Nomura Research Institute (NRI) Logistics and Transportation in India Consulting & Solutions India Pvt

Nomura Research Institute (NRI) Logistics and Transportation in India Consulting & Solutions India Pvt. Ltd. Gurgaon Present and Future 21st November, 2019 Message from CILT India India is on the cusp of the 4th Industrial Revolution, which is going to positively impact the national economy in a structural way. However, full impact will be felt only after logistics and transport sectors upgrade their capabilities and services to align overall logistics costs with international benchmarks and contribute to make Indian business and industry globally competitive.

The Logistics division under the Department of Commerce has been given the task to create an environment for an “Integrated development of the Logistics sector” by way of policy changes, improvement in existing procedures, identification of bottlenecks/gaps, and introduction of technology. Accordingly, the division plans to develop a National Logistics Information Portal, an online logistics marketplace that will bring together various Shri Shanti Narain stakeholders, viz. logistics service providers, buyers as well as central and State government agencies such as customs, DGFT, railways, ports, airports, inland waterways, coastal shipping etc., on a single platform. Chairman CILT India An effective and efficient logistics ecosystem is key to robust economic growth, with the potential to facilitate domestic and foreign trade, promote global competitiveness, encourage investments in the country, attract FDI, and drive the ‘Make in India’ initiative. Despite being a critical driver of economic development, logistics cost in India is estimated at nearly 15% of GDP. The sector continues to be highly unorganised, and the transportation mix is skewed with 60% of freight moving on roads.

From the perspective of the logistics industry, there is an urgent need to improve the first-to-last mile connectivity to expand market access of all businesses, even farmers, MSMEs and small businesses; enhance efficiency across the logistics value chain through increased digitisation and technology adoption; and bring in standardisation for different segments (warehousing, packaging, 3PL players, freight forwarders). Greater integration of technologies such as IoT, blockchain, cloud computing, etc. will allow efficient and seamless movement of goods, which would equate into greater profits for the manufacturers as well as the entire logistics vertical.

It has been a pleasure to have tied up with Nomura Research Institute as our Knowledge Partner. Their consulting experience in a multitude of fields including the logistics and transport sectors, has guided them to prepare an accurate feedback on these sectors.

An event such as the CILT India Expo 2019 offers an excellent platform to the different segments of the logistics industry to congregate and discuss the issues/bottlenecks hampering their business. We encourage the industry to study, discuss and analyse this document in detail, and share the outcomes of these discussions for the industry leaders and the government to act upon and find solutions.

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 1 Message from the Exhibition India Group Government of India’s ‘Make in India’, ‘Digital India’ and ‘Skill India’ programmes are looking to give the country global recognition by developing a strong manufacturing infrastructure. Today, manufacturing has emerged as one of the high growth sectors, with the government looking to increase its share into the GDP to 25% by 2022. This can be achieved through consolidation of the core infrastructure, including logistics. The manufacturing industry based in industrial corridors and economic zones is highly reliant on the logistics sector to move goods and commodities domestically as well as for exports. The government has, therefore, increased investment in all segments of logistics and transportation, with special focus on the railways and roads.

It is estimated that India has a high logistics cost at 14% of the GDP as compared to other nations such as Germany and United States, which Shri Prem Behl stand between 8-10%. Logistics systems and processes in the country are rife with inefficiencies and bottlenecks, wherein, timely reforms can save up to $50 billion a year. The government has already identified key issues pertaining to regulatory, infrastructure, skilling and standards Chairman that need to be looked into on a priority basis. Accordingly, the Ministry of Commerce is undertaking an analysis of the top 20 commodities by Exhibition India Group domestic and EXIM freight volumes to identify the inefficiencies in their transport and storage; and find solutions to ease the bottlenecks through regulatory streamlining and infrastructure development.

In 2018, India moved up in the World Bank’s Logistics Performance Index ranking to 44th position. The government is focused towards strengthening the rail and road infrastructure to enable easy and faster movement of goods from one part of the country to the other. These and other reforms are expected to positively impact domestic trade and boost export of goods and commodities.

Nomura Research Institute, the knowledge partner for the CILT India Expo 2019, has prepared a report that studies the existing logistics and transport industry in the country. Key features of the report include: Requirement for logistics and transportation; key industry drivers, stakeholders and major players; growth activity and market share, etc. The document explores the different aspects of the logistics industry and the trends and challenges impacting its progress. It also identifies the technologies that are influencing logistics and transportation, such as data analytics; logistics automation/Internet of Things (IoT); logistics-as-a-service; green logistics; hyperlocal transportation, etc.

It is a matter of pride to be part of the CILT India Expo 2019 organising team. We encourage the speakers, exhibitors, delegates and visitors to take advantage of this unique opportunity to interact with industry stalwarts. I believe the transport and logistics industry has miles to go to make it competitive in the international market. This report highlights the drawbacks in the existing functioning and is a guide for the industry to upgrade itself technologically.

Logistics and Transportation, provides ‘Wheels to the Economy’. This ever growing sector globally has transformed from walking miles to deliver our parcels to a drone arriving at our rooftop. Today the sector is at the cusp of a major transformation, driven by technological advancements and Government policies.

In this paper, we have addressed the key challenges that the sector faces, elaborated on the key trends that are influencing the sector and based on that, outlined a roadmap to create sustainable solutions in this sector.

I hope the readers will find the information in this report insightful. I would also like to thank Exhibitions India Group & CILT for giving us the opportunity to prepare a report on this important subject.

