A Review of the Indian Logistics Industry and

Policy
Rhitam Das
Confederation of Indian Industry, Kolkata
Email: Rhitam_84@yahoo.co.in

Abstract
It is now experienced by many countries that lack of logistics slows down their
development process. Every country is now trying hard to develop their logistics
infrastructure otherwise its inadequacy may create bottlenecks in their economic
growth. Lately, the logistics industry in India too has received lot of attention from
both industry and government. Logistics cost in India is higher than that in
developed nations. So, the country is trying to bring down its logistics cost from the
present 14 percent to 9 percent of the GDP. In the light of the above facts, Indian
logistics industry is assessed in this article. Government logistics policies and their
lacunae are discussed in the concluding sections.

Key Words: Logistics infrastructure, logistics cost, tariff, FDI, policy, trade

1: Introduction
In 1962, Peter Drucker, the management guru, observed that physical distribution
was the US economys dark continent (Drucker 1962). This comment had made
the beginning of an era that saw big advances in logistics management,
transportation and distribution functions, which include inventory control, order
processing, materials handling, warehousing, and other specialised activities. The
word logistics is of French origin. Originally a military term, it referred to the art of
transport, supply, and quartering of troops. Historically, logistics has been a
deciding factor between success and failure in many military conicts. Although
variously dened by authors; the term essentially means the art of managing the
ow of goods and services from source to user.
It is now experienced by many countries that lack of logistics slows down their
development process. Three examples are cited here.
Mozambique has good natural resources like natural gas and coal, and the
country earns from exporting those natural resources. But its exports are
held back due to lack of supporting logistics port, rail and road facilities.1
Some multi-national companies (MNC) are moving their production from
continuing-higher-cost China to lower-cost Vietnam. But Vietnam is lacking
deep-water ports serving as international trans-shipment points. So, exports
from Vietnam are trans-shipped to Hong Kong or Singapore before heading
for foreign markets which involves more time and money.2 At present,
virtually all the trade is taking place through one port, Ho Chi Minh City, and
it is not an ideal situation.
The Assistant Commander of the Liberia National Police (LNP) has reported
that the lack of logistics and proper road connectivity remain critical factors
that hamper the smooth operations of the LNP, especially the division of
traffic.3
1
2

Lack of better roads network and toll truck (needed to remove

http://www.miningreview.com/node/22322
http://www.3plwire.com/2008/09/25/vietnam-lack-of-logistics-infrastructure-higher-logistics-costs/

http://www.news.heritageliberia.net/index.php/inside-heritage/people-places/1172-lack-of-logistics-impedeslnp-operations

defected or breakdown vehicles from the road) are sometimes responsible

for the congestion of traffic in Monrovia and other parts adjacent.
So, where there is lack of logistics, it is need of the time to acquire an investment
of time and money to improve it. Companies and industries in concerned countries
or region need to consider the higher logistics costs, congestion issues, longer
transit times, etc. before going up. Today, logistics management is increasingly
becoming a topic of interest among practitioners since it lead to reduced
operational

costs,

improved

delivery

performance

and

increased

customer

satisfaction levels.
The importance of logistics and supply chain management (SCM) is increasing also
due to globalization as more and more multi-national companies (MNC) are
sourcing, manufacturing and distributing on a global scale, which makes their
supply chain very complex. However, outsourcing logistics activities to experienced
logistics service providers (LSP), also known as third-party logistics (3PL) providers,
may enable companies get very efficient and customized logistical support.
All logistics activities obviously require financial resources like fixed and working
capital.

So, they incur costs, but these activities generate revenues too through

effectiveness of logistics operations. At this point it is important to understand the

profit impact of logistics operations. Some cost-benefits were derived and it was
observed that reduction in cost of product flow was nearly 1-3% depending on the
product flow characteristics.4
Also, there has been doubt on the effectiveness of logistics outsourcing, as some
companies experience favourable performance outcomes while others do not.
However, investigating the effects of logistics outsourcing on cost by analysing
empirical data across a wide variety of companies, it has been observed that
outsourcing of logistics activities use to increase the cost of goods sold (COGS)
which is a percentage of company revenue.5
4

V. Mehrotra, An Economic Cost Benefit Analysis of Internal and External Warehouses in Food Retail Industry, MIT,
June 2003.
5
G. N. Kenyon and M. J. Meixell, Success factors and cost management strategies for logistics outsourcing, Journal
of Management and Marketing Research

2: Size of the Indian logistics industry

Logistics costs vary from company to company and from industry to industry.
However across the economy as a whole, the total cost of logistics is expressed as a
percentage of gross domestic product (GDP). The annual logistics cost in India is
estimated to be 14 percent of the GDP, which translates into USD 140 billion while
the GDP of India is estimated to be USD 1.78 trillion.6 Out of this USD 140 billion
logistics cost, almost 99 percent is accounted for by the unorganized sector (such
as owners of less than 5 trucks, small warehouse operators, freight forwarders,
etc.), and slightly more than 1 percent, approximately USD 1.5 billion, is
contributed by the organized sector.7 So, it is evident that the logistics industry in
India is in a nascent stage.
However, the industry is growing at a fast pace and if India can bring down its
logistics cost from 14 percent to 9 percent of the GDP, savings to the tune of USD
50 billion will be realized at the current GDP level, making Indian goods more
competitive in the global market. Moreover, growth in the logistics sector would
imply improved service delivery and customer satisfaction. It would lead to growth
of export of Indian goods and potential for creation of job opportunities. As per the
some of the leading rating agencys report the logistics industry is expected to grow
at 15-20% a year to reach around USD 3.5 trillion by 2015 from its current size.8
The industry is not expected to see any significant changes in the short term, with a
number of small unorganized players continuing to provide stiff competition to the
organised sector. However, the larger companies with a pan-India reach could
benefit over the medium term as companies gear up for potential regulation
changes from 2013 onwards.
The Indian logistics industry is expected to sustain its growth momentum despite
the recent slowdown in the Indian economy. Slower GDP growth for the quarter
ended September 2011 to below 7% prompted the government to revise its fiscal

