Analysing landscape of logistics in India 

Logistics is one of India’s largest industries, valued at about $215 billion with an annual growth rate of 10.5%.

   
Current state of logistics in India

I recently spoke on ‘Supply chain management and logistics’ at National Institute for Entrepreneurship and Small Business Development (Niesbud). As part of my research, I discovered that the logistics landscape in India is undergoing tremendous transition. Consequently, I decided to write this article and share my views on this topic.

Logistics is a significant business consideration for organisations that supply goods in terms of cost and time. Quick commerce and on-demand delivery are recent trends. On time delivery guarantee is in fact now a part of the business model of brands like Domino’s and Blinkit. Sustainability is also now becoming important in many cases because of brand positioning or the ESG requirements of supply chain partners. This is leading to the increased use of EVs. Also, the logistics of perishables and hazardous goods present their own set of challenges.

Here are a few snippets to illustrate the conundrum of logistics.

Transportation of Kiwi fruit from New Zealand to Delhi costs less than it does from Noth East India to Delhi.

The Red Sea crisis shifted garment exports from sea to air freight for both India and Bangladesh. Exporters from Bangladesh are now using Delhi airport as a transhipment hub. Recently, the Apparel Export Promotion Council (AEPC) protested against this. They said that almost 20-30 loaded trucks from Bangladesh arrive in New Delhi every day leading to a steep rise in air-freight rates, delayed handling and processing of export cargo and congestion at the cargo terminal.

Adulteration of milk and petroleum products during transportation continues to be a problem. As is the case of pilferage during transportation of printed question papers of examinations.

Sector’s overview

Logistics is one of India’s largest industries, valued at about $215 billion with an annual growth rate of 10.5%. The industry is comprised of transportation (60%), warehousing (25%), freight forwarding (10%), and value-added logistics (5%).

In terms of transportation modes, the logistics sector in India relies predominantly on roads, accounting for a 73% market share, followed by rail (18%), water (5%) and air (5%). The dominance of road transportation can be attributed to the extensive road network and connectivity across the country. However, the government has been focusing on improving other transportation modes such as rail and water to reduce logistics costs and enhance efficiency.

In FY 2023, the Indian warehouse market experienced an unprecedented surge in transactions, with a total of 51.3 million square feet. Notably, Mumbai, Bengaluru, and Kolkata stood out as the cities witnessing the highest demand for warehouse facilities. Among the key contributors to this growth, the logistics service provider sector took the lead, accounting for 39% of the transactions. Following closely were the retail sector with 13%, e-commerce with 7%, fast moving consumer durables (FMCD) with 4%, FMCG with 3%, and other sectors with 5%.

India’s logistics costs at about 10% of GDP are considered high and efforts are being made to bring it down.

Government initiatives

National Logistics Policy (NLP): To complement the PM GatiShakti National Master Plan (NMP), the National Logistics Policy (NLP) was launched on 17th September 2022 by the government. While the PM GatiShakti NMP addresses integrated development of fixed infrastructure and network planning, the NLP addresses the soft infrastructure and logistics sector development aspect including process reforms, improvement in logistics services, digitization, human resource development and skilling.

State Logistics Policies (SLPs): To bring a holistic focus on ‘logistics’ in public policy at the state level, states/uts are developing State Logistics Plans aligned with the NLP. So far, 22 states have notified their respective State Logistics policies

Unified Interface Logistics Platform (ULIP): ULIP is a common data stack platform for integrating, through APIs, all relevant IT systems and individual platforms. It integrates 34 logistics related digital systems and portals across ministries and departments. It also provides opportunities to the private sector to develop apps and use cases.

Launch of e-handbook on warehousing standards: Published by DPIIT, this handbook is a comprehensive guide to promote the interest of the warehousing industry in India. The handbook is aimed at standardising warehousing and related assets, which are a crucial segment of the overall logistics sector in the country.

Dedicated freight corridors: These high speed, large capacity, and prioritized railway corridors are meant for the transportation of goods and commodities across India. They seamlessly integrate better infrastructure and state-of-the-art technology and will be a game-changer.

Multimodal logistics parks: These freight handling facilities are to be constructed on at least 100 acres, providing access to different modes of transportation. They also provide storage solutions such as mechanised warehouses and cold storage with other services such as customs clearance and quarantine zones, helping to reduce freight, warehouse costs and vehicle congestion. Progress is being made in the setting up of 35 multimodal logistics parks (MMLPs) across the country

Introduction of the E-Way Bill: Anyone with a truckload worth more than Rs. 50,000 must carry an electronic document from the E-Way site. This helps eliminate state boundary check posts and physical paperwork to facilitate vehicle movement across states and shortens overall turnaround time.

Increasing logistics through waterways: The Inland Vessels Bill, 2021, which replaced the Inland Vessels Act, 1917, seeks to bring all inland waterways in India and the movement of vessels on them for any purpose under a central regulatory regime. The government wants to promote inland waterways as a supplement to freight movement across India.

Warehousing: The warehousing industry is projected to reach about INR 2,245 billion in 2026. The growing need for stocking and shortened delivery timelines have led to a rise in storage requirements in tier 1 and tier 2 cities. The industry is expected to attract more investments from institutional funds and developers, led by the government’s plan to set up multimodal logistic parks and other initiatives to connect urban transport to railways. Private players such as CCI Logistics, Gateway Distriparks, and the Transport Corporation of India have ventured into multimodal logistics parks with state-of-art facilities for companies wishing to set up operations in such parks.

