The road logistics market in India is set to grow at a CAGR of 8% in the next five years, making it a $ 330 billion market by 2025.
According to a report titled, ‘Inter-city Logistics Market Study’, released by RedCore (the early-stage research arm of Consulting firm, RedSeer), the market is fueled by favourable factors such as rising income levels and higher exports.
In addition, with a rapidly growing e-commerce sector, a growing retail sales market, and projected GDP growth of 7-8%, the demand for goods movement is estimated to grow at a CAGR of 8% over the next five years, the report stated.
Logistics costs, in relation to GDP, is an indicator of how efficiently businesses can operate and how competitive India is in terms of transport infrastructure and freight management. Logistics spending contributes to 14% of the overall GDP of India, wherein road logistics has the largest share with 60% of the overall market spends. India’s inter-city road logistics spend stood at ~$ 209 billion in 2021, ~ 87% of total road logistics spend.
The on-demand/spot market accounted for a 63% share, while the contract market accounted for the remaining 37%. On-demand/spot freight transport is the movement of goods on an immediate basis with prompt payments. It helps in satisfying unfulfilled and urgent demands.
It counts sectors such as Defense/PSU, Agriculture, Food & FMCG, and Building Materials, among others, as its key clients. Metros accounted for $ 84 billion (40% of ~$ 209 billion) of road logistics spend distributed across the on-demand/spot ($ 34 billion) and contract markets ($ 50 billion). Further, out of this $ 84 billion of transport vehicle revenue in Tier-1 cities, trucks account for 61% of the total.
The remaining revenue was shared across 4W, 3W and multi-axled vehicles. Given the massive economic opportunity, many start-ups are disrupting this sector with innovative business models that solve most industry pain points from the supply side.
These start-ups are operating across the value chain ranging from discovery & booking, value-add services and execution. Further, their target clientele includes consignors as well as truck owners. A notable business model is an open marketplace that leverages technology to enable stakeholders to connect with each other.
It focuses on the on-demand/spot market and allows truck owners to get instant booking from verified and trusted transporters without any commission.
According to the report, the time is ripe for the open marketplace to succeed as factors such as heavy investments in road & transport infrastructure, rapid technology adoption among suppliers, digital push, macro drivers for fleet owners, and massive on-demand/spot market will drive its growth in the near future.
Additionally, multiple government policies have come up in recent years that have supported the disruption in the logistics space, such as the Logistic Efficient Enhancement Programme (LEEP), Digital India, and Make in India, among others.