Multi-modal Logistics Parks: What they are and why they're needed

A dive into the logistics challenges involved in setting them up, and the how the parks will work once up

The government intends to complete the development of 35 Multi-modal Logistics Parks over the next few years, in a bid to boost infrastructural development. What are these parks and why are they needed:

What are India’s current logistics challenges?

According to the Ministry of Road Transport and Highways, the average road freight cost in India is Rs. 1.9 per ton per square kilometre–almost twice that of the United States of America.

As infrastructure growth takes the front seat for the Indian economy, especially in the context of a post-pandemic revival, high cost of logistics comes as a significant challenge. In a recent post-budget address, Prime Minister Narendra Modi said that logistics costs in India amount to 13-14% of the national Gross Domestic Product (GDP), which is significantly higher than other countries. In most of the developed world, cost of logistics does not exceed 7-8% of GDP. The Centre intends to bring these costs to 8-10%.

Why is the cost of logistics so high?

According to the World Bank, currently, 60% of India’s cumulative freight is ferried via road. Apart from environmental concerns on account of carbon emissions via road transport, the excessive reliance on road transport also leads to congestion on road networks, leading to delays and added cost of logistics. The only viable alternative to road transport is railways, which is 45% cheaper, but is not preferred by manufacturers or distributors because of adverse rake booking and pricing policies and lack of inter-modal connectivity between the rail network and road network, which serves an important role for last-mile deliveries.

In the absence of a robust road infrastructure, the excessive dependence on road transport for freight also adversely impacts the cost of logistics. The average speed of road freight in India is 25-30 kilometres per hour (km/h), and this does not include driver rest time. Substandard road infrastructure leads to transportation delays, leading to lesser trips, and higher costs.

Additionally, the storage and warehousing ecosystem in India is scattered and unorganised, run by a large number of private players, mostly operating in silos. With no consolidated setup for warehousing, the average warehouse size in India is significantly lower than countries like the United States of America, adversely impacting investment and capacity. Moreover, storage and handling losses are seen to be higher in smaller warehouses, which effectively results in higher storage costs, hence more spending on logistics.

What are MMLPs?

The government intends to build 35 MMLPs across the country, which will act as centres for freight aggregation and distribution, storage and warehousing, providing added incentives to logistics companies such as customs clearances. These parks will also facilitate intermodal transportation – roads, railways, and inland waterways, with the aim of strengthening and diversifying the logistics system.

While the road transport and highways ministry is the primary agency responsible for the development of MMLPs, the development of Indian Railways' dedicated freight corridors (DFC) and inland and coastal waterways, under the Ministry of Shipping, are integral to the success of the mega-project.

Why now?

While the first announcement for MMLPs was made in 2017, the initiative has only gained prominence over the years. With one of the key focus areas of the PM Gati-Shakti national master plan being bringing down the cost of logistics and Centre’s record budgetary allocation for infrastructure development, MMLPs have a key role to play in the country’s post-pandemic growth.

How will MMLPs work?

MMLPs will be typically built outside dense urban areas. According to a government proposal, freight from production zones around the area will be shipped to these parks, where it will be aggregated. Several vehicles separately carrying freight, instead of making separate trips, can avail these logistics parks to transfer their load onto a bigger transporter. Aggregated cargo will then be disaggregated at the destination logistics park, from where it will be distributed to consumption zones in the area.

The parks will enable the shift from a point-to-point to a hub-and-spoke model in the logistics sector, as per the road transport and highways ministry.

How can MMLPs address current logistics challenges?

As per the government’s estimates, MMLPs can effect around a 10% reduction in transportation cost for the top 15 nodes by enabling freight movement on higher sized trucks and rail. The reluctance of the industry to opt for rail freight transportation is expected to be addressed by these parks, as they promise a smooth transfer of goods. Further, the eventual development of inland waterways can further help diversify the freight network.

The shifting of warehouses scattered across the city to these MMLPs could also lead to a reduced cost of warehousing and storage. Since these parks are located outside densely urban areas, lower rents could cool off cost pressures on these facilities. Modernisation of these large warehouses can also lead to reduced storage costs and handling losses.