While government initiatives present long-term opportunities, they also challenge traditional business models, causing corrections in logistics stocks compared to benchmark indices. The sector comprises roadways (over 60% of total freight) and railways (about 31%), with listed companies adapting to seize opportunities and address challenges.
The road transport sector is largely fragmented, with just 4% controlled by organized players, while the rest is unorganised. Government regulations mandating e-invoicing for operators with over Rs 10 crore turnover are promoting compliance and shifting the market toward organization. In truck transportation, there are Full Truck Load (FTL) and Part Truck Load (PTL) options, with PTL requiring more planning and offering higher margins. Players like VRL Logistics, Gati, TCI Express, and Delhivery operate in the PTL space, which is gaining attention due to the growing e-commerce industry.
Express parcel services involve transporting non-bulk goods efficiently. Blue Dart, a prominent player in this sector, initially focused on express document services before expanding into air cargo and surface express distribution. In this segment, organized players account for 75% of the market. The hub-and-spoke model is central to express logistics, with shipments collected locally, transported to branches, and then routed through transshipment hubs to their final destinations. Key players include Gati, Blue Dart, Delhivery, and TCI Express, with e-commerce providing significant growth opportunities.
Rail transport is economical for long distances but holds a smaller market share. Freight and passenger trains share infrastructure, limiting rail usage. The Dedicated Freight Corridor (DFC) initiative aims to change this. Road transport is more efficient for distances under 330 km. With 64% of Indian freight travelling longer distances, DFC may shift 64% of freight traffic to rail. TCI Express offers Rail express services and has expanded its customer base from 250 to 1,750, operating on 125 routes. Other rail service providers include Concor and Gateway Distriparks.
The Multi-Modal Logistics Park (MMLP) initiative aims to establish logistics parks using a hub-and-spoke model, enabling aggregation, and reducing warehousing costs. Reliance Industries secured the contract for the first MMLP near Chennai, with additional MMLPs planned for Bengaluru, Indore/Pitampura, and Nagpur. Gati has also adopted this model, consolidating hubs for operational efficiency. Improved infrastructure investment and the Dedicated Freight Corridor project are further driving changes, potentially increasing rail usage for container traffic from 20% to 3% by FY25. Players like Container Corporation of India and Gateway Distriparks stand to benefit from this shift.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.