Ashim Sharma Partner and Group Head, NRI Consulting & Solutions India Pvt. Ltd.

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 5 Overview of Logistics and Transportation in India Logistics is the ‘lifeline’ of an economy; it drives the growth and efficiency of the nation as well as provides employment to millions and enables FDI influx

Importance of logistics in economic and industrial growth

• Robust logistics infrastructure is a key requirement for development as it makes it possible to Growth connect producers and consumers throughout the country Driver • Major economies such as Germany, Japan, China and US are also leading in World Bank Logistics Performance Index whereas India is 44th

• Logistics sector has a multiplier effect across the economy, thus resulting in large scale Employment employment generation Generator • In India, more than 22 million people have jobs related to logistics activities

Symbol of • Logistics efficiency is a strong determinant of the overall economic efficiency Efficiency • India spends 13%-14% of GDP on logistics costs whereas US and European nations spend ~8% and ~9% respectively

A strong logistics setup fuels economic growth and the state of the logistics sector determines a country’s competitiveness on world stage Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: World Bank, Make in India Website, MoRTH and UN Reports 6 Overview of Logistics and Transportation in India Indian logistics sector has grown rapidly, due to high economic growth, more spending on infrastructure, soaring domestic demand & impressive FDI inflow

Economic Growth and Impact on Logistics Market 8.0 8.2 77,085 7.4 7.2 7.0 63,702 70,557 52,086 57,472 GDP Growth Rate (%) Consumer Spending Per Capita (INR)

2014 2015 2016 2017 2018 FY14 FY15 FY16 FY17 FY18

12% 195 110

2014 2019 597 Logistics Market 36 36 37 Size (bn USD) 396 25 16 Budgeted Infra 181 251 221 Spend (’000 Cr) FDI (bn USD)

2014 2015 2016 2017 2018 FY14 FY15 FY16 FY17 FY18

Logistics sectoral growth is strongly linked to the economic growth, investments made and consumer uptake of goods produced thereby Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: World Bank, Union Budgets RBI and MoSPI 7 Overview of Logistics and Transportation in India Several steps undertaken by the Government in recent years have benefited the logistics and transportation sector

Major Policy Initiatives by Govt. of India • Bharatmala- India’s largest road project (planned investment ~ ₹5 trillion) Phase-I to continue till 2022 and Mega Phase-II till 2024 infrastructure projects • Sagarmala- Flagship programme of the Ministry of Shipping to promote port-led development in the country by exploiting India's 7,500 km long coastline. It entails investment of ₹8.5 trillion National • NHAI has created a pipeline of projects worth $110bn that will be awarded over the next three years highways and • DFC project involves constructing 5 freight corridors across the country at a total cost of ₹81,000 crore dedicated • With the integration of FASTag, authorities will be able to track the goods vehicles are actually travelling to the freight corridors specified destination. The supplier will also be able to track the vehicles by SMS alerts at toll plaza

• There are 204 minor ports in the country but currently only 44 are functional Development of • ports India’s ministry of shipping is working on a plan to develop a national grid for ports to improve connections between the minor and major ports in the country.

• GST has led to 20% reduction in turnaround time of trucks due to dismantling of border check posts GST and • E-way bill on consignment value> INR 50,000 has freed transporters from state Government raid parties infrastructure status G S T • Infrastructure status has helped transportation sector in terms of insurance & loan approvals and overall reduction in costs Government of India is focusing on developing all modes of transportation and remove hurdles to growth

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Press releases, media reports and NRI analysis 8 Overview of Logistics and Transportation in India National Integrated Logistics Policy (NILP) aims to streamline logistics operations in India and integrate Indian products into global supply chains

Key Objectives of NILP Major Initiatives Industry Impact Reducing Logistics Cost in India Integrated National Logistics Action Plan One comprehensive • Aim of bringing it down from 14% of GDP Creating and managing an Integrated National policy to refer to instead to 10% of GDP Logistics Action Plan, a master plan for all of several from 10+ logistics related developments ministries Integration of Transport Modes Multi Modal Logistics Parks • Creating common platforms for Logistics hubs in all key junctions countrywide Integration of modes seamless and optimal transfer of goods interlinking various modes and functioning as resulting in cost and time across different modes one stop shop for several services benefits

Generating Employment Center of Trade Facilitation & Logistics Excellence Quick and timely • Generating 10-15 million additional jobs CTFL to function as a single point of reference resolution of trade in the logistics sector for all logistics & trade facilitation matters disputes

Logistics Data and Analytics Center Improve India’s LPI Ranking Driving transparency through digitisation of • Improve from current 44th place in the Higher visibility processes, collection of transport data and rankings to between 25-30 throughout supply chain analysis for meaningful insights NILP is an all encompassing policy that aims to transform the logistics sector by addressing all the pain points Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NILP Draft Feb 2019 and NRI Analysis 9 Overview of Logistics and Transportation in India 35 Multi Modal Logistics Parks (MMLP) will be setup in the country to interlink various modes of cargo transport & provide all services for freight transfer