Report of the Working group on Logistics: Planning Commission, Government of India

Sahay, B.S. and Mohan. Third-party logistics practices: an Indian perspective. International Journal of Physical
Distribution and Logistics Management
8
Indian logistics industry- Poised for humungous growth, Connect
7

2012 (to end-March 2012) economic growth forecast to 7.0% from the previous
target of 8.5%. Fitch forecasts growth of 7.5% for FY12. However, the impact of
this slowdown is likely to be offset by the rise in outsourced logistics.
Companies are expected to continue to concentrate on their core competencies,
leading

to

outsourcing

their

logistical

requirements.

Furthermore,

if

the

governments plan to allow foreign direct investment (FDI) in multi-brand retail

and/or introduce the goods and services tax (GST) is implemented, corporates are
likely to tie up with logistics experts to improve efficiency, leading to a further rise
in outsourced logistics.
The cost of diesel, which is the major fuel expense for surface transport companies,
is not expected to increase significantly as a percentage of revenues, as diesel
prices are expected to remain subsidized by the government. Increases in other
operating expenses like insurance, toll, vehicle interest rates and lease expenses
are expected to be passed on as most long-term contracts have built-in escalation
clauses. GST Delays: The GST, which was first proposed in the budget speech in
2006-07 was expected to be implemented from April 2012, but is likely to be
delayed.
Globalization has increased trade flow within countries and thereby stiffing the
competition

which

has

in-turn

increased

the

demand

for

efficient

logistic

management. The current situation in the Indian economy serves as a spring board
for the logistic industry to take a giant leap. The current installed logistic
infrastructure is inadequate so we either ride the tide or invest further to spur the
growth in the logistic industry, government has taken many steps in this regard like
allowing 100 percent FDI, eliminating CST, and allowing VAT, we have build
dedicated rain freight corridors, we now need speedy arguments also from the
private sector.
Currently, the industrial focus is more towards making logistics activities leaner and
greener. Industry is also focusing on reducing and compensating on carbon
footprints they leave on the environment. About 70 percent of domestic cargo
movement in India happens through roads. However use of sea routes wherever
possible

is

more cost effective

and

greener, many corporate, particularly

6

automobile and manufacturing sectors are benefitting from this option. Government
of India is also encouraging the cargo movement through waterways and has
started initiatives to develop better infrastructure to ensure connectivity to major
and high volume ports. Inland water transport wherever possible is also being
explored. Since a large part of Indias future logistics network is still to be built, the
country has a chance to build infrastructure optimally, to meet the growing
demand. Doing so requires an integrated and coordinated approach in which the
development of each moderailways, waterways and roadsis matched to the
needs and existing assets are better utilised.
In particular, India needs to increase its use of rail, and realise the potential of its
Waterways. For example, in the normal course, Indias rail share in freight would
decline to 25 per cent from the current 36 per cent. This is relative to almost 50 per
cent rail share in China and the US, similar continental sized nations. The concerted
approach suggested in this report can increase Indias rail share to 46 per cent.
If India fails to achieve this, waste caused by poor logistics infrastructure will
increase from the current USD 45 billion equivalents to 4.3 per cent of todays GDP,
to USD 140 billion or more than 5 per cent of the GDP in 2020. If tackled in an
integrated and coordinated manner, this can be reduced by half and Indias
transport fuel requirement reduced by 15 to 20 per cent.9
Achieving this will require four major shifts:

Building the right network and interlinkages, comprising an integrated

network of some high-density long-distance corridors (rail and coastal
waterways), 150 medium-distance rail and road connectors and about 700
last mile connectivity.10

Creating enablers to maximize the efficient use of the network, which

includes developing 15 to 20 logistics parks, providing standards for
containers and pallets and upgrading the skilled workforce

Allocating more investment to rail and reallocating within roads and rail. It
has been estimated that in the next decade, 500 billion US dollar would be

Logistical Bottlenecks in India: Government Interventions & Policy Initiatives, Dr. Ram Singh
Source: World Bank. www.databank.worldbank.org

10

spent on logistics infrastructure with roads accounting for more than 50 per
cent and rail for 40 per cent.11 However, this investment will need to be reanalysed to support the changes required. More spending is required for
building high-density traffic corridors, connectors and last mile links.
Thus, to sustain and drive economic growth, the movement of goods associated
with a country like India will require a vastly superior service sector as well as
physical logistics infrastructure. The transformation of Indias logistics landscape
needs a clear, long-term and sustainable vision to leverage Indias economic
potential in future.
3: Global Logistics Industry
This section gives an overview of the size of the global logistics industry and its
current status and prevailing dynamics.
Currently the annual logistics cost of the world is about USD 3.5 trillion. For any
country, the annual logistics cost varies between 9 percent and 20 percent of the
GDP, the figure for the US being about 9 percent.12 US-based Armstrong &
Associates, Inc. tracks the issues and trends in the world logistics market and in the
US logistics market, in particular, in their annual surveys of top 25 global LSPs.
According to the firm, the global logistics market grew by 7.3 percent in 2007 to
reach a value of $804.6 billion. In 2012, the global logistics market is forecast to
have a value of $1,040.6 billion, an increase of 29.3 percent since 2007. Retail
logistics services dominate the global logistics market with 63.9 percent of the
markets value while Americas accounts for 35.2 percent of the global logistics
markets value.

