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Importance of Logistics Industry for Growing Economies

Thursday, September 1st, 2011

Logistics involves the delivery of products or services for the client with assured quality and quantity. The logistics industry also depends on the timeliness in which products are delivered to a destination. Promptness is of utmost importance, as delayed delivery can result in significant losses to the recipient of the consignment in most cases. 'Better late than never' does not work well for the logistics provider.

The logistics industry depended previously on transportation more than anything. Nowadays, however, good infrastructure and record-keeping have been improved by advancements in technology, integration, globalization, legislation, and confederations.

The immense growth witnessed by the retail and manufacturing industries has brought warehousing and logistics facilities closer to towns and cities. Previously situated in remote areas near waterfronts and rail tracks, these facilities are now increasingly being located within rural areas and city borders.

Logistics forms an important part of the supply chain and involves the planning, implementation, and effective forward and reverse flow of goods, services, and related information from origin to recipient. A logistician controls the smooth functioning at every stage within legal boundaries enabling logistics management.

Logistics management is comprised of materials management, channel management, physical distribution, and supply chain management. It also includes the warehouse management system which takes control of stocks, and streamlines the movement of goods in the storage units.

Logistics Industry Trends

Certain logistics activities can be outsourced to third-party logistics (3PL) providers, which include transporters who ferry goods from company warehouses to a port or vice versa. Fourth-party logistics (4PL) providers use resources, capabilities, and technology to manage the entire logistics process for a customer, unlike a 3PL provider who takes care of only one function. A 4PL provider manages other 3PLs, including truckers, forwarders, and custom house agents comprising the entire supply chain.

The immense growth in the logistics industry, especially in the emerging economies over the past decade, ensures a bright future with 3PLs. Shipping logistics companies have gained a lot in these regions, with a large contribution coming from 3PLs such as transporters, warehouse facility owners, and brokers in freight-related jobs.

Non-asset-based logistics providers do not include transporters or couriers. The term refers to providers who undertake consultation services on packaging and transportation, freight quoting, financial settlement, auditing, tracking, customer service, and issue resolution. These experts do not own any physical assets, but rather possess freight industry knowledge, information technology know-how, and associated assets.

On-demand transportation is an evolving field within the 3PL industry. The on-demand model includes services like full truck load (FTL), hotshot (direct, exclusive courier), next flight out, or commercial airline shipping, and international expedited. As this field caters to the special needs of clients, it comes at a premium price and hence is profitable for 3PL providers.

Asian Logistics Industry

The robust trade, economic growth, and liberalization policies followed by many Asian countries have resulted in increased trade volumes. The ensuing increase in transportation, handling, and warehousing needs has led to a demand for integrated logistics solutions in the region. Increased globalization in manufacturing and other technological advancements has made companies focus more on core activities, and thus logistics activities have been outsourced as a cost-effective solution.

In the case of India, the growing economy now requires a boost in its logistics services to keep the goods flowing at an increasing rate. The logistics field is now estimated at a value of more than $US14 billion, with further growth envisioned. Logistics-related services in India encompass transportation of goods by air, land, waterway, and railway.

Air freight ensures rapid, safe, and even same-day delivery of goods and is hence much preferred. India, which boasts an extensive network of roads, prefers to use them to transport household goods, machinery, and vehicles. Another cost-effective and older mode of logistics is via the railway transport system, which carries vehicles, oil, and coal from one end of the country to the other in huge volumes. Shipment of goods on waterways is especially useful in international shipments of huge quantities of goods like grains, oil, or sensitive articles like uranium.

The logistics industry in India has grown fast, overriding major sectors like metals and mining. Strategically located cities like Mumbai were earmarked for setting up logistics parks with investments to the tune of US$200 million. Export processing zones housing several companies ranging from garment to electronics have necessitated the need for a good logistics backbone to support the domestic market as well as international trade.

The Indian logistics industry is poised to grow annually at the rate of 15-20 percent, reaching a revenue outcome of US$385 billion by 2015. The market share of the organized sector in logistics will also grow to 12 percent by 2015, opine market analysts.

