Global consultant Frost & Sullivan feels that the Indian third party logistics market is likely to expand rapidly in the next five years, driven by demand growth from end-user industries.
The growing adoption of the 3PL outsourcing model among Indian consumer electronics and durables manufacturers is expected to drive the growth of the 3PL market in this sector, which is estimated to reach $89.8 million in 2012.
"The 3PL market in the Indian CEDs sector is fairly nascent and is emerging with a high potential for good growth in the future," says Frost & Sullivan research analyst Deepak Mohan.
"This growth is likely to come from increasing consolidation in the Indian CEDs sector, which is leading to improved logistics practices," he adds.
Logistics infrastructure in India is poor, hindering the 3PL industry's progress.
"In a highly competitive environment, logistics could be a competitive differentiator. But it needs very good infrastructure, which is lacking in India," explains Mohan.
"Certain leading CED manufacturers have failed with the 3PL model in the past, and this may affect the outsourcing to 3PL companies in future," he adds.
In an industry where competitive pressures are increasingly affecting profitability, logistics could be an area for cost reduction. Pricing of services hence plays a very vital role in the market growth.
With reduced margins, 3PL companies can hope to make a mark in this market.
The penetration of 3PL is low at an estimated 15 per cent of the total expenditure on logistics in the Indian CED sector.
This poses an immense potential for growth in an already growing logistics market.
The penetration of this logistics concept is low, but poses immense potential for growth, the report added.
The Frost & Sullivan analysis, titled 'Strategic analysis of 3PL markets in the Indian consumer electronics and durables sector', reveals that the market earned revenues of $28.1 million in 2005.
The virtual brochure of the report provides manufacturers, end users, and other industry participants with a strategic overview of the 3PL markets in the Indian CED sector.
Consolidation in this sector could result in bringing more companies under the logistics outsourcing umbrella, thereby propelling growth.
Despite the raw potential exhibited by the market, value added services are currently a key competitive differentiator.
Clients are increasingly demanding the provision of value addition to service, for them to graduate towards a 3PL model. Moreover, certain companies have had experimentations with this model in the past.
Though this could help 3PL growth, it may be long before achieving a fully developed outsourcing model.
The strategic analysis of 3PL markets in the Indian CED sector is part of the automotive and transportation growth partnership service, and covers market growth drivers, restraints and challenges that 3PL companies face.
It covers the Indian CED 3PL market size, individual service market sizes, and penetration of 3PL in each service segments.
The study provides a view of the current and emerging trends in the market, market revenue forecasts and individual segment revenue forecasts.
It analyses the competitive scenario and highlights opportunities 3PL service providers can exploit in the market.