PROJECT REPORT

ON

CURRENT STATUS OF LOGISTICS IN INDIA

Submitted By:

JATIN ARORA
Roll No: 1605-MPB
CURRENT STATUS OF LOGISTICS IN INDIA

Logistics is the backbone of any countrys economy. Logistics helps in providing the efficient,
cost effective flow of goods on which other commercial sectors depend. India is one of the
fastest growing economies in Asia and the entire world. Especially in the transport and
logistics industry sector, India shows superior growth rates creating enhanced potential for
foreign players. However, apart from it India is also a large underserved market.
Indian logistics sector is estimated to have grown at a healthy 15% in the last five years.
However, growth in sub-sectors varies, with the lowest being in basic trucking operations and
highest in supply chain and e-tailing logistics. Some studies estimate the share of Indias
logistics spend in GDP at 13% (versus 7-8% in developed countries), implying overall size of
$180-220 bn (direct costs +wastages from inefficiencies). A comparison with other countries
shows inefficiencies are high in the Indian logistics sector.
Logistics encompasses a wide array of services like transportation (air, surface, internal
waterways, sea), storage (warehousing, logistics parks, container depots, cold chains)
distribution (courier service, e-tail deliveries), and integrated/allied services (freight
forwarding, 3PL) and investment in logistics boosts growth in its upstream and downstream
economic activities.
Infrastructural bottlenecks across modes (rail, road, waterways) have stifled the sectors
growth. Capacity constraints and inefficiencies can be noted from the high transit time in rail
as key train routes operate at >110% utilisation, thus leading to an average speed of 25 km
per hour. The road sector is fraught with inadequate and low-quality highway availability,
thereby limiting the trucks size and affecting economies of operation.

INDIAN ROADS

For a country, particularly of Indias size, an efficient road network is mandatory for national
integration, for socio-economic development and to sustain Indian economic growth.
Therefore, in the last few decades the transport sector transformed increasingly from rail-
dominated to road-dominated. The extensive road network in India consists of 3,3 million km
and is the second largest road network in the world. About 61% of the freight and 85% of the
passenger traffic is carried by road. The annual growth of cargo traffic is 15-18% and that of
passenger traffic is 12-15%.25 However, the concept of domestic cargo container movement
is still in its infancy in India.
Regarding the modes of transports, also in present there is a mixture of modern and
traditional means. While in urban transit mostly motor vehicles like automobiles, minibuses,
trucks and two- or three-wheelers are dominating, in the landside transportation by beasts
of burden like bullocks, camels and elephants still exist. The Government of India already
planned some improvements to change this situation for the better with aid of public and
private sector funding.In general, the infrastructure and network of the Indian roads are not
in good condition. About 1.4 million km of total route length are surfaced and more than 1
million km are covered with gravel, crushed stone or earth. Steps for Restructuring and
strengthening of National Highways is taken by NHAI and some mechanisms to address
bottlenecks due to delays in environmental clearance or land acquisition is established. In
addition, traffic management and safety related issues are more and more focused. While the
central government is funding the national highways, state highways depend solely on
funding by state governments. Besides, a larger share of the state funding is used for the
development of rural roads because of the extreme need to improve them. Private sector
intervention thus becomes more and more important in financing state highways.

The railway network in India

The Indian Railways are the single national domestic provider since the 19th century. It owns
and presently operates 63,221 route km, has 1.42 million employees, 440 billion km of freight
and 615 billion passenger km and thus is one of the worlds largest rail networks. This railway
infrastructure constitutes the mainstay of transport infrastructure of the entire country71
and is further the fourth most heavily used one. At present, the freight and passenger
revenues of Indian Railways are rising with the international trade and growing traffic flows
on rail and road. Indian Railways set up a strategy to avoid or remove bottlenecks and increase
the capacity of handling traffic to match the demand.
The most important elements of this strategy would lead to investments in
development of infrastructure, in the modernization of the technology of the wagons
and in a better signaling and telecommunication system, as well as in high horsepower
locomotives and information technology.
In the railways sector the incidence of hurdles is lower than in the road sector as
reported from logistics companies. It can be noticed that the major barrier lies in the
lack of a dedicated freight corridor
A major barrier in this industry is the high dependence on external operators or
agencies, such as Indian Railways, which is the only provider of the railway network.
In addition, delays even in transports on the main railways between the
metropolises are attributed to inadequate rail corridors, as it takes nearly a week to
transport cargo from Mumbai to Delhi. Lack of proper connections to ports is
another cause for hindrance in a smooth transport system.
Indian Waterways

