5 Trends in Logistics That Are Likely to Dominate in 2018

For the logistics sector, 2018 will be seen as the year to capitalize on the major changes that have taken place in 2017. With new initiatives such as the introduction of GST, E-way compliance bill, ‘Infrastructure’ status granted to logistics, the Government is putting its full weight behind the logistics industry in the country. The coming year will tell us if companies in the sector can rise up and use the impetus provided by the Government.

In an increasingly globalized world, the Indian market is set to face fierce competition from global giants. The only way to keep abreast of this would be to adopt the latest technological solutions while continuously strengthening operational excellence. A number of exciting new solutions are likely to be implemented in 2018 and we are sure it will be a landmark year for the sector that is undergoing its ‘Decade of Change’ in the country.

With this, we present to you the top trends that we feel will shape the logistics sector in 2018.

1. Increased Impact of Government Spending and Regulations on the Sector

“If there’s one impediment that’s coming in the way of India becoming a super economic power, it’s logistics. We must increase the speed and reduce costs,” Commerce and Industry Minister Suresh Prabhu to Economic Times.

As with 2017, we expect the Government to make significant investments as well as regulatory changes to improve the logistics infrastructure of the country and remove existing impediments. A new logistics division was created in the Ministry of Commerce and Industry in July 2017 with team members joining in November 2017. Before this logistics was handled by over 7 different ministries leading to gaps in communication and dedicated efforts. The new division has stated goals of reducing the logistics cost to below 10% of the GDP and creating 40 million jobs by 2019 up from the current 22 million.

The granting of ‘Infrastructure’ status to logistics was seen as an early impact of this new division. It will also be looking to balance the distribution of freight more evenly from roadways to railways and inland waterways. A statewise logistics ranking report is also expected to be released. It is clear that the intention is not to cap prices for logistics but to remove inefficiencies and glitches in the system.

In the first half of 2018, all eyes will be on the implementation of the E-way bill compliance that will go live on 1st February. The endeavour is aimed at reducing waiting times of trucks on the roads and the difficulties in VAT regimes of various states. Currently, there is some confusion regarding the exact procedures for the E-way bill generation and it will be interesting to see how companies leverage technology to use these new rules to their advantage.

For players in the logistics industry, this strong government push should be seen as a positive sign. Initiatives such as the Bharat Mala project, setting up of many multi-modal logistics parks that were done in 2017 are expected to continue and provide opportunities for growth. To increase efficiency, compliance procedures such as the e-way bill process and others are likely to be enforced strictly and it is up to the players in the industry to adapt quickly to reap the full benefits of such initiatives in the new year.

2. Serving the Underserved

With a large number of players serving the metro cities and cutthroat competition on price, many logistics companies are looking to build out their last mile capabilities in Tier 2 and below cities. These regions are still relatively underserved by logistics companies and have a booming middle class which is driving massive demand. With the ‘Jio effect’ bringing millions of Indians online, the rise of digital payments, dedicated marketing efforts of large e-commerce players, there is a big and growing e-commerce demand from regions beyond the metros. Retail companies and newer FMCG companies like Patanjali are also relatively weak in the Indian hinterland and would be looking to explore robust, cost effective logistics and supply chain solutions that would enable them to enter these new markets.

In 2018, we hope to see logistics players taking concrete steps to profitably build out sustainable last mile networks in these areas. We are confident that prompt and reliable deliveries will set up a virtuous cycle that will result in even more demand coming from these areas.

3. Collaborative Logistics To Take Centre Stage

Some of the hard learnings that were taken from 2017 were that it is not sustainable to build out dedicated networks where the demand for services is not guaranteed or consistent. In 2018, we expect that logistics companies will be looking out for on-demand, pay as you go networks, especially for the last mile. As mentioned above, the growing demand from Tier 2, 3 cities and rural areas will be a motivating factor to develop these distributed networks.

Larger courier companies will begin to tie up with local and regional partners who have strong networks as well as deep regional knowledge to complete their deliveries. This linking across companies to collaborate will require strong technology systems and integration to ensure that there is no impact on the customer experience, SLAs or rise in fraud. On a similar note, e-commerce companies have tied up with mom & pop or kirana stores to make use of their shared storage locations and act as pick-up and drop off locations. Delivery agents for courier companies can carry out a range of activities other than deliveries like KYC verification, payments bank agents in a collaborative manner.

We feel that in 2018, there will be a stronger focus on fully utilizing existing resources by enabling them to carry out multiple use cases rather than aggressively investing in assets and creating new networks from scratch.

4. Increasing Adoption Of Robotics & Automation To Drive Efficiencies

As competition in the Indian logistics and express market grows, an increasing number of companies are expected to embrace automation of various processes in the coming year. In China, ‘Dark warehouses’ — fully automated with no human intervention run 24 hours a day, 7 days a week producing unprecedented efficiencies of scale. In India, many warehouses are manually operated, with very limited automation leading to increase in costs as well as lower output. In the express sector, mechanised sorters have made their way into the master hubs of most leading courier and post companies.

Industrial robotic arms, enabled by vision systems can easily handle the movement of goods within a warehouse, boosting overall efficiency and accuracy. Solutions that use image processing to obtain volumetric weight are also being used on an increasing basis on the ground. With a growing manpower problem, automation is a need that companies have factored into their plans for growth and we expect 2018 to be year where this trend really kicks off in the shape of on-ground solutions.

A major factor for automation is the capital expenditure that is required. With fluctuating loads, companies are often hesitant in taking the leap towards automation. In 2018 we are likely to see the rise of Robots-as-a-Service (RaaS) subscription business model that will allow retailers, e-commerce sites and third-party logistics firms to use robots to address their fulfillment needs without having to make a very large capital investment.

5. The Rise of Blockchain for Secure Digital Transactions in Logistics

Blockchain and the ability to create failsafe digital contracts have been one of the buzzwords of 2017. Though there was a lot of excitement around this new technology (driven as well by the rise of cryptocurrencies), the number of industrial applications for the same remain limited. We see 2018 to be the year that innovative companies would be able to fully leverage this technology and roll out robust, ready to use products for the Indian shipping and logistics market.

In the west, delivery companies like UPS, FedEx and United States Postal Services have all undertaken pilot solutions to create smart contracts using blockchain. Shipping and freight industries will find these solutions especially beneficial while executing their complex contracts with multiple stakeholders. Blockchain technology offers impeccable security and can prove crucial in detecting fraud. Some applications of blockchain in the express delivery industry include advanced customer ID services to verify the package recipients in a bid to curb delivery frauds, installation of embedded sensors within packages for improved tracking and development of a cost effective ‘Internet of Postal Things’ to create a faster mailing network. It wouldn’t be wrong to expect Blockchain to center stage of innovations in emerging economies like India.