Locations of Upcoming Multi Modal Logistics Parks Key Benefits of MMLPs West North Ahmedabad Valsad Delhi- NCR Jaipur Freight Cost Reduction Vadodara Nasik Ludhiana Ambala 1 Large freight volumes to be aggregated for easy transfer Mumbai Panaji Sangrur Kota between various modes and reduction in overall freight costs Surat Bhopal Patiala Hisar Bharuch Rajkot Amritsar Bhatinda Faster Delivery of Goods Pune Raipur Jalandhar Solan Nagpur Kandla Gurdaspur Jammu 2 By providing a variety of services in a single location, MMLPs Indore will reduce processing time & assist in minimizing delivery time

Warehouse Optimization Large, modern warehousing spaces satisfying special 3 South requirements of different commodity groups will help bring Cochin down per unit storage costs Visakhapatnam Coimbatore Key Success Factors for MMLPs Chennai East Vijaywada Patna Roads, rails and Involvement of Key learnings Bangalore Kolkata other modes private sector to from each MMLP Hyderabad Jagatsinghpur must be improved invest in as well project to be Guwahati for smooth and as commercially incorporated in Prioritized Locations Sundargarh uninterrupted operate MMLP future projects linkages facilities With timely planning and close coordination among all stakeholders, MMLP has the potential to transform India’s logistics landscape by reducing transport cost, transport time and storage cost Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: MMLP Policy Document and NRI Analysis 10 Overview of Logistics and Transportation in India Government as well as industry players need to work on certain areas for developing a better logistics ecosystem in the country

Key Stakeholders in the Industry Government Customers Logistics Providers

Pointers for Consideration Pointers for Consideration Pointers for Consideration • New infrastructure creation has slowed • Customers need to ensure better • Automation levels need to be higher down in FY19. It is critical that the adherence to rules and regulations • Transportation runs on thin margin momentum of last few years is • Uncertainty in demand needs to be • Logistics service providers are a mix of continued minimized for better inventory generalists and specialists • India has progressed to 63rd place in management Ease of Doing Business rankings but • Avoid last minute changes in logistics Transport needs to aim for entry in Top 50 requirements as much as possible, 10%5% Warehousing • Time and cost involved in custom except in unforeseen circumstances 24% Freight Forwarding clearance of goods needs to be 60% Value Added Logistics reduced Government needs to work more on infra and regulatory bottlenecks, customers need to strengthen internal processes and logistics providers need to improve tech adoption and service offerings Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Media Reports and NRI Analysis 11 Overview of Logistics and Transportation in India More than half of total logistics market is outsourced, unorganized players dominate the market right now but this might change with rapid rise of 3PLs

Market Segmentation Major Players Consists majorly of cargo handling firms/ courier companies, providing freight transport services In-house Logistics Transport 46% Service 54% Outsourced Logistics Providers

Transportation Warehousing Companies who maintain network of large scale 10% warehouses and provide country-wide access 25% Warehousing Unorganized Storage Organized Providers 75% 90% Companies who provide end to end solutions for 3PL Market Size (bn USD) 17.8 transfer of goods rd 5.9 3 Party Logistics 5.6 Transportation 11.9 (3PL) Players 2.1 Warehousing 3.5 2019 2025 Growth of 3PL players would lead to consolidation & encourage customers to outsource more logistics activities Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Media Reports and NRI Analysis 12 Overview of Logistics and Transportation in India Cold Storage is an underdeveloped sub-segment; capacity distribution is uneven commodity-wise & region-wise, leading to large demand supply gap

Evolution of cold chain logistics No. of Cold Storages Total Capacity (MMT) Commodity-wise use of Cold Storage

+4% +5% 20%-25% 7,645 35 Potato 5,381 24 Pharma Processed Foods 75%-80% Horticulture Crops Marine & Meat Products

2009 2017 2009 2017 Unmet Needs in Cold Storage in India Region-wise Distribution Present 40% Agricultural produce wasted due Type of Infra Requirement Gap (%) • The distribution of cold to lack of cold storage facilities storage facilities is currently Cold storages with capacity Pack-Houses 70,080 249 99.6 skewed 36% < 1000 MT Reefer Vehicles 61,826 9,000 85.4 • Just 4 states - UP, Gujarat, Share of unorganized market in Punjab, WB- have 70% of Ripening Chambers 9,131 812 91.1 90% cold storage all cold storage capacity Cold storage presently is concentrated in few states and has the potential to become a game changer Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Media Reports and NRI Analysis 13 Index

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 14 Characteristics of different modes of transport Road, rail and air operate in different ways, having unique operational feature, making multi-mode model more viable compared to single-mode model

Road Railways Waterways Air Modal Share of Transport • Fragmented & • Rail is regulated by Govt. while • Used for cargo as well as competitive industry water transport used mainly for courier delivery services by • Higher operating cost import/export Air airlines Waterways Operating with lower margin • Suitable for carrying bulk item • Consolidated industry, Model • Used for both bulk • Shipping containers with full 6% having mix of asset leasing and non-bulk material load (FCL) are preferred with 1% and owning model • Used across first mile, higher utilization, over less load • High cost competitiveness mid mile and last mile (LCL) Rail 35% Road 59% Cost ₹ 1.06/ton-km ₹ 6-8/ton-km ₹ 2.58/ton-km ₹ 1.41/ton-km Structure Cheapest Costliest

Preference Used for both bulk and Used for bulk Used for export Used mainly for non-bulk by operation non-bulk good transport good transport purpose of both goods Key Takeaways • Fast mid-mile delivery with low • High flexibility with cost Fastest mid-mile delivery, cost • The mode of transport is ease of access Advantages • Low chance of damage, structure suitable for high selected on the basis of cost, • Overall low cost of pilferage value, low volume item time & advantages. ownership • Rail & water despite being low cost modes have high transit • Low utilization & • First mile and last mile are slow, • Accessibility time and are less reliable, Disadvantag inefficient operation leads to higher total cost of • Overall cost of ownership is making road one of the most es • High chance of ownership high used mode of transport damage, pilferage

