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Tech-enabled disruptions transforming investment landscape in road logistics space

Rishi Ranjan Kala
In the process, they are carving new channels and meeting both existing and new needs of the historically under-served truck owner community. (Representational image)

The highly fragmented Indian road logistics sector is witnessing a disruption similar to that in the ICT space, with non-industry players entering the market and leveraging technology to offer specialised services and solutions, from reducing costs to limiting the role of intermediaries, which is in turn attracting investments. The sector has attracted more than $500 million (over Rs 3,500 crore) since 2014.

Demand in India's logistics industry is mostly controlled by small and mid-sized enterprise, while on the supply side around 75% of trucks are owned by small fleet owners with less than five vehicles. The market is worth around Rs 12.80 lakh crore, with over Rs 8.50 lakh crore belonging to long-haul trucking. Over 500 logistics companies and freight brokers play in this space.

According to a report on road logistics by Deloitte India, a host of start-ups are taking on the challenge of organising this largely unorganised sector. In the process, they are carving new channels and meeting both existing and new needs of the historically under-served truck owner community. The report explains that this has ramifications for all stakeholders, be it commercial vehicle manufacturers, auto ancillary manufacturers, oil majors, NBFCs, etc.

Citing examples about the disruptions, Deloitte India director Harsh Kapoor said freight financing is a growing activity. Earlier, booking agents or large transporters played a critical role in arranging working capital and freight financing, but now new models are emerging. Invoice-financing companies are entering this high-margin space. Although it is a high-risk high margin zone, the way capital is easily available for larger aggregation, many new-age NBFCs and lending ventures will continue to enter this market.

"Some estimates suggest that trucks can be idle for 25-30% of the time due to inefficient demand/supply matching. There are a number of intermediaries (brokers, transporters, and commission agents) that increase cost of operations. Tech-enabled platform solutions are emerging to address some of these shortcomings and fundamentally altering logistics landscapes," Kapoor told FE.

The promise of profits from dis-intermediation of the logistics value chain has led to a rapid increase in funding by venture capital and large private investors. "Indian freight trucking sector has seen a substantial increase in investments over past five years. The sector has seen investments of more than $500 million since 2014. Investment is increasing at a compound annual growth rate of 190%," the report revealed.

Though investment are spread across the three key areas of long-haul transport, short-haul delivery and logistics software solutions, long-haul is garnering the greatest interest. Established players like Rivigo and Blackbuck continue to be on the forefront of this wave, with both having raised a total funding of more than $350 million till last year, it said.

The short-haul intra-city space has also captured investors' interest. For instance, a Bengaluru-based intra-city logistics start-up has raised nearly $33 million since its foundation in 2015. OEMs have also shown interest in this sector. In 2018, Tata Motors acquired a 26% stake in intra-city start-up 'TruckEasy' for an undisclosed amount.

The software solutions space, however, is still in its nascent stage. It covers players providing logistics technology solutions, such as fleet management, GPS tracking, and internet of things (IoT) based solutions. While disclosed funding to date has been limited to around $20 million, significant players are emerging and beginning to scale.