Data reveals that nearly 110 logistics parks covering 3,500 acres, set up at a cost of US$1 billion, will become operational by 2012. This will include huge warehousing facilities developed by logistics companies at an expense of US$500 million.

China and Taiwan have been cooperating in efforts to improve logistics techniques. Since the advent of online shopping in China, the importance of delivery firms have grown manyfold. Taiwan's logistics centers are assisting Chinese logistics service providers nowadays. The huge potential of China's logistics scenario can be proved by the overall turnover in 2010, which was estimated at 110 trillion Chinese Yuan (US$16.6 trillion). This represents a huge business opportunity for logistics-related companies. The expected increase in China's GDP will give a further boost to this industry.

The logistics costs in China are high, yet they can easily be lowered. One hurdle China faces in this industry is that there is no unified business tax system. Currently, a three percent business tax is levied on transportation, loading and unloading, along with another five percent levy on warehousing and distribution and other taxes.

In spite of the growing economy in China, the logistics industry can be said to be continuing to suffer, but all city governments understand the importance of logistics centers for rapid urban development. Taiwanese logistics companies are preferred by Chinese clients over ones from Hong Kong and foreign enterprises for upgrading China's logistics sector.

With the Chinese logistics business scene as potentially lucrative as it is, several Taiwanese companies have set up logistics centers on land provided by Chinese local governments. A food logistics park was established in Chengdu by the Hai-Pa-Wang Taiwanese seafood restaurant, for example. Another cross-strait commerce and trade cooperation zone was set up in Kunshan in Suzhou.

Logistics operations can also be simple, as in the case of the Philippines, where bus lines are used to carry goods in provincial operations. Although not entirely dedicated to carrying goods, almost all bus lines accept packages for delivery on their routes. The sender has only to deposit the package at the nearest bus terminal and inform the recipient about the consignment.

As buses operate between routes continuously, this localized logistics system serves a huge population and may even be the fastest mode of delivery. Perishables like vegetables, fruits and flowers also follow this mode to reach urban markets from villages in all parts of the world, often reaching their destination in the wee hours of the morning.

Technology in Logistics

A systems-driven approach using advanced systems to integrate and simplify large, complex operations is required to streamline production activities up to delivery. A fully-integrated supply chain management solution will help systems integration and management besides enhancing decision support and visibility of the company's worldwide inventory.

Information technologies in the logistics industry include the application of data collection technologies and the Internet. Data collection and exchange are critical for logistics information management and control, as they can be leveraged to deliver customers' goods more accurately and efficiently. The bar code system and radio frequency identification system (RFID) are data collection technologies that are used widely for this.

Companies rely on information technology to enable integration, order and transportation management and warehouse management. RFID technology is used to track vehicles, pallets, and even smaller units to gain greater visibility.

Electronic data interchange (EDI), electronic ordering system (EOS), logistics information system (LIS), enterprise information portals (EIP), and knowledge management (KM) are information technology elements used in the logistics industry. Electronic data interchange involves inter-company computer-to-computer exchange of business documents in standard formats.

A good logistics company integrates all the supply chain functions ranging from raw material sourcing and manufacturing to the distribution of finished goods. The company has to control costs of transportation and inventory while working out strategies to serve customers optimally within set time periods and budgets.

All this makes supply chain management complex, and therefore companies need real-time visibility to gain optimal insights into the flow of goods from suppliers and even suppliers' suppliers. Better visibility reduces wait times, and helps manage inventory and costs. Different companies need different solutions designed according to the product, volumes involved, location, and so on.

Global supply chain management can be enhanced by systems integration and management to provide a tight vigil on worldwide inventory and transportation expenditure. Supply chain management, lean logistics which emphasizes waste reduction, inventory control, standardized work, and mistake-proofing are other requisites of a good logistics provider. In order to maintain competitive advantage, logistics companies must leverage available knowledge more efficiently to evolve into innovation-based logistics service providers, say experts.

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