RIL's logistics foray rides on growing retail print, govt supply-chain push

MMLP near Chennai to be key distribution hub for company in south; firm may bid for more MMLPs across country, say sources

The entry of Reliance Industries (RIL) into multi-modal logistics parks (MMLPs) is a logical extension for the company, say informed sources, as the firm's ambitions in existing businesses such as retail get bigger by the day. At the same time, the government's drive to have state-of-the-art MMLPs in the country is a significant business opportunity for the company as the sector has potential for growth, they say.

On Friday, the Ministry of Road Transport & Highways awarded the contract to set up India’s first MMLP near Chennai to the Mukesh-Ambani-led company. The firm, said persons in the know, had put in a bid with a minimum revenue share of nearly Rs 460 crore. This is expected to begin from the third year of the 45-year-concession period of the project, when the first phase of the MMLP will be completed. RIL's bid was ahead of the nearly Rs 400 crore quoted by the Adani group, the other bidder that had qualified for the project, for the same period, sources in the know said.

RIL executives were not immediately available for comment. But the MMLP near Chennai will likely emerge as a key distribution hub for RIL in the south for its retail and fast-moving consumer goods business, persons in the know said. The company may also bid for more MMLPs across the country as it seeks more such distribution points to ensure timely and efficient movement of its goods within retail and consumer goods.

Parallely, the government's aim to address challenges in the logistics sector with state-of-the-art logistics parks also provides an opportunity for companies such as RIL to tap into its skillsets to build, manage and operate large turnkey projects, said experts.

"RIL has the expertise of setting up large units in oil and gas and petrochemicals. These skill sets can be applied to logistics parks where you have large warehouses, mechanised supply-chain as well as freight, container and bulk terminals," Deven Choksey, managing director at Mumbai-based brokerage KR Choksey, said.

An MMLP, simply put, is a dedicated freight-handling facility with connectivity to multiple modes of transport.

As Saurabh Bakliwal, managing director & partner, who heads the infrastructure practice for the Asia-Pacific region at Boston Consulting Group, says, MMLPs are aimed at reducing overall freight and warehousing costs for companies by improving the traceability of consignments through infrastructural, procedural and technological interventions. They will also provide various value-added services, including labelling, packaging, tagging and crating, thereby offering a variety of services at a single location, he says.

"It therefore helps in cargo consolidation and distribution to achieve scale in shipments," he adds. And scale and speed in shipments is important to address India's logistics woes.

To put things in perspective, India’s logistics cost as a percentage of GDP stands at around14-16 per cent, while in developed countries such as the US and Europe, it is around 8 per cent. China’s logistics costs are 10 per cent. The government wants to bring down the logistics cost in India to 10 per cent of GDP to improve ease of doing business.

Apart from Chennai, the government is looking to set up MMLPs in Bengaluru, Indore and Nagpur as part of 15 projects out of 35 MMLPs that have been fast-tracked in the first phase. The rest are likely to come up later.