India possesses round about 14,400 km of inland waterways of which more than 3,600 km
are navigable by large vessels. However, only 2,000 km of them are used. With the aim of
developing water navigation and maintenance or conservation, 3 of the inland waterways
have been pronounced as National Waterways: the Allahabad-Haldia part of Ganga-
Bhagirathi-Hooghly rivers with about 1,620km, the Sadiya-Dhubri partition of Brahmaputra
River with 891 km, as well as the combination of western canals with 205 km. In general, the
transportation potential is underused. Regarding the freight, nearly three-quarter of the
traffic in the major ports are dry and liquid bulk, like coal, iron or crude oil. The remaining
traffic is general cargo and containers, growing at a rate of 14% over the last half decade. The
cargo that is handled at Indias major ports is 75% of the total traffic and has increased over
the last 3 years at 9.5% annually. Overall, the major ports and a number of the other ports
handle the international trade up to about 95% by volume (and 70% by value). In the past,
the Indian government controlled and dominated the maritime activities. However, the
current indications are towards the private sector leading
in the development and operations of port activities. Hence, the sub sector ports,
has experienced significant investments by major global operators in the ports
Business. The other major challenges faced by Indian waterways sector are:

The main problem or barrier for logistics companies in the maritime sector in India is
the congestion at over-burdened ports. However India has a long coastline and its port
system is not well utilized
.Due to missing main lines, cargo containers from India take a high transit time
because they still have to go through a transshipment center. Furthermore, due to
delays in loading and unloading, many larger shipping liners avoid the Indian ports.
In addition, another major challenge faced is the lack of skilled labor for operating the
equipment at ports and for administration.
Logistics in Private SectorT
The Logistics industry in India is undergoing a change to a system wherein a dedicated player
handles majority of a companys logistics operations. These players are referred to as 3PL
(third-party logistics) players who typically specialize in integrated transportation and
warehousing services that can be customized to meet the companys needs. The need for
controlling logistics costs and increasing need to focus on core competencies are driving more
and more companies to look for such 3 PL players. The role of big data and analytics is considered
very important in supply chain & Logistics sector. 98 % of 3PLs indicated that improved data-driven
decision-making is essential to the future success of supply chain activities and processes. Newer
technologies in every area are coming up, and their importance is increasing with time. Both shippers
and logistics providers are using more of information and analytics to drive their decisions today.
Almost 71% of shippers agreed that real-time analytics from 3PLs help to better understand shipping
alternatives, and 61% shippers valued 3PL assessments of trade lanes and origin-destination pairs in
terms of cost and service levels. 3PLs have been able to respond to demands with increased
capabilities, and shippers are increasingly taking advantage of their expertise for strategic and
customer-based activities, thus improving logistic effectiveness.

Following are the key challenges faced by logistics industry:

Poor Infrastructure: One of the major critical challenges faced by companies today
is of insufficient integration of transport networks, information technology (IT), and
warehousing & distribution facilities. In India, there are no real existent warehouse
standards, no set-up for distribution Centers or standards for suppliers. Further, local
clearing and forwarding (C&F) Agents usually manage warehouses, but the
warehousing structures are very fragmented and the facilities are small due to the
poor knowledge of warehousing technology. Third Party Logistics (3Pl) providers often
complain about the difficulties in obtaining land to build warehouses. They often
cannot offer warehousing services by themselves and if they cannot get land, that
hinders them to provide their logistics services. Warehouses would be most efficient
near airports or seaports but land is not easily available to private companies in these
areas. Therefore, warehouses often are smaller than planned because of these
problems to acquire land in India.

