Author: Abhaya Agarwal, Leader – Infrastructure, Government and Public sector, EY India
The National Logistics Policy (NLP) announced in September this year defines the future of logistics integration in India. Cost-effective and efficient logistics are also crucial in making the country a manufacturing hub and increasing the role of exports in enhancing the economy of the country. India’s current logistics cost is 16 per cent to 18 per cent of GDP but improved automation, digitisation, and mobility of the network of highways, expressways, and other initiatives are expected to lower logistics costs to 10 per cent of GDP.
Globally, many countries and enterprises have undertaken initiatives to bring about a sea change in their logistics strategies to become more competitive and there is ample evidence of the significant benefits received. India can take a leaf from the book of successful case studies globally to give the NLP a quick start for a faster and more effective implementation. Defining a few of them below.
Robust Integrated Platform
Over the past few years, several large-scale initiatives have been launched to develop well-connected transportation infrastructure. Gati Shakti, the National Master Plan for multimodal connectivity, is a digital platform for integrated planning and implementation of infrastructure connectivity projects. The Bharatmala Pariyojana (34,800 km) aims to optimise the efficiency of freight and passenger movement on highways. Sagarmala’s objective is to unlock the potential of India’s coastline and waterways with port-led development at its core.
To bring a perspective, Germany, about one-tenth the size of India, has an integrated transportation infrastructure consisting of a rail network of 40,327 km; highways, railways and inland waterways of nearly 60,000 km; a road network of 12,000 km; and inland waterways of 7,450 km. A more focused approach, therefore, is needed toward building a well-integrated assets platform.
The pandemic accelerated tech adoption in sectors that depended heavily on logistics such as retail, e-commerce, FMCG, auto, healthcare and manufacturing. Using software tools such as Warehouse Management System (WMS), automated guided vehicles, robots, and automated storage and retrieval systems will further improve efficiency (labour, productivity, energy use, inventory management, route planning, order grouping, etc.) and reduce overall expenses.
Large Smart Warehouses
In India, because of land use policies and the high cost of land, very few large smart warehouses have been developed. Having such warehouses will lead to consolidation, automation, and efficiency. For example, Cainiao Network, the logistics arm of Alibaba Group, is building a 20,000 sq. meter smart warehouse in Thailand for the ecommerce logistics company Flash Express. The warehouse is expected to have 100 automated guided vehicles, which will help reduce the distance that employees have to travel by 90 per cent and thus improve pickup efficiency.
Truck Fleet Modernisation
In many countries, multi-axle trucks with high payloads have played an important role in reducing logistics costs. In India, at present, more than 60 per cent of the cost of logistics is toward trucking. Formalisation of the trucking industry as also the upgradation and modernisation of the fleet needs urgent attention.
Resolving Port Congestion
The efficient functioning of ports is crucial to India’s trade competitiveness and its aim to climb up the global value chain. According to the Ministry of Shipping, maritime transport accounts for almost 95 per cent of India’s trade volume and 68 per cent by value. However, Indian ports fare poorly in efficiency. The average turnaround time for ships at Indian ports was 22 days in 2021 versus just 5 days in China.
Taking a cue from Singapore, India can enhance the efficiency of its ports by strengthening connectivity, capacity, and competitiveness. Singapore, which has the second-largest liner shipping connectivity after China, has invested in port technologies and infrastructure. This allows its ports to accommodate the largest container vessels and economies of scale.
To improve trade competitiveness, especially for made-in-India products, the country’s logistics strategy should focus on improving cargo handling capability, stronger mainland transportation connectivity, and lower logistical costs.
Developing Service Providers
Overall, logistics is a very complex function with many moving parts, some of which can be more effectively managed by experts such as freight forwarders and third-party logistics (3PLs).
Developing and giving more play to 3PL and 4PL service providers can address complex supply chain challenges. This model has been successful in other countries. DHL Supply Chain Solutions, for example, is among the top 3PL and contract logistics providers globally. It covers a wide range of industries such as automotive, consumer retail, engineering and manufacturing. Similarly, Healthcare Logistics is an Australia-based 3PL and 4PL service provider that specialises in the healthcare market. It offers solutions for distribution, clinical trial logistics, secondary packaging and more. There are specialists in other high-growth sectors as well such as ecommerce, food logistics, heavy machinery, etc.
Capacity Building And Skilling
Technology intensive operations do not diminish the fact that logistics service providers face a shortage of human resources and talent with the requisite knowledge and skill set. The labour-intensive logistics sector employs about 22 million people but only 4.7 per cent of these are formally skilled. Having assessed the lack of adequate sector-specific skilling infrastructure, the government has identified over 100 universities across the country where relevant courses on logistics can be integrated into regular curriculums.
To bridge the gap, several institutions, such as the CII-Institute of Logistics, National Institute of Logistics and Material Management and Tata Driving Schools are offering courses in supply chain management, warehousing and transportation. The Logistics Sector Skill Council is developing industry and cross-departmental partnerships across 12 sub-sectors to enhance skilling.
While Union and state governments will have to take the lead in promoting skilling in logistics to improve the service levels in the sector, there is a need to set up universities and centres of excellence that offer basic and advanced training programmes in logistics.
(With inputs from Priyanka Uberoi, Vice President, Strategy & Transactions – Government and Public sector, EY India)
(views expressed are personal)
Disclaimer: The views expressed in the article above are those of the authors’ and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.