Reduction in Logistics cost by 10% can increase exports by 5-8% : FIEO
NEW DELHI: The critical role played by India’s logistics sector in the country’s economic growth story could not be understated. Instrumental in moving goods across its huge length and breadth (about 3.287 million square km), Indian roads are the lifeline of the logistics sector. However, the logistics sector itself is highly unorganised, fragmented and currently mired in multiple challenges leading to operational inefficiency on several fronts.
In India, the logistics cost as a percentage of its GDP stands at 14%. This cost is pretty high compared to the similar cost in the US (9.5%), Germany (8%) and Japan (11%). Nevertheless, the Country aims to bring down this cost to less than 10% by 2022.
Considering the critical role of logistics in propelling India’s exports, Federation of Indian Export Organisations (FIEO) believes a reduction in logistics cost by 10% could increase the Country’s exports by about 5-8%.
The all-important last mile
Stemming from the same concept is another of its byproduct -called the ‘last mile’ – a term used in supply chain management to refer to the last leg of the supply chain, denoting the transportation of goods from a transportation hub to its final destination. This final destination could be the location of an end customer or inland container depots (ICDs), container freight stations (CFSs), ports or airports where goods are to be delivered for their eventual exports.
Given the vast expanse of the country’s sheer size, a varied and uneven topography, coupled with the fact that a large number of the Country’s Industrial Clusters (dominated mainly by MSMEs) are based out of its tier 2 cities, and not in its large metros, the last mile connect has historically been said to be throttling the growth of Indian MSMEs.
While in recent times the Government has taken many steps to minimise last mile woes, a lot is left to be desired. Various studies have shown that Indian logistics landscape, typically comprises of isolated entities, with a skewed modal mix that depends heavily (about 60%) on the already congested Indian roads.
The Indian coastline and river network have historically remained underused, even though such models are more energy-efficient, eco-friendly and comes with reduced logistics costs, highlights a recent Deloitte-Assocham study. The same study notes that the cost for Coastal Shipping is Rs 0.15-0.2 per tonne-km compared to Rs 1.5 for railways and Rs 2.5 for the road. Addressing these anomalies could alone provide a huge potential to lower logistics cost in the economy by Rs 21,000-27,000 crore by 2025, the report adds. So, what do industry leaders feel about this critical bottleneck?
Anil Bhardwaj, Secretary-General of the Federation of Indian Micro, Small & Medium Enterprises (FISME), believes, “Availability and efficiency of logistics have a direct bearing on firms’ competitiveness.”
Highlighting how disparities in locational advantage results in a downside to North India based industries, he says, “Industries in North Indian States have a natural disadvantage against Coastal States of Tamil Nadu, Andhra Pradesh, Maharashtra and Gujarat as those can import raw materials at better international prices and export to.” According to the industry expert, being handicapped by location weighs down smaller firms more, because compared to their larger counterparts, they cannot relocate to States which have a more efficient infrastructure network.
Putting the last mile in the fast lane Experts assert that to have an integrated end-to-end logistics network, the need of the hour is that all relevant policymakers, logistics service providers (LSPs), transport and terminal infrastructure service providers come together to formulate a cohesive and integrated logistics policy.
The Indian Government, to this effect, has recently reviewed the draft National Logistics Policy (NLP).
The mega policy blueprint, with inputs taken from four relevant Ministries, i.e, the Ministries of Railways, Road Transport and Highways, Shipping and Civil Aviation and 46 Partnering Government Agencies (PGAs), hints at the broad scope of the soon-to-be-introduced policy framework.
With a view to develop a Multi-Modal infrastructure, the policy envisages optimising the current modal mix (road-60%, rail-31%, waterways-9%) to bring them at par with international benchmarks (road–25-30%, railways–50-55%, waterways–20-25%).
To bring down the Country’s logistics cost from the present 14% of GDP to less than 10% by 2022 that the Government envisions, industry leaders underline that India needs to play to its strength, which is put to use its proven prowess in domains such as IT capabilities and digital technologies. As per them, any logistics-centric roadmap, aimed at tackling last-mile woes, must thus focus on leveraging on India’s capabilities in technologies such as cloud computing, blockchain technology, internet of things, among others.