11

12

Annual report 201112, Ministry of Road Transport and Highways (MoRTH)

Logistics market-Asia Pacific, Logistics Industry: Global and Indian Perspectives, Subrata Mitra

4: Defining the area between Logistics and Supply Chain

Logistics and supply chain management (SCM) as an area of research has been
getting increasing attention from academicians and practitioners over the last two
decades since it may lead to reduced operational costs, improved delivery
performance and increased customer satisfaction levels, thereby making an
organization more competitive in terms of cost, quality, delivery and flexibility. The
importance of logistics and SCM is increasing also due to globalization as more and
more multi-national companies (MNC) are sourcing, manufacturing and distributing
on a global scale, making their supply chains very complex to manage. However,
outsourcing logistics activities to experienced logistics service providers (LSP), also
known as third-party logistics (3PL) providers, may enable companies get very
efficient and customized logistical support while themselves focusing on the core
organizational activities. Today, there are many large multi-national LSPs that offer
complete supply chain solutions across many diverse countries in terms of their
socio-economic and political environments. Apart from core logistical activities such
as transportation and warehousing, LSPs also offer value-added services such as
customs clearance, freight forwarding, import/export management, inventory
management, assembly/installation, packaging and labeling, distribution, after
sales support, reverse logistics and so on. By outsourcing logistics, companies can
leverage the expertise of LSPs while concentrating on their core competencies.
In literature, logistics and SCM are often used interchangeably, though there is a
subtle difference between the two. While SCM is more strategic in nature, logistics
is more operations-oriented. The evolution of logistics and SCM in the 1990s can be
traced back to physical distribution management in the 1970s when there was no
coordination among the various functions of an organization, and each was
committed to attain its own goal. The objectives of SCM are to eliminate
redundancies, and reduce cycle time and inventory to provide better customer
service at lower cost.
While SCM deals more with the linkages in the chain, contracts and relationships,
supplier selection, information and financial flows besides materials flows, creating
new facilities such as plants, warehouses and distribution centres, and broader
9

issues such as society, economy, government and environment, the scope of

logistics is more or less confined to the routine job of transportation and storage of
goods. However, if one deeply ponders, one may realize that logistics is the core of
SCM, and if logistics fails, the whole chain snaps. Though logistics deals with
mundane vehicles, warehouses, layouts, material handling equipment, Motor,
Vehicles Act, toll tax, sales tax etc., but efficient management of it has the potential
to make the chain taut and agile. Therefore, there is growing interest in logistics,
and hence in SCM, around the world.
5: Outsourcing in Logistics
The concept of logistics outsourcing can be traced quite far back in history. Tracing
the evolution of logistics outsourcing in recent decades, we find that, in the 1950s
and 1960s, logistics outsourcing was limited to transportation and warehousing.
The transactions were mainly short-term in nature. In the 1970s, the emphasis was
on improved productivity, cost reduction and long-term contracts, while valueadded services such as packaging, labeling, systems support and inventory
management were on offer in the 80s. Since the 90s, outsourcing has picked up
momentum, and more value-added services are being offered. Some of them are
import/export management, customs clearance, freight forwarding, customer
service, rate negotiation, order processing, assembly/installation, distribution, order
fulfillment, reverse logistics, consulting services that include distribution network
planning, site selection for facility location, fleet management, freight consolidation,
logistics audit etc.
A survey on 2002-Business-Today-list-of-top 500 organizations in India showed
that 46.7 percent of companies in India outsourced both domestic and international
operations.13 The other 44.4 percent outsourced only for domestic operations and
8.9 per cent only for international operations only (Figure 5.1).

13

B. S. Sahay and R. Mohan, Third Party Logistics Practices: An India Perspective

10

Fig. 5.1: Percentage of Companies in India outsourcing

different types of logistics operations
Domestic and
international
operations
Only domestic
operations

9%

47%
44%

Only
international
operations

According to the study, reasons for marketing were various. However, major reason
was logistics cost reduction (Figure 5.2). Other reasons were productivity
improvement, improved customer services, improved return on assets, etc.

Fig. 5.2: Percentage of surveyed companies outsourced for

different reasons
Percentage of surveyed companies

24.5 35.9 45.3 46.1 56.5

60.6

68.2

71.3

76

80.6

Logistic activities were (figures in parenthesis are the percentage of surveyed

companies outsourced for that particular activity):
Customer

Service/Support

(15.8%),

Inventory

Management

(23.5%),

Rate

Negotiation (22.6%), Outbound Transportation (55.7%), Distribution (22.9%),

Custom Clearing & Forwarding (51.5%), Order Fulfillment (20.4%), Selected
11

Manufacturing (16.4%), Order Picking (27.0%), Outbound Warehousing (33.9%),

Labeling & Packaging 29.0%), Import/Export Management (34.5%), Inbound
Transportation (52.2%), Inbound Warehousing (29.5%), Fleet Management &
Consolidation (29.1%), Marketing Sales Promotion (8.5%), Order Processing
(19.4%), Assembly/Installation (12.7%) and Reverse Logistics (22.2%).
Another important aspect of logistics outsourcing is their impact on business. The
impact was generally positive or very positive with reference to customer
satisfaction and logistics system performance (Figure 5.3).

Fig. 5.3: Impact of outsourcing logistics activities

Logistics System performance

Customer satisfaction

Employee Morale

54.3
45.2

42

46.6
32.3
28.7

22.6
13.8
6.8

Very positive

2.1 0
Positive

Average

4.5

Negative

1.1 0

Very negative

However, employee morale was not very high as it was expected. It was mostly
average or just positive. Financial improvements were reported because of logistics
outsourcing. On an average improvement was more than 10 per cent in some
specific cases. Improvement in sales revenue was 13.5%, working capital
improvement was 12.3%, capital asset reduction was 9.2%, and logistics cost
reduction was 15% and so on.

