Reshaping India’s logistics sector
The logistics sector in India is rapidly expanding. The industry has high hopes to achieve the 25th position on the Logistics Performance Index by 2030 with supportive government initiatives such as DFCs, but the primary challenge is high logistics costs.
Because of the high expenses of road logistics, several logistics businesses are shifting to rail logistics. The government wants to reduce the cost to a single digit, but when will that happen? Let's find out.
India's logistics business is fragmented, with numerous unorganised companies and high logistics costs. However, its significance became apparent during the lockdown, when support from logistics became critical for performing any type of business. The Indian logistics business is predicted to develop significantly as a result of many government efforts aimed at maintaining a smooth movement of commodities across the country.
In the 7th edition of the Logistics Performance Index (LPI 2023), India jumps 6 places to Rank 38 out of 139 nations in the World Bank's logistics ranking. Since 2015, India has undertaken a number of steps to increase its logistics efficiency.
The National Logistics Policy (NLP) and dedicated freight corridor (DFC) initiatives are reshaping India's logistics sector. Improving connectivity within the country and speeding shipments in and out of India will position the country as a geographically superior transit hub and key layover spot.
To be at the 25th by 2030
The World Bank has recognized India's efforts to improve logistics efficiency. India has shown tremendous development on 4 out of 6 LPI indicators as a result of numerous efforts launched over the last several years.
To guarantee essential efficiency in the logistics industry, the central government announced the NLP in 2022. The government has set a target of increasing its LPI score to the top 25 by 2030.
Setting such an ambitious aim demonstrates India's desire to improve its logistics skills. The achievement of this aim is dependent on a variety of elements, including the adoption of effective policies, infrastructural investments, regulatory changes, and stakeholder collaboration. Is the target achievable by 2030? Or do we require more time?
“This is a positive development. It suggests that the country has made progress in enhancing its logistics infrastructure, efficiency, and connectivity. This achievement demonstrates a commitment to improving trade facilitation and supply chain operations. An important step in this direction is NLP which aims to improve coordination among different modes of transportation and reduce reliance on road transport. By reducing logistics costs and improving efficiency, the NLP aligns with India's goal of becoming a global economic powerhouse and improving its LPI index seems achievable,” said Ketan Kulkarni, Chief Commercial Officer, Blue Dart.
“Why not – it is just 13 places! Global competitiveness is important for India to grow and one thing that I can bet upon is India’s prowess to transform digitally. Further with the initiatives of the government from NLP, Unified Logistics Interface Platform (ULIP) and the ongoing development in ports, I am very optimistic about it,” said Harpreet Singh Malhotra, Chairman & Managing Director, Tiger Logistics.
"The implementation of DFCs brings advantages such as reduced transit time, lower logistics costs, decongestion of existing railway infrastructure, and more. These developments align with global energy efficiency and environmental sustainability standards, contributing to a higher rail transportation share and reduced logistics expenses in India."
- Ketan Kulkarni, Chief Commercial Officer, Blue Dart
The PM GatiShakti National Master Plan (PMGS-NMP) fosters a coordinated approach, leveraging technology for infrastructure planning and development.
“Investments in trade-related soft and hard infrastructure, along with the implementation of supply chain visibility platforms like the Logistics Data Bank project, have contributed to reducing delays. Achieving the ambitious goal of reaching the 25th position by 2030 appears feasible with continued efforts and adaptability to changing dynamics,” said Aditya Shah, Executive Director, V-Trans & CEO, V-Xpress.
“In view of the Indian government’s plans to create a modern logistics infrastructure through initiatives like PM GatiShakti, it looks set that India is on the right track to achieve its goal. However, infrastructural enhancements are akin to “hardware” improvements, which constitute only half of the winning formula. To ensure thorough success, enhancements must also be its ‘software’, which refers to the people working at the related establishments and businesses must equip their front-line workers with the right technology to enhance their time and cost efficiency while reducing human errors concurrently,” said Rajnish Gupta, Vice President & Head for India and Sub-Continent business, Zebra Technologies Asia Pacific.
“India’s rise in the rank on LPI is the result of a number of supportive government policies, including the PM’s Gati Shakti initiative launched in 2021 to reduce logistics costs and boost the economy and NLP launched in 2022 to empower supply chains to become efficient, cost-effective, and fast, while especially strengthening the last-mile delivery segment. These policies, coupled with the push for Make In India and Digital India, have been fructifying within the desired time frames, and thus, the goals surely seem achievable now,” said Varun Gada, Director, LP Logiscience.
Transition from road to rail transport
The 'Transition from Road to Rail,' an ongoing topic from all corners, is now getting traction thanks to the joint efforts of all stakeholders - government, logistics players, and the user fraternity. But why is the shift necessary?
“It is believed that many companies are switching to multi-modal transportation due to high logistical charges but the fact is they are switching mostly because it contributes to their green or carbon emission reduction goals as well. And the railways are one of the safest modes of transport when it comes to carbon footprints and the environment. Thus, a lot of 3PL and 4PL service providers and manufacturers are choosing the railways to cover the major part of the transport, and using road transport only for connecting between warehouses or probably the warehouse or manufacturing hub to the loading station,” said Gada.
The types of goods transferring from road to rail vary across industries and regions. Rail transportation is well-suited for the long-haul transportation of large, regular flows of low-to-medium-value density goods between fixed origin and destination points.
“Rail transport plays a significant role in intermodal freight, facilitating the efficient transfer of goods between different modes of transportation. The rate of goods transitioning from road to rail depends on factors such as industry dynamics, infrastructure availability, geographical location, and government policies. Some industries, like mining and agriculture, have long relied on rail transport due to the nature of their products and the distances involved. However, other industries are gradually recognizing the benefits of rail transport and incorporating it into their supply chains. The shift from road to rail transportation is motivated by the advantages it provides, including route flexibility, timeliness, quickness of transport, volume flexibility, and the ability to handle various goods,” said Kulkarni.
