Introduction Logistic is defined as process of planning, implementing and controlling the cost and storage of raw materials, inventory,

finished goods and related information from point of origin to the point of consumption. In layman terms, its ensuring that the right materials reach the right place at right time. The Indian logistic industry is expected to continue its growth in 2013 as compared to previous year. India uses 70% of the road network for transportation of domestic product and 15% of rail network. According to a study conducted by industry body ASSOCHAM domestic companies are willing to expand their efficiency to meet the rising demands. In India logistic cost is estimated to be approximately 13% of the GDP as compared to European countries, accounted for 7.15% of GDP (as per article in The Hindu). The organized logistic market in India represent approximately 6% of the total market, which means that there is a lot of growth opportunities for logistic industry in India The size of Indian logistic industry (ILI) is estimated to be around $ 225 bn and it is expected to grow upto $ 350bn by 2015. There is a positive future outlook for the ILI as per the estimates provided by the Fitch Rating Agency and it estimates that the industry will grow at 15-20% over the next few years. This target will be achieved with the help of steady growth of the economy and major industries in the country like engineering pharmaceuticals, automotive, food processing and others. The World Bank in its Global Logistics Report, 2011-12 has ranked India 46th among 155 countries in terms of logistic performance with its future performance.

Challenges 1) Unorganized Sector The unorganized sector contributes a major chunk in the logistics industry. The organized sector contributes approximately 6% of the total Indian market. This is the major challenge ahead of the logistics industry.

2) Distribution and Logistics Infrastructure is one of the major challenges in the logistics industry and has been a major deterrent to its growth. Low level of accessibility in the rural areas and lack of infrastructure slows down the growth of this industry. Lack of infrastructure slows down the delivery process which in turn increases the cost on the company. Moreover, the lack of an efficient distribution network prevents penetration of products/services into rural India. Due to the infrastructural bottlenecks costs per transaction in Indian logistics sector is very much high compared to those in the developed markets. Poor connectivity via roads and railways to ports, warehouses and logistics hubs is major infrastructural bottleneck. Movement of goods within the country is fraught with delays and risks.

3) Payment collection Majority of the rural population in India is still unbanked due to which non cash collection becomes unlikely. On the other hand cash collections are messy and difficult to monitor, especially since cash cards or technology-enabled centralized POS (like Suvidha or ItzWorld) have still not reached rural areas.

4) Pricing Collecting large amount is easier as compared to Sachet pricing. Disposable income, though, isnt always high since the bulk of rural India is agricultural and income cycles in agricultural are very erratic and not as predictable as in the case of us salaried individuals.

5) Scaling across geographies India is a land of diverse cultures. Setting up operations on a pan-India level presents different types of hurdles in different states ranging from political juggling to downright local factors. The greater difference in consumer tastes and behaviour across geographies than in the relatively more cosmopolitan urban population is another challenge that the logistics industry faces.

6) Developing inorganic scale Finding the right partner with reach and presence in villages is difficult to start with. More importantly, there are very few players who are strong on these counts across multiple geographies. Hence, a pan-India rollout typically requires multiple partnerships resulting in higher partner management overheads.

7) Social and cultural challenges The cyber caf (or kiosk) model has not worked in many parts of rural India due to sociocultural issues. One of the reasons for the failure of the kiosk model in Kuppam (HPs icommunity) was the lack of usage by women which was largely due to their discomfort in going to kiosks run by men.

8) Transportation Challenges 1) Railway Challenges There has been very little investment by the government in track infrastructure since independence. Indian Railways follows a subsidised passenger tariff by freight tariff. This has resulted in an increase in fright rates as compared to stagnant passenger tariff rates. Passenger traffic is given more preference as compared to freight traffic due to which a freight train takes up to 6-7days for a distance of 2000km. Rail terminals are antiquated. There is less flexibility in carrying different types of products.

Source : Indian Railways

2) Roadway Challenges Freight movement in India depends majorly on National Highways which constitutes about 25% of the total network and it carries about 40-50% of the total traffic, due to which the freight movement is reduced to only a 3rd of the distance as compared to developed countries. The quality of roads in India thought improving is still very poor. Estimates suggest that motor able roads are less than 10% of the total road network. High level of fragmentation of the trucking industry results in fierce competition which in turn results in overloading. An estimate of the time taken at the check points shows that in a journey of 2150 km between Kolkata and Mumbai a truck had to stop for as much as 32 hours at various checkpoints on 26 different locations.

3) Seaway Challenges There is a high turnaround time at ports due to congestion and slow evacuation of cargo. The depth at many ports in India is not enough and dredging tenders take a long time in getting awarded. As a result with the existing depths many ports are not able to attract very large vessels. Costal shipping in India is hampered by inadequate port and land side infrastructure which hampers large scale use of it for freight movement.

Turnaround time at ports in hours

13% JNPT 14% Singapore 48% Hongkong Rotterndam 13% 12% Colombo

Source: IPA Data

4) Airway Challenge Air cargo in India has not taken off that significantly. Major airports in the country are getting congested due to large volume of cargo which in turn results in long waiting hours. The air freight sector also suffers due to heavy fuel prices and also due to some manpower related issues.

9) Storage infrastructure related challenges Developing new ICD/CFS is difficult due to low availability of land and maintaining the existing ones is also difficult due to remote locations, poor roads there by restricting the movement only during day time. Various estimates put warehousing costs to be between 2025% of the total logistics cost. 80-85% of warehouses are traditional with sizes of less than 10,000 square feet. Not only are the existing warehouses of poor quality, there are also not enough of them. This is because land availability for warehousing at an appropriate place and at an appropriate price is a concern. There are concerns due to lack of proper cold storage facilities too and also lack of electricity in rural areas which acts as a hindrance. Small number of logistic parks is another problem that this industry faces. the lack of recognition of the concept of logistics park by state government thereby obtaining permission for setting up one cumbersome.

10) Tax Challenges A complicated tax regime poses another challenge in front of the logistics industry. Payment of multiple state and central taxes results in loss of transit time and fragmentation of warehousing space.

11) Technology and skill related Challenges Technology in the logistic sector is still at the infancy stage. Adapting to modern technologies in rural areas is a challenging job. Employing skilled labor is also a challenge that the industry faces. People in the rural areas are not skilled hence it results in cost of training them. The present state of affairs is illustrated by example of truck driver in India, who is a critical point of contact for the logistics company with its customers where the truck drivers today find it difficult to accurately record delivery records, understand delivery documents, negotiate for return business, handle queries etc.

12) Other Challenges (Cost) Fuel price hikes have sharply increased the cost of freight transport. Ever increasing congestions at ports are resulting in high levels of ground rents required to be paid at CFSs near the ports. High levels of inventories are being required to be maintained to guard against sudden disruptions in supply chain, all of which adds to the cost. An addition to product cost due to inefficient logistics adds to inflation. Wastages lead to scarcity. This makes efforts for reducing logistics costs a critical goal to pursue.