Advancements in digital technologies, changing consumer preferences due to eCommerce, government reforms, and shift in service sourcing strategies are expected to lead the transformation of the Indian logistics ecosystem. Digitalization will improve the efficiency and performance in freight management and port operations. Warehouse automation will help achieve operational efficiencies to counter supply-chain cost pressures in the industry. Increased investment in infrastructure, last-mile connectivity, and emerging technologies are streamlining the logistics landscape in India.
Strong growth supported by government reforms, transportation sector development plans, growing retail sales, and the eCommerce sector are likely to be the key drivers of the logistics industry in India. Online freight platforms and aggregators are on the rise in the Indian logistics market, given the need for low entry barriers and less capital investment compared to setting up of an asset-based business model. Manufacturing in India holds the potential to contribute up to 25%-30% of the GDP by 2025 which will drive the growth of the warehousing segment in India.
The logistics market in India is forecasted to grow at a CAGR of 10.5% till 2025. It has been awarded infrastructure status which has made it easier for investment inflows and has become a major growth driver of the logistics industry. eCommerce is another major segment that is expected to support the growth of the logistics industry during the forecast period. Increasing investments and trade points toward a healthy outlook for the Indian freight sector. Port capacity is expected to grow at a CAGR of 5% to 6% by 2022, thereby, adding a capacity of 275 to 325 MT. Indian Railways aims to increase its freight traffic from 1.1 billion tons in 2017 to 3.3 billion tons in 2030. Freight traffic on airports in India has the potential to reach 17 million tones by FY40. Lack of supporting infrastructure, automated material handling systems, and high manual process interference are some key areas where the Indian air cargo industry lags its global peers.
Grant of infrastructure status to logistics, the introduction of the E-Way Bill, and GST implementation are set to streamline the logistics sector in India. Setting up of a logistics division under the Department of Commerce, technology upgrades, and development of dedicated freight corridors and logistics parks are also major moves to upgrade the logistics landscape.
Logistics start-ups in India gained a substantial foothold after the onset of eCommerce, and there are several new companies that are gaining traction in the industry. Online platforms have increased competition and lowered freight costs with real-time data availability and a transparent value chain. It is imperative for logistics service providers to innovate and adapt to the transforming logistics landscape.
As of now when one looks at the logistics sector in India, the challenges faced by the industry are multifold, which include insufficient transport network, unregulated growth of information technology, underdeveloped warehousing facilities. Almost 55-60% truck drivers are actually the owners of the trucks. There are problems of Poor asset utilization and first and last mile connectivity. There are high indirect costs on account of unpredictable supply chains resulting in high inventory carrying costs. Consequently, the country currently records relatively higher logistics costs – 13% of GDP in 2018
To help alleviate the above inefficiencies, the Ministry of Commerce and Industry is considering replacing the Multimodal Transportation of Goods Act, 1993 (MMTG) with a National Logistics Efficiency and Advancement Predictability and Safety Act (NLEAPS).
The Policy will facilitate in creating a point of reference for all matters relating to logistics and trade which will also function as an information and knowledge sharing platform. It will also entail the formulation of a data and analytics centre to create transparency and continuous motoring of key logistics metrics. The Policy at the same time will also provide impetus to trade, and focus on economic growth which will lead in competitiveness of imports and exports and double the employment in the logistics sector by generating additional 10-15 million jobs and target on improving skills in the sector and encourage gender diversity. Efficient and practical implementation of the Policy would help provide an impulse to consistent trade border facilitation, and improve India’s ranking in the Logistics Performance Index and boost investments. The Logistics value chain is being managed currently by many ministries, including road transport and highways, shipping, railways, civil aviation. Agencies like Central Drug Standard Control Organization, Food Safety and Standard Authority of India are some agencies providing relevant trade clearances. The Policy seeks to call for cooperation between various ministries, and have an integration on the central level.
The logistics sector with a market size of USD 160 billion is complex, with more than 20 government agencies, 40 partnering agencies, 37 export promotion councils, 500 certifications and 10,000 commodities. Effective implementation of the Act would help provide an impetus to trade, enhance export competitiveness, and improve India’s ranking in the Logistics Performance Index and Ease of Doing Business.
Logistics Performance Index
The Logistics Performance Index (LPI), developed by the World Bank Group, is an interactive benchmarking tool created to help countries identify the challenges and opportunities they face in their performance on trade logistics and what they can do to improve their performance.The logistics performance (LPI) is the weighted average of the country’s scores on the six key dimensions:
a) Efficiency of the clearance process (i.e., speed, simplicity and predictability of formalities) by border control agencies, including customs. b )Quality of trade and transport related infrastructure (e.g., ports, railroads, roads, information technology). c) Ease of arranging competitively priced shipments d) Competence and quality of logistics services e.g., transport operators, customs brokers. e) Ability to track and trace consignments. f) Timeliness of shipments in reaching destinations within the scheduled or expected delivery time.
India ranked 44th on the LPI in 2018.