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 15 Characteristics of road network Road network has the highest modal share of transport, but still lags on the global efficiency indicators due to poor infrastructure

Key underlying reasons

Efficiency indicators India Global Key issue 20-40 60-80 Average truck speed (in km/h) (developed countries) • India has the one of largest road network across the world, spanning over a total of 5.5 Average truck distance covered in 60,000– 4,00,000–6,00,000 million km. a year (kms) 1,00,000 • India’s reliance on road is more than 3 times 250–400 500 (BRICS) 700– 800 that of China, despite this India lags highly Avg truck distance per day (kms) (US & Europe) compared to global standard in terms of Total length of expressways (kms) ~1000 74,000 (China) efficiency

Share of traffic (per cent of ton-km) • Majority of the load in road network is carried ~30-35 by seven long haul corridor. There is high 50 ~5-10 rural road network not being efficiently used 10 100 • India’s freight traffic comprises bulk material & move over long distance that can be 7 corridors 150 medium Over 750 last Others Total economically served by rails & waterways distance miles stretches connector Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: secondary research 16 Difficulty in creating a single efficient and economic mode of transport Shifting road to rail transport or creating a multi-modal transport system face challenges in terms of infrastructure and connectivity

Key underlying reasons Issue Examples Insufficient infrastructure - Howrah – Delhi and Delhi – Mumbai rail line run at 115% and - Railway networks run at > 1 – Few routes are too good 150% utilization capacity 100% capacity utilization while others are too bad. If overall infra - Specific corridors contribute - Seven national corridors are 0.5% of road network but carry 40% quality is improved, it will balance to high density traffic demand of road freight, due to their superior quality of road

- Rail and port connectivity has poor last mile service 2 Incomplete connectivity – rail - Economic zones are connectivity, the cheapest mode, is not evolving faster than available everywhere infrastructure growth - Newly integrated industrial sectors are not aligned with rail and port transport. This increases pressure on road.

3 - Increased transit time and - Rail cargo transport is cross-subsidized with passenger transport, The most efficient is not most lower reliability add on other leading to loss in cargo volume business for rail economic – Rail network can be costs (inventory, last mile), made more cost economic which reduces cost - Also prices of alternative mode (e.g. truck) are reduced to the advantage for rail network maximum extent possible (high depreciation, over-loading)

Multi-modal transport system can function in an economic way after major challenges are resolved, with joint intervention from Government of India and leading industry players

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 17 Operating model for different modes Multi-mode model needs to be designed keep focus on not to lose the efficiency and effectiveness gained in other part of value chain

Operating model for first mile, mid mile and last mile

First mile Mid mile Last mile

• Package pick up from warehouse • Transport Package according to • Final delivery to the customer delivery route

• Success of mid mile depends on • Present day customers demand • First mile pre-dominantly takes place successful cross docking and minimum prompt delivery, hence last mile by smaller vehicles, adopting a milk delay in transferring material service has seen entry of new players run system to aggregate freight • Mid miles require cost efficiency • Apart from LSPs, hyperlocal start-ups • Optimum supply chain planning is • Railway have the best mid mile are present in this field required to ensure there is no loss of performance, however, it loses out • Last mile often contributes to highest

Key attributes Key time and space during first mile during the last mile where time delay is portion of overall logistics cost, in significantly higher terms of cost/ton-km basis

At present, cost effective transition from first mile to last mile remains a challenge There are very few LSPs present who provide equally competitive cost advantage across three miles

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 19 Key trends impacting logistics and transportation industry Technology and sustainability have emerged as two key trends, enabling logistics and transportation to expand its scope in value chain offering

Impact of technology and sustainability 1 2 3 By capturing real-time developing automated provision of managing data and connecting and inter-connected end-to-end supply chain all nodes of the supply chain systems, including supplier, supply chain, data to reduce dependency inventory, pick-up, analytics optimizes and errors transportation, storage decision making and delivery TECHNOLOGY ENABLED AUTOMATION AND LOGISTICS-AS-A-SERVICE SUPPLY CHAIN INTERNET OF THINGS (IOT) 4 5 6 GST has resulted in Focus on developing multiple start-ups are reduced turnaround sustainable solution utilizing local delivery time and demand for and application of arms to provide long haul trucks, as alternative flexible and fast well as increase in propulsion to power delivery to large multi-purpose commercial fleets customer’s place warehouses GREEN LOGISTICS HYPERLOCAL LOGISTICS IMPACT OF GST

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI analysis 20 1 Technology enabled supply chain Data analytics has unlocked end-to-end supply chain visibility and enabled higher operational efficiency by optimizing usage of key resources

Application of data analytics Operating principle Key benefit

• Determine optimized travel route is determined, • Daily optimized tour planning using real-time operating condition • Reduced travel time and increased • Telematics database are used to change routes delivery due to dynamic routing system Real-time automatically according to traffic conditions • Real-time information exchange route • Routing intelligence considers availability of • Improved cost efficiency and emission optimization recipients to avoid unsuccessful delivery attempts reduction

