As SMEs Look to Indian Market, Opportunities Seen for 3PL Players

Small, midsize enterprises in UPS survey see greater growth potential in India; Datamonitor sees third-party logistics providers stepping up to offer new services


London — April 9, 2007 — A key segment of Asia's business leaders are more excited about the growth of India than they are China, according to executives recently interviewed for UPS, the largest package delivery company and a global provider of specialized transportation and logistics.

Indeed, independent market analyst Datamonitor believes that the findings of the recent survey clearly show that opportunities exist for third-party logistics players (3PLs) in the emerging Indian market, and continued economic growth in that market and an increase in trade will lead to ever increasing demands on supply chains that will spur further use of outsourced logistics services.

In its latest report, "India Logistics Outlook 2007," Datamonitor projects that outsourced logistics, currently accounting for just above one-quarter of the entire $90 billion Indian logistics market, will grow at a compound annual growth rate (CAGR) of over 16 percent from 2007-10.

Realizing this potential in the contract logistics market, 3PL service providers are expanding their basket of services as companies are now looking for more than just transportation of their products and raw material, according to the analyst firm.

Indian SMEs Most Optimistic

Executives interviewed for the UPS survey expressed optimism over the growth of the Chinese consumer market, but leaders at small and midsize enterprises (SME) across Asia expressed a desire to capitalize on India's rapid growth by leveraging its continued rise as a manufacturing base. In line with this growth, SME leaders also expressed a desire to become an outsourcing destination for India and an exporter of raw materials to India for manufacturing.

UPS' Asia Business Monitor, designed to gauge the competitiveness of smal- and midsize enterprises in Asia, also found that of the 1,200 SME decision-makers interviewed across 12 different markets in the region, 85 percent say India is or has the potential to be a regional economic leader, and 81 percent said that India's economy is certain to grow in 2007.

Small business leaders in India were the most optimistic in the region, with 89 percent of respondents expecting greater economic prospects for their businesses in the year ahead. Small business leaders in India were also optimistic about their country's trade growth, with 83 percent of leaders there saying that they project U.S.-India trade to grow strongly this year — up significantly from last year's survey.

3PLs Offer New Services

In Datamonitor's opinion, the findings of the survey show that opportunities exist for third-party logistics players (3PLs). In response, trucking and courier companies are now leveraging their network to provide express distribution and warehousing. Similarly, freight forwarders are moving towards owning assets in the form of container freight stations (CFS), inland container depots (ICD) and container trains.

Furthermore, 3PLs are also increasing investments to become end-to-end integrated players. As per the investment plans of the leading 3PLs in India, the logistics industry's capital expenditure is progressively increasing to almost match its revenue growth, a strong indicator of both 3PLs desiring to become integrated service providers and the industry enjoying investment-driven growth.

With the collective economic interaction of growing per capita disposable incomes, fast-growing manufacturing and organized retailing sectors, increasing external merchandise trade, infrastructure investments by the government and 3PL capital expenditure plans, both India's logistics industry and the 3PL sector of this market are set to witness explosive growth in the next five years.

Datamonitor's "India Logistics Outlook 2007" report provides an overview of the Indian logistics market, its structure and activities of the key stakeholders. More information is available at the Datamonitor Web site, www.datamonitor.com.

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