A conventionally-run industry, logistics in India have been long dominated by several small players. Now, tech-focused startups are changing this.
The industry that was largely ignored and conventionally-run by a number of small players and inefficient operations has turned to being digitally sound and a major credit for the same can be attributed to the growth of e-commerce in the country. The success of e-commerce has immensely boosted the prospects of logistics industry.
The sector is presently estimated to be worth around $160 billion. According to Economic Survey 2017-18, the Indian logistics market is expected to reach about $215 billion in 2020, growing at a CAGR of 10.5%.
In order to grow at this pace, the logistics sector needs to focus on creating a sustainable roadmap and we can identify three areas for creating the same.
- Developing Infrastructure
The Government of India in order to fulfill its commitment towards the logistics industry is focused on developing infrastructure. The ministries are specifically asked to focus on enhancing connectivity to help the players in the industry to tap the underleveraged markets in secluded parts of the country. A lot of key development projects have been rolled out both for road, rail and sea connectivity.
The Government of India has announced the very ambitious Bharatmala Pariyojana Project for strengthening the countrywide road network and to provide seamless connectivity to interior and backward areas of country. Bharatmala Project will interconnect 550 District Headquarters (from current 300) through a minimum 4-lane highway by raising the number of corridors to 50 (from current 6) and move 80% freight traffic (40% currently) to National Highways by interconnecting 24 logistics parks, 66 inter-corridors (IC) of total 8,000 km, 116 feeder routes (FR) of total 7,500 km and 7 north east Multi-Modal waterway ports.
In order to boost the share of coastal shipping in the logistics sector and in the country’s overall development the central government launched Sagarmala initiative. The programme aims to modernize the Indian Ports so that the port-led development can be increased and coastlines can be developed to contribute to India’s growth. It places heavy emphasis on improving maritime linkages and promoting port-led industrial development by setting up industrial clusters and manufacturing hubs along coastal zones. Also, there are projects like Dedicated Freight Corridors which will further help in decongesting the road network and provide better connectivity through railways by reducing transit times from parts of north India to ports in eastern and western coast of the country.
- Technological Advancements
The logistics industry will see a major transformation in years to come with emergence of new age empowering technologies like artificial intelligence, machine learning, deep learning and internet of things will lead this transformation. With such technologies coming in, the productivity will enhance the overall supply chain spectrum and the operational processes will also streamline.
The technological developments in the industry will help in boosting efficiency in supply networks, reduce wastages and thereby optimize the supply chain. An integrated logistics policy that removes hierarchies and interactions with multiple agencies, effective monitoring and a complete tech-driven approach can help India’s logistics sector leapfrog into becoming one of the most promising sectors of the Indian economy.
However, cohesion is still lacking in Indian logistical growth. Smaller, unorganized players still eat up a large segment of the customer base, setting a lower benchmark for operations while influencing pricing as well. The inefficiency of these players has even encouraged ecommerce players such as Amazon to develop their own cutting-edge logistical fleet, equipped with drones and RFID/sensor-based technologies that optimize the entire process. Such a trend enhances competition for the dedicated logistics players, and only those which are able to incorporate digitized processes driven by Artificial Intelligence (AI) will be able to thrive through this onslaught.
Thus, there is no denying the fact that we need to efficiently and effectively align our supply chain strategies to tackle the complexities of changing global trade and this will finally decide our position in the global logistics ranking.
- Regulatory Boost
The Indian logistics sector provides a livelihood to over 22 million people, which in the next couple of years is expected to grow significantly. The government has already formed a national committee headed by the Cabinet Secretary to reduce the logistics cost from 14 percent currently to 10 percent by 2022. A new logistics division has been created in the Department of Commerce to develop and coordinate integrated development of the industry, improvement in existing procedures, identification of bottlenecks and gaps, and introduction of technology-based interventions in this sector.
The government introduced Good and Service Tax making the whole nation one market and this has acted as a game changer for the logistics industry. Under the pre-GST system, companies built and managed multiple warehouses in every state of business operation – to avoid cross-border tax. This made supply chains longer, costlier, and highly inefficient, resulting in the formation of a highly scattered and unorganized logistics sector. As a single, uniform tax – the GST has reduced price differences between states and made tax liabilities uniform across India. Since there is no tax arbitrage to be gained, companies – under the new tax structure – are free to make decisions on supply chain management solely based on operational efficiency. Instead of having multiple warehouses in every state to avoid inter-state taxes, companies can opt for a more efficient ‘hub and spoke model’ – wherein there are a few large warehouses connected to manufacturing plants, retail, and wholesale units via an efficient transportation system. The consolidation of warehouses secures a streamlined supply chain, better planning and optimization, efficient inventory management, less tied-up capital, reduced overhead costs, and increased operational efficiencies for businesses. Further, the GST system, through its provision of the e-way bill has brought down check-posts at state borders, enabling faster and seamless movement of goods between states. The government has also relaxed FDI regulations and which has opened a lot of doors for foreign investment to come in.
The government has to focus on reducing red-tapism, bureaucratic hurdles, environmental compliances, poor funding and there exists a policy disconnect between the central and state governments. Another challenge is to make the sector organized for all the players, today majority of the industry is unorganized thereby making it tough for organized players to participate. The unorganized players flout rules, avoid taxes and thrive on differential pricing.
Such constructive steps, if taken frequently and with solid intention, leveraging the best of technology, can surely develop a strong, efficient logistics sector, empowering the Indian economy to achieve the goals it has set for itself.
(Srajan Nawal is the Co-founder and former COO now CEO at Trails Supply Chain Solutions Pvt. Ltd.)
The views expressed in the article are those of author and has nothing to do
with Trails Supply Chain Solutions Pvt. Ltd.)