Vocational Training and Apprenticeship opportunities in Logistics

Welcome back to our blog series on Opportunities in the Challenges in the Service Sector

The 2016-17 Annual Report commissioned by the National Skill Development Corporation has identified incremental human resource requirement of 103.4 million across 24 high priority sectors between 2017-22, a majority being in the service sector. Skilling the unskilled and the inadequately skilled to ride the service sector wave and reap maximum benefits both for the worker and the economy is the need of the hour. What are the in-demand skills needed by the next generation of workers in the service sector and is there an opportunity for VET and apprenticeships to fill the skill gap?

Here’s a round-up of what you may have missed so far. In Parts I, II & III we looked at vocational skills-based employment opportunities in Retail & E-commerce, Beauty & Wellness, and Tourism & Hospitality. This week in Part IV, we seek out the potential for job creation in Logistics, a sector undergoing massive multi-faceted changes.

Logistics – A Sunshine Industry

The Indian logistics sector is entering an era of unprecedented growth buoyed by increased consumerism and changes in policy, infrastructure and technology. India has surged on the Global Ranking of the World Bank’s 2016 Logistics Performance Index with a jump to 35th rank in 2016 from 54th rank in 2014 in terms of overall logistics performance.

The overlap of logistics with related sectors such as Retail & E-commerce, manufacturing and real estate makes it an exciting and multi-faceted dynamic sector with the potential to generate expansive job opportunities across all levels.

Logistics in India is expected to grow from $115 billion to $360 billion by 2032.¹ An estimated 90% of logistics service providers in India operate from the unorganised segment mainly due to associated low costs. However, as the sector becomes more accepting of innovation and changes in the logistics landscape the role of the organised sector is coming into play with rapid growth. This potentially means workforce skills have to change to become more relevant and job-ready to meet demand.

We will be examining the opportunities for vocational skills in Indian logistics in the context of three prominent driving forces of this sector- namely, e-commerce, third-party logistics (3 PL), and warehousing.

Skills Training

As per the Economic Survey 2017-18, logistics provides livelihood to over 22 million people.  An estimate of training needs in logistics between 2017-2022 has been pegged at 42.9 lakhs overlap with related sectors). Between 2017-2022 the logistics, transportation and warehousing sectors will witness a jobs growth from 23 million in 2017 to 31.2 million in 2022 making it the largest job creator in the infrastructure space.²

According to a research by TeamLease Services, 3 million incremental jobs will be created between 2018-2022 across seven sub-sectors of the logistics sector.

• Road freight- growing at 16.5% CAGR, will snatch up 1.89 million new logistics jobs, which represents a whopping 63% of all potential jobs in the sector
• Waterways 450,000 incremental jobs
• Warehousing- 120,000 incremental jobs
• Air freight- 400,000 incremental jobs
• Courier services- 60,000 incremental jobs
• Packaging- 40,000 incremental jobs
• Rai freight- 40,000 incremental jobs

Delhi-NCR, Mumbai, Chennai and Bangalore will generate 58% (1.74 million incremental jobs) of all potential logistics jobs between 2018-2022. A huge demand is anticipated for a job-ready pool of personnel such as truck drivers, quality inspection supervisors, warehouse managers, loading supervisors, courier and express staff, delivery executives, among others. New employment opportunities are also expected in cold chain storage and distribution, packaging, freight handling and forwarding (road, sea and air).

The future logistics model of the country can be represented as an integration of technology, infrastructure, services and end-to-end logistics solutions. Key skills will be required across all four levels in order to streamline processes and develop a more sophisticated logistics ecosystem.