• Considers historical data on capacity utilization of • Elimination of over capacity transit points, transportation routes, seasonal investment demand, and emerging freight flow trend • Reduce capacity shortages • Smart systems predict investment requirement in Network and • Visibility of demand-supply matching supply chain network, basis historical data across multiple time horizon capacity • Basis demand prediction, supply capacity can be • Improved overall system reliability planning built over phases or at one go

Data analytics enabled supply chain can deliver more orders by up to 25%, while reducing travel distance and cost

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Big data CSI Study by DHL, NRI Analysis 21 2 Automation and internet of things (IoT) An automated dynamic warehousing system (DWS) can significantly reduce manual errors while picking, sorting, storing and retrieving of material

Application of automation and internet of things (IoT) Minimum human intervention

Dynamics warehousing system (DWS) • Dynamic allocation of space ensures higher space utilization • Reduces space requirement Material received Scan part code to DWS suggests Storage of • Minimizes manual errors at incoming register in DWS storage location material using • Improves operating cost AGVS Retrieval done in same way

Only required to scan part code Automated storage and retrieval mechanism No need to check and sort parts Operated from central terminal to control material movement

An automated dynamic warehousing system can eliminate manual error and reduce non-conformance by 10-20%

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI primary research and analysis 22 3 Logistics-as-a-service Logistics service providers (LSP) are moving up the value chain, offering end- to-end service from upstream to downstream

Enhanced operations by logistics service providers

Before LSP A – specialist in upstream LSP B – specialist in plant LSP C – specialist in downstream

Upstream Vendor Manufacturing plant Downstream storage

After LSP D – specialist in end-to-end supply chain

Single LSP has end-to-end visibility of supply chain, hence able to better manage inventory, reducing safety stock Also, can aggregate supplier material, even in small batches, reducing overall supply chain cost

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 23 4 Green logistics Transport goods vehicles contribute to ~ 40% of diesel consumption for India, which can be significantly reduced using alternative propulsion

Alternative propulsion to power commercial fleets Application on commercial fleet Key features and benefits

• • LNG LNG is a cleaner fuel will less GHG emission LNG is cheaper than diesel • LNG truck kits and standards are GoI approved • LNG can be used as a fuel in buses also • IGL and TCI plan to convert first set of 9 • Cost of conversion estimated to be ₹ 9 lac vehicles to LNG • Lead time is 3 months (imported fuel tank) LNG powered truck • LNG being non-toxic and non-corrosive, can • Estimated payback is 7 months, increase vehicle life up to three times considering fuel saving and green entry tax

• Solar can be used to power auxiliary system • In US market, estimated payback is ~ 3.5 • Solar panel are mounted on top/side of vehicle years, considering improved driver • Cooling functionality can be extended to productivity and fuel savings specialized services such as reefer truck • Significantly reduces maintenance cost Additional functionality include lowering of tail Solar powered truck • Improves driver comfort gate, indicator lamps etc.

By 2030, 10-15% of new fleet for medium and heavy commercial vehicle can run on LNG, while solar powered truck are still in an early development phase in India

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary published reports, SIAM report 24 5 Hyperlocal logistics Customers are expecting same day delivery, especially for food and grocery items, even by paying an additional service cost

Impact of hyperlocal transportation on last mile delivery

Key trends enabling fast delivery to customers Pay more for instant delivery • Customers can request delivery to a secured Pay extra for 2% locker as per convenient location same day delivery • Customer can operate locker using cell phone 23% • Delivery time: 3-4 hours

• Customers can order food and grocery item online which gets delivered at door-step Pay more for 5% • Delivery time: within 2 hours on-time delivery 70% No extra • Provides pick-up and drop facility for cost anything, irrespective of distance • Automated 80% of task processing time

Share of customers with willingness to pay for early delivery

India’s hyperlocal delivery market is estimated to touch ~ ₹ 2,300 Cr. by 2020, largely driven by start-ups

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary published reports 25 6 Impact of GST Post-GST, dismantling of inter-state border check posts has resulted in reduced turnaround time, enhancing utilization & demand for long haul truck

Changes in Transportation Sector due to GST *Numbers for transit time between Chennai and Kolkata Pre-GST Post-GST Difference Impact

Average distance • 225 kilometers per • 300-325 • Higher by 33%- • Reduction in truck travelled by trucks day kilometers per day 44% turnaround time

• 10-15 hours Time Spent at Inter- • Time Saving of • Enhanced utilization wasted in a 50-65 • Nil State Border Posts 20% or more hours journey* of long-haul trucks

Logistics cost as % • Rise in market • 1%-2% cost of total value of • 12%-14% • 10%-12% demand for long haul savings goods trucks

GST has resulted in a revival in the logistics and transportation sector by improving asset utilization

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Ministry of Road Transport and Highways and NRI Analysis 26 6 Impact of GST GST has also altered the warehousing landscape in Indian market in terms of location and size

WH Leasing Transactions by Organized Players (mn. sq. ft.) Key Takeaways Pre-GST Post-GST  A large warehouse enables investments in technology & warehouse consolidation can improve overall inventory 1.7 Ahmedabad 3.3 levels. Therefore, even with the investments in WH, overall SC cost can be optimized 1.4 Kolkata 1.6 2  Pre-GST, warehouses were majorly scattered small Pune 2.5 storage spaces across states to help companies get 2.8 through state specific compliance permits Delhi- NCR 6.5 1.9 Chennai 2.4  This was an inefficient system in which total inventory 1.2 carrying costs as well as transportation times were high Hyderabad 2.1 1.6 Mumbai 5.2  Post-GST, bigger, modern & multi-purpose warehouses is 1.3 Bengaluru the norm. Transport time has reduced by 20% and 2.5 inventory turnover has gone up by 40%

