India has suddenly become a hot destination for global logistics companies.
Domestic companies are also not far behind and are in an expansion mode through the inorganic route.
For example, German major Schenker Logistics, UPS, TNT are looking for acquiring road transportation and freight forwarding companies in India besides domestics logistics companies such as XPS, First Flight and Gati.
So what explains this sudden rush? Edelweiss Research says with the Indian economy growing at 8 per cent and manufacturing growth in double digits, the logistics sector is at an inflexion point.
A report by Edelweiss says buoyancy in the manufacturing sector, especially in the automobile, pharmaceutical and FMCG sectors, is leading to higher domestic and international trade.
Most companies are increasingly opting to outsource their logistics requirements to specialised service providers.
A senior executive with a logistics MNC said international logistics companies are keen on acquisition as they want presence in road, air and courier segment to cash in on the current retail boom in India.
Acquisition will give them a direct edge coupled with local expertise. There are better margins in this segment.
For instance, international express delivery company TNT NV, which does not have a presence in road transport network, has acquired Secunderabad-based road express company Speedage Express Cargo Services from Associated Road Carriers India (ARC) for an undisclosed amount in September.
DHL has acquired Blue Dart for the same reason.
On the contrary, domestic companies are taking the organic route for expansion.
Explains V V Rao, Chief Executive - Logistics, AFL: "Adaptation with the culture of an acquired Indian company will always take more time. It's better to invest in your own company than lose time on acquisitions."
Some domestic companies are however scouting for small freight forwarding companies, container freight station (CFS) firms, warehousing firms and trucking companies.
Anil Ambani-promoted Reliance Capital for example had acquired 44 per cent stake in the Bangalore-based courier and express company DTDC in mid-February.
Edelweiss observes a large number of MNCs like Ford, Volkswagen, Sony, Hitachi, Panasonic, Motorola, Wal-Mart and TESCO are setting up base in India.
Increasing penetration of these MNCs in the established sector, coupled with growth in sunrise industries like retailing, food processing, gems and jewellery and textiles will drive the requirement of logistics solutions at a much faster pace.
Shreyas Shipping Executive Director Anil Devli said companies, which have small presence in transport, is graduating into logistics because of the retail boom.
"But more players will create pressure on margins. The only solution could be reinventing their strengths in other mode of transportation."