India requires a well-defined logistics structure

A well-defined structure will help logistics service providers to anticipate all major challenges they may face during transport and will enable them to plan their activities accordingly, says Umesh Shetty, Executive Director, Allcargo Logistics.

The unorganised sector in T&L seems to be an impeding factor for the sector´s qualitative growth. How would you overcome the issue, especially at the last-leg stage?
The unorganised sector of T&L in India forms over 90 per cent of the total industry and is a deterrent to the progress of the organised logistics sector in the country. An unorganised LSP provides its service at very low prices in comparison to an organised player. Another flaw with employing an unorganised LSP is that they provide only a single service and not a complete logistics service, forcing customers to employ multiple such LSPs resulting in inflated costs.

Along with this, as an unorganised LSP does not necessarily comply with the rules and regulations of transportation and logistics which directly shows in their quality of service and handling of product or material. Damage to goods is a common scenario in such cases which results in delayed deliveries, resulting in time and cost overruns costing the customer dearly.

Thus, to overcome this issue, customers need to be made aware of the opportunity costs to the low contract costs offered by unorganised LSPs and they need to be educated upon the time and cost benefits of employing an organised LSP as currently most customers fail to look past the low-cost offerings.

How can efficient logistics result in bringing down project costs?
A well-defined logistics structure enables a Logistics Service Provider to anticipate all major challenges it may face during transport and so, enable them to plan their activities accordingly. This planning is made possible by meticulous route surveys, proper engineering of the transport solution like vessel planning, hydraulic axle planning, etc. Also, activities like keeping an organised record of port procedures, documentation of all activities also helps reduce time spent on clearance procedures at Customs.

Thus, efficient logistics ensures the movement of goods is streamlined with no added costs and delays for the customer, reducing their costs.

How do you see the growth evolving in the project logistics industry?
The project logistics industry in India is pegged at Rs 300 billion. The project logistics sector however, is still in its early growth stage and has plenty of scope for growth over the coming years. The growth and evolution of the industry rests upon the status of the logistics infrastructure of the country as well as the IT solutions that go along with it. Now, with a stable government which is committed towards infrastructure developments like improvement of the road and rail networks across the country, the industry has high growth prospects in the future.

In comparison to other countries with well-established logistics structure, their logistics expenditure is significantly lower than India as they employ state-of-the-art infrastructure and IT solutions for a hassle free, streamlined and transparent supply chain. Thus, provided similar levels of such facilities come up in India, the industry will see its growth evolving.

What according to you will be the growth drivers of the Indian logistics industry in the future?
The growth drivers for the industry are as follows:
1.Rapid growth in core industries like oil & gas, heavy engineering, thermal, hydroelectric & wind energy which results in increased demand for movement of capital goods from entry ports to manufacturing or distribution locations and vice versa across the country.
2.Corporate entities are now recognising the benefits of logistics outsourcing for integration of information flow, material/product handling, production, transportation and often security thereby allowing them to focus on their core business functions and avail significant cost reductions.
3.Rise in coastal shipping as a cheaper and more efficient form of transportation.
4.Improvements in road, rail networks, infrastructure across the country.
5.Rise in adoption of IT solutions like GPS tracking, RFID, ERP systems for more transparency across the supply chain as more customers now seek Value Added Logistics Services.

Some researchers say the growing logistics industry is headed towards consolidation with integration of various logistical requirements. How do you think will this industry behave in the coming days?
Some phases of industry development already seen in developed markets are likely to be repeated in emerging markets. In the past, mature logistics industry in developed countries went through a consolidation phase which had a major impact on the industry landscape. After a period of tremendous market growth and continuous market entrance of multinational logistics service providers, the transportation & logistics industry in emerging markets will face a period of fierce competition followed by consolidation.

Multinational logistics providers look to developing markets for growth possibilities and have been acquiring stakes in many companies in India. As more and more customers seek a 3PL partner, the need to consolidate multiple logistics offerings is becoming more important among LSPs.

How do you manage inter-dependencies in a multi-supplier and multi-product environment?
Project logistics is in a multi-supplier and multi-product environment and consequently it is crucial to manage inter-dependencies to achieve consistency in the projects which will help it to achieve timely commissioning and no time and/or cost overruns in movement of capital goods or material.

What are your views about the Goods and Services Tax (GST), with a view to avoid multiple taxation and reduce overall costs? What according to you are the other measures that should be implemented by the government to boost the growth of this sector?
The GST would be a huge improvement on the current taxation scenario where the LSP is paying taxes on taxes in the form of Central level taxes like excise, customs and CST adding onto State level taxes like octroi, VAT, SLC. The result of this is that the inefficiency and cost burden is ultimately transferred onto the end consumer. Currently, to counter these taxes, companies are having to maintain multiple warehouses in each State and planning is driven by cost reductions and not quality. The implementation of GST would result in re-alignment of the supply chain with focus shifting to quality rather than costs as there would be one unified tax and not multiple ones. The warehouses would be consolidated instead of multiple small warehouses.

GST would also simplify documentation resulting in faster movement of cargo due to lesser stoppages as currently there are too many check posts and screenings which is greatly reducing the pace of the movement of cargo from one State to another.

– Rahul Kamat