Infrastructure, technology, and fiscal structures are aiding logistics sector in India

Infrastructure, technology, and fiscal structures are aiding logistics sector in India
10/04/2019 , by , in EXPERT ZONE

Authored by VishwasUdgirkar, Partner, Deloitte India, is part of Deloitte leadership for infrastructure and capital projects

In the current era of unifying global markets, having a robust logistics industry is critical for competitiveness in manufacturing and trade. India’s logistics sector is largely fragmented, yet promising, having almost all the required elements under some stages of development. In 2016, India leaped ranks in World Bank Logistics Performance Index (LPI), which is reflective of improvement in the sector. However, the industry landscape has much gaps that need to be plugged for a futuristic logistics network, at par with global economic powers. Holistic strategy and integrated actions across three important elements viz. physical infrastructure, fiscal strategies, and technology, could potentially transform the logistics sector in the country.

Plugging the gaps in physical infrastructure to cater to the need for a seamless intermodal logistics network

Despite increase in planned outlay across infrastructure segments, the physical infrastructure in the country needs further efforts to reach to the intended level. Challenges of intermodal connectivity and last mile connectivity are multi-fold, logistics costs are high, ports are yet to be fully modernised, and technology adoption is yet to pick up required pace. Plugging these gaps would mean better modal and terminal transport infrastructure with optimal modal mix, storage facilities for cargo and containers, enabling efficient use of resources and better fleet management.

Intermodal connectivity is key for efficient logistics. Transport modes in India, typically operate in isolation, with a skewed modal mix that relies heavily (about 60%) on the already congested road transportation[i]. The Indian coastline and river network has historically remained under-used, even though it is energy-efficient, eco-friendly and has potential to reduce logistics costs significantly. For instance, cost for freight is INR 1.06 per tonne km by Inland Water Transport (IWT), as compared to INR 1.36 by rail and INR 2.5 by road[ii]. Addressing such anomalies provides a huge potential to lower logistics cost in the economy, as also the development of better routes and connectivity, and support infrastructure being focussed under various government initiatives.

An integrated well-knit multimodal infrastructure network – rail, road, air, and waterways- is likely to enable the optimal use of these different modes to seamlessly transfer cargo. Such a transport network would facilitate in channelling the freight through the most efficient mode for faster, safer, cost effective and pollution-free movement. This could be driven through the development of multimodal logistics parks, streamlined economic corridor routes for efficient freight movement, and intermodal stations to connect various transportation modes. Further, to facilitate seamless flow across various modes of transport, inland container depots, container freight stations, ports, and airports could be designed with cargo specificity and operational requirements in mind.

To this end, government has initiated several ambitious programs. The Eastern Dedicated Rail Freight Corridor (1,856 km) and Western Corridor (1,504 km) projects [iii] are under implementation. Once operational, they are expected to strengthen India’s present rail infrastructure to carry freight many times over, possibly leading to a reduction in cost of transportation.

To exploit the efficiencies of waterways, several initiatives such as Sagarmala, Jal Marg Vikas project, river rejuvenation projects such as Clean Ganga Mission, have been taken up by the government. The Sagarmala Program[iv] which focuses on development along four thematic areas — port modernisation and capacity augmentation, port connectivity enhancement, port led industrialisation and coastal community development, also integrates an important component of ‘last mile connectivity’ from ports through road development. Coastal Economic Zones are also planned to be developed in tandem with this program.

Further, the Inland Water Authority of India is focusing on development and use of cost-effective inland waterways. To promote inland water transport in the country, 111 waterways have been declared as National Waterways (NWs)[v]. Of these, 32 new and 5 existing NWs are planned to be developed over the next three years[vi]. In addition, Freight Villages to aggregate cargo and provide facilities of warehousing, manufacturing, packaging, and so on are also being looked at as options for the future.

Development of Multimodal Logistics park on National Corridors, under the Bharatmala program, are also expected to provide the much needed infrastructure in the country and improve efficiency in freight movement. Thus, the focus of the effort in the years ahead is to build a more robust logistics network in the country.

Deploying energy-efficient technologies may be able to reduce costs substantially. Given the decline in solar and wind costs in India, renewables are emerging as an alternative. While electrification (of vehicles, railways, etc.) has been catching up, renewable energy may fulfill its expectations subject to availability and reliability going forward.

Policy thrust and Fiscal structures to drive efficiencies and cost gains

The Commerce Department of Government of India has set up a new logistics division with an aim to steer integrated development of the sector. The government is also working towards an integrated transport and logistics policy with an aim to transform India’s logistics from a ‘point-to-point’ to a ‘hub- and-spoke’ model, thus evolving centralised strategic networks for shipment distribution rather than relying on direct route operations that may not be efficient. As part of this initiative, the government plans to set up 50 economic corridors, 35 multimodal logistics parks (MMLP) at 15 locations, ten intermodal stations, amongst others[vii].

On fiscal side, GST regime of one nation one tax is being seen as a disruptive reform that could impact logistics costs significantly. As GST is being rolled out, its impact is likely to be more visible on the logistics sector in the near future, as also the impact of implementation of e-way bill.

Government has also developed LEADS- Logistics Ease Across Different States- an indicator to help states identify the gaps in logistics sector. LEADS captures status across infrastructure, policy, regulatory parameters through a 360 degree stakeholder consultation process. Such a benchmark on logistics performance is likely to enable healthy competition amongst states, and help improve their logistics ecosystem, enhancing the logistics ease in country by large.

Technology adoption to steer disruptive transformation

In the era of Internet of Things (IoT) and Industry x.0, it is inevitable that technological disruptions is likely to transform the logistics sector- warehousing operations, freight transportation, supply chain integration, and last-mile delivery. Technology has the potential to enable digitally connected and integrated supply chains to meet high performance standards, with real-time information, and help provide efficient logistics solutions.

So far, the logistics sector in India has seen slow adoption of new technologies due to limited awareness, lack of technological infrastructure, and want of collaboration.

Technologies offer a multitude of solutions to enhance operational efficiencies,  predictive and preventive maintenance at logistics hubs and ports, real time track and trace, etc. Automation of machinery, processes, using robotics and AI could further optimise freight handling and reduce costs. Exponential technologies such as blockchain can help eliminate duplicity in documentation process and prevent data manipulation, while bringing all stakeholders on a common platform. Use of satellites and river information stations, could help monitoring of transported goods. There are many other areas where technological interventions could drive better results, including asset utilisation, fleet management, monitoring, etc. thereby driving operational efficiencies, eliminating redundant costs, and enabling well-informed future strategies. Use of more digitised platforms could allow for integration between transport modes, as also users and third party service providers.

A National Logistics Portal is also being developed by the Ministry of Commerce and Industry which is expected to bring multiple logistics stakeholders on a single platform, and bring in cost and time efficiencies across transactions.

The theme of multimodality also needs to incorporate digital elements in order to be successful. Automation, IoT, blockchain, robots, and big data may well prove to be game changers for the sector. Many private sector players and public agencies have started using these technologies for tracking shipments, determining best route for doorstep delivery, predicting breakdowns, handling freight, and optimising asset utilisation.

Lastly, appropriate skill development initiatives for skilling truck drivers, seafarers, warehousing managers, quality inspection supervisors, and so on is yet another requirement of the sector.

With better infrastructure planning, increased coordination among stakeholders and improved operational efficiencies, India’s logistics sector is likely to attain the required maturity to fuel economic growth.

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