Source: India – On the Cusp of a Logistics Revolution, Deloitte-ASSOCHAM

Policy Enablers

• The implementation of GST to ease the movement of goods and services is a key marker for the growth of the Indian logistics market enabling the conversion of informal logistics setups (such as multiple cross-state, scattered and low quality warehousing) to larger formal ones. According to the Economic Survey 2017-18, removal of inter-state tax inefficiencies alone could take the logistics industry to USD 215 billion in 2020.
• Inclusion in the Harmonised Master List of Infrastructure Subsector will facilitate improved credit terms flow into logistics and also ease the approval of large-scale logistics parks for both storage and transport
• Setting up of a Logistics Sector Council (LSC) to identify skill gaps and impart training through The Pradhan Mantri Kaushal Vikas Yojana (PMKVY) and the National Apprenticeship Promotion Scheme (NAPS). In 2017 the LSC launched its first apprentice program to train 3 lakh youth by 2020
• A separate Logistics Division in the Department of Commerce has been established to identify bottlenecks and opportunities to improve, and coordinate efforts between stakeholders
• A new logistics plan³ is being finalised by the Department of Commerce to create new logistics hubs in India to effectively bring down logistics costs from 13-14% of GDP to 10% by 2022. As part of this integrated logistics initiative, the government is considering plans to set up 50 economic corridors, 35 multimodal logistics parks (MMLP) at 15 locations, and ten intermodal stations⁴
• Make in India campaign envisions to raise the contribution of the manufacturing sector from 13-17% of the GDP to a quarter.⁵ This could potentially have a ripple effect across logistics sub-sectors such as warehousing and transportation

Retail & E-commerce Impact on Logistics

India’s retail sector is expected to reach $1 trillion by 2020 from $600 billion in 2015. Similarly, e-commerce sales are set to reach $100 billion in 2020 from $30 billion in 2016.¹The household consumption appetite of the Indian population as a percentage of GDP is 79.8%, which is one of the highest in the world.⁵ Increasing disposable income across the country, notably so from non-metro cities, have seen a surge in demand for consumer goods and services. A large percentage of traffic on e-commerce sites are from Tier II and III cities. For instance, Flipkart states 60% of its customer base comes from non-metro cities.⁵

E-commerce driven logistics is fundamental to support this dizzying growth.  The logistics sector specific to e-commerce retail in India was valued at USD 0.46 billion in 2016 and is projected to grow to USD 2.2 billion by 2020, at a whopping CAGR of 48%.⁵

The image below is a snapshot of e-commerce driven logistics to drive up job creation across levels.

To understand job creation potential in e-commerce based logistics let’s look at the following scenario extrapolated from a Frank & Knight research. ⁵ The movement of a product from a seller to the buyer in the e-tailing scenario involves several stages.

First-mile logistics – Goods picked up from sellers and transported to the fulfillment center. On arrival at the fulfillment center, the product is checked verified against the carrier details, goes through a quality check, the inventory system is updated and then the product gets shelved.

At the Fulfillment Center – When an order is placed on the e-tailer’s website the product gets picked from the shelf and sent for packaging. A pick list is generated and the warehouse management system (WMS) is updated accordingly. The product is packaged and categorised ready to be sent to the dispatch centre.

Line haul – Package is transported from the fulfillment center to the dispatch/distribution centre via road, rail or air.

Last-mile logistics – Product gets shipped to customer from the dispatch centre.

Reverse logistics – An increase in e-transactions has a corresponding increase in goods that are returned or exchanged. Customer sends the product back, reasons could be damaged goods, low quality, wrong delivery etc. Product gets picked up by a delivery executive and sent to return centre. Where it gets re-entered into the inventory and re-stocked or sent back to the seller.

Below is our own simplified analysis of the job creation potential at various steps as described above. For the sake of brevity, we have listed entry level skills. This view can be scaled up to include mid and senior level staff where skills get more specialised with years of experience for supervisorial and managerial positions such as hub in-charge, warehouse managers, loading supervisors, inventory managers, purchasing and contract managers, 3 PL executives, to name a few. The opportunities for skill training in e-tail driven logistics are enormous across the board.

Third Party Logistics Play

The boom in e-commerce has led to a rapid increase in the importance of 3PL where firms recognise cost reduction value in outsourcing operations to 3PL providers due to their expertise in technology driven logistics processes. Additional dimensions such as packaging and administrative functions have also been added to the traditional 3PL role. Consumption growth from Tier II and III cities leading to an increased need for last mile connectivity in far flung markets have strengthened the position of 3 PL. Thus far used mainly by MNCs, all sizes of domestic firms are also adopting 3 PL for their logistics operations, resulting in a tremendous push for 3 PL in India.

A 3PL provider may provide a stand-alone service such as transportation or warehouse storage, or it could provide services across the supply chain such as a fulfillment centre, warehousing, inventory management, packaging, hauling, trucking and distribution. Additionally, as e-commerce grows unabated, firms are competing for faster delivery and tracking technology, such as RFID and GPS. In 2016 manufacturing, e-commerce and 3rd 3PL took the top 3 spots based on transaction volumes across the country. In 2017 the trend shifted to 3PL followed by manufacturing and retail. ⁵

Large e-tail players such as Amazon and Flipkart have their own end-to-end logistics services. Seeing the potential of 3 PL a number of start-ups have entered the space such as Delhivery and Ecom Express. As the momentum for e-commerce focused 3 PL services continues the potential for jobs creation in this segment will keep rising.

Warehousing

Logistics and warehousing play a pivotal interdependent role in the transportation of goods across the country. Two significant changes that have led to exponential growth prospects in warehousing are the introduction of GST to eliminate cross-border tax inefficiencies and the phenomenal growth of e-commerce necessitating the creation of large scale warehousing ‘parks’ across India.  It is estimated that GST alone will lead to a 112% growth in warehousing. ⁶

Other government initiatives helping propel warehousing growth are: ⁵

• Exclusive Warehousing Promotion Zones
• Exclusive areas for warehousing within Industrial Parks
• Specific logistics and warehousing policies, separate from generalised industrial promotion policies

Changing Face of Warehousing

The warehousing segment is witnessing a dynamic shift owing to several emerging trends, a significant one being moving away from a fragmented unorganised model towards a formal and sophisticated one. We list key facts & figures that point to buoyant activity in this sector which can translate into millions of jobs across warehousing functions.

• A report from realty research firm JLL states the warehousing sector is expected to grow at an average CAGR of over 20% in the next three years 2018 – 2020. ⁶
• Warehousing investment accounted for around 26% of the total private equity (PE) investments into real estate during January 2014 – January 2018. ⁵
• 
• Close to Rs 45,000 crore will be pumped into creating warehousing facilities between 2018 and 2020 and employment generation is projected at 200,000 jobs between 2018-2020 across various categories of warehousing. ⁷

• JLL research also estimates that total stock of quality warehousing in the top eight Indian cities was 140 million sq ft in 2017, expected to increase to 247 million sq ft by the end of 2020. ⁸
• The annual leasing transactions for the warehousing industry within the organised segment in 2017 was 25.7 mn sq ft recording 85% YoY growth over the previous year. ⁵

Changing Skills Set

As warehouses get larger and more sophisticated, their role is much more all-encompassing than mere stockpiling.

A modern day organised warehouse requires much more specialised skills such as the ability to use warehouse and inventory management systems, specialist equipment drivers such as pallet trucks and fork lifts, packaging and tagging using track and trace technology, technically skilled cold chain executives capable of operating sophisticated controlled environment equipment, among others.⁹ As warehousing scales up, the need for specific and deeper skills at the operational level will drive up huge demand for a suitably skilled workforce. The warehouse manager’s position will evolve from a purely administrative role to a more specialised position demanding familiarity with warehousing technology (WMS, RFID, handhelds), modern equipment, industry and goods specific stocking & handling practices (FMCG, perishables, textiles etc), safety practices etc.⁹

There will be a simultaneous rise in traditional jobs such as those in air, road and rail freight forwarding services but with increased knowledge on technology driven logistics processes such as GPS, RFID tracking & bar coding, customer support, reverse logistics etc.

Conclusion

With an all pervasive economic success of the logistics sector hinging on a new age labour force the job at hand may appear daunting. This holds true of most Indian sectors where there has been a serious lack of industry relevant skill training. It is time to embrace this challenge as the benefits are transformational.

Skill based training for the front line, customer care and operational staff needs to be scaled up to make a real dent in the prevailing gap. Clearly, it’s a win-win situation for all stakeholders to capitalise on the jobs growth potential in India’s logistics sector.

References

1. India Services Sector A Multi-trillion Dollar Opportunity for Global Symbiotic Growth, Apr, 2017, Deloitte, CII
2. Annual Report 2016-2017, Ministry of Skill Development & Entrepreneurship, GoI
3. Working on policy for logistics hubs: Commerce minister Suresh Prabhu, Jun 08, 2018, Economic Times
4. India – On the Cusp of a Logistics Revolution, Jan 2018, Deloitte-ASSOCHAM
5. India Warehousing Market Report 2018, Knight Frank
6. GST will lead to 112 per cent growth in warehousing, Jun 22, 2018, Hindu Business Line
7. Close To INR 45,000 Crores To Be Invested In Storage And Warehouses By 2020: JLL Report, Mar 26, 2018
8. India’s Warehouse Boom, Jul 8, 2018, Business Today
9. Skill gaps in the Indian Logistics Sector: A white paper, KPMG in India
10. Indian Logistics: Deciphering Storage Space Dynamics and More, Mar 2018, JLL Report