Chapter # 17. Logistics
- Achieve multi-modal movement of cargo on par with global logistics standards.
- Reduce the logistics cost to less than 10 per cent of GDP from the current level of 14 per cent.
- Expand the logistics market to USD215 billion by 2020 from the current level of USD160 billion.1
- Improve logistics skilling and increase jobs in the sector to 40 million by 2022-23 from about 22 million in 2016.
- As per the approved National Trade Facilitation Action Plan, reduce border compliance time to 24 hours for exports and to 48 hours for imports by 2020.
- The Indian logistics industry employs more than 22 million people (as of 2016). Between 2011-12 and 2015-16, the logistics sector’s value has grown at a compound annual growth rate (CAGR) of 7.8 per cent. However, existing logistics costs in India are high relative to other countries.
- Logistics costs have been estimated at 14 per cent of India’s GDP relative to 9 per cent of GDP in the United States, 11 per cent in Japan, 12 per cent in Korea and 14.9 per cent in China.2 A 10 per cent decrease in indirect logistics cost has the potential to increase exports by 5-8 per cent.3
- Recognizing its importance for exports and growth, the government has included logistics in the harmo-nized master list of the infrastructure subsector. This will ease access to credit and simplify the approvals process for building infrastructure in the sector.
- The government has also created a new Logistics Division in the Ministry of Commerce and Industry that will focus on the integrated development of the logistics sector, improving procedures and introduc-ing new technologies.
- Infrastructure or transport quality is a particular area of concern for the logistics sector. About 35 per cent of export-import cargo originates in or is destined for hinterland locations. The World Economic Forum’s Global Competitiveness Index (GCI) ranked India 66th out of 137 countries in infrastructure in 2017-18.
- The World Bank’s Ease of Doing Business ranks India 146 out of 190 countries in ‘trading across borders’. India ranks lower than China (96), Vietnam (93), Sri Lanka (90) and Indonesia (108).
- Cost of logistics: The cost of logistics remains high due to challenges in accessing finance, underdeveloped infrastructure, poor connectivity and an unfavourable modal mix.
- Coordination due to multiple stakeholders’ involvement: Logistics has four key components that account for the majority of the sector: transport, warehousing, freight forwarding and value added logistics. Each of these falls under different segments of regulatory oversight, which adds complexity to the system. The presence of multiple agencies often leads to duplicate processes. Further, non-uniform documentation across states adds to transaction costs. While the recently implemented Goods and Services Tax (GST) has simplified documentation requirements across states to some extent, there still remains further room for improvement. Countries with multiple agencies in logistics have reduced efficiency, coordination and competitiveness.4
- Warehousing capacity and fragmented structure: India’s current reported warehousing capacity is 108.75 million metric tonnes (MMT) of which the private sector makes up less than 20 per cent. There is low value addition in the warehouse sector. Handling and warehousing facilities are still largely un-mechanized with manual loading, unloading and handling in the case of many commodities.
- Seamless movement of goods across modes and high dwell time: In addition to lack of interoperable technology, the movement of goods across modes suffers from the absence of last mile connectivity and infrastructure. For example, poor road and rail connectivity to most non-major ports leads to delays in travel time. The share of cargo moving through coastal shipping is small, primarily due to the lack of infrastructure and connectivity for feeder ships that operate between smaller container ports.
- Competition and underutilized capacity: There is no level playing field as the public sector is provided benefits that are not available to private players such as container train operators or foreign vessel owners, leading to limited competition, capacity underutilization and other inefficiencies.
- Interoperable technology across modes: The lack of interoperability of software systems used by the authorities governing different modes of transport leads to inefficiencies as it increases transit time and the need for manual intervention when switching modes.
- Border compliance and document processing time: India’s average border compliance time (including customs regulations and mandatory inspections) for exports is 106 hours and for imports 264 hours. India’s document processing time (including documentary compliance for various agencies including regulators) is an average of 38 hours for exports and 61 hours for imports.
- Rationalize tariffs and determine prices in an efficient manner across different modes: Tariff policies need to be rationalized. The Railways chapter provides details on rail freight while the Civil Aviation chapter highlights the need to determine air cargo tariffs in a consistent manner across airports.
- Create an overarching body that maintains a repository of all transport data: Such a body or institute will be responsible for acquiring, man-aging and disseminating data to internal stake-holders. The proposed institute can also conduct robust analysis of the data, which it should make publicly available. This body can be a part of the logistics portal that is under development.
- Enhance efficiency of warehouses and their operation, especially to optimize food storage: Create vertical silos for food storage and transport food grains by specialized wagons. We could operate smaller silos at the mandi level connected to mother silos that have bulk handling and rail connectivity. Further, specialized wagons with top loading and bottom discharge functions should be made available for handling grains. These measures will help reduce food losses.
- Optimize existing warehouse space. Existing warehouses can be converted into multi-storeyed ones to store multiple commodities at the same time. This will greatly increase warehousing space.
- Increase emphasis on multimodal solutions: Setting up multimodal logistics parks will help address issues related to underdeveloped infrastructure, an unfavourable modal mix and connectivity. The government has already approved 24 logistics parks under the Bharatma-la programme and seven have been identified under the Sagarmala programme. These may be completed by 2022-23. They should reflect best practices from global logistics parks with respect to comprehensive development and synergies across modes of transport.
- Allow private players to operate in CON-COR and port terminals: There is no level playing field for private container train opera-tors (CTOs) vis-à-vis the Container Corporation of India (CONCOR). Providing shared space at CONCOR terminals to private CTOs will help utilize the infrastructure better. Similarly, opening up port terminals to private players at a fee will enhance capacity utilization.
- Increase technology use to enhance logistics:
- Integrate technologies across modes of trans-port by developing an integrated information technology (IT) platform. Increasing the interoperability of technology across modes by implementing container tracking systems, radio frequency identification (RFID), etc., will reduce delays and enhance efficiency. The integrated IT platform should be a single window for all logistics related matters. The portal should be linked to the IT systems of all transport modes, and customs and state transport authorities. It should act as a logistics marketplace.
- Create an institutional mechanism for technology adoption in transport. India needs to create an office, similar to the Office of the Assistant Secretary for Research and Technology (OST-R) in the USA, under the Commerce Ministry’s newly created Logistics Division to advance the use of innovation, develop technology and create a skilled interdisciplinary transportation workforce.
- Shift towards international standards for transport equipment and software: To increase efficiency and ensure compatibility, we should gradually adopt international standards, especially in operations, and adopt global benchmarking on unit load devices such as containers and pallets. While this will require changes in the overall infrastructure of ships, ports and railways, it will help realize savings in cost, time and accounting. Associated handling equipment such as forklifts, cranes, tractors, scanning and inspection technologies, and flatbed rail wagons should be standardized and become ubiquitous.