Technology in transportation

Technology to streamline the marketplace: Currently, 85% of the logistics business is run through offline or call-based brokers. Digital freight aggregators are slowly streamlining the Indian marketplace and have the potential to reduce a shipper’s cost, eliminate the issue of dead miles, and reduce the industry’s carbon footprint. They can also help bring down India’s logistics spending on its overall GDP, which is currently at 10%. (Road logistics makes up the largest share with 73%).

The aggregators claim that streamlining and digitalising logistics will boost a truck’s average run-time from 7,000 to 11,000 km per month. Drivers can use the platform to locate fresh loads in any state for their drive back to their state of origin.

Start-ups such as Raaho and Blackbuck are working on bringing streamlined processes to our logistics market. They help in discovery and booking, provide value added services, the execution of freight between shippers and truckers and are thus poised to change India’s road logistics industry and drive it towards the $330 billion mark in 2025.

Technology to improve operational efficiencies

Logistic service providers have started deploying big data and analytics, IoT, artificial intelligence, blockchain and other technologies for long-term forecasting as well as logistics planning for route optimisation, capacity utilisation, and moving towards an autonomous supply chain. Use of new-age technologies enhances visibility in every step of the supply chain and improves factors such as efficiency, condition monitoring, and fleet management.

Companies such as Oracle and SAP are providing SAAS-based transport management systems, AI-enabled network optimisation, and other new-age technology solutions for smart logistics solutions such as the right vehicle selection, route and delivery planning, real-time tracking, reduced transit time, and reliable documentation and control.

Technology in warehousing

The rapid advancement of digital technologies supports logistics service providers (LSPs) to adopt digital interventions like inventory management systems, warehouse automation, real-time monitoring through the Warehouse Management System, automated picking tools, Automated Guided Vehicles (AGV), and Automated Storage and Retrieval Systems (ASRS), etc. With these upcoming technological trends, distribution centres are becoming more efficient and effective at meeting cost, service and delivery expectations

Warehouse digitalisation is reshaping the logistics sector by incorporating cutting-edge technologies such as AI, IoT, robotics, AR/VR and blockchain. Through the utilisation of data and technology, warehouses are revolutionising their operations to boost productivity, accuracy, and safety. Automation of tasks, data-driven decision-making, and immersive personnel training are now within reach. As per industry estimates, by embracing these innovations, warehouses anticipate efficiency improvements of up to 20%, offering improved visibility and control over operations. As a result, companies can reduce costs, accelerate order processing, and elevate customer satisfaction levels.

Barcode and RFID integration

This provides real-time product insights, reduces labour, saves time and enhances data accuracy by automating processes, leading to increased productivity. It is estimated that, on average, companies which adopt RFID, see their inventory count accuracy go up from 63% to 95%.

Start-ups

Many Indian start-ups such as GreyOrange, Unbox Robotics, and iFuture Robotics are providing state-of-the-art logistics robotics solutions. For example, Addverb Technologies has developed Dynamo, an automated guided vehicle for the transport of diverse loads in the warehouse. Companies such as Indian Post, HUL, Amazon, and Delhivery have partnered with Falcon Autotech, a leading Indian company that provides automation systems globally.

Green logistics

Implementing green technology in logistics will help the environment, simplify processes, reduce waste, and increase a company’s competitiveness. Some key investments include real-time data gathering tools, electric vehicles, green cold chain, cargo delivery drones, and logistics resource management platforms.

Companies such as Bigbasket, Spencer, Amazon, Flipkart, Licious, and Myntra are working with Zypp Electric for their last mile delivery through e-vehicles.

Drones have interesting use cases in the industry, including for urgent deliveries. Amazon has already started a drone delivery service on an experimental basis.

Sustainable packaging

The Indian packaging market was valued at USD 50.5 billion in 2019 and is projected to reach USD 204.81 billion by 2025, with a CAGR of 26.7%. Over the last decade, packaging consumption in India has doubled, increasing from 4.3 kilograms per person per annum (PPPA) to 8.6 kg PPPA, as reported by the Indian Institute of Packaging (IIP). Sustainable packaging is a crucial aspect of reducing waste generation and minimising the environmental impact of warehousing and supply chain logistics.

Finance

The logistics sector was granted infrastructure status in 2017 by the government and was permitted 100% FDI. The grant of infrastructure status has enabled this sector to access funds on easier terms with enhanced limits including external commercial borrowings (ECB) and longer tenure funds from insurance companies.

New age logistic companies

The increasing dominance of technology-based Logistics Service Providers (LSPs) in the warehousing and logistics sector indicates a clear trend where businesses are opting to outsource these functions to these LSPs. This approach is especially beneficial for SMEs, as it allows them to access high quality logistics services at low cost. The shift towards outsourcing is driven by the desire to focus on core activities and the limited availability of space in urban areas. By outsourcing, businesses gain the advantage of flexibility in choosing the location and cost-effectiveness of their operations. Moreover, it allows them to scale their workforce according to their core business needs.

Conclusion

With more disruption via technology on the horizon, industries should be ready to anticipate how their capabilities need to evolve and how they can partner with new-age logistics companies.

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