High Tariffs and Protectionist Policies: Import duties continue to be

comparatively very high. Exporters and investors are also faced with non-transparent
and often unpredictable regulatory and tariff regimes. Many U.S. services have
limited access to the market. According to the World Bank survey on the ease of
doing business for 2015, India is ranked 130 out of 189 countries due to its difficult
business climate.
 Logistics Infrastructure and Supply Chains: Due to poor condition of roads,
inefficient ports and scarce distribution infrastructure, Indias supply chains rely on a
slow transit network. Further, the lack of next day Deliveries for transport companies
managing nationwide networks and unlimited Distribution channels, hinders the
logistics development and therewith the countries growth. Moreover, logistics costs
are extremely high
Trade Regulations: Regulations exist at a number of different tiers, imposed by
national, regional and local authorities. Regulations often differ from city to city,
hindering the creation of national networks.
Trained Manpower: Trained Manpower in both the third party logistics sector and
the manufacturing and retailing sectors is very weak at a practical level, i.e., IT, driving
and warehouse as well as at a higher strategic level.
Limited Technology Basis: Most of the companies are still of the opinion that
logistics means only transportation. They are unaware of the latest technologies
involved in logistics. Most of them still follows Radical approach and they need to be
convinced on how technology transfer can improve their companys performance
and how it will enhance their return on investment. Yet a few of them feel that
upgradation of technology is not the need of the hour because the infrastructure in
the country is not mature enough for the companies to adopt high-end technologies.
The basic factors like road, IT backbone and taxation are major barriers for a
Company.
Possible solutions & Opportunities for Logistics Sector

Infrastructural Improvements: Needless to say, infrastructure is the backbone of

every countrys growth and prosperity and for the logistics industry to flourish in the
developed countries, special emphasis has to be laid on the enhancement of the
infrastructural facilities. Particular focus needs to be given on building world-class
road networks, integrated rail corridors, modern cargo facilities at airports and
creation of logistics parks which need to be given a status equivalent to Special
Economic Zones.
Creating Awareness & Establishing Training Institutions: Overcoming the
skill gap in Indian logistics industry requires establishing training institutions. It is
necessary to realize the benefits which best practice in logistics can bring to the
companies so that the overall service quality of the sector is improved. Gaps in training
have to be filled not only at the entry level but also in the management cadre, which
could be made possible through specialized graduation, and post-graduation courses
focused on Operations and Supply Chain management.

Improving Warehousing facilities: Good storage and Warehousing facilities are

essential to the growth of the logistics industry. With the increase in the
transportation of perishable products, agencies associated with logistics will have to
give a lot of importance to enhancing the Warehousing facilities. Warehousing will
also need to go to the next level taking into account the changing dynamics of JIT
manufacturing, global procurement and new models of sales and distribution.
Encouraging Research and Development (R&D): Emphasizing on R&D is
essential mainly because it encourages the use of indigenous technology, which can
make the industry more cost competitive, and it leads to the improvement in services
due to the use of better and more streamlined services. Particular focus needs to be
given on research in process excellence, which can help eliminate inefficiencies and
bring Indian logistics on par with global practices.
Estimated Future Growth: The Indian logistics sector growth depends on the
growth of its soft infrastructure like education, training and policy framework as much
as the hard infrastructure. To support Indias fast-paced economy growth of logistics
industry is very essential. It is estimated that the Indian logistics sector will continue
to show robust growth of 10-15% annually, leading the pace of growth of the economy
at large.
 Potentials in Railways: The high congestion on the roads and the limited margin
for excavation creates opportunities and potentials for competing facilities to
develop. For a better use of the rolling stock and the capacity on the tracks, having
double stacked trains is a potential that can be seen in the current situation. Running
them would also imply lower haulage charges. With additional capacity for container
handling, a higher container query and therefore a further growth in container trade
would be possible. Another potential in the railway sector is the existence of private
container trains to provide a smooth handling of high volumes and to overcome the
lack of hinterland connectivity with regard to Indian ports.
Opportunities in the Financing Policy: The allowance of 100% Foreign Direct
Investment in Special Economic Zones (SEZ) and Free Trade and Warehousing Zones
(FTWZ), as well as public private partnerships (PPP) in infrastructure development are
expected to boost the investments from domestic as well as foreign companies- in
the transport and logistics sector.

Opportunities in Indian Energy Policy: The Indian energy policy including mass
energy conservation and efficient use of it, states several energy zones to harvest
energy on a large scale and a shift from non-renewable to more efficient renewable
resources. This implies that the current dialogue of energy being a huge potential for
India is an important measure to avoid wastage and could develop into a big industry.
India has even established an energy conservation building code to meet energy
performance standards.