Post-GST, several companies are moving to larger multi-purpose warehouses, enabling investment in technology & realization of time and cost benefits

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 28 Major challenges for logistics and transportation in India Numerous challenges underline the logistics and transportation operating model in India, including asset utilization, design and operating condition

Key Challenges faced by Logistics Industry

1 2 3

Vehicle Utilization Vehicle Design and Selection Industry Operational Challenge

Below par design and overloading of Low utilization requires more trips, Highly fragmented industry with low trucks reduces vehicle speed, increases cost and increases driver supply of quality drivers and high increases lead time and increases fatigue instance of theft, pilferage maintenance

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 29 1 Vehicle utilization Poor operating condition, service incentive metric and product design impact overall efficiency of the logistics network

Key Challenges

Trips per day Dependant on Underutilised Time wasted at Money wasted at Poor road brokers Potential: 4 rides tolls tolls (fuel/time) infrastructure No direct contact Actual: 1 ride 10-15% of total Rs 1lakh cr. annually Increase in trip time

Efficiency Indicator India Global Average Truck Speed (kmph) 20 – 40 60 – 80 (developed countries) Average Truck distance per day (km) 60,000 – 100,000 400,000 – 600,000 Total length of Expressways (km) 1,455 74,000 (China)

Loading / Unloading Time Labour Intensive No incentive Internal delays Cargo alignment Involves more man- No urgency as there is Simple loading takes Takes time as no hours no benefit for the labour up to 5-6 hours knowledge is available

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 30 1 Vehicle utilization Long working hours combined with challenging working environment increase driver fatigue and reduce efficiency of the supply chain

Key Challenges

Driver Fatigue Lack of sleep Working while sick Accidents Long trips Driving in the condition No medication done in Effect similar to the Average trip for 50% of drowsiness years alcohol consumption drivers: 12+ hours

Daily continuous driving for %age of drivers Daily sleep on assignment days %age of drivers 4 - 6 hours 33% < 2 hours 25% 6 – 8 hours 31% 2 – 4 hours 35% > 8 hours 15% 4 - 6 hours 31%

Space Utilization of the Vehicle Lack of space optimization No Automation No incentives Time Consuming Algorithmic loading Damage due to stacking Manual alignment is No incentive for Proper alignment sequence (truck builder) Incorrectly loaded material inefficient proper packing utilises a lot of time optimizes space results in damage

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Research survey conducted by Kantar and Castrol 31 2 Vehicle design and selection Indian logistic industry falls behind developed countries in terms of vehicle designs while selection of proper vehicle of specific cargo is also neglected

Key Challenges

Vehicle Design

Lack of Lower power Low Tonnage Truck mileage Less Space Standardisation High Import Duty Indian trucks have Indian trucks: 9MT Premium trucks Lack or no space Difficult to maintain Difficult to buy lower power Europe: 40MT offer better mileage for material efficiency with better imported output and unable but have lower handling different vehicles trucks to haul larger load demand

Vehicle Selection

Efficiency Overloading Optimisation No Evaluation Operators do not select Smaller trucks are Truck mix is important on Selection is done on vehicles on overall used, in overloaded basis of size, load, availability & past usage efficiency condition volume

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 32 3 Industry operational challenges Fragmented nature of logistic industry creates a barrier difficult to breach to move towards development

Key Challenges

Fragmented Industry ?

High Expenditure No big player Low Revenue and Lack of No Development India’s logistics More than 90% of Quality information High Price spend as % of LSPs own less than Smaller players Poor information Due to low margins, GDP is much 2 trucks work with low flow restricts LSPs are less High end price due higher than other 95% own less than margin and poor demand supply inclined towards to presence of countries 5 trucks quality matching digitization middlemen

Availability

On time availability Shift to Ola/Uber Shortage of drivers Lack of fixed income Very low as difficult to Drivers are shifting to For every 1000 trucks Due to fragmentation, search in a fragmented Ola/Uber for better only 600 drivers are surety of fixed income is market income present currently not present

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 33 3 Industry operational challenges Due to lack of technology and poor infrastructure, number of thefts and damage during transportation are very high

Key Challenges

Damage & Pilferage

Road Infrastructure Driving Skills Overloading No Security Improper Packaging

Poor condition of roads Driving skills; sudden Most common; might No GPS, No CCTV Less importance to and potholes result in brake application result in accidents too camera due to low packaging more vibrations investment

Mode of Transportation Trains Fragmentation effect Transporters’ mind-set Cost vs Efficiency Trains provide better A lot of cheap options Inclined towards lower initial Trade-off between cost transit but are very are available in the cost, without having view on and efficiency expensive market total cost of ownership

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 35 Framework for Sustainable Logistics and Transportation Landscape Ideal supply chain solution lies in the intersection of optimizing cost, time, visibility with enhanced product feature and reducing carbon footprint

Optimize supply chain cost Reduce asset turn-around time Improved visibility of demand and supply F A Optimized loading/unloading process Higher utilization of trucks Ensure longer haul with less stops

Minimum Minimum cost time E B

Minimize theft, damage and losses IoT in supply chain Maximum Minimum loss Telematics to monitor fleet performance Minimize thefts and losses visibility Intelligent warehouse for fast order Protect shipment from transit damage processing and reduced errors