6: Rail, Road and Ports

Railways
Spanning 64,456 km with more than 7,133 railway stations, Indias rail network is
the largest in Asia and the second largest in the world (behind the US). The Indian
Railways operates 19,000 trains daily, transporting 2.65 MMT of freight and 23
12

million passengers across the country. However Indias rail infrastructure suffers
from chronic under-investment, due to which its potential for freight movement
remains largely untapped. Rail freight has grown at around 7 percent over the past
five years. It is expected touch the 1 billion ton mark in 2013, with a 31 percent
share of total freight movement across all modes of transport. This is in stark
contrast to its share of 89 percent in 1951.14
As such, rail has consistently lost out to road, as the preferred mode for goods
movement across the country. While traffic on rail has grown more than tenfold
within the period 1951 to 2007, rail track length has only grown 1.4 times during
the same period. Moreover, trunk routes constitute merely 16 percent of the
network and transport more than 50 percent of total traffic, resulting in major
congestion and a low average speed of 25 km/hr for freight trains. As compared to
global standards, Indias track length per sq. km. is unfavorable at 44 km of track
per 1,000 sq. km. of arable land, as against 137 km in the US and 417 km in
Germany.15
Further, passenger traffic continues to enjoy significant priority over rail freight. In
addition to first right of movement, passenger rates are highly subsidized by freight
operations utilizing up to 60 percent of network capacity but contributing only 30
percent to revenue.
The domestic cargo container movement is still at a very initial stage in India. The
road transport is mainly in the hand of highly unorganized players. Further rising
fuel prices and axel load reduction are making road transport uneconomical over a
long haul. There is a movement of 30 percent of EXIM containers by rail, and the
remaining is transported by road. Till 2005 CONCOR was a sole service provider for
rail transportation of containers which has been opened for private players
thereafter16.

14
15

16

Indian Railways, www.indianrailways.gov.in, Planning Commission of India report

Logistics Infrastructure by 2020 McKinsey report
Indian logistics industry- Poised for humungous growth, Connect

13

In this scheme of private sector participation in the railways which has been
announced in February 2006 by the Indian government, the Indian Railways will
provide the track, locomotive, signal, train crew for running container trains. The
train operator is to procure wagons and his own terminal. He can also use other
terminals. The lane for the terminal will also be made available. The maintenance of
the wagons will be done by the railways. Railways will collect the train haulage
charges. Train operators shall also be free to charge their own tariff from the
customer. Even though the rail logistics sector is opened for the private sector,
following challenges will have to be met by this sector:
Procurement of the wagons, ICD, trained manpower, monitoring machinery
for movement of trains en route, detachment of wagons, exchange of
information with railways.
This shall immediately lead to escalation of land price, costlier wagons,
costlier handling equipment and costlier manpower.
Long term challenges to be faced shall be evacuation, as bigger vessels
discharge larger volumes.
Port rail terminal capacity will also challenge the new operator. There shall be
imbalance between the import and export.
The end cost will also have to be kept under control. The hub and spoke
model of operation shall have to be optimized. This shall also lead to
consolidation of hinterland volumes.
In the current Indian market, the EXIM trade is looking for reliability and
predictability of services, hinterland penetration and capability of costs. As regards
the new private players in the rail transport logistics sector, they should collaborate
and cooperate which existing players, avoiding attrition, duplication of structural
infrastructure and working together to bring about reduction in logistics cost for
customers. This shall only be possible with improvement of the process, exchanging
of information as much as possible and sharing each others structures and wagons.
It is recognized that movement of long haul bulk traffic by road is less efficient than
by rail. But road is still preferred over rail because:

Important rail networks are oversaturated

14

There has been little investment in track infrastructure since independence.

While route kilometer has grown only at a CAGR of 3%, track kilometer,
incorporating additional lines on existing routes, has not fared much better
growing at a low CAGR of 6.6%. During the same period freight and
passenger traffic has grown at a CAGR of nearly 54%.17 This has led to most
high density corridors becoming over saturated. But container trains on the
railway

network

are

getting

lower

priority

since

domestic

container

movement has not significantly taken off.

Problems with Rail Freight:

Railways market share in freight is not expected to increase as Indian
Railways will continue to subsidise passenger fares with freight hikes. The
inability of the railways to provide door to door service and lack of sufficient
infrastructure continue to restrict its market share. Road freight transport
could see an increase in market share at the expense of rail freight.

Rail freight tariffs are high

Indian Railways follows a policy of subsidizing passenger tariff by freight
tariff. This has resulted in a sharply rising trend in railway freight rate over
the years compared to an almost stagnant passenger tariff rate. The result of
this has been that Indian rail freight rates have already become one of the
highest in the world, with freight rates in India being nearly 4 times that in
United States. If truck overloading is also taken into account then rail freight
rates work out to be higher than road freight in many instances.

Transit times are long and uncertain

Freight traffic is frequently subordinated to passenger traffic on the railway
network. This results in a freight train taking as much as 6-8 days for a
journey of 2000 kilometers and there is no guarantee for transit time18.

Rail terminal quality is poor

Most rail terminals (goods shed) used for loading/unloading of freight are
antiquated. They also suffer from issues of access and evacuation of traffic.

17

18

Less flexibility in carrying different types of products

KPMG report on Logistics

Logistics and infrastructure: Exploring opportunities, Deloitte

15

Special wagons are not easily available for carrying specialized products. For
example special types of steel required for automobile production are
required to be carried by trucks. The existing wagons do not offer the kind of
protection which is required by these high value products. These customers
are permitted to request for new wagon designs, but the process of getting
such wagon designs approved by railways is cumbersome.

