pune (Maharashtra). This surge in demand has been put down to 3PL firms as well as e-commerce.

According to industry projections, increased focus on core activities by large businesses and subcontracting logistics to 3PL players has transformed warehousing into an important business segment. Goods and services tax (GST) reforms, in addition, are likely to boost the expansion of this sub-sector in India.

The market value of warehousing in India is estimated to reach almost US$6 billion in 2025, from US$2.1 billion 2018. Industry reports also project growth of transportation logistics to be at US$11.9 billion by 2025, witnessing a drastic leap from US$3.5 billion in 2018.

Overview of 3PL market in India

The Indian logistics market is fast evolving, keeping in line with the technological and infrastructural developments as well as various policy reforms taken by the government, including introduction of e-way bills, fast-tag, e-invoicing, GPS-based toll collection, etc.

According to industry watchers, the approximate size of the Indian logistics market is estimated to reach US$215 billion by 2022. It is also reported that presently, logistics accounts for 14 percent of India’s GDP cost, as against seven to eight percent for developed countries, with the lack of automation being a major factor contributing to high costs.

However, with increasing technological penetration and fast evolving infrastructure, India stands at the crossroads – facing huge opportunities for expansion in the sector to match global growth trends.

Increased digitization

The rapid pace of digital transformation is redefining Indian logistics. Automation, artificial intelligence, machine learning, data analytics, and the Internet of Things (IoT) are significantly contributing to increasing operational efficiency.

Moreover, the decreasing cost of technologies like cloud computing, GPS trackers, IoT sensors etc. is also enabling small scale logistics companies to modernize their systems.

Additionally, digitization of payments too has found increased adoption in India, especially after the onset of the COVID-19 pandemic, and this has reduced the cash handling requirement of 3PL industry to some extent. Prior to the pandemic, the preference among Indian consumers for cash on delivery (COD) transactions was considered a challenge for logistics providers as their cash handling requirement was estimated to be around US$8 billion.

Infrastructure modernization

Infrastructural development like dedicated freight corridors, free trade warehousing zones, logistics parks, and container freight stations are expected to improve the efficiency of the Indian 3PL market. The National Highways Development Project aims to expand India’s current expressway network of 2000 km and plans to add 18,637 km of greenfield expressways by 2022. The Bharatmala project is aiming to construct 83,677 km of highways by 2024.

Government initiatives like National Infrastructure Pipeline, Sagarmala, and the recently introduced National Monetization Pipeline are expected to further give a boost to the 3PL market and substantially aid last mile delivery capabilities in India.

Connectivity infrastructure for third party logistics in India

Fragmented market, multiple players

At present the 3PL market in India is fragmented and is assumed to remain so till 2024, according to the Technavio report “Third-party Logistics Market in India by End-user and Service – Forecast and Analysis 2021-2025”.

This implies that the 3PL market will be highly competitive without any dominant players.

Some of the major 3PL players in India are DHL International GmbH, Mahindra Logistics, All Cargo Logistics Limited, Kuehne + Nagel, TVS Logistics Services Limited etc.

What is the future of third-party logistics (3PL) in India?

The 3PL sector in India is poised for robust growth, sustained by new technological adaptation and enabling infrastructure. According to India market analysts, it is speculated that over the next few years, the 3PL sector might also evolve aggregator models.

Furthermore, with India intending to move towards zero net emissions across industrial sectors, green logistics will likely become an important segment as more companies will adopt corporate strategies where they are able to reduce their carbon footprint, integrate sustainable solutions, and ensure competitive operations. Some e-commerce giants have also pledged to go electric, and these trends align with India’s own government-supported push for greater adoption of electric mobility.

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