| The Indian economy has seen robust growth coupled with a rise in domestic consumption and trade - all helping the growth of the logistics industry. However, there are a few challenges that need to be overcome along the way.
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| India's GDP has witnessed an average growth rate of six per cent since 1997. Moreover, during 1991-2005, India's imports have gone up at by an average of 8.8 per cent while exports have registered a growth rate of about 9.27 per cent. Logically, the contribution of logistics industry to India's GDP has risen in recent years "� to 9.3 per cent in 2004-05 from 7.4 per cent in 1999-00.
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| Logistics is one of the key economic activities throughout the world. The global logistics industry was estimated to be about $3.5 trillion in 2005. In the same year, the US logistics industry was estimated to be over $900 billion, contributing over 25 per cent to the global logistics industry. US logistics industry constitutes about 10 per cent of the country's GDP.
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| In the US, logistics costs account for 7-9 per cent of the cost of the final product; warehousing cost account for about 1-2 per cent and inventory holding costs are about 3-5 per cent of the final product. In developing countries, logistics costs are estimated to be higher at around 15-25 per cent of the final cost of the product due to lack of adequate logistics system.
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| In India, logistics cost account for around 13 per cent, comparatively higher than developed countries. The comparative inefficiencies in logistics can be attributed to inadequate logistics infrastructural facilities (both physical and technological), unorganised paper-based and manual process, fragmented supply chains and other general discrepancies in the country.
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| "The sector is highly fragmented with a non-industry status leaving it to fight all odds. In India, the absence of a uniform tax structure and procedures for all states often leaves the transporters or 3PL providers to face complex tax laws at every check posts. This results in delay in delivery and the blame is passed on to the inefficiency of transporters or logistics service providers. Such frequent delays result in the rise of transportation costs up to 40 per cent of logistics costs," says D P Agarwal, Vice-Chairman & MD, Transport Corporation of India Ltd. (TCIL).
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| Concurs Arif Patel, vice-chairman, House of Patels: "For years, our issues on Octroi, Carriers Act, Road Taxes, Road Safety and infrastructure have not been addressed. Thanks to the Supreme Court ruling, overloading "� the biggest menace of transport industry "� has reduced to a large extent with stricter rules and heavier penalties. The government is also trying to improve the infrastructure, but clearly the gap is enormous in today's perspective."
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| Chandrashekhar Pitre, National Marketing Head, DHL Express, India, says: "India has to improve its road network to keep up with the huge increase in inbound and outbound cargo. India is increasing its spend on ports and roads by 20 per cent this fiscal year but more tangible economic reforms and expediting the construction of better ports, roads and airports would enable the industry take better advantage of opportunities. A significant change and decongestion at airports would greatly enhance the quality of trade in the logistics industry."
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| Developing countries are working at ways and means to trim this cost as it impacts the final product cost. The estimated total logistics cost for the industry is around Rs 300,000 crore, out of which transportation share is more than 60 per cent while warehousing cost is nine per cent and the rest comes from inventory costs. Even if we were to just save two per cent of this cost (Rs 6,000 crore) and utilise it for innovative logistics solutions, it would clearly have a visible impact on competitiveness
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| SCM and 3PL logistics
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| Supply Chain Management (SCM) is a highly-specialised area that requires extensive domain knowledge of the end users needs. And improving the supply chain is best left in the hands of professionals or Third Party Logistics (3PL) players. Of the total estimated industry revenues of about $20 bn in 2009-10, revenues from 3PL solutions are anticipated to account for $970 million "� growing at a CAGR of 20.6 percent from 2004-05 to 2009-10.
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| The Indian 3PL market, estimated at about $890.3 million in 2005, is expected to grow at a compound annual growth rate of 21.9 percent to reach $3,556.7 million in 2012. Frost & Sullivan's research identified the largest end-user industry for 3PL services as of 2005 as the auto industry.
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| The concept of a single professional logistics service provider managing the entire logistics functions of a company is nascent in India with less than one per cent of logistics being carried out through 3PL vendors whereas in developed nations, it is as high as 20-30 per cent. In India, there are players like DHL, TCI, XPS, Delhi Assam Roadways Corporation (DARCL), Speedage, Gati, and AFL to name a few. As more companies start outsourcing some elements of logistics the revenue of 3PL service providers is expected to increase manifold.
