Logistics companies like FedEx sense an opportunity in the growth projected for the organised retail market — to 20 per cent of the total retail market by 2020 from 7 per cent now — if foreign direct investment (FDI) in the sector gets the green signal. “The country's retail environment has been hitherto dominated by the unorganised segment, which has brought with it several challenges on the logistics front resulting in wastage, higher costs and poor access,” says Mr Kenneth F. Koval, Vice President, India Operations, FedEx Express.

He believes that the policy change will create a demand for effective logistics and services to meet supply-chain demands. “The investments will also result in a pan-India expansion of organised retail and the country's geographical diversity will require supply-chain networks to not only improve accessibility but also offer multi-modal solutions and value-added services,” Mr Koval added. In addition, with global players foraying into India, there will be a demand for efficient, global-standard supply-chain solutions.

Several challenges

However, logistics firms say, while this situation will offer tremendous opportunity to the logistics industry, there are several challenges in the logistics sector that need to be addressed in order for the industry to capitalise on the retail growth story.

The cost of logistics for a retail chain, as a percentage of the cost of goods sold (COGS), is estimated at about 4 per cent to 5 per cent according to global estimates. However, in India, logistics costs as a share of COGS are three to five times higher. “To mitigate this, it will be critical for logistics infrastructure to grow rapidly to meet the demands of retail customers. There is also an immediate need to rationalise existing complex tax structures to minimise logistics costs and shipment delays,” Mr Koval said.

“For international as well as Indian retail players to truly leverage the huge opportunity of India, the challenge would be to manage the complex retail supply-chain cost efficiently without wastage and time delays. This will, in effect, ensure that global players looking to enter India will demand end-to-end and integrated supply-chain models basically leading to the improvement of this sector,” said Mr Ajay S. Mittal, Chairman and Managing Director, Arshiya International Ltd.

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