Improved infrastructure is the key for reducing logistic cost
India’s poor infrastructure poses the greatest challenge to logistics solution providers. The country is seen losing heavily in several quarters. At the 2nd edition of INTERMODAL INDIA 2013 organized bu UBM in Mumbai last weekend various papers that were presented came to the consensus that logistics infrastructure is a critical enabler of India’s agenda for economic development. Considering its pivotal role, the Indian government needs to enhance its annual spending on logistics infrastructure. Even if there is massive increase, the country’s network of roads, rail, and waterways will be insufficient to accommodate a threefold increase in freight movement over the coming decade.
Since a large part of the logistics network that India needs has yet to be built, the country has a chance to add infrastructure optimally to meet the growing demand. To achieve this goal, India must pursue an integrated and coordinated approach that not only closely aligns the development of each mode—railways, roads, and waterways—with the country’s needs but also makes better use of existing assets. In particular, India must expand its use of rail and realize the potential of its waterways.
India is better off than Russia and not much different from Brazil, one of the BRICS countries according to Arun Venkatesh of CRISIL who spoke on the ‘Adequacy of Logistic Infrastructure – Port Connectivity and Outlook Road Network & Investment, Rail Network & Investment, Warehousing Capacity’. “To take India to the next higher level of standard India will have to unleash the hidden talent, make better use of resources and put better infrastructure in place,” stated Mr. Venkatesh. “Because of inadequate infrastructure much of Indian cargo gets transshipped through Sri Lankan and other ports. Economy of scale is found to be lacking in many points of the transportation chain. The number of rakes made available restricts container movement. However, ports are a big attraction and an investment and a $ 1 trillion in expected in the next five years.”
As a customs broker, Dushyant Mulani of BCHAA gave an account of the regulatory issues concerning goods involved in the export and import. Lack of infrastructure came in the way of being able to exploit the full potential of multi-modal operation he said. “This is resulting in many manufacturers shifting production to other countries.”
In the panel discussion the challenges faced by SMEs was succinctly brought out. Dominating factor was the resistance to change from the traditional mode of operation to a modern one which integrates the latest technologies and the use of IT. The common complaint of the trade was non-availability of finance. Some panel members also saw the stiff competition from China posing a serious threat as they manufacture in bulk and enjoy large scale economies in manufacturing and distribution of goods and services. Pricing pressure was another factor. SMEs are forced to sell at lowest possible prices in order to keep up with competition from other SMEs as well as from established players in the industry
Handling and clearance of liquid bulk cargo calls for ingenuity and skill, since demurrage is one big factor that could play havoc and even cause companies to fold up. “Speed, efficiency and cost effectiveness is suffering badly owing to poor infrastructure.” Said Jayant Lapsiaa, President, All India Liquid Bulk Importers & Exporters Association (AILBIEA) who made a presentation on ‘Liquid Bulk Cargo – Challenges faced on the logistic scenario’. “The ports as well as the government should make land available for setting up tank farms as having a good infrastructure is significant for the success of this trade. We are looking forward to see the dedicated corridor coming in place as this will greatly reduce the incidents of theft, accidents and delays and bring down cost. Piracy on the Indian coast has turned out to be another distressing ordeal with pirates coming in small boats and attacking tankers on the Indian coast.”
Like with most industries in India, the logistics industry is also dominated by SMEs. They play a vital role in the survival and blossoming of the logistics business, and together form an integral part of the Indian economy. Logistics is an integral function for every business organization. Logistic Service Providers (LSPs) form the backbone of most companies. Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfilment, logistics network design, inventory management, supply/demand planning, and management of third party logistics services providers. To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. Logistics cost in India are estimated to be 13% of GDP, which is much higher than the developed economies like USA which spends around 10% of its GDP as logistics cost and Japan which spends 11% of its GDP for the same. The reason for this high spending is attributed to poor infrastructure facilities, lack of implementation of IT in logistics and unnecessary check points at the National highways which wastefully increases the transportation costs. India can save up to US$ 7.13 bn each year in the event of a reduction in logistics cost by 1%
Firms can enhance their market competitiveness by reducing their logistics costs, thus lowering the total costs of goods and services. Any impetus to improve the competitiveness of the firms at the national platform would enable the nation to register a dynamic economic performance in a global environment. USA has successfully reduced its logistics cost as a percentage of GDP from 17% in 1980 to its present level of 9.5 % by incorporating macro level reforms in the transportation infrastructure coupled with micro level up-gradation of logistics facility in individual firms. India has therefore got a huge opportunity of reducing its national logistics cost by studying and benefiting from other success stories. Indian logistics firms will have a major role in achieving this cost reduction.