Complication in availing railway carriage if full train loads are not

supplied
Preferred customers of Railways are those who can provide full train load
since Indian Railways does not run mixed trains which can carry different
types of cargo. In such cases containerized rail movement is a solution. It
can provide freight movement for industries with smaller rake loads.

Despite these apparent limitations, rail continues to be among the fastest and most
economical modes of transport for freight in India. Two-thirds of freight in India is
transported over medium and long distances, for which rail transportation offers
significant time and cost savings. The capital cost of setting up rail capacity is
around 40 percent lower than that of comparable modes such as expressways,
when measured on a ton-kilometer basis. Further, costs of rail transportation,
specifically on high-traffic density corridors, are considerably lower than for other
modes. Additionally, rail offers speed and capacity-related benefits. To drive a
fundamental shift in the modal mix from less efficient, usually uneconomic and
environmentally unfriendly road-based transportation to rail, projects similar to the
envisioned DFC would play an important role in the future.
The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is a
corporation run by the Government of India to undertake planning & development,
mobilisation of financial resources and construction, maintenance and operation of
the Dedicated Freight Corridors. DFCC has been registered as a company under the
Companies Act 1956 on 30 October 2006. It is now apparent that the DFC project is
significantly behind its original timelines; however, it is expected to mark a
paradigm shift in the transportation scenario, improving service delivery and
generating additional freight-carrying capacity.
16

The DFC represents a significant opportunity for rail; however, measures must be
taken to mitigate further delays in the project. Further, the DFC project must be
viewed as part of a larger freight transport system; thus, connectivity with
supporting intermodal facilities and the service of the system must be developed for
the project to be effectively utilized.
The project envisages the construction of two corridors, one each on the west and
east routes, spanning a total length of about 3,300 km. The Eastern Corridor,
starting from Ludhiana in Punjab, will pass through the states of Haryana, Uttar
Pradesh and Bihar and terminate at Dankuni in West Bengal. The Western Corridor
will run from Dadri to Mumbai, passing through the states of Delhi, Haryana,
Rajasthan, Gujarat and Maharashtra.
The basic objectives of DFCs are as follows,

Reduction in unit cost of transportation by speeding up freight train

operations and increasing productivity

Increase of Rail freight share in modal mix through customized logistics

services

Segregation of freight and passenger lines

Creation of additional rail freight capacity to cater to high levels of transport

demand

Introduction of time tabled freight services for guaranteed transit time and
improved service quality

The dedicated freight corridor (DFC), which is expected to be functional by the end
of the decade, will turn the tide in favour of business on the east coast. This area
will become a gateway for a lot of inland transactions. While stressing on the huge
savings in time and cost that the DFC will bring, the central government needs to
relax sabotage rules and encourage containerisation on the east coast. Freight via

the DFC would increase from 140 MMT in 201617 to 182 MMT in 202122
at a CAGR of 5.4 percent19.

19

DFCCIL website, http://dfccil.org/DFCC/Projects/Background,

17

Timely completion of the WDFC and EDFC will result in an increase in total rail
freight volume movement along the particular routes. While the potential of the DFC
is well-recognized, the project has encountered several challenges, including the
acquisition of key land parcels, design changes, the retendering of contracts and
funding failures. Approximately 35 percent of total land required has yet to be
acquired, with key segments missing on both routes; the Sonnagar-Dhankuni
section on the east route, which accounts for 29 percent of the total length of the
Eastern DFC, has witnessed zero percent progress. The Phase II Vadodara-JNPT
and Rewari-Dadri link along the Western DFC, which constitutes 38 percent of the
total length, has witnessed only 30 percent progress. In addition, pending sign-off
from the Ministry of Finance has adversely affected the disbursement of funds for
the project from the World Bank. Environmental clearances, as well as approvals
from state governments and various agencies also continue to impede the project20.
Probable Way Forwards are:

Capacity creation:
In addition to the Western and Eastern DFCs, there is a need to create
adequate freight-carrying capacity within the Indian rail network. The
proposed creation of four additional DFCs North-South (Delhi to Chennai)
East-West (Howrah to Mumbai), Southern (Chennai to Goa), and East-Coast
(Kharagpur to Vijayawada) would meet increased freight demand. The
Indian Railways also needs to establish and improve connectivity with ports
and road networks to form an intermodal strategy for first- and last-mile
connectivity.

Rail-side warehousing:
The need of the hour is to create warehousing facilities alongside railway
lines so that direct unloading can be facilitated from wagons to warehouses.
This would allow traders to avoid multiple handling costs, which are generally
quite expensive. Our analysis indicates that rail-side terminals such as those
being created by the Central Railside Warehouse Corporation (CRWC) a

20

DFCCIL Green house gas emissions reduction analysis for dedicated freight corridor, Ernst and Young,
http://dfccil.org/DFCC/PDF/Final_Report_DFCC_30_06_2011.pdf

18

subsidiary of Central Warehousing Corporation (CWC) could offer a winwin proposition for all relevant stakeholders. Railside terminals can further be
expected to lower logistics costs, which also include inventory carrying costs,
transit time and holding time for the warehouses.

Private investments:
The PPP model should be encouraged for the development of the route
network, as well as for the modernization of coaches through the transfer of
technology. This step will likely drive India toward the status of an export
hub for modern passenger coaches and stations to provide multifarious
facilities such as offices, retail, entertainment, restaurants, theaters, hotels,
and health and education services. Private freight terminals should also be
set up for bulk and container handling.

Need for Future Plans:

Rail has consistently lagged behind other modes of freight transport in India,
both from an infrastructure and initiative perspective. While the Indian
Railways straddles various challenges, there is an urgent need to take stock
of the growing support the industry seeks from this network.

