How India plans to solve its logistics gridlock

How India plans to solve its logistics gridlock


A truck on an Indian highway covers an average of 250- 300 km per day, compared to 450 km in Brazil, and 800 km in the United States, according to World Bank data. Transportation gridlocks are a key constraint in Asia’s third-largest economy.

Logistics costs in the country are estimated to be 14% of Gross Domestic Product (GDP), compared to 8-10% in advanced economies. Based on various reports, the bank calculated that inefficient logistics probably shave off $45 billion from India’s economic output, or about 2% of the country’s GDP at 2014 levels.

Such bottlenecks also hurt consumers. Lower logistics costs can reduce wholesale prices of many everyday items, ultimately making them cheaper. “Firms deliver less competitive goods and services and consumers pay more than peers for goods; and the cost of achieving improvements in gross domestic product is excessive,” a 2018 World Bank study on India’s logistics sector states.

While the country has integrated its levies through a common Goods and Services Tax (GST), individual states still operate like separate markets when it comes freight norms and regulations, contributing to a lumbering logistics network. On the other hand, port congestions are common, which are a drag on international trade.

The country on September 18 unveiled an ambitious national logistics policy to cut costs to global averages by 2030 by enabling quicker transportation, reducing paperwork, and removing hurdles, according to a presentation on the National Logistics Policy that HT has seen.

In large economies such as India, “responsibilities for both hard and soft infrastructure are shared by a number of central and state agencies”, according to Arnab Bandyopadhyay, lead transport specialist at the World Bank in India.

Moving goods requires a transporter to navigate complex systems that include material handling, administration costs, logistics equipment, documentation, insurance, logistics system management, packaging, and warehousing.

India’s logistics chain is onerously long, comprising air freight stations, inland container depots, container freight stations, and cargo terminals. These are essential infrastructure, but they aren’t seamlessly connected.

“Several reasons are cited for the high logistics costs in India, including an unfavourable policy regime, lack of a multimodal transport system and consequently the heavy reliance on road transport,” states a 2019 study by the National Council of Applied Economic Research (NCAER).

The study attributed high logistics costs to gridlocks such as fragmented storage facilities, which can’t respond to quick turnaround deadlines. There are multiple stakeholders in the entire transport and storage value chain, the study states. It also identified poor quality of road and port infrastructure.

The government aims to bring down logistics costs to 10% of the GDP, Union minister for road transport and highways, Nitin Gadkari, told the Mint Mobility conclave last month.

A key hurdle, according to the NCAER study, was the “absence of technological intervention in storage/transportation and distribution activities”. Part of the system is information-technology enabled, but a bulk of the operations still requires manual cross-checking, tedious tallying, and inspections by multiple authorities.

Digital push

The centrepiece of the new logistics policy, therefore, is a unified, common digital network that will run along the entire gamut of logistics supply chain, an official said, requesting anonymity.

“The backbone of the new logistics policy will be a tech-enabled information system that will be a unified platform and accessible seamlessly,” the official said.

According to the presentation cited above, the national logistics policy consists of five components: Integration of digital system (IDS); unified logistics interface platform (ULIP); ease of logistics; system improvement group and e-handbook.

ULIP is envisaged to be a login-enabled secure network, much like a large website, where service providers, shippers, consignees, and government agencies will be able to exchange information on a “real/near-real time basis in a confidential manner”.

It will mimic the popular Unified Payment System (UPI). “The aim is to create a UPI kind of a structure in which every single transaction of the logistic sector can be authenticated,” the presentation states.

The digital platform is aimed at both cutting and interconnecting intermediaries, which hamper quicker transportation. India has a highly fragmented trucking industry. Seventy-seven per cent of truck owners have a fleet size of five vehicles or less. There are approximately 5,000 intermediaries in the freight industry, the World Bank study states.

The ULIP has been “conceptualised” to enhance “efficiency, utilize technology and reduce the cost of logistics in India”, the presentation states.

Multi-modal

A simple switch to a digitised network isn’t a silver bullet, experts say. “You need hard infrastructure to complement that soft infrastructure. That is the kind of integration that is required,” said Satish Mohan, a former engineer with the infrastructure firm Larsen and Toubro Ltd.

An umbrella infrastructure project called PM Gati Shakti National Master Plan aims to put in place a multi-modal transport network, among other things. “Gati Shakti is about breaking silos, promoting integration among various ministries and creating a single window,” the official said.

The multi-modal approach is aimed at connecting all forms of transportation, including roadways, railways, waterways and airways, which will require large investments, the minister said.

Higher domestic consumption has increased import demand for a variety of goods, especially break bulk cargo, a form of freight where good are broken up into smaller units. These include rice, maize, glass, granite, garnet sand, soya, cement and flowers. This has pushed up demand for containers, which increases efficiency in handling and cuts losses from damage. Gati Shakti also envisages logistics parks and long-distance corridors, which are needed as “containerisation” has increased.

The Bureau of Indian Standards and the Warehousing Development and Regulatory Authority are being roped in to draw up new standards for storage facilities that “go beyond the prescribed mandatory standards” to create a seamless global supply chain.

“Achieving these goals will require a lot of investment, coordination between government departments and the logistics sector. This should be easier in an era of digital technologies than a decade ago,” Mohan said.



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