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| 3PL is big business. TCI, for instance, plans to spend Rs 50-100 crore every year on fleet expansion, new warehouses, IT, ships, and plant and machinery. Tata Motors is a case in point. Recently, TCIL set up a Rs 9-crore warehouse for Tata Motors to cater to the spare parts distribution of the company's Passenger Car Business Unit for North India. Located in Gurgaon and spread over 69,000 sq ft, it is expected to cater to 70 per cent of the in-bound materials from Pune and Gurgaon.
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| Other sectors that have shown substantial contribution to 3PL market and significant growth potential include the information technology (IT) hardware and electronics, Fast Moving Consumer Goods (FMCG), and retail sectors. Some factors that are driving Indian Logistics towards 3PL are Value Added Tax (VAT) which is expected to drive Indian industries towards using more 3PL services. Besides, the government's increased focus on improving logistics infrastructure is expected to have a huge positive impact on the 3PL market.
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| The road ahead
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| The transport industry or the Indian freight sector is estimated to be over Rs 45,000 crore. The average productivity of a truck is 200/250 Km /day in our country as against over 1200Km / day in developed countries. Besides, only around 47 per cent of Indian roads are paved. The road network, though extensive, is unable to handle high traffic density at many places and has poor riding quality in some segments.
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| The economic loss to the national exchequer due to substandard roads and inadequate roads is estimated to be over Rs 20,000 crore. "I foresee all these will be corrected in the span of three to five years and containers will eventually come up for reasons of security and safety," says an optimistic Agarwal.
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| Banks, too, are ready to suport this quest for success. Vijay Chandok, GM, ICICI Bank, says: "The recent growth in the economy has been admirably supported by the logistics industry. With the economy poised to continue on the high growth path, the industry is expected to gear up to support this growth through expansion and technological upgradation to deliver international quality service. We are keen to partner the industry in this journey."
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| Highlighting the need for speed and good service, Puneet Agarwal , Director, Delhi Assam Roadways Corporation Ltd. (DARCL), says: "Decades ago the customers were content with just reaching of materials and now it is tracking, Just-in-Time (JIT) and with definite cost reduction with committed service." The need of IT, too, in the logistics sector can hardly be overemphasised and with the reduced costs of internet connectivity, it has become feasible to have online systems.
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| However, the use of IT has been limited to the few top players in the industry since a majority of players in this sector are unorganised or have very small operations. Majority of Fleet owners/Truck Suppliers have very small scale operations and uneducated work force and penetration of IT is almost nonexistent. Vehicle Tracking Units based upon GPS/GSM tech is very limited and popular technologies like RFID are still to come to India.
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| "India is touted as the future destination for logistics service providers all over the world. SMEs can play a significant role by using the vehicles of automation, IT, technology and better labour productivity to play a leading role in the global economy," says Sushil Jiwarajka, Chairman, Western Regional Council, FICCI.
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| They all have a valid point. India's cargo and logistics industry looks promising. A strong commitment from private sector operators coupled with determined efforts by the government and regulators can transform the sector. With rapid tech development and integration of global economies and supply chains, India can play a significant role in global logistics industry.
| Railways can't match roads
With the consistent rise in oil prices, there's bound to be a pressure on the freight rates. Will companies start transporting their goods via the railways to avoid road transport which is becoming expensive? Here are some views:
J P N Singh, Director, Scorpion Express, says: "With crude oil price rising, it is difficult to figure out the costing of road transport because apart from fuel prices, there are many other factors (such as location, return load, tolls and demand supply of vehicle) that determine the freight cost. Although railways keep advertising in various media that they are offering various discounts on bulk booking, it is only for the bulk traffic. The railways too increase their freight rates but not as often as roads "� where it takes place every month."
Arif Patel, vice-chairman, House of Patels, says:"So far we have been able to absorb a major part of the hike in oil prices without passing a buck to the consignors. The aces up our sleeve are our own containerised, high-capacity carriers that play pivotal role in generating our key business. Railways have come up as strong cargo movers in certain routes. But they can't match road transport in terms of reach and serviceability. Railways certainly can't reach goods at consignee's doorstep, which a transport company like ours can with a national network of more than 500 stations."
"While 50 per cent of the total capital investment in logistics industry is in the rail, only 30 per cent of total cargo is carried by this mode of transportation. Railways is an expensive mode of transportation in India. Studies show moving cargo by rail is costing 7.9 cent per kilo metre per tonne in India while it is as low as 2 cent per kilo metre per tonne in Canada. Indian Railways is over 3.5 times costlier than developing countries," says Sudhir S Rangnekar, President, Association of Multimodal Transporters of India (AMTOI).