Roads
In India road has become the predominant mode of transportation of freight cargo.
Estimate of the modal movement of cargo highlights that, in India nearly 61% of
the cargo is moved by road, 30% by rail and rest by airway, pipelines and inland
waterways. This is as compared to a 37% share of road in the USA and 22% in
China. Roads continue to constitute the most significant component of Indias
logistics industry, accounting for 60 percent of total freight movement in the
country. As the demand for goods either for mass consumption or industrial
development

grows

beyond

the

conventional

demand-supply

hubs

of

metropolitan cities to a number of widely dispersed tier-I and tier-II cities, the
share of road transport can expect additional growth, given its ability to facilitate
last-mile reach and limited supporting rail infrastructure.

19

Road freight in India has increased since its 195051 level of 6 billion tonne
kilometers (BTKMs) to an estimated 1,250 BTKMs in 201112, witnessing a CAGR
of 9.14 percent during this period21. Over the next five-year period, from 201213
to 201617, assuming GDP growth of 8 percent, road freight is expected to grow at
a CAGR of 9.6 percent taking the total road freight opportunity to 1,700 BTKMs22.
The corresponding development of roads has witnessed limited traction, recording a
CAGR of 2 percent from about 3.7 million km in 2001 to about 4.7 million km in
201223. Of this, the length of district, rural and other roads is 4,455,511 km,
followed by 163,898 km of State highways and only 70,934 km of National
Highways24. Of this, only approximately half of the total road length is paved.
Consequently, road networks continue to lag behind world averages, with road
density at 2.83 km per 1,000 people and 770 km of road length per 1,000 sq. km
as compared to 6.7 km and 840 km, globally25. Indias low average trucking speed
of 3040 km per hour (kmph) as against the global average of 6080 kmph is due
to the constrained and poor quality of the countrys road network.
The completion of the National Highways Development Programme (NHDP), which
is aimed at developing 50,000 km of National Highways by 2015 in seven phases
with an investment of INR 3000 billion26, will be game changer for the road
transport sector. From the investment perspective, a comparison of estimated
investments in the road sector in the Eleventh Plan (200712) vis--vis projected
investments

for

the

Twelfth

Plan

(201217)

indicates

significant

jump,

approximately 2.2%. To encourage private players, the Government has announced

several incentives such as declaring the road sector as an industry, providing 100
percent tax exemptions in any consecutive 10 years out of 20 years, duty free
imports of certain identified construction plants and equipment, FDI of up to 100

21

Road Cargo Year Book 200607, Ministry of Road Transport & Highways (MORTH); Domestic Freight
Transportation, CRISIL, July 2011; 2012 turnover volume is estimated considering CAGR of 7.3% during 2002
2011; KPMG in India analysis
22
Report of the Sub-Group on Passenger and Freight Traffic Assessment in the Twelfth Five Year Plan, Sept 2011,
MORTH; KPMG in India analysis
23
Annual report 201112, MORTH
24
NHAI, www.nhai.org/roadnetwork.htm, website accessed on 23 July 2012
25
Basic Road Statistics of India, MORTH, The World Bank, http://data.worldbank.org
26
Road and Highways Sector, CRISIL Research 2012

20

percent, and increased concession periods (up to 30 years). Given these incentives,
the private sector is expected to fund 33 percent of the total investment in the
Twelfth Five-Year Plan. By November 2012, around 37 percent of projects were
completed, with approximately 28 percent under implementation and about 35
percent yet to be awarded27.
In addition, the NHDP seeks to improve and sustain the integration of lessdeveloped areas by enhancing their road connectivity with the National Highways
network. Work entailing the four laning of two-lane roads, mainly connecting state
capitals and important tier-II and tier-III cities to the Golden Quadrilateral (GQ)
and North-South & East-West (NSEW) corridor, is expected to enhance existing
networks. Projects to upgrade the National Highways to two lanes with paved
shoulders are also expected to be awarded over the next three years.
Many States have followed in National Highway Development Authority (NHAIs)
footsteps and have started awarding important state highways on a Build-OperatorTransfer (BOT) basis. The States that have taken the lead in awarding state
highways on a BOT model include Gujarat, Rajasthan, Madhya Pradesh and
Maharashtra. While the state highway programmes currently are not as well
structured and formalized as the NHDP program, they are expected to evolve and
improve over the next few years.
The existing Indian road freight transport industry is highly fragmented, with 7075
percent of truck owners operating a maximum of five trucks each, while operators
owning more than 20 trucks constitute about 911 percent of the ownership pie;
the remaining share of 1520 percent belongs to operators owning 620 trucks28.
Out of the total trucking capacity, it is estimated that 47 percent comes from a fleet
of 2.6 million light commercial vehicles (LCV) (up to 3.5 tonnes), the rest largely
belonging to medium and heavy CV (more than 3.5 tonnes) category constituting
2.8 million vehicles29.

27

Road and Highways Sector, CRISIL Research 2012

CRISILs Roads and Highways Annual Review (2009);
29
Logistics Game Changers by KPMG
28

21

This disaggregated ownership has resulted in fierce competition amongst operators

resulting in truck owners resorting to overloading to recover investments, which in
turn impacts service quality and overall economics of road transportation as a result
of increased incidents of accidents, break downs, spoilage and pilferage. Also due to
the limited investment capacity, operators have been unable to upgrade trucks
resulting in high average age of trucks at 10 years and limited adoption of
technology for tracking and fleet management.
While road movement is preferred to rail, road movement has its own fair share of
issues. These include:

Inadequate road network coverage

Freight movement in India is dependent on National Highways. While
National Highways constitute only about 2% of the road network of India
they carry nearly 40% of the total traffic30. As a result most of these
highways are severely congested- resulting in freight travelling only a third of
the distance compared to developed countries.

