Logistics companies are slowly adopting best practices from around the world, helped by the ongoing efforts to modernise and create capacity in transportation and related infrastructure. M Gurunathan projects the growth for logistics in brick-and-mortar terms.
Amidst a burgeoning domestic market, IndiaÂ’s current trade profile shows important clues about the development of the logistics industry in international scenario too. On the one hand, massive investment in infrastructure, growing levels of disposable income, and dynamic manufacturing and retail sectors are combining to produce a conducive market envirÂonment for logistics. On the other, export volumes of traditional items are growing, and exports of non-traditiÂoÂnal items have been growing faster.
Apart from increasing investment, swiftly evolving regulatory policies, mega infrastructure projects and some important developments in recent times are compelling the Indian logistics market to overcome infrastructure-related constraints and logistics-centric inefficiency. Indian logistics sector is in a transition phase as multiple projects and services have been either at the planning or implementation stage.
Building the enablers
An efficient logistics system and modes of cargo transportation—air, road, rail, water with ports acting as the gateways to maritime trade and warehousing—act as mutual enablers.
Flying high: Between 2006 and 2012, air cargo traffic at Indian airports increased at a CAGR of 11.5 per cent, with domestic cargo growing at 12.3 per cent, slightly faster than international cargo (11.2 per cent). Heightened focus on developing cargo terminals and related infrastructure. These include successful upgrades at airports in Kochi, Bangalore, Hyderabad, Delhi and Mumbai, as well as the ongoing modernisation of the Kolkata and Chennai airports. Further, the ongoing modernisation of 35 non-metro airports will enhance cargo handling and storage significantly.
Over the next decade, total air cargo traffic is expected to grow at a CAGR of 10.3 per cent to reach 5.9 million metric tonne (mmt), with domestic and international cargo expected to grow at CAGR of 11.6 per cent and 9.5 per cent respectively, and contributing 2.4 mmt and 3.5 mmt respectively by 2020.
Opening the gateways: IndiaÂ’s ports act as gateways to IndiaÂ’s exim trade and facilitate 90 per cent by volume and 70 per cent (by value) of IndiaÂ’s external trade via maritime traffic. The countryÂ’s long coastline meanders across 7,500 km with 13 major ports governed by the Centre and about 176 non-major ports, governed by the respective state governments and union territories. Several private ports have also emerged. The Indian ports have witnessed significant growth, growing from 368 mmt in 2000-01 to 898 mmt in 2011-12 at a CAGR of 8.5 per cent.
Through the proposed Maritime Agenda 2020, the Indian Government plans to invest Rs 2,870 billion in generating total port capacity of 3,200 Mmt and cater to expected cargo traffic of 2,500 mmt by the end of 2020. Cargo traffic across IndiaÂ’s ports is expected to touch 1,304 mmt by 2016-17 at an accelerated CAGR of 8 per cent.
Up stream: More investments are planned by the government to encourage goods movement through waterways. Five inland waterways have been declared as National Waterways, one more announced in Assam in Budget 2013-14. On the water-borne transportation, India has the opportunity to increase freight flows on coastal corridors along the west and east coast. Strengthening of these coastal freight corridors is about to make coastal shipping an attractive alternative to other modes.
On track: IndiaÂ’s rail network with 64,456 km, is the largest in Asia and the second largest in the world (behind the US). Though, rail freight has grown at around seven per cent over the past five years, rail has consistently lost out to road as the preferred mode for goods movement across the country.
Potential for rail freight movement has to be largely tapped projects similar to the envisioned Dedicated Freight Corridor (DFC) would play an important role in the future. The DFC project envisages the construction of two corridors, one each on the west and east routes, spanning a total length of about 3,300 km. The Eastern Corridor, starting from Ludhiana in Punjab, will pass through the states of Haryana, Uttar Pradesh and Bihar and terminate at Dankuni in West Bengal. The Western Corridor will run from Dadri to Mumbai, passing through the states of Delhi, Haryana, Rajasthan, Gujarat and Maharashtra. Over the traditional rail, DFC has unique features like double stacking of containers, increased load factor by 3.8 times, increased speed to achieve speedy turnarounds.
Paving the way: Roads account to 60 per cent of total freight movement in the country. The completion of the National Highways Development Programme (NHDP), which is aimed at developing 50,000 km of National Highways by 2015 in seven phases with an investment of Rs 3,000 billion, combined with moderÂnisation like electronic toll collections, it is expected that IndiaÂ’s low average trucking speed of 30-40 km per hour (kmph) will be improved. This will push up the efficiency of road transportation. Though existing Indian road freight transport sector is highly fragmented, with 70-75 per cent of truck owners operating a maxiÂmum of five trucks each, more organised transporÂtation, directly and indirectly is experienced in recent times. This is due to increased logistics outsourcing to logistics service providers (LSPs) who are fairly organised to deliver efficient logistics. These LSPs hire quite a number of trucks from the open market, in addition to their owned trucks, which leads to organized transpoÂrtÂation.
Storing wealth: In recent times, the Indian warehousing segment in India has evolved significantly, resulting in a gradual transformation from the traditional concept of godowns to modern world-class warehouses. The demand for industrial warehousing space is estimated to have grown from around 391 million sq ft in 2010 to 476 million sq ft in 2013. This growth is expected to continue due to rising domestic and Exim freight volumes, increased outsourcing to 3PL players, strengthened investment in infrastructure, organised retail and the approaching implementation of Goods and Services Tax (GST).
The key enablers of Indian logistics management are in high growth trajectory.
Automation / technology
Logistics management is generally multi-echelon in nature, involving a number of stake holders. Efficiency can be achieved through proper integration, real time sharing of data for which apt technology has to be in place. High penetration of information technology (IT) and usage of proper communications infrastructure also result in eliminating delays and improves cargo in-transit visibility and real-time tracking ability.
Many Indian companies have adopted good amount of automation in their warehouses which includes Automatic Storage & Retrieval Systems (AS/RS), put to light systems, Radio Frequency Identifications (RFID) etc, and experienced increased productivity in warehouse operations.
Though enough cases are existing in India to prove technology helps to create better Logistics management systems, still Indian Logistics got a long way to go, to reap full benefits of technology and in all layers of logistics systems.
Looking ahead
The Indian logistics sector has progressed signifiÂcantly. The ‘best practicesÂ’ at par with developed EuroÂpean and American countries are happening in India – to name few concepts like Just-in-time (JIT), vendor managed inventory (VMI), reverse logistics, cross docking, milk-run collections/distributions, greenÂing of supply chains, 3 PL out sourcing etc.
Indian government is focused on increasing the logistics competency of the country. The government is keen on addressing related logistics issues like developing enough skills qualitatively and quantitatively through National Skills Development Corporation.
Indian logistics sector is maturing and aspiring to achieve better quality. Companies individually have the belief on systems and procedures. The mindset has changed completely and now companies recognised that their logistics division is not a mere ‘cost centre’. Logistics management is a science too as experienced by Indian companies in recent times.
The author is Senior Counsellor, CII Institute of Logistics.
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