Maximum Maximum sustainability utilization

Reducing carbon footprint Improved design and standardization New product features to reduce driver fatigue Alternate propulsion powered fleets D C Standardized packaging to increase space Increase re-use and re-cycle of material utilization

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI analysis 36 Opportunity # 1: Relay-as-a-service A B F Relay-as-a-service operating model can help reduce turn-around time by 50- 70% on long haul routes, reduce driver fatigue and increase revenue

Key issues Relay-as-a-service (RaaS) model Benefits

• Reduced turn-around time by 50-70% reduction in transit time 50-70% on long-haul routes, which earlier accounted to driver Delhi Industry average : 8 days RaaS Model: 3 days Chennai Driver Fatigue idling and resting • Available time is used by truck operators to earn more revenue • Driver attrition rate is reduced, Shorter Delivery Time leading to adequate demand- Driver A takes truck from Pitstop 1 to 2 supply matching Goods Pitstop 2 Goods • Increase in vehicle utilization Shipper Driver B Customer Pitstop takes same helps achieve breakeven faster $ 1 truck from 2 and improve operator’s cash flow to 3 Pitstop 3 Trips per day Business performance - Rivigo (45% YoY Growth) Factors behind improved efficiency: - Same day e-filing of delivery documents FY 17 ₹ 402 Cr - Time saved by eliminating storage, security and Revenue sharing of physical piece of paper (20% YoY Growth) - Gather trip data to optimize next trip, using IoT FY17 ₹ 137 Cr - Optimize fuel efficiency, minimize transit damage Loss

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 37 Opportunity # 2: Freight aggregation C F Aggregation of freight improves demand-supply visibility and reduces per unit transportation cost for customers

Key issues Freight aggregation model Benefits Online platform provides visibility between freight demand (customer) and supply (trucks) • Freight aggregation reduces per Fragmented Allows customers to manage shipments on unit cost for customer Industry one smart and convenient platform • Reduces truck spot hiring rates Uses data analytics & machine learning • Truck operators earn more with algorithms to optimize travel routes, resulting higher truck utilization in time and fuel savings • Lower truck turn around time • Improved inventory holding cost for customer

Availability Business performance - Blackbuck Key facts from Blackbuck, freight aggregator start-up (60% YoY Growth) FY 18 ₹ 902 Cr Revenue 250,000+ 10,000+ 2,000+ 400+ 60,000+ Trucks Clients Locations Hubs Fleet Owners (35% YoY Growth) Instant Fair & Transparent Seamless FY18 ₹ 117 Cr Availability Pricing Experience Loss Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 38 Opportunity # 3: Truck builder optimizer A C F By using truck builder tool, logistics players can optimize vehicle freight, space, loading/unloading sequence and improve supply chain efficiency

Key issues Truck builder tool Benefits

1A 2B 3C Loading / Unloading Time 1: Material type and packaging dimension • Optimization of full truck loads A: Warehouse address and delivery schedules on the Check against availability of truck type and size basis of truck capacities and order sizes Type A • Prioritization of orders on the basis of service level requirements Type B • Most economical selection of truck size on the basis of total delivery cost Space Utilization Optimization algorithm to choose truck and loading sequence • Prepared load planning vis-a- of the Vehicle vis delivery orders to minimize empty mileage and time between 7C 1A 5D 2B Type A orders 5A 6C 3F 1B

Most optimized loading sequence to maximize space and provide ease of unloading as per delivery destination Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI analysis 39 Opportunity # 4: New products with advanced features B D E F OEMs are launching products with advanced features to help operators carry higher load, with improved cost structure

Key issues Launch of new products with advanced features Benefits • Higher power • Distinct interior styling • Multi-axle offering • • Widest cabin space Telematics allow operators to track vehicle performance and Vehicle Design • Mechanically suspended seats optimize the same in next trip • • Range extends up to 49T Improved design helps truck Tata Prima operators to carry higher load Going GREEN: LNG powered version of Tata Prima is under without damaging the truck testing, in collaboration with Petronet LNG and IOCL • Increased comfort reduces driver fatigue, making drivers Tata Fleetman with advanced telematics features assists more attentive and reducing operators in real-time vehicle tracking, engine idling, chances of accidents or review trip performance, fuel consumption, truck Vehicle Selection damage to cargo maneuvering etc. for better driving performance • Time between halts also increase and drivers are able to • Trailer-EBS system cover longer distance reduces braking distance • LNG powered version in future • Add-on features such as can reduce CO2 footprint tail-guard, bounce control significantly • Lower unladen weight • Better tyre life Tata DLT Trailer

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Secondary research 40 Opportunity # 5: IoT in warehousing B F Amazon has maximised the efficiency of warehousing system by embracing recent trends of automation within the warehouse to reduce the error

Flow of Amazon fulfilment centre, Lakeland, Florida; Area: 59 football field

Amazon Warehouse Technology

Customer clicks on the button Box shuffling Cyborg: Associate handles SLAM process Order delivery to Robots set in motion; item the boxing process S: Scan; L: Label; customer taken from stored area A: Apply; M: Manifest