Overloading of trucks
It results in shorter life expectancy of the roads and vehicles, higher
pollution, increase in number of accidents and overall inefficiency in
operation. Also the ageing trucks have very poor fuel efficiency resulting in
higher fuel consumption and maintenance cost which increases the cost of
transportation leading to price rise.

Poor road Infrastructure

The road quality in India, on the National Highways as well and other roads,
is improving but is still poor in many locations. Estimates suggest that
motorable roads are still less than 10% of the total road network. Large
stretches of National Highways are also two laned in many stretches reducing
their capacity to handle large traffic loads.

Expressway network will take time to develop

In many developed countries expressways have been developed to facilitate
high speed freight movement through linking of important cities, ports and

30

Indian Logistics the way forward: Challenges and Opportunities by Praveen Pandey & Rahul Sahai

22

industrial centers. In India the expressway network is still largely at a

planning stage with a target of development of around 15,000 kilometers of
expressways only by the end of the 13th plan period.

High level of fragmentation of the trucking industry

The trucking industry in India is largely fragmented and in the hands of small
truck operators. Estimates suggest that nearly 70% of the truck owners in
India own between 1-5 trucks. As a result of disaggregated ownership there
is fierce competition amongst operators leading to truck owners resorting to
overloading to recover investments. Also due to the limited investment
capacity of these operators, in terms of better vehicles (average age of
trucks in India is over 10 years), tracking, safety etc., improvement of this
sector and introduction of new technology has been slow to percolate.

Probable Way Forwards are:

Promotion of Fleet Exchanges

Creation of a platform to bring together transport customers and transport
vendors in this largely unorganized sector could revolutionize the trucking
segment. Collaboration of Fleet Exchanges with the existing Road Traffic
Offices (RTO) could be a win-win as Fleet Exchanges provides an Online Real
Time Technology platform while RTOs providing the on field support. Such
exchanges will not only reduce the element of cost that a middleman makes
but will also give visibility of loads to the vehicle owner on pan India basis.

Electronic Toll Collection (ETC)

There are about 52545 toll plazas across India. The smooth application of
ETC would amount to estimated fuel savings worth INR 10 billion annually31.
Although this may command significant investment from road developers
against a small contribution of about INR100 from vehicle operators, the
benefits are expected to result in a win-win scenario for all stakeholders.
While developers shall benefit from plugging revenue leakages which are
currently estimated at INR12 billion, guaranteed savings in fuel would

31

Logistics Game Changers by KPMG

23

outweigh the initial cost of INR10032. Above all, this would save significant
avoidable logistics costs for the wider industry and the Indian economy.

Encourage use of larger trucks

Larger trucks are cheaper to operate as compared to smaller and medium
trucks by over 25 percent33. Measures to encourage the use of larger trucks
could be considered including excise duty reductions for larger vehicles,
stringent monitoring of overloaded trucks and enforcing pollution and safety
norms, which could result in the retirement of old trucks.

Basic Road Infrastructure

While the demand for road connectivity is on the incline, so is the focus on
improving basic road infrastructure as well as technology adoption. The
numbers of expressways and highways have increased, many roads have
been widened and inter-state check posts are becoming automated.

While the quality of road infrastructure is certainly likely to improve, the pace of
infrastructure development is critical to minimize losses, both economic and
environmental. In particular, delays in meeting project timelines should be reduced,
given that only about 52 percent of the daily target of average road length to be
constructed has been met to date (10.39 km as against the target of 20 km in
201112).
Air Cargo
The demand for air cargo transportation has increased significantly over the last
few years, because product life cycles have shortened and demand for rapid
delivery

has

increased.

Changing

business

models

such

as

Just-

in-Time

Manufacturing and Global out sourcing models have contributed to the rapid growth
of air cargo logistics business. In such a changing business environment, where
speed-to- market is a competitive imperative, movement of inventory is no longer
viewed as a compartmentalized process. Rather, the sourcing of inputs, parts and
components and the delivery of final product are all viewed as a continuous valueadding chain. Efficient supply chain management therefore offers significant
32

Logistics Game Changers by KPMG

33

Logistics: Present situation and way forward

24

benefits including lower inventory and intermediary costs; and simplicity in order
placement, delivery and management of suppliers and customers. These benefits
directly contribute to making businesses more competitive.
Air cargo serves as a vital link between domestic and international markets. The
contribution of air cargo, thus, needs to be adequately and appropriately focused
upon, so that Indias fast growing international and domestic trade by air is
facilitated, integrated and expanded. While the total volume of air cargo traffic
currently constitutes about 1 percent of total trade, it accounts for close to 29
percent of total trade value.
In the early 1990s, the Government of India (GoI) adopted the Open Sky policy for
the air cargo sector, under which Indian or foreign carriers were allowed to operate
both scheduled and non-scheduled cargo services between all airports in India.
Since, the sector has witnessed significant growth from 0.7 MMT in 199596 to 2.7
MMT in 2011125.
Between 2006 and 2012, air cargo traffic handled at Indian airports increased at a
CAGR of 11.5 percent, with domestic cargo growing at 12.3 percent, faster than
international cargo (11.2 percent). Over the next decade, total air cargo traffic is
expected to grow at a CAGR of 10.3 percent to reach 5.9 MMT, with domestic and
international cargo expected to grow at CAGRs of 11.6 percent and 9.5 percent,
respectively, and contributing 2.4 MMT and 3.5 MMT, respectively by 2020.
International cargo, which accounts for two-thirds of total cargo, is largely
concentrated in the metro airports of Mumbai, Delhi, Chennai, Bengaluru and
Hyderabad. The Delhi and Mumbai airports collectively handle around 50 percent on
Indias domestic and international cargo. The significant untapped potential of air
cargo in India is apparent from the fact that the total cargo volume of 2.3 MMT,
which all Indian airports handled in 2011, lagged behind traffic handled at other
airports in Asia such as Hong Kong (4.6 MMT), Dubai (3.0 MMT) and Shanghai (2.6
MMT).
The demand for air freight is limited by cost, typically priced 45 times that of road
transport and 1216 times that of sea transport. These values differ from country
25