“Road and rail, both elements are important in transporting goods. Rail is certainly a cheaper option; however, there are some concerns with moving goods by rail, such as damages, pilferages, and lack of accessibility and responsiveness. Implementing multi-stakeholder collaboration in a phased manner is critical to the success of this transformation. This collaborative approach ensures a smoother transition and maximises the benefits of rail transportation. This shift to rail transportation represents a positive step towards a greener and more optimised logistics industry,” said Shah.
Logistics costs to be 9% in 2024
India aims to reduce logistics costs to 9% by the end of 2024, driven by expanding infrastructure. Achieving this single-digit target would involve investing in infrastructure development, embracing digitalisation, streamlining regulations, and fostering collaboration. Improved transport corridors, connectivity, and modernised logistics hubs would enhance efficiency.
“Digital platforms, advanced tracking systems, and automation tools would optimize operations. Simplified trade processes and customs clearance would reduce paperwork. Collaboration among government, industry, and logistics providers is essential. By leveraging these strategies, India has the potential to achieve its goal of reducing logistics costs to 9% by 2024,” said Shah.
According to the Economic Survey 2022-23, logistics costs in India have been in the range of 14-18% of GDP, compared to the worldwide standard of 8%. Union Home Minister Amit Shah stated in March during the annual session of Assocham, the Associated Chambers of Commerce and Industry of India, a non-governmental trade association and advocacy group based in New Delhi, that the government is working to reduce logistics costs to GDP to 8 per cent from the current 13 per cent.
"It is believed that many companies are switching to multi-modal transportation due to high logistical charges but the fact is they are switching mostly because it contributes to their green or carbon emission reduction goals as well."
- Varun Gada, Director, LP Logiscience
“We will have to remove the 8 per cent and 13 per cent gap. We have formulated a framework for the next five years. I can assure you that we will reach 7.5 per cent logistics cost in the next five years,” he said.
With policies like enabling 100% foreign direct investment in logistics parks and warehouses, the NLP, and the latest 14-country pact, India is set for rapid expansion.
“The global benchmark and average logistics cost is around 8%. While our country has its own challenges to tackle, solve and manage, there is nothing wrong in setting global standards, because it will help reduce the competitiveness gap of India’s logistics with global counterparts. Optimising the logistics modal mix, digitalisation of supply chain operations and the logistics industry, as well as the development of omnichannel, exploring our waterways further for enhanced domestic connectivity and the movement towards green supply chains and enhancing skill development in logistics will be crucial for India's growth,” said Malhotra.
DFCs - the future of logistics
Finance Minister Nirmala Sitharaman has allocated Rs 27,482 crore to the Dedicated Freight Corridor Corporation of India (DFCC) for the fiscal year 2023-24 (FY24), a 75% increase from Rs 15,710.44 crore in FY23. According to the Budget, the DFCC will fund Rs 15,241 crore through internal accruals.
“The National Rail Plan (NRP) knowing the importance of DFCs for economic and environmental reasons is commendable. However, successful implementation requires collaborative efforts and infrastructure investment. The NRP's emphasis on DFCs is a positive step towards an efficient, cost-effective, and environmentally friendly freight transportation system,” said Shah.
DFCs provide efficient freight movement by reducing transit times and logistical costs. It has the potential to improve supply chain operations, drive economic development, and boost competitiveness. Furthermore, by lowering emissions, DFCs have the potential to contribute to sustainability goals.
“Separating freight traffic from passenger traffic is very important in a country like India. Also, the double-stack container trains will be able to substantially reduce the unit cost of freight transport and hence save logistics costs. Next, the hubs located near EDFC & WDFC catchment areas will also grow due to an increase in EXIM traffic, furthering supply chain optimization,” said Malhotra.
The DFC project, India's largest rail infrastructure endeavour, covers 2,843 kilometres. After limited progress since 2006, the project is now ready to launch in phases. The Eastern DFC section connects Sohnewal in Punjab to Dankuni in West Bengal, while the Western DFC links Dadri in Uttar Pradesh to JNPT in Mumbai, connecting major ports along the way.
"The global benchmark and average logistics cost is around 8%. While our country has its own challenges to tackle, solve and manage, there is nothing wrong in setting global standards, because it will help reduce the competitiveness gap of India’s logistics with global counterparts."
- Harpreet Singh Malhotra, Chairman & Managing Director, Tiger Logistics
“India's NRP aims to address economic and environmental considerations, with DFCs playing a crucial role. DFCs are vital due to their ability to reduce transit time and lower logistics costs. DFCs are expected to increase the rail share in transportation from 30 per cent to 45 percent, resulting in reduced logistics costs. The implementation of DFCs under the NRP brings advantages such as reduced transit time, lower logistics costs, decongestion of existing railway infrastructure, increased train speeds, and improved connectivity for efficient goods movement. These developments align with global energy efficiency and environmental sustainability standards, contributing to a higher rail transportation share and reduced logistics expenses in India,” said Kulkarni.
DFC’s can accommodate heavy haul trains with a total load of 13,000 tonnes and facilitate longer and double-stack container trains.
“DFC is expected to provide the much-needed impetus to enhance efficiency and increase the speed of cargo transportation. However, along with speed, traceability is key to ensure the owner has real-time visibility of the goods from dispatch to delivery. In fact, it was reported that the Indian Railways will be installing the global positioning system (GPS) in wagons for their real-time tracking and this will be complemented by RFID tags which have been installed in most of these rolling stock. As all the data will be available at both the central and zonal levels, there will be more efficient utilization of the stock on hand,” said Gupta.