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If you have used your smartphone to place an eCommerce order online (groceries, home décor, winter wear, gifts, etc.), have tracked its delivery timelines and status, and been thrilled to have it home delivered in the best condition, understand there is a powerful network of logistics services at play here. But what does logistics services mean? Does it refer to the movement and transportation of goods only?
Today, as the logistics sector recovers, logistics companies are rethinking transportation, strategy, and new technology adoption (e.g., contactless deliveries) for sustenance and business continuity. There is emphasis on providing support at all levels and functions to enable logistics service providers to scale operations, reduce logistics costs, streamline logistics workflows, and run optimally.
Through this post, let us understand what logistics service means, the types of logistics services in India, difference between 1PL, 2PL and 3PL providers and more.
What are logistics services?
Let us first understand what is logistics service?
Logistics services mean to move goods and merchandise from their place of origin to destination (or point of consumption). It involves the entire process of inbound and outbound logistics such as:
- Receiving, warehousing, storage, and managing goods
- Materials handling and order processing
- Packaging, shipping, and distribution
- Goods delivery to customers/end-user, and reverse logistics
It can be carried out through air, water, or road transportation, by internal logistics teams or outsourced to logistics companies. It can involve cargo services, freight, domestic and/or international shipping, in which case taxes, custom duties, legal, and other aspects are also involved, and often managed by the logistics service provider.
Logistics transportation services, as such also plays a vital role in customer satisfaction. Timely pickup and delivery, ease of order placement and tracking, prompt customer support in logistics, affect how customers perceives your brand (reliability, credibility, efficiency, etc.) and conduct business with you (i.e., repeat orders, sales, referral, etc.).
In certain cases, logistics services also involve inventory management, providing insights on stock availability, restocking requirements, channelising shipping, and demand forecasting.
Popular logistics services in India:
- Logistics courier services: Used at the individual and business levels for quick delivery of small parcels domestically and internationally.
- Cargo services: Often also termed as freight, cargo is used for transportation of larger goods and products by water (ship), air (planes), and/or road (trucks).
- Reverse logistics: Optimising the logistics good returns process from the customer to manufacturer (for repairs, undelivered, damaged, quality issues, etc.), in an efficient, economical, and seamless manner.
- Shipping services: Ideally for moving goods in containers between ports and managing all taxes, customs, and related paperwork.
- Freight forwarding services: Refers to services related to moving goods and commodities internationally on behalf of shippers, and supporting with related cost negotiations, custom clearance, warehousing, and related tasks.
Types of logistics services in India
In India, there are different types of logistics services available, and as a business owner you can select services that meet your requirements and budgets. Several large businesses often prefer to invest in their own logistics infrastructure, while others prefer outsourcing part of their logistics operations to professional logistics service providers for cost-advantages and efficiencies.
Most micro, small, and medium enterprises (MSMEs) however prefer to work with service providers to manage volumes, costs, resources, infrastructure, and other aspects of transportation services.
Let us have a look at the common logistics service types.
Logistics type by flow: Inbound vs Outbound logistics
As a business owner there are two aspects of logistics that you will be involved with. First, the procurement of raw material for production, and second, transporting the finished goods to its end user for consumption. This is where inbound (or receiving) and outbound (or delivery) logistics come into the picture.
What is inbound logistics?
Inbound logistics refers to the receiving of supplies, raw materials, or even tools for production. It involves sourcing, materials handling, inventory, warehousing, and stocking. In this sense, it is a form of procure logistics service for businesses.
How you manage inbound logistics, is based on your resources and budgets. For instance, if your warehouses and production units are separately located, you may prefer to undertake inbound transportation using internal resources. Alternatively, if you prefer to keep the process hassle-free, efficient, and cost-effective, you may outsource it to a trucking company with their own fleet and resources.
Software solutions such and inventory management and transportation management systems (TMS) are popular choices for managing inbound logistics.
What is outbound logistics?
Outbound logistics refers to the movement of finished goods to its end destination or customer. It plays a pivotal role in keeping customers happy and driving customer delight. It is also one of the most expensive and critical processes in the logistics and supply chain system, involving inventory, storage, transportation, distribution, and delivery to end-user (e.g., last-mile delivery).
For MSMEs and emerging business, managing end-to-end outbound logistics services can be expensive, time-consuming, and tedious. Outsourcing services to an external logistics provider in such cases can prove economical. Logistics partners have the manpower, vehicles, and infrastructure required for the job. They also have wider networks, work with sub-contractors, can offer deals on volumes, and provide multimodal transportation support (e.g., courier services, partial truck load services, door-to-door pickup and delivery, cargo services, etc.).
Logistics type by service providers: 1PL, 2PL and 3PL
First-party logistics service providers
When businesses manage end-to-end transportation of goods and material on their own, it refers to first-part logistics services. This requires businesses to maintain their own resources, infrastructure, vehicles, and expertise for material and equipment handling and transportation (cargo, freight, truck etc.).
Second-party logistics service providers
When businesses sub-contract a part or specific logistics and transportation services to a logistics firm or individual, it refers to second-party logistics services. These services are usually availed for cost-benefits and operational efficiency, when the owner does not want to invest in infrastructure.
Third-part logistics service providers
3PL service is probably the most commonly used logistics service in the Indian logistics ecosystem. Working with a 3PL means to outsource the entire logistics and transportation services to a logistics partner, who in turn may sub-contract the service partially or entirely to a third party.