to country, season to season and from product to product and for different volumes
also. Cargos shipped by air, have high values per unit or are very time-sensitive,
such as documents, pharmaceuticals, fashion garments, production samples,
electronics consumer goods, and perishable agricultural and seafood products. They
also include some inputs to meet just-in-time production and emergency shipments
of spare parts. As the volume of air freight grows, there is a natural progression
from passenger aircraft to chartered cargo planes of increasing size and ultimately
to scheduled cargo services. In future, the emergence of new cargo hubs and the
growing ecosystem of service providers to facilitate efficient air cargo services will
likely drive demand and related investments in the air cargo segment.
Analysis of trends at tier-II city airports indicates a clear segregation between
upcoming hubs. They may be broadly classified into two categories based on their
domestic versus export-import (EXIM) focus:
1. Attractive for third-party logistics (3PL) players
2. Attractive for freight forwarders
From a relative perspective, Trivandrum, Cochin and Calicut appear to be favorable
for freight-forwarding companies; Pune, Nagpur, Guwahati and other cities seem to
be inclined toward 3PL service providers. Ahmedabad is equally attractive for both
classes of services, or a step ahead, for larger companies that provide a much
wider spectrum of logistics offerings. Sustainable strong growth is possible, both in
conventional metro hubs as well as emerging tier-II cities. This would, in turn, drive
investment requirements for airport infrastructure. Specifically, to lower cargorelated congestion at several airports, investments at dedicated air cargo terminals
are more critical now than ever before.
It is quite understandable that trade by air is high in value as compared to volume.
This highlights the critical need to reduce transit time as the goods that are carried
by air are not only time sensitive they are also significantly higher in value terms.
The more the goods are delayed in delivery the higher the possibility of blunting the
edge of competitiveness and the scope for pilferage of goods in transit and storage.
If these aspects are not given due importance, possibility of shifting of traffic from
air mode to maritime mode is high.
26

Total Cargo Handled at Indian Airports has grown 3.5 times in the last 15 years
from 0.68 Million Metric Tonnes (MMT) in 1995-96 to 2.39 MMT in 2010-11 i.e. a
CAGR of 8.7 percent. Domestic Cargo Handled has grown 4 times from 0.22 MMT in
1995-96 to 0.89 MMT in 2010-11 i.e. at a CAGR of 9.7 percent. Similarly,
International Cargo Handled at Indian Airports has grown 3.2 times in the same
period from 0.46 MMT to 1.5 MMT i.e. at a CAGR of 8.2 percent. However, in the
last 3 years, Domestic Cargo throughput is the fastest growing segment (CAGR of
13.6 percent) as compared to International Cargo throughput at a CAGR of 9.2
percent.
Inadequate cargo handling and storage infrastructure at airports across India has
been a longstanding challenge. Historically, Indias airports have been primarily
developed to cater to passenger traffic; thus, the requirement of air cargo traffic
has not been given significant importance to date. Infrastructure related to effective
cargo handling, cold storage, automatic storage and retrieval systems, and the
mechanized transportation of cargo needs attention not only at metro airports but
across the country.
A comparison of air cargo infrastructure at Indian airports with global practices
highlights the prevailing lack of focus on air cargo infrastructure:
Table 6.1: Comparison of air cargo infrastructure
Global best practices
Segregated facilities for different types
of cargo
Dedicated perishable handling facilities
that cater supply chain requirements

Promotes transhipment handling/hub

operations
Suitable waiting areas for trucks

Agent warehouses, office areas and

other facilities situated near terminals
Dedicated facilities for air express

Cargo operations in India

Most terminals do not offer separate
facilities, except cold rooms
Investment in cold chain infrastructure
(trucks and warehouses) to handle
agricultural, pharma and other
perishable commodities is inadequate.
Cargo terminal operators need to have
separate license-handling areas for
transhipment handling
Cargo terminal landsides are used as
parking/holding areas for trucks, which
leads to congestion.
Agent warehouses are often located
within the city
There is no fixed model, and cargo
27

operations with air-side and city-side

handlers are dependent on the decisions
access, multiple freighter parking bays
of individual airport operators
Source: Presentation to Working Group by AI-SATS, 2011, Air Cargo Logistics in
India, MoCA

However, increased spending in airport infrastructure through various airport

projects is expected to improve air cargo infrastructure across the country.
Investment in airport infrastructure has grown substantially over the last three
Five-Year plans, with INR361.4 billion of investment set aside in the Eleventh Plan
(200712), reflecting a rise of 424 percent over investment of INR68.9 billion made
during the Tenth Plan (200207).12 The Twelfth Five-Year Plan (201217) outlines
investments worth INR675 billion, an increase of 86 percent over the Eleventh Plan
allocation.13 Further, the percentage contribution of private investments has
multiplied 2.2 times, from 34.4 percent (INR23.7 billion) during the Tenth Plan to
74.1 percent (INR500 billion) during the Twelfth Plan.
Heightened focus on developing cargo terminals and related infrastructure has
driven initiatives in recent times. These include successful upgrades at airports in
Cochin, Bengaluru, Hyderabad, Delhi and Mumbai, as well as the ongoing
modernization

of

the

Kolkata

and

Chennai

airports.

Further,

the

ongoing

modernization of 35 non-metro airports, of which 20 are complete, is expected to

enhance cargo handling and storage significantