The Hidden Cost: Why Logistics Weighs Most on Small Firms

Overview: The DPIIT-NCAER Logistics Benchmark

A joint study by the Department for Promotion of Industry and Internal Trade (DPIIT) and the National Council of Applied Economic Research (NCAER), reported by Outlook Business on 25 September 2025, estimated India's aggregate logistics cost at Rs 24.01 lakh crore in 2023-24, or 7.97% of GDP and 9.09% of non-services output.

The study drew on supply-use tables, national accounts and RBI balance-of-payments statistics. The headline described it as the first systematic study; earlier figures cited in the same article came from consultants, including 10.9% of gross value added in 2015 (AVALON Consulting for CII) and 13% of GDP for 2016 (Armstrong & Associates).

Those used different methods, so the numbers are not directly comparable, and the article noted that a government official said it was uncertain whether DPIIT would repeat the study regularly.

What the Report Says About Modes and Fuel

The article gave unit costs for two modes: rail, the cheapest, at Rs 1.96 per tonne-km, and air, the costliest but fastest, at Rs 72 per tonne-km.

Water transport was described as cost-effective and the most environmentally friendly, though no figure was given. Road freight relies heavily on trucking, and fuel accounts for 42.1% of road freight expenses. The article gave no breakdown for warehousing or inventory.

“A national average hides who pays the most.”

The Size Gap: 17% vs 7.6%

The sharpest finding concerned firm size. According to the article, firms with turnover under Rs 5 crore spend about 17% of output value on logistics, while large firms spend about 7.6%. (The article omitted the unit for the large-firm turnover threshold, so we do not state it.)

Why Small Firms Pay More: Our Reading

The study does not explain the gap, so what follows is analysis, not a finding.

1. Smaller loads cost more per unit. A firm that ships half-empty trucks or single parcels pays more per tonne-km than one that fills containers.

2. Less bargaining power. Large shippers negotiate volume contracts with carriers; a small firm buys at spot rates.

3. Higher inventory and waiting costs. A firm with irregular orders holds more safety stock, and delays hurt more when cash is thin.

4. Limited access to rail and waterways. The cheaper modes require volume and planning.

Actions for a Small Manufacturer: Our Framework

• Measure your own number. Add transport, warehousing, packing, insurance, handling and the interest cost of stock, and divide by sales. Most owners have never done it.

• Consolidate loads. Share trucks with neighbouring firms in the same estate, or use an aggregator that pools shipments.

• Review delivery frequency. Weekly rather than daily dispatches often cut cost with little effect on customers.

• Use rail or coastal shipping for bulky, non-urgent goods if your volumes justify it.

• Check packaging. Damage in transit is a hidden cost; better packing can pay for itself.

• Negotiate annual rates with one or two carriers instead of buying each trip separately.

What This Means for Clusters and What to Watch

Industrial clusters have an advantage here: many firms in one place can pool freight. Our Enterprise corridor features describe estates in Pune, Sanand and Sriperumbudur where this is possible. An association that organises shared logistics can lower costs for all its members.

What to watch: If the study is repeated, the key figure will be whether the gap between small and large firms narrows. National logistics costs may fall as infrastructure improves, but small firms will feel the benefit only if they can reach it.

Questions for Your Freight Forwarder & Caution on Averages

Ask for a breakdown of what you paid last year by mode, lane and month. Ask how many of your shipments left partly empty and why. Ask whether any of your goods could move by a cheaper mode without harming service. Ask what the average damage rate is on your routes.

These four questions usually reveal one or two changes that save money without any capital spending. Keep the answers in a single sheet, and review it each quarter so that you can see whether the changes are working.

A final caution on averages: National figures are useful for context but dangerous as targets. A firm making heavy castings will have a very different logistics profile from one making electronic modules, and both differ from a food processor. Use the study's numbers to start a conversation inside your company, then build your own benchmark from your own records, ideally by product and by lane.

Editorial analysis. Figures as reported by Outlook Business (25 Sept 2025) from the DPIIT-NCAER study.