Indian logistics industry has witnessed a positive transformation over the last decade. It is still transcending for the better. And the goods and services tax (GST) has come as a defining moment for the sector which is now on a tipping point. Now, what is the next big thing for the Indian logistics sector to emerge as a globally competitive entity? As the sector is still evolving, there could be many vital steps that the industry is looking forward to. But the recent initiative of multimodal logistics parks should be seen as one of the most-desired moves in the right direction. The government, earlier this year, announced that a network of 35 multimodal logistics parks would be set up on a pan-India basis. While 15 parks are planned to be built over the next five years, another 20 parks are expected to be constructed over a period of 10 years. Given the dynamic and diversified geography of the country and the existing logistics infrastructure, multimodal logistics parks are the natural way to go forward for India. Cargo movement in the country is heavily skewed towards road networks, which account for over 60%.
Fortunately, we are blessed with diversified, although underdeveloped, natural facilities. We have the world’s fourth-largest railway network, but it carries only 32% of the cargo because of capacity constraints, inadequate rolling stocks and non-availability of cargo hubs. The picture is about to be changed with the setting up of the Dedicated Rail Freight Corridor comprising freight-only railway lines which will run along highly congested transport corridors. This will give a huge boost to the operational competencies of the railways, enabling trains to transport heavy loads faster over longer distances with considerable cost advantages. The government’s renewed emphasis on transport infrastructure projects and increased budgetary allocation for the highways sector will further lead to increased road connectivity with ports and in the remote parts of the country. The focus on developing inland waterways is another step in the right direction, and the roll-out of the Sagar Mala project—the flagship initiative of the government of India to modernise the port infrastructure of the country and leverage the potential of India’s coastlines—will position India as an emerging marine logistics hub. However, currently, it is a very small portion and needs further enhancement. Similarly, the airlines sector constitutes a minuscule 1% of the cargo traffic, despite all our efforts to open up the skies. Multimodal logistics parks will address the issues of unfavourable modal mix, inefficient fleet mix and underdeveloped handling infrastructure at one go. The multimodal logistics parks structure lays emphasis on the establishment of the hub-and-spoke model, from the current conventionally followed point-to-point freight movement system. The system aims at creating an intricate transportation framework by augmenting the synergies of railways, airports, highways and water bodies. This could be the best answer to tap our vast infrastructure potential with minimum investment and maximum utility.
Secondly, the Indian logistics industry—the backbone of the economy and one of the key triggers for ease of doing business—has to evolve further to the global scale, removing the existing glitches. Traditionally, the cost of logistics in India as compared to the overall product cost has been pegged at around 13-14%, which is comparatively higher as compared to global averages of around 7-8% in the developed economies. The biggest gain of multimodal logistics will be a considerable cut in costs. Today, India is ranked 35th in the Logistics Performance Index (LPI) by the World Bank, which measures efficiency of trade logistics across nations. The multimodal hub model envisages the provision of value-added services (VAS) such as testing facilities, warehousing management services, customs clearance, quality inspection, grading, sorting, labelling and packaging, all of which continue to remain the sore areas for the take-off of our industry to a global scale. Reduction in pilferage due to containerisation, saving in transit time and, above all, reduction in carbon footprint as the “green logistics” model are other benefits that will further give an edge to the Indian industry. If we are looking for a boom in the sector to ensure a global competitive edge, it has to ride on multimodal logistics parks.
Across the world, we have seen how this model added wings to the industry, by optimising the networks and tapping the potentials. China had long ago introduced such a model. Europe is a better example of the model, with many key cities setting up these integrated hubs and laying ambitious mega projects to unlock the opportunities for multimodal logistics. In fact, Paris is leading the way in multimodal logistics.
So, what are the issues that India still has to address in this sector? One, large-scale investment is required and the government needs to leverage industry best practices through a PPP route, which will also ensure access to state-of-the-art technologies available with the private sector. We have examples in Chicago where real estate players are involved in developing successful multimodal parks. But it is also important to ensure competitive return on investment for the global investors who are keen to tap into the Indian logistics growth story. Two, the country needs to create a conducive environment through regulatory reforms, infrastructure development and more investment in technology, including in intelligent transport systems. The first thing for the government to do is to form a national policy to shape logistics industry by harnessing the synergies of various players in the supply chain in a harmonious way. In addition, if we want to emerge as the preferred destination for attracting investment and manufacturing expertise, we need a blueprint for the way forward.
Chief Operating Officer & Executive Director, Operations, Allcargo Logistics Ltd