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Need an Integrated Logistic Policy

Need an Integrated Logistic Policy

The logistics industry has always been an underdog and has not received the much-deserved attention yet. Though the sector is full of potential, it is yet to achieve optimal utilisation of resources.
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<p> The evolution of businesses, along with consistent high economic growth, has led the logistics industry to scale up and meet the growing demand for sophisticated transport and storage functions. The industry emerged out of the need to differentiate the point of deliverable as a value chain addition. Logistics costs in India stands at approximately USD 309 billion, which accounts for roughly 13-14 per cent of the GDP. This is higher than the global average of under 8 per cent, as the Indian logistics sector is largely unorganised and inefficient, compared to its global counterparts. These inefficiencies in the logistics chain currently cost the economy an estimated USD 95 billion. </p>
<p>An estimated 90 per cent of the logistics service providers in the Indian market lie in the unorganised segment. Unorganised players offer extremely low costs, since they do not adhere to the compliance norms that keep the costs high for their organised counterparts. This disregard for compliance and resulting the lack of a level playing field has deterred competition and led to the development of a commodity mindset with the lack of differentiation. </p>
<p><span style="font-weight: bold;">GST: </span>The game changer With the industrial output and consumption-driven sectors recovering in H2 FY2018 from the initial lull post GST implementation, the freight demand in the country has also reported a healthy pick up during the second half of the previous fiscal. The performance of the key listed logistics players indicates that the momentum of growth picked up as the year progressed. From an aggregate revenue growth of only 4.6 per cent in Q2 FY2018, the sample’s growth gained pace to 10.8 per cent in Q4 FY2018, as freight volumes picked up. Transporters also took advantage of the improvement in freight demand to pass on the increase in diesel prices to their customers during the latter half of the year, as against freight rate cuts taken earlier in the year, in the light of weak demand. </p>
<p><span style="font-weight: bold;">Pirojshaw Sarkari, Chief Executive Officer, Mahindra Logistics</span>, points out that GST impacted the inflow of new orders and cash flows initially, as customers were grappling with the changes. Slowly, things are falling in place. On ground, the per day running time of the trucks have gone up. In the last one year, many customers and logistics companies have consolidated their warehouses by moving from the earlier tax-efficient model to obtain maximum operational efficiency. Sarkari mentions, ‘There has been a significant time-saving and paper work reduction, due to digitisation with the advent of the E-way bill. The recent announcement of increasing tonnage in trucks will also lead to optimum utilisation of manpower and resources.’ Here <span style="font-weight: bold;">Shamsher Dewan, Vice President and Sector Head-Corporate Ratings, ICRA</span> concurs. He says, ‘The implementation of GST considerably impacted the functioning of the domestic logistic sector in terms of transportation time, preference for organised players, and warehousing strategy employed by companies.'</p>
<p>ICRA estimates that there have been savings as high as 18-20 per cent in the truck turnaround time, post GST, supported by the elimination of inter-state check posts. Due to operational efficiencies and time savings, the implementation of E-way bill from April 2018 has also been received positively by the transporter community. Companies are also interacting with supply chain management services to explore opportunities to redesign their warehousing network. </p>
<p> <span style="font-weight: bold;">Integration</span><br />
Today, the logistics industry has to deal with multiple government agencies at the union, state and local levels, which results in avoidable delays. The integrated logistics policy could go a long way in streamlining and consolidating multi-department requirements, besides facilitating corrective action, effective monitoring and prompt grievance redressal.</p>
<p><span style="font-weight: bold;">Anant Swarup, Joint Secretary-Logistics and Social Media, Department of Commerce, Ministry of Commerce and Industry, Government of India</span>, says that the present global industry is worth USD 15.5 trillion and it is likely to grow at the rate of 7.5 per cent over the next five years. In India, the industry is USD 160 billion and is likely to touch USD 220 billion by 2020. The passenger traffic is growing at a CAGR of 15.7 per cent. Air cargo is increasing by 14.3 per cent, while shipping has registered a growth of 6.2 per cent. Warehousing can grow at 10.6 per cent and cold chain at 15 per cent. ‘The government is very clear. Unless we promote inter-modality, the multi-modality model is not going to work,’ feels Swarup. For this, ‘A new division has been created in the Department of Commerce whose mandate is integrated development of logistics,’ he adds.</p>
<p>Meanwhile, the logistics players have welcomed the move of creating a separate division for logistics under the Ministry of Commerce and Industry. Earlier, they were under seven different ministries, including the railways, highways, and civil aviation. ‘Now,’ says <span style="font-weight: bold;">Chander Agarwal, Managing Director, Tciexpress,</span> ‘as it is in the planning stage, we have to wait and watch. But we are hoping that it will co-ordinate and integrate the development of the sector by the way of policy changes, improvements to the existing procedures, identification of bottlenecks and gaps, and introduction of technology-based interventions.'</p>
<p> <span style="font-weight: bold;">Neelesh Mundra, Partner, McKinsey &amp; Co</span> points out a few findings from the sector. The government has taken the right steps, both in infrastructure spending and policies. The biggest inefficiencies in the value chain are within a few commodities (eg., agriculture). To have an effective logistics system, India needs to leverage its coastline. </p>
<p> So how is the government developing integrated logistics? Swarup says, ‘We are developing a national logistics plan for the country, which is a long-term plan for the integrated development of logistics.’ To make that plan work, he says, ‘We have presently identified 22 commodities that constitute 90 per cent of the transportation within the country, including exports and imports. We are trying to map the entire value chain for these 22 commodities and see what the cost is in that commodity.’ He adds, ‘Another idea we are working on is to develop a portal where we plan to bring in all the regulatory authorities at one single portal. The portal will provide seamless movement of documents. Once information is filed, it should smoothly move across agencies. That will add to the ease of doing business.'</p>
<p> <span style="font-weight: bold;">Multi-modal logistics parks</span><br />
The model of multi-modal logistics parks has been successful throughout the world and India is headed in the same direction as well. These parks leverage the use of rail, road, air and waterways (both inland and sea) for the movement of goods from the manufacturing facilities to consumption clusters, thereby optimising logistics processes through economies of scale.</p>
<p>The government has proposed to build 35 logistics parks all over the country at an estimated investment of Rs 2 trillion, of which six are to be made in Phase 1 of the project. The first six locations are Delhi, Chennai, Bengaluru, Vijayawada, Surat and Hyderabad. They will be joint ventures between the Central Government, the relevant state government, infrastructure agencies and investment partners, and will provide services such as freight aggregation and distribution, storage and most importantly, multi-modal transportation facilities.</p>
<p>According to Swarup, unless the government is able to promote multi-modality, there cannot be efficiency in logistics. ‘We are working on the multi-modal logistics park policy. NHAI has already identified 35 locations that are suitable for implementing multi-modal logistics park,’ he says.</p>
<p> <span style="font-weight: bold;">Way forward</span><br />
ICRA maintains a stable outlook for the Indian logistics industry, expecting it to grow at 8-10 per cent over the medium-term. The demand growth would continue to be buoyed by pick up in industrial activity and consumption-led sectors, while increasing preference for outsourcing logistics activities would provide further impetus to organised players. Additionally, supply-side factors like improvement in logistics infrastructure and emergence of logistics start-ups would offer further impetus to growth. </p>
<p> <span style="font-weight: bold;">- RAHUL KAMAT</span></p>

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