"Although road transportation is becoming expensive, railways cannot match the level of service. Road transport has certain inherent qualities, which keeps it at a notch above the railways. Primary amongst these is door-to-door delivery and transportation of parcel loads. But yes, transportation of bulk cargo has seen a shift. The Railways recently declared last week that its freight transportation was up by 10 per cent last month. This is a clear indication that some industries are moving to railways, but at the same time I feel there is nothing to worry for the road transport sector," says BGTA President, Mohinder Singh Dua. |
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| Professionalism needed
Transport Corporation of India Ltd. (TCIL) was set up in 1958 to "professionalise the cargo transportation industry in India". Four decades later, TCI has 1,200 company-owned branches, covering almost all the cities and towns of the country.It handles over 5.5 million tons of cargo annually and operates a fleet of over 3000 trucks moving 15,000 consignments daily. The company has crossed the Rs 1000-crore mark and is looking at doubling its turnover over the next 4-5 years, says D P Agarwal, Vice-Chairman & MD, TCIL in an interview. Excerpts.
What are your growth plans for the next two years?
TCI is India's first and leading provider of the entire range of supply chain services. Our strength lies in being a one-stop shop. We have been achieving a continuous growth rate of 15-20 per cent y-o-y. We have crossed the Rs 1000-crore mark and are looking at doubling our turnover in the next 4-5 years. The boom in aviation and the impetus given by the government has made us hopeful about this sector as well. To sustain all this growth, we are looking at investing in new warehouses, vehicles and ships, offices and IT systems.
Do you have any specific offerings for the SME sector?
The company's roots trace back to 1958, when the principal customers to our success were the SME segment. The SME clients are basically serviced by the TCI/XPS divisions. We would be looking at new product offerings for them in express and courier segments.
Are companies sending their goods by the railways to avoid road transport, which is becoming expensive due to increasing diesel prices and higher freight rates?
Fuel prices have been consistently rising over the last couple of years. The diesel cost is 50 per cent of the operating cost of a truck. Transporters need to add the costs of Operation/interest lubes, tyres, permits etc which then leaves a very thin margin. Road services would always prevail as Rail cannot provide the last mile connectivity. Trucking services also enable pick up and delivery at customer's premises. There are comparatively more delays in cartage through railways, which today's time sensitive customer is not inclined to bear.
What are your expectations from the government?
The government should grant an Industry status to the sector. Logistics serves as the backbone to many sectors such as manufacturing, auto, FMCG and pharmaceuticals. After agriculture, it is the second largest employer. Development of Infrastructure is an area where the government needs to focus. Also, transporters are neither consignee nor consumer of goods. They carry goods as railway, Shipping or Airways do. When these services are not included under VAT, transporters too should be excluded. |
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| Feet on the ground
From the first to offer Air Express Services in 1979 to being the first and only company to provide total express logistics and inventory management, DHL Express has a strong global aviation network of more than 420 aircrafts and covers over 80 cities across India with 45 flights per day, says Chandrashekhar Pitre, National Marketing Head, DHL Express, India.
What are your growth plans?
DHL is the only logistics company to invest in its own on ground infrastructure. We have committed over $250 million in India over the last few years. The focus has always been to provide customised solutions to meet the everyday needs of our customers. DHL Express has tied up with Transmile, a premier regional air express operator, to provide customers in South India quicker delivery times to the US. Moreover, we have 52 Express Centres for SMEs and retail customers "� more than all the other competitors put together in India. DHL Express is the only company to have Technology Asset Protection Association (TAPA) certification facilities to ensure security.
Do you have any specific offerings for the SME sector?
Under pre-shipment, we have designed special packaging like Jumbo Box and Express Pallet. There are also automation tools such as DHL connect which is client service and DHL web shipping which is web-based. Both of these are free-of-cost to the SME customer. Under post-shipment, for timely delivery there are exclusive offerings with TDD-WPX (Time Definite Delivery) for parcels from India to all Asia Pacific countries. There is also SII (Shippers Interest Insurance) to ensure the safety of all parcels. DHL has tied up with ICICI and Citibank. Anyone using these credit cards for transactions will get 20 per cent off on the tariff.
What are your expectations from the government?
A planned network of divided 4-lane highways to connect all its major cities is a good start. India is increasing its spend on ports and roads by 20 percent this fiscal year but more tangible economic reforms and expediting the construction of better ports, roads and airports would enable the industry take better advantage of opportunities.
How mature is the logistics-outsourcing phenomenon with regard to Indian companies?
Logistics outsourcing is still at an early stage in India. This is expected to accelerate in tandem with simplification in the regulatory framework for e.g., Introduction of VAT. There will also be an increase in the outsourcing as the companies improve their focus on supply chain. |
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| Multimodal transport
Multimodal transportation is the movement of cargo from the point of origin to the final destination, outside India, by using two or more modes of transport. The current size of multimodal transportation in India is approximately three million containers per annum. There are more than 300 multimodal transport operators (MOTs) of which 120 are registered with AMTOI.
Roads: India has one of the largest road networks in the world "� 3.3 million km comprising 65,569 km of national highways, 128,000 km of state highways and 470,000 km of major district roads and rural and other district roads accounting for around 2.65 million km. Road transport here accounts for about 85 per cent of passenger traffic (surface transport) and 70 per cent of freight traffic, while railways constitute only about 15 per cent of passenger traffic and 30 per cent of freight traffic in the country. Roads are owned by the government and it has the right to develop and maintain them. But over the years, with the increasing demand for road transportation, the private sector is getting involved in the development, operation and maintenance of the road projects on a Build-Operate-Transfer (BOT) basis. According to the Expert Group on Infrastructure, the growth in road transportation requirement is estimated at 1.5 times of GDP growth for freight and two times of GDP growth for passenger traffic. Therefore, expansion of road network is absolutely essential to remain efficient and viable in the long run.
Seaports: India has more than 6,000 km of natural peninsular coastline with over 12 major ports and 187 minor/intermediate ports, which link international supply chain network. These ports handle 90 per cent of seaborne trade in the country. The major ports in India handle over 70 per cent of total port traffic and these ports are governed by a port trust appointed by the Central Government of India and tariffs are regulated by the Tariff Authority of Major Ports. In 2005-06, the major ports together have handled 423.41 million tonnes of cargo traffic out of the total 604.58 million tonnes of cargo from all ports in the country. Commodities handled by major ports can be broadly classified into POL, Iron Ore, Containers, Fertilisers and Coal. The percentage share of each of the total cargo handled at major ports remains more or less the same over the last five years but the growth of containerised cargo is the highest. There has been an excellent growth of container traffic at major ports in India and in the last five years, India's container traffic has gone up by 14.2 per cent per annum during 2000-01- 2004-05 period.
Air cargo: The cargo handled at Indian airports has gone up at a CAGR of 7.8 per cent from 0.65 million tonnes in 1995-96 to 1.3 million tonnes in 2004-05. However, international cargo handled at Indian airports has increased at 6.8 per cent per annum, while domestic cargo has increased at 9.9 per cent per annum. The five major airports have accounted for about 90 per cent of the total cargo handled in the country. Currently, about 50 carriers operate cargo and passenger services to and from India. In India, cargo terminals are managed by Air India and Indian Airlines at most of the airports. However, at some airports, cargo terminals are managed by the State Trading Corporations. But new cargo terminals, which are under construction, are managed by the airports themselves, like Cochin and Chennai airports. The cargo terminals of India face problems like poor quality warehousing; improper implementation of Electronic Data Interchange; uncoordinated procedures without technology interface among ground handling agencies; outdated handling equipment; absence of efficient storage systems and quick clearance of cargo; absence of improved inventory systems; and inadequate X-ray facilities and absence of improved access to the cargo terminals.
Railways: The Indian Railways is one of the largest and busiest rail networks in the world. It is divided into passenger and freight transport. Freight contributes over 65 per cent of its total revenue. Indian Railways handled around 602 million tonnes of freight (bulk commodities) in 2004-05. In the freight segment, 95 per cent of revenue comes from the bulk commodities such as iron ore, cement, fertilisers, coal and food grains, while coal alone contributes about 50 per cent of the revenue from the bulk commodities. Indian Railways covers almost all parts of the country with routes covering a total length of 63,940 km. As of 2005, Indian Railways owned a total of 216,717 wagons, 39,936 coaches and 7,339 locomotives, running a total of 14,244 trains daily. It is the world's largest commercial or utility employer with over 1.6 million employees. In 2004-05, coal contributed about 45 per cent i.e. 271.4m tonnes of total bulk cargo handled by Indian Railways, foodgrains contributed 8 per cent with 46.52 million tonnes, iron and steel "� 8 per cent with 44.26m tonnes and cement 9 per cent with 53.77 million tonnes. |
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