Logistics – origin
The term ‘Logistics’ is associated with military warfare, implying the movement of arms, ammunition, food, medicines, and other essentials from one battlefield to another. During the war, elaborate supply systems, roads and warehouses were used in the Middle Ages. Forts and castles become storage depots supported by the economy of the surrounding countryside. During the industrial revolution, logistics advanced considerably with the addition of railways and ships.
In today’s times, logistics is about moving materials, information, and funds between the point of origin and the point of consumption to meet the requirement of customers. Logistics covers freight transportation, warehousing, material handling, protective packaging, inventory control, order processing, demand forecasting and customer service. It is regarded as the backbone of the economy, providing an efficient and cost-effective flow of goods on which other commercial sectors depend.
Comparing notes with China
On a regional front, a brief comparison between India and China reveals critical factors directly affecting logistics. India moves 6% of freight coastally despite having about 7500 km long coastline. India has 200 plus ports, including 12 major ports. Not one port in India finds a place in the world’s top 20 ports. With 3 times more land than India, China produces 10 times more steel and cement and 5 times more electricity and automobiles. With double the coast length, China moves 20% of freight coastally, and 9 ports in China find a place among the world’s top 20 list.
The Indian Scenario
- Roadways are still considered the most economical mode of transportation in India due to their first and last-mile advantages. In contrast, across the rest of the world, railways and waterways are considered as most economical and environment-friendly modes of transportation. India has the 2nd most extensive road network of over 6 m km worldwide. It contributes 65% of freight and 85% of passenger traffic, adding to 4.7% of India’s GDP. The logistics cost in India is about 13-14% of the GDP compared to about 8% in the developed world.
- India has 3rd most extensive rail network in the world, measuring over 66,000 km and is 4th largest freight carrier globally. Major commodities transported by Indian railways are coal, iron ore, POL and cement. Railways have taken new initiatives to attract freight traffic over the road, such as withdrawal of port congestion charges, removal of BG surcharges, withdrawal of dual freight policy on iron ore, double stack dwarf container train with increased capacity, and role on role off freight service. Still, the conventional and historical market share of 70% by rail remains below 35%.
- India’s coastline of 7500 km and potentially navigable waterways of about 14500 km provides immense opportunity to develop water transport as India’s strategic mode of transportation from commerce, fuel efficiency and environmental perspectives. Inland waterways have taken several initiatives to build this mode and be more customer friendly. National Waterways Act 2016 laid out 111 proposed national waterways for development in 3 phases. Maritime logistics contributes to 90% of Exim trade by volume and 77% by value.
- The Government of India has taken several initiatives for efficiency, adequacy, speed, and large-scale improvement of the Indian logistics industry. The golden quadrilateral, Road Freight Corridors (North-South, East-West), Sagarmala, Bharatmala, Dedicated Freight Corridor (DFC), Regional Connectivity Services, logistic parks, scheduled coastal services, and multimodal changeover points are examples of such initiatives. The Sagarmala project consists of 4 significant elements: port modernisation and new port development, port connectivity enhancement, port-linked industrialisation, and coastal community development. DFC consist of mainly the eastern corridor (Ludhiana, Punjab to Dankuni, WB) and western corridor (Dadri, UP to JNPT, Mumbai), with plans for other expansions on lines of golden quadrilateral, spanning a total of about 10 k km length by rail.
- The Indian Railways intends to develop Multimodal Logistics Parks (MMLPs) through a public-private partnership, leveraging DFC corridors and handling containerised bulk, and breakbulk cargo at strategic locations. MMLPs have decisive advantages over conventional cargo handling and transportation, such as excellent rail and road links, lower overall freight cost, reduced pollution and congestion, reduced warehouse cost, efficient customs clearance, single window service and enhanced security.
Inland Container Depots (ICD) and Container Freight Stations support aggregation/ segregation of inbound/ outbound Exim cargo with efficient linkage, material handling, documentation, and data interchange for custom clearance.
- Implementation of the Goods and Services Tax (GST) in India sometime in mid-2017 has led to operational efficiency. It has driven supply chains, unified deduplicated procedures, avoiding infructuous infrastructure and transportation, greater deployment of IT and eliminating unhealthy practices, advantages of bulk-breaking and cross-docking, and consolidation on truck capacity, storage and warehousing in freight forwarding business. E-way bill, a document introduced under the GST regime, reinforces proper invoicing, reduced tax avoidance, and ease of movement across borders, resulting in reduced logistic cost and value addition for overall business gains.
- Investment and deployment of air transport is presently limited to only exigencies and transportation of high-value items, thus yet to become an integral part of the Indian logistic industry. Air freighting, though a faster means of transport, is helpful for long distances, saves time and doesn’t require the infrastructure investment that the railway does.
What ails the logistics sector in India
Evidently, in India, the various modes of transportation still operate in isolation with hardly any effective and efficient leverage to each other. Further, the unitisation of cargo through containerisation is yet to see a significant jump in volumes transacted compared to global logistic practices. First and last-mile connectivity, port congestion/ connectivity, global information exchange, adequacy of multimodal changeover points, scheduled services on coastal and waterways along with minimum necessary facilities, poor perception of the logistics industry, and shortage of drivers for available fleets continue to be the key issues facing growth and efficiency of logistics in India.
What India needs to do
A thoughtful, organised, and comprehensive approach is required, from design to operations to end-use applications, to leverage the enormous potential for savings and growth in the Indian logistics industry, besides emission mitigation to support the country’s net zero mission. The existing perception of logistics being merely a packaging and transportation industry, left in the hands of drivers, security guards and storekeepers, has to undergo a sea change. There is a need to adopt international best practices, embrace technological intervention and adopt avenues for consolidation, efficiency, deduplication, simplification and/or automation. This could also save immensely on consumption of fossil fuels and help reduce carbon emission.
Suggested To Dos include:
- Expeditious completion of new initiatives such as Sagarmala Projects, all conceived corridors of DFC, Bharatmala, port connectivity, and IT-related interventions.
- Effective utilisation of coastal movements and inland waterways by providing scheduled services and minimum required facilities at each port/ terminal.
- Unitisation of cargo through containerisation for ease of transportation and multimodal operations.
- Periodic and effective dredging for continuous improvement and sustenance of drafts
- Encourage an appropriate mix of Indian and foreign vessels, even for coastal and internal movements.
- Increased public-private participation in creating logistics parks, MMLPs and other logistics infrastructure at major consumption centres and model changeover points.
- A strategic move to shift traffic from west to east coast ports for increased capacity, decongestion, and freight rationalisation.
- Establish well-defined institutions for development and coordination among various elements of the logistics industry, such as rail, road, waterways, MMLPs, ports, logistic parks, and air cargo.
- Improved perception and quality of life for driver community for sustenance and capacity building to cope with envisaged growth
- Technological improvements in inbound and outbound logistics, fleets, warehouses, manufacturing processes and services involved.
- Paradigm shift and changed mindset so that the logistics industry is seen as a significant and relevant prime mover for growth and prosperity for a country.
- Common user principle and pooling of resources, opportunities, capacities, and volumes for optimisation, large-scale cost reduction and reduced carbon emission.
Although the logistics function has undergone several changes over decades, the industry remains most disorganised and fragmented. Efforts and initiatives taken by various governments, corporates, institutions, and private business houses have added massive infrastructure and capacities to cope with increased volumes and inter-state/ Exim trade.
However, the need for organised efforts with strategic planning and adopting the best available technology and practices cannot be over-emphasised. Logistics is one industry in the country or even the globe that connects with all walks of life and work and thus has a direct bearing. The cost difference in logistics operations prevailing between India and the developed world, coupled with a continuing preference for road movement in India, is one revealing fact paving the way for the need for large-scale improvement and innovative thinking in the field.
Sources: Official websites of Ministry of Commerce & Industry, Government of India, Ministry of Shipping, Government of India, Sagarmala, Bharatmala, Dedicated Freight Corridor Corporation of India, Ministry of Railways, Government of India and The World Factbook, National Perspective Plan, and Reports of GST Council Meetings.
Citation: This Insight may be cited as InfEneTy ‘Indian Logistics Industry – Issues & Concerns’ 04.01.2023
Tags: Logistics; International trade; Logistics policy; Infrastructure; Transportation; Transport policyAbout InfEneTy
InfEneTy is a knowledge platform which showcases critical news, insights and features on contemporary and topical issues related to Infrastructure, Energy and Technology affecting the economy, industry sectors, business environment. The intent is to enable an association with the evolving scenario and be a catalyst for change. Help make InfEneTy better. Share your comments or connect with us at firstname.lastname@example.org