1PL vs 2PL vs 3PL service providers
Let us understand this with the example of an apparel (jeans, tops, etc.) retail chain with 4 stores in Delhi:
|Type of logistics service provider||Activity|
|First-party logistics service (1 PL)||Store A is running out of stocks for a category of jeans and requests Store B (also located in Delhi) to send their stock. Store B sends the stock using their own transportation system. Here, the company uses their own transportation services with no reliance on external providers.|
|Second-party logistics service (2 PL)||A customer places an online order for jeans, with same-day delivery (in Delhi). The company packs the order from their warehouse and outsources logistics courier service to a trusted partner. Here the company uses the road transportation services of an external partner for cost, time, and delivery efficiency.|
|Third-party logistics service (3 PL)||A customer, from Shimla, places an online order. The company does not have direct delivery service for the pin code. It outsources the service to its trusted logistics partner, who in turn sub-contracts it to a local logistics provider. Here, the final delivery is undertaken by a third-party, with their own vehicles, manpower, equipment, and other required resources.|
Difference between supply chain and logistics
As a business owner, it is natural for you to ask: Is supply chain and logistics the same?
Though these words are often used interchangeably, they do not mean the same. Logistics is a part of supply chain process. Logistics refers essentially to the transportation of goods, whereas supply chain refers to the end-to-end process from procurement to delivery and returns.
As can be understood, logistics is a vital component of the overall supply chain process and inefficiency in the logistics system will impact the performance of the overall supply chain system.
|Supply chain management||Logistics management|
|The overall framework of procurement to goods delivery and returns||A component of the supply chain process focusing on goods storage and transportation|
|Technology enabled and data-centric for strategic decision making and planning||Ideally technology enabled though tech-adoption varies across geographies and service providers|
|Can involve multiple providers||Involves a single service provider, managing specific storage and transportation tasks (e.g., intra-city partial truck load services)|
|Usually a combination of in-house and outsourced activities||Can be carried out in-house though outsourcing brings cost-efficiencies in most cases|
|Involves organisation level decision making and strategic activities (e.g., demand forecasting, purchase, demand aggregation)||Involves efforts in driving efficiency in transportation (e.g., technology adoption, route optimisatiion, etc.)|
|Network involves multiple departments and teams, and external vendors/partners||Network involves numerous transportation, cargo, and freight service providers|
|Goal is to plan, make improvements in processes, and bring competitive edge to business||Goal is efficient goods delivery, reduce costs, and keep customer satisfied|
Logistics transportation and the Indian MSME sector
MSME and logistics were identified as priority issues in the G20 Presidency (1 Dec, 2022 – 30 Nov, 2023). This is not surprising considering the 65 million+ MSME sector and logistics are key contributors to the country’s economic growth. The government has introduced several new MSME schemes to facilitate MSME financing and business loans, digitisation and process automation, cost reduction in transportation services, and more, to enable MSME growth and logistics efficiency.
For instance, the National Logistics Policy was formed to help lower logistics costs from its current 14% to a global average of 8% (Source: The Economic Times, Nov, 2022).
Logistics is primarily an unorganised sector with many small players in the market. The pandemic and the global shutdown moreover caused all logistics companies to revisit their strategies and find smart, technology enabled solutions to fast-track logistics delivery services.
The way ahead for Indian logistics
In recent years, there have been several key improvements made in Indian logistics, enabling us to rise in the global Logistics Performance Index. There are however challenges that need further improvement. As a closing thought, let us look at some of the logistics challenges the MSME sector faces:
- Shortage of skilled resources: Even though the logistics sector employs almost 22 million people, they are either unskilled or under-skilled. This often leads to inefficient materials and equipment handling, shipping damage, and delays, the losses of which have to be borne by the MSMEs. Today there are skill development courses available and training centres (especially for drivers) that are being set up, to tackle the challenge of unskilled labour.
- Lack of technology adoption: Though globally logistics and supply chain are a technologically driven sector (GPS sensors, digital twin, drones, IoT, RFID, barcode, AI etc.), the rate of adoption and digitisation of supply chain in India is around 5% only. Moreover, investment in technology is sluggish, which impacts service efficiency. Today, there are software solutions and government-led digital initiatives, that aim to minimise documentation, improve goods tracking and provide real time updates, and make digital payments convenient.
- High cost of transportation: Rise in fuel prices, warehousing, manpower, vehicle maintenance, poor road conditions, weather conditions, multiple taxes and duties, collectively contribute to rising transportation costs – a burden MSMEs often struggle to bear. This naturally makes them work with local logistics providers, who often lack the expertise and network, resulting in delays, returns, and losses.
- Reliance on manual data: Supply chain and logistics is a complex process, with multiple touch points, each with its own documentation needs. Manual data entry leaves little room for real-time visibility on routes, pick-up and delivery services timeline, roadblocks, etc. leading to poor forecasting and planning.
EVs can help in cutting transportation costs, but infrastructure supporting EV charging stations across the country is required. Under Phase-II of FAME India Scheme, 2877 charging stations across 68 cities have been sanctioned to be built.
Similarly, most MSMEs recognise the importance of digitisation to facilitate cross-border trade and commerce. The Unified Logistics Interface Platform (ULIP) under the NLP aims to bridge tracking gaps and provide real-time details on location of goods.
The solution to logistics challenges is not a single one. Nor can it be implemented in a day by a single entity or company.