Lack of coordination between the various government agencies that are involved in the road/highway construction business and improper policy initiatives hamper the prospects of roads sector, experts feel.
Our Experts: Aditya Gupta, Zonal Head-North, Drive India Enterprise Solutions
Anil Arora, Managing Director, MJ Logistics
Vineet Agarwal, Joint Managing Director, TCI
What are the reasons behind high cost logistics? Where are we lacking?
Poor logistics infrastructure is the principal and most obvious reason for high logistics costs. Poor infrastructure at seaports and airports and inadequate surface connectivity lead to long transaction time and cost.
In countries like the US and China, railways carry a lion’s share of the inland cargo. But in India, we don’t use our rail set up becauseour rail networks are saturated, special wagons are not easily available for carrying specialised products, and most rail terminals (goods sheds) used for loading/unloading of freight are antiquated. Government also urgently needs to look at rail freight rates. When it comes to road transportation, we behave like 31 different countries, with each state having its own RTO, entry forms and rules. Almost 30-40 per cent of the total transportation time of a vehicle is spent at interstate check-nakas. In sea/air freight, too much time is taken up in documentation required for Imports and Exports Custom clearance. Last but not theleast, octroi and entry taxes imposed by certain states and fuel hike in India adversely impact the logistics cost.
Due to infrastructure bottleneck, our asset turnarounds are pretty low. Basically all the moving assets which are rolling stocks whether it is railways or road transportation assets their utilisation is pretty low, so cost per kilometre per tonne is always higher than other economies and that is one of the major reason. In a developed economy where proper highways and all, the vehicle can travel more than 1,000 km a day. The same way on the railway side the wagons which are carrying goods are always given high priority. So the turnaround time of a rake is much higher than a passenger vehicle. Whereas, India has to resolve all these issues in order to decrease logistics cost.
Some of the factors that are making Indian logistics sector uncompetitive include inefficiencies in transport, poor storage infrastructure, low rate of technology adoption, complex tax structure, poor skills of the logistics professionals, pending policy decision on according industry status to the sector, GST, warehousing etc.
Dependence of logistics sector on road network due to deficiencies in the railways that has not invested adequately in new capacity is also making the sector inefficient. Poorly coordinated planning, intra-state border issues, cumbersome documentation, bureaucracy and corruption are leading to slow movement of trucks. In ports, capacity and turnaround times are still well below global benchmarks while logistics parks, warehousing and other support infrastructure are at early stages of development.
Another important issue that needs attention is reduction in stoppage time to ensure faster movement of goods. This can be done by bringing uniformity in the toll charges by introducing centralised toll mechanism, reducing documentation, checking unauthorised payments through agents and development of access-controlled expressways.
What are the policy initiatives required to solve these issues?
Any industry or sector can grow only if it is backed by government support. Logistics itself is a large industry, but still we are struggling with high logistics cost because we don’t have single ministry for it. Today, we have multiple ministries to manage air, road, and sea. Industry issues are getting diluted because there is no holistic approach to bring all policy makers on the same platform. If we provide logistics an industry status, it will help us to bring focus and accord logistics the importance it deserves.Plus, government should encourage public-private partnership (PPP) which will make business viable and provide adequate returns on investment to private sector. The current taxation structure does not address the B2C scenario which is essential for e-commerce. Implementation of GST is also long being spoken. GST will make the country almost borderless and the documentation requirements will be uniform across the country. Government should also look at defining warehousing as an infrastructure activity and accord it the importance it deserves.
Primarily, the highway transit between the states or at national level has to be uniform. The documentation and the interchange between states and highways and even toll plazas there is a very long choke, so if there is a policy which can smoothen out these choke points, then that will be helpful and on the railway side I think by policy they need to give freight if not more but equal priority than passenger.
The sector should be accorded industry status that would facilitate easier access to finance, robust regulatory mechanisms and a better image. As the logistics resources of the country are in need of refurbishment in all aspects setting up of a nodal cross-ministerial logistics body and infrastructure status to the wider transportation and logistics industry is advisable. Another aspect, where the government needs to delve into is dedicating higher financial outlay for logistics skill improvement. TCI is in favour of a separate regulatory authority for better coordination between ministries for an integrated policy on the sector.
Supply chain investments also need to be incentivised by exempting capital imports on supply chain equipment from taxes. Financial support should be provided for warehousing, back-end processing and construction of cold chains to boost the sector further. Treatment of warehousing for non-agricultural commodities at par with infrastructure projects and land reforms will encourage investment in warehousing industry.
Relief in the form of tax benefits will facilitate the recuperation process of the industry which has been a victim of lack of critical sops in previous budgets. GST should be implemented with immediate effect to enable the creation of the common market to permit free and unimpeded movement of goods and services across the country.