Key parameter made effective Amazon Warehouse Technology

• Box shuffling cyborgs: Floor covered in tiny QR codes, the robot • Time management reads the codes and broadcasts the position • Product picking optimisation • Packaging software: To find the perfect size of packaging box for every • Inventory tracking product present in the warehouse • Packaging of the product • Supersonic conveyor software: To regulate the line at steady pace during the rush hours • Managing fluctuation in demand • Automated SLAM system: To scan, label, apply and manifest the order before shipping out

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: Published secondary and online sources 41 Way Forward Towards Sustainable Transportation Successful application of these opportunities can solve few of the underlying issues, while Govt. & industry need to participate to scale up the solutions

Truck builder New products with IoT in Relay-as-a-service Freight aggregation optimizer advanced features warehousing

Reduce asset turn-around time

IoT in supply chain

Improved design and standardization

Reducing carbon footprint

Minimize theft, damage and losses

Optimize supply chain cost

• Govt. and industry stakeholders need to participate to make the most of these opportunities • Adoption of key trends will strengthen the future of logistics and transportation • Infrastructure and asset development will remain to be key towards continuous success

1 Overview of Logistics and Transportation in India

2 Modes of transportation and their operating model

3 Key trends in logistics and transportation

4 Major challenges for logistics and transportation in India

5 Way forward towards sustainable transportation

6 About NRI Consulting & Solutions

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 43 Nomura Research Institute – Group Introduction NRI Consulting & Solutions (part of the USD 4.5 bn NRI group) is a premier global management consulting and IT solutions firm headquartered in Japan

● IT Solutions for Consulting ● Management Consulting the Securities Business ● Systems Consulting ● IT Solutions for Asset Management

● IT Solutions for the Banking Business

● IT Solutions for the Insurance Business Financial Industrial IT Solutions IT Solutions

● IT Infrastructure Solutions ● IT Solutions for ● System Management Solutions IT Platform the Distribution Business Services ● IT Solutions for Manufacturing and Service Industries

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI 44 NRI Consulting & Solutions - Profile NRI Consulting & Solutions (part of the USD 4.5 bn NRI group) is a premier global management consulting and IT solutions firm headquartered in Japan Consulting Division

■JAPAN Globally 700 management consultants (+ 100 system consultants) Tokyo | Osaka | Nagoya

Annual revenue million USD ■ SOUTH EAST ASIA 200 Bangkok | Manila | Jakarta

30% of total revenue earned by outside of Japan ■ SOUTH ASIA New Delhi

■ NORTH AMERICA New York | Dallas | San Francisco

■ EUROPE Moscow | London

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI 45 NRI Consulting & Solutions - India NRI was established in India in 2011 and has grown to 130+ professionals and completed 550+ projects in last 8 years NRI Group Operations in India

We belong here

Started with Management Consulting Operations in Nov 2011

Grown to 130+ professional management consultants now We belong here *through organic growth Gurgaon Lucknow Completed over 550+ projects in last 7 years Patna Kolkata Ahmadabad Presence in 10+ cities through partnership *through partnership Pune

Started FinTech Operations in Jul 2012 Hyderabad

 Chennai Grown to 350+ IT professional now Bangalore *through acquisition of AnshinSoft

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI 46 NRI Consulting & Solutions - Our Services NRI Consulting team works closely with clients to help achieve more success by superior strategy development & business performance improvement

Business Strategy and Optimization

. Business strategy development . Business modelling . M&A advisory . Organizational development . Internal & external positioning . Implementation planning . Cost optimization . Benchmarking programs

Products & Sales Service, Spares Supply Chain Procurement & Ops Technology . Sales strategy and growth . Service portfolio alignment . Product portfolio planning . Supply chain performance . Supplier management and development . Service process . Technology roadmaps measurement development . Dealer development optimization . Product cost optimization . Supply chain strategy und . Material cost reduction network improvements . Customer penetration and . Spare parts logistics and . Variant, configuration and . Capex optimization shares of wallet service levels change management . Working capital . Advanced cost modeling improvement . Sales organization . Product line and service . Engineering excellence . Supplier innovation unit interface optimization . . SOP & process . ESO Logistics optimization management optimization . Warehousing . Operations improvement improvements

Top-line impact Bottom-line impact

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI 47 NRI Consulting & Solutions - Our Global Reach We combine global reach with local depth through our own presence and regionally established cooperation partners across Europe and Asia Pacific

h&z locations Europe . Munich . Dusseldorf h&z locations Europe with The . Hamburg Transformation Alliance . Vienna . Dubai . Zurich . Paris

NRI locations North America NRI locations NRI locations Asia . New York China . Taiwan . Shanghai . Seoul . Beijing . Singapore . Hong kong The Transformation . Manila . Dalian NRI locations Europe Alliance Europe locations . Jakarta . Moscow . Gothenburg . India (Gurgaon, NRI locations . . London Milano Kolkata, Japan . Rome Bangalore) . Nagoya . Stockholm . Thailand . Osaka Source: h&z Copyright（C） Nomura Research Institute, Ltd. All rights reserved. Source: NRI 48 Our team NRI Consulting is looking forward to working with the industry and together develop sustainable solutions for the future

Ashim Sharma Aashutosh Sinha Rajarshi Mukherjee Mukul Jain [email protected] [email protected] [email protected] [email protected] Partner & Group Head Senior Manager Senior Consultant Senior Consultant NRI Consulting & Solutions NRI Consulting & Solutions NRI Consulting & Solutions NRI Consulting & Solutions Mobile +91 95991 87825 Mobile +91 84483 92470 Mobile +91 84483 92476 Mobile +91 95993 55775