Indian logistics industry is at the turning point of its development

Context:

• The Logistics Data Bank (LDB) project, unveiled in July 2016 to make India’s logistics sector more efficient through the use of Information Technology, will soon expand operations to the country’s southern region.

 Introduction:

• The project so far, had covered only the western logistics corridor.
• The project covers the entire movement of containers through rail or road till the Inland Container Depot and Container Freight Station.
• Every container is attached to a Radio Frequency Identification Tag (RFID) and then tracked through RFID readers-aids importers and exporters in tracking their goods in transit.
• The LDB is being implemented through a Special Purpose Vehicle called Delhi Mumbai Industrial Corridor Development Corporation Logistics Data Services Ltd. (DLDSL)-that is jointly (50:50) owned by the Delhi Mumbai Industrial Corridor(DMIC) Trust and Japanese IT services major NEC Corporation.
• The DLDSL provides, container tracking services to around 70% of the container traffic in India.
• Indian cost to export is double as compared to Malaysia, Singapore, and China etc.

Background:

• On July1, 2016, the LDB project was launched at the Jawaharlal Nehru Port, Mumbai.
• From May this year, its operations expanded to the container terminals at Adani Port Special Economic Zone, Mundra and Adani Hazira port, both in Gujarat.
• Initial discussions on the LDB project were held in May 2012.
• Talks were held on a regulatory framework from the Directorate General of Foreign Trade (DGFT) to ensure that all logistics players share data to make the project viable.
• Later on, meetings were held between the DGFT, the shipping ministry and other stakeholders including the Tariff Authority for Major Ports regarding the regulatory framework on Mandatory User Charges (MUC) as well.
• In November 2014, TAMP passed an order for levy o f MUC for the project.

Advantages of LDB project:

• The project will help in cutting down the overall lead time of container movement as well as reduced transaction costs that consignee and shippers incur
• It is billed as a major ‘ease of doing business’ initiative aimed at boosting India’s foreign trade and ensuring greater transparency.
• The service integrates information available with the agencies across the supply chain to provide detailed, real-time information within a single window.
• The services include providing users the ‘average delivery time’ as well as notification through SMS and email
• LDB will generate visibility for containers during their transition.
• The visibility would bring in more transparency and open up competition among each logistics operators to provide better services to end-customers i.e. export/import related companies.
• Competitive environment would help reducing lead-time and transaction cost for export/import process

Logistics Sector in India:

• The logistics sector broadly comprises the road transport sector (consisting of unorganized small businesses, trucking, fleets and large transport companies), the storage and warehousing sector and finally third-party logistics (3PL).
• Logistic industry in India is evolving rapidly, it is the interplay of infrastructure, technology, and new types of service providers, which defines whether the logistic industry is able to help its customers reduce their costs in logic sector or provide effective services.

Present Status of logistics sector in India:

• The logistics industry continues to witness growth due to the growth in retail, e-commerce and manufacturing sector.
• The Global Logistics sector was expected to grow 10-15% in the period 2013-14.
• Logistics industry is expected to reach over USD 2 billion by 2019.
• Rise of e- commerce logistics and increased domestic consumption will lead the way for the industry in the coming year.
• With a promise of growth and improvements, the service oriented logistics industry is ready to expand beyond the horizons in the latter half of this decade.
• The logistics market in India is expected to be worth US $307 billion by 2020
• The sector is expected to grow at a CAGR of 15-20 percent between FY2016-2020.
• This growth will be driven by infrastructure investment associated with logistics development plans (ports, logistics parks, highways, freight corridors and roads), domestic demand growth, and increase in trade
• India being the next manufacturing hub increase in trade with Asia, Europe, and North America will promote an increase in demand for the logistics services. The recent Indian logistics sector comprises of inbound and outbound segments of the manufacturing and service supply chains.
• The logistics infrastructure has gained a lot of attention both from business industry as well as policy makers.
• Contribution from the movement of goods including the freight transportation and storage is about 90 per cent .
• Road dominates the mode of freight transport mix and constitute about 60% of the total freight traffic.
• The country has notified five major industrial corridors – Delhi-Mumbai Industrial Corridor (DMIC), Amritsar-Kolkata Industrial Corridor (AKIC), Chennai-Bengaluru Industrial Corridor (CBIC), Visakhapatnam-Chennai Industrial Corridor (VCIC) and Bengaluru- Mumbai Economic Corridor (BMEC), spread across 15 states. Hence, the expectation of improving the infrastructure remains on priority for the sector.