How is industry impacted with these issues?
The impact of high logistics cost to the service recipient are uncertainties in logistics budget, long lead time, too much documentation whereas for the service providers it leads to low margins, poor returns on investments, and high level of competition from small players as the industry is fragmented and there is no entry barrier for it.
The predictability of transit time is much higher in India compared to other countries. But if we have a well and good system in place then our export growth and cost of imports will go down that of course will have a positive effect on business.
Last few years have been challenging for the logistics sector as the period saw an overall decline in the movement of goods with large infra companies cutting down movement as the government failed to make provisions for the infrastructure sector in the budget. Tight credit situation, no major policy reforms and weak demand made the situation further difficult for the sector.
What is the role of Railways in setting up multimodal hubs?
Railways has been constantly losing market share to road due to various factors like high freight costs, longer transit time, minimum load requirements etc. Also, rail does not offer first and last mile connectivity which road offers. The share of containerisation in domestic transportation is still not very high. There are huge advantages in containerisation in terms of safety of cargo and standardisation. Railway can really help in terms of multimodal transportation of containers. Also multimodal hubs are need of the day. Railways have already started work on Dedicated Freight Corridors (DFCs), one being set up from Dadri (north) to JNPT (west) and another from Ludhiana (north) to Dankuni(east). These DFCs have been set up on the busiest routes which will help Railways to build capacities. These DFCs will offer faster transit time and may even allow time tabled freight trains like passenger trains. Logistics hubs need to be encouraged along the DFC route. These hubs will also help in creating first mile and last mile connectivity.
As per government’s vision of 2020, Railways would use their existing land bank to the maximum extent and will help set up multimodal logistics parks and industrial hubs along with DFCs, on the pattern of the Delhi-Mumbai Industrial Corridor (DMIC) project. Railways will also establish and improve connectivity to all the ports in partnership with the parties concerned.
As per the document, Railways will establish partnership with major logistics providers and close linkages with customers with a view to satisfying the specific needs and helping the customers reduce their logistics costs. Information technology would be used to track the movement of cargo and meet delivery schedules. The Railways would strengthen their position in the bulk segments they serve at present and expand into new commodities like automobiles, fly ash, consumer goods, etc.
How can better port connectivity play a key role in effective logistics?
Bulk of trade is carried out by sea and thus ports can play a critical role in the facilitation of international trade. Better port connectivity plays an important role in promoting the flow of international cargos, attracts foreign investment and activates the growth of the port and port city. The participative model announced by Railways for port connectivity is a welcome step; however, we need to see the final draft of the policy before taking any decision in this regard.
What are the other initiatives required to maintain global standards?
The logistics sector of India is people-centric. We need good talent pool in this sector. Few years back there was lack of awareness about this sector, the reason being the industry was completely managed by unorganised players and also there was no education system to support this stream. But today MNCs and Indian corporate giants have ventured into logistics due to which people have started considering logistics and supply chain as a professional field. Still we need a robust education system which will feed students formally trained in Logistics & Supply Chain into mainstream. In management schools and at university levels, we need to introduce courses specific to logistics and supply chain.
Modernisation of warehousing is another initiative which we need to focus now. Indian warehouses are still lousiest and least automated compared to developed countries. Transportation sector needs immense focus. We should start implementing stringent measures to reduce accidents and near misses. Logistics service providers should start providing training to the truck drivers on road safety. The entire sector of transportation is so fragmented that we need to build better working conditions with better treatment and salary. Also we need to create entry barriers for smaller players. To maintain global standards, we need better governance, standardisation and uniformity in all aspects from transportation to warehousing.
One big initiative that can be taken is to define logistics as an industry and then club all the legs together under one ministry rather than road ministry, railways ministry and tax ministry.
Apart from that, there should be a logistics ministry which will be looking at how product has to be transited out of the country or in the country at least for the export cargo. The ministry can also look after all these hassles that are there for domestic cargo so that worldwide we can be a little more competitive.
We feel that an appropriate multimodal transportation model should be devised to reduce logistics cost and to create a level playing field for private rail operators. Provisions for a greater FDI in key logistics infrastructure development areas like dredging, port connectivity etc, should also be made apart from supporting adoption of IT to modernise the sector. The government should ensure implementation of large projects under PPP route apart from allocating long-term amount towards infrastructure development through dedicated debt funds to ensure sustained development of the sector. External commercial borrowing should also be allowed to transportation/logistic companies for the purpose of investment into commercial vehicles, ships, construction of logistics warehouses, etc.
The Indian logistics sector despite all the bottlenecks remains attractive and is expected to grow at a healthy rate. I am hopeful that renewed policy push and implementation of large scale infrastructure projects will bode well for the sector and will assist in bringing it on the sustained growth path.