Why Multi Modal Logistics Parks are expected to bring down costs

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Updated: August 7, 2017 2:56:48 PM

While the move to develop 35 multi-modal parks has promise, much would hinge on implementation.

The parks are expected to help the industry transition from point-to-point freight movement to the hub-and-spoke model followed in developed economies.

When the union government announced in May its initiative to develop a network of 35 multi-modal logistics parks (MMLPs) across the country, it was seeking to transform the abysmal scenario wherein logistics accounts for about 18% of the total product cost in India, as against 8-12% in China and 12% in Europe. The parks are expected to help the industry transition from point-to-point freight movement to the hub-and-spoke model followed in developed economies. Under implementation is an integrated policy that improves efficiency in freight movement. In July, the government reviewed the progress made since the announcement earlier. A senior official from the Ministry of Road Transport and Highways told FE a priority list of locations had been drawn up, with feasibility studies having begun at six locations. “These locations would be developed from the point of view of external connectivity infrastructure, which means they would have rail and road connectivity, and where applicable, inland waterway connectivity to ports,” he said. The states keen to develop MMLPs are working on creating a model concession agreement that is attractive to investors. “There are two options that are being considered. One is a 30-year concession period which is extendable by another 30 years and the other a 60-year concession period,” the ministry official said.

The challenge, though, is the availability of land at right prices as it would impact the transaction cost for transport service providers once the MMLPs are established. Vivek Kele, president, Association of Multimodal Transport Operators of India (AMTOI), says, “Once cargo arrives at these MMLPs, it would either get container-ised, or be transferred onto another mode. MMLPs would have to ensure the handling costs are minimal for transport service providers to use their services. Second, the MMLPs would be very cargo-hungry to justify the investments.” Among business houses, only the Adani Group has thus far ventured into logistics infrastructure with the commissioning of an MMLP at Ludhiana.

Explaining the reluctance of Indian companies to invest in logistics, experts point out that the return it offers on capital is much lower compared with other industries. The sector has attracted investments from private equity firms though. Business houses from overseas are also reported to have expressed interest. Abdul Salam, Director General, UAE-India Business Council (UIBC) tells FE, “UAE companies like DP World are seeking opportunities to develop multimodal logistics parks, port-led SEZs, free trade zones and inland container depots (ICDs), in order to provide cost-effective logistics and warehousing solutions to India’s growing export and import trade.”

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