The Indian logistics market, valued at US$ 107.16 billion (Rs. 9 trillion) in FY23, is on track to experience significant growth over the next five years, projected to reach US$ 159.54 billion (Rs. 13.4 trillion) by FY28. This growth, driven by structural shifts, technological advancements, and proactive government initiatives, is expected to result in a compounded annual growth rate (CAGR) of 8-9%, according to a report by Motilal Oswal.

One of the key drivers of this growth is the National Logistics Policy (NLP), introduced in September 2022, which aims to optimize India’s logistics sector by addressing inefficiencies in the modal mix. Currently, roads account for a disproportionate 71% of freight movement, leaving railways with a smaller share of 18%. To improve this, the policy focuses on increasing the share of railways in freight transport, which is expected to grow significantly with the development of Dedicated Freight Corridors (DFCs) and the improvement of road infrastructure and inland waterways.

Critical Developments: DFCs and Port Privatization

As of April 2024, 96% of the DFC network is complete, a milestone that will vastly improve the capacity and efficiency of rail freight, shifting the modal mix toward rail and away from road transport. Rail freight has a distinct advantage in terms of cost-efficiency and sustainability, and with the DFCs nearing completion, the modal share of railways is expected to rise, reducing the logistics costs that have long burdened Indian businesses.

Additionally, port privatization has been a key focus area for the government, which has led to significant improvements in port infrastructure and operational efficiency. Major players such as Adani Ports and Special Economic Zone (APSEZ) and JSW Infrastructure have benefited from this move, as India's maritime logistics landscape becomes more competitive and capable of handling larger volumes of cargo. Enhanced port infrastructure, combined with growing rail capacity, positions India to become a more efficient logistics hub in the coming years.

Logistics Costs: Aligning with Global Standards

Currently, India's logistics costs stand at 14% of GDP, significantly higher than the 8-9% seen in developed countries. This inefficiency is largely a result of the skewed modal mix, with an overwhelming reliance on road transport. While roads account for the majority of freight movement, railways and waterways—both more cost-effective and environmentally friendly modes of transport—are underutilized.

To address this, the government has introduced several initiatives such as the Goods and Services Tax (GST), the e-way bill, and heavy investments in road infrastructure, inland waterways, and DFCs. These measures are expected to reduce logistics costs to the desired 8-9% of GDP, aligning India with global logistics standards and making the country more competitive on the world stage.

Growth in Domestic Express Logistics and E-commerce

A key segment driving the Indian logistics market is the domestic express logistics sector, which is expected to grow at a 14% CAGR between FY23 and FY28. This rapid growth is being fueled by the expansion of e-commerce in India, with an increasing number of consumers shopping online and expecting fast, reliable delivery. The growing demand for next-day delivery and other value-added services is pushing logistics companies to invest in technology and infrastructure that can support this growth.

Organized players currently control about 80% of the domestic express logistics market. These companies are well-positioned to capitalize on government policies such as the e-way bill and GST, which have helped streamline operations and reduce inefficiencies. As a result, organized logistics providers are expected to solidify their dominance in the market, providing better service and lower costs than their unorganized competitors.

Rising Demand for Less-than-Truckload (LTL) Services

Another important trend in the Indian logistics market is the growing demand for less-than-truckload (LTL) services, particularly in road transportation. LTL refers to the transportation of smaller, more frequent shipments that do not require the full capacity of a truck. This segment is expected to grow at a 10% CAGR between FY23 and FY28, driven by the rise of e-commerce and the increasing need for just-in-time delivery solutions.

With LTL services, companies can avoid the cost of warehousing goods for extended periods, as shipments can be delivered directly to retailers in smaller quantities. This trend is being driven by the increasing number of small and medium-sized enterprises (SMEs) entering the market, as well as larger companies seeking more efficient ways to manage their supply chains.

Technological Advancements and the Road Ahead

Technology is playing an increasingly important role in the evolution of India's logistics sector. The adoption of automation, artificial intelligence (AI), and blockchain technology is helping logistics providers improve efficiency, reduce costs, and provide better services to customers. From real-time tracking to predictive analytics, technology is transforming the way goods are transported and delivered in India.

Looking ahead, the Indian logistics sector is poised for substantial growth, with the National Logistics Policy providing a clear roadmap for improving infrastructure, optimizing the modal mix, and reducing costs. As the sector evolves, both government initiatives and private sector investments will play a critical role in driving innovation and ensuring that India remains a key player in the global logistics market.

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