by Prakash Tulsiani - Executive Director and CEO (CFS-ICD), Allcargo Logistics
Logistics parks can be a game changer for the logistics and transportation industry by driving substantial reduction in freight costs and transit time, and offering seamless transport across India
Whether it is an aircraft maker transporting parts made in Nagpur to Seattle, or a leading ecommerce player sending a T-shirt made in Kolkata to a customer's house in Trichur, the role of the logistics and transportation industry can be simplified as this — to bridge the gap between the producer at one end and the consumer at the other end, wherever in the world they may be.
Yet, behind this simplistic statement lies the complexity of the logistics business, comprising the entire gamut of transportation and material handling solutions, ranging from road, rail, port, trucks, shipping, containers, and extending to customs, warehousing, and many more elements.
India is one of the fastest growing economies in the world today. Yet, according to the World Bank, the logistics cost in India is one of the highest in the world. Currently, India spends 14.4% of its GDP on logistics and transportation, as against 8% by other developing countries and 10% by China. Inefficient logistics account for about 2% of the country's GDP, according to the report.
India has traditionally struggled with transport logistics, which is a direct result of poor connectivity between road, rail, air and port. Within India, roads continue to be the favoured form of transportation accounting for over 60% of total freight movement. The country's rail network — fourth-largest in the world —carries only 32% of the cargo. Inadequate rolling stocks, non-availability of cargo hubs and capacity constraints prevent the rail network from achieving its optimal potential.
Transport infrastructure is a critical component of industrial growth. If India has to become the third largest economy by 2028, it needs to take corrective measures. In the interest of efficiency and greater economies of scale, we need to crunch both costs and time involved in this journey to the consumer.
This is where logistics parks can play a game-changing role.
India's geography — long coasts with multiple ports, extensive hinterland with superior rail connectivity, vast road network, etc — makes multi modal solutions ideal for our country. Moreover, the economy is on an upswing. Consumerism is on the rise, driven by a mix of brick-and-mortar and e-commerce. Rural markets are growing in significance and purchase power. As market place demands go up, a more efficient and seamless logistics infrastructure that meets these demands will deliver strong advantages to the economy.
The Indian government's decision to build pan India logistics parks is great news for industry as logistics parks hold the potential to transform the Indian logistics and transportation industry and enhance the competitiveness of Indian goods by bringing down transport costs and time-to-market. Having proved their success in developed economies as well as China, it is time to establish this model in India.
As per the government's vision, logistics parks will come up at key sites in India's industrial belt, as a hub-and-spoke model that will link producers more closely with big consumption markets, by connecting rail and road networks at these vital points. For a nation that is moving fast towards progress, logistics parks will provide ease and convenience beyond what one can anticipate. They will boost employment and attract capital investments.
In addition, logistics parks will be able to leverage the new opportunities thrown up by the Dedicated Freight Corridor(DFC) — the electrified broad-gauge railway line that will link the industrialised hubs of West Bengal in the east via Delhi, Haryana and Punjab in the north, to Rajasthan, Gujarat and Mumbai in the west.Meant only for freight, the DFC will carry goods at a faster and more efficient manner across the country.
As India's leading logistics solutions company, Allcargo is investing in setting up logistics parks in three locations — Jhajjar in Haryana, Malur in Karnataka, and Hyderabad in Telangana. The Jhajjar facility, expected to start operations phase wise in 2019, is a one-of-its-kind integrated logistics infrastructure set up, which will include a rail-linked private freight terminal catering to railway cargo movement, a free trade warehousing zone, domestic tariff area and other related activities. It will also have the facility to handle both in-bound and out-bound contract logistics services.The other two logistics parks will be similar in vision.
Depending upon the customer base, Logistics parks could also include cold chain facilities, value added services such as banking, customs clearing, packaging, pre-delivery quality inspection, grading, sorting, labelling, packaging and testing at the parks.
How do logistics parks benefit industry and the end consumer? Take a hypothetical example. The leading ecommerce player can send T-shirts out in bulk from Kolkata by rail to a logistics park in Malur in Karnataka, where a customised warehouse can sort and package, so that the right T-shirt lands up in that customer's house in Trichur. Transit times would come down by 3 days, costs to the ecommerce player could reduce by as much as 2-3%.
Logistics parks would thus definitely lead to optimisation of resources and reduction in wastages, which account for a major share in increasing the cost of Indian goods. There are other benefits — the logistics parks also enable companies to bring down their carbon footprint by way of reduced emissions.
By their nature, logistics parks will ease out the current fragmented nature of logistics, helping industry move away from point-to-point logistics towards the more efficient hub-and-spoke model. Aligned with the 'one nation, one tax' premise of GST, logistics parks will accelerate the benefits of GST to both producers and consumers. Transit times at toll nakas and octroi points have already come down, as trucks do not need to stop and pay. This can be reduced further by leveraging logistics parks for storage and in-transit processing.
With the distinct advantages they offer, logistics parks hold the promise of transforming India's logistics landscape and increasing efficiencies. It will also provide the necessary fillip to the Indian economy and help the country realise its enormous economic potential.
Given the multiple benefits, the logistics sector will witness more players entering and more investments. For the nation as a whole, the recent move by the government to accord the logistics sector the status of infrastructure is a welcome one. This gives this critical sector the significance it deserves; it will also make it easier for companies to secure funding for high capex logistics projects from banks and financial institutions. This in turn will trigger technical efficiencies and innovations and spark an overall upgrade of the sector as a whole. The competitive index of the sector will go up.
Coupled with the strong thrust on developing the country as a manufacturing hub, the large-scale modernisation of logistics infrastructure is expected to give further growth momentum to the Indian economy. The Sagar Mala port development initiative, the Dedicated Freight Corridor, the Delhi Mumbai Industrial Corridor, all of these are expected to spur industrial growth. In a similar vein, the logistics parks initiative is also expected to give a strong fillip to the include a rail-linked, by bringing in contemporary solutions that will ease business.
This new approach on the part of the government will help the logistics and transportation industry support the nation in its vision to become the third largest economy by 2028. As the frontrunner in the transport logistics space, Allcargo is already several steps ahead on the path to take India towards progress.