Challenges faced by the logistics industry in India:

• Inadequate logistics infrastructure has an effect of creating bottlenecks in the growth of an economy.
• The logistics management regimen has the capability of overcoming the disadvantages of the infrastructure in the short run while providing cutting edge competitiveness in the long term.
• Higher transaction cost in logistics is one of the major issues for India.
• Leading to poor workforce planning and operations not being streamlined eventually causing delays in the container movement.
• The most serious challenge faced by the logistic industry today is insufficient integration of transport networks, information technology, and warehousing and distribution facilities.
• Regulations exist at a number of different tiers, is imposed by national, regional and local authorities.
• The regulations differ from city to city, hindering the creation of national networks.
• The disorganized nature of the logistic sector in India, its perception as a manpower-heavy industry and lack of adequate training institutions has led to a shortfall in skilled management and client service personnel.
• There is a lack of IT standard, equipment and poor system of integration.
• Poor facilities and management are the reason for high levels of loss, damage and containers, but it is also partly down to lack of training.

Solutions:

• Deploy effective managerial practices and technology to enhance the competitiveness through better management of logistics networks, and develop new models for new sectors especially in the service sectors as well as traditional areas like agri-business etc
• Change in industrial policies to facilitate efficient production and movement of goods and services.
• A strong IT solution is indispensable for increasing efficiency in the overall supply chain
• Strengthen the rail transport capacity
• The visualization of container movement can redesign, streamline and optimize the process of the overall supply chain
• Logistics Data Bank is a solution that shares the container tracking information among all the companies in the supply chain. It is aimed at reducing transportation lead time and cost.
• Integrate the existing IT systems of the stake holders and provide end-to-end tracking information with single window
• Eliminate many glitches/bottlenecks of road transport
• Trained manpower is essential both for the third party logistics sector as well as the manufacturing and retailing sectors, which is very weak at a practical level.
• It is essential to prioritize research and development so that the weaknesses in the industry can be taken care of and improved.
• For logistics industry to flourish special emphasis has to be on building world-class road networks, integrated rail corridors, modern cargo facilities at airports and creation of logistics parks which need to be given a status of equivalent to Special Economic Zones.
• Good storage and warehousing facilities are important for the growth of the logistics industry.
• With the increase in the transportation of perishable products, the logistics agencies needs to give a lot of importance to enhancing the Warehousing facilities.
• Emphasis on research and development is potent mainly because it encourages the use of indigenous technology which can make the industry cost competitive and can also bring improvement in service.

Way ahead:

• To support India’s fast paced economy growth of logistics industry is very essential. It is estimated that the Indian logistics industry will continue to show robust growth of 10-15% annually, leading the pace of growth of the economy at large.
• The logistics firms are moving from a traditional setup to the integration of IT and technology to their operations to reduce the costs incurred as well as to meet the service demands.
• The global economic outlook, indeed that of India is expected to significantly improve as India Inc begins to tackle the economic downturn,
• With the present government many policies are expected to be implemented which will give impetus to India’s growth engine particularly in the corporate and SME sector which in turn will expand demand of logistic sector.
• Under GST, the tax on warehouse, storage and other labour services has increased from 15% to 18%. So a third-party logistics provider will now have more incentive to move towards the provision of services that have a high degree of value addition and where input tax credit can be claimed.
• The industry has moved from being just a service provider to the position which provides end to end supply chain solutions to their customers. Thus, all this has paved the way for further growth of Logistics and Warehousing industry in the coming years.

Government initiatives:

• The government’s ambitious Sagar Mala project would transform the logistic sector and change the lives of those living along the 7,500 km coastline in the country.
• The industry anticipates more schemes under Make in India, Skill India, and Digital India initiatives, which would help in the boost of the upstream and downstream economic activities.
• The Road Ministry has initiated a project for the development of Multimodal Logistic Parks at 15 identified locations at a cost of about Rs 30,000 crore, about one-third of which would be for land acquisition.
• Another major development in the infrastructure sector is the enactment of the law on inland waterways, and the declared intention to promote cargo movement on these waterways.
• The Central government has reiterated its commitment to promote coastal shipping. The Foreign Trade Policy 2015-2020 consolidated and/or modified several schemes and simplified the procedures for export.

Conclusion:

Logistics is regarded as the backbone of the economy, providing efficient and cost effective flow of goods on which other commercial sector depends. Therefore, there is urgent need for reduction in logistics costs in order to increase the international competitiveness and to promote the expansion of export. Focus has to be on research in process excellence which can help to eliminate inefficiencies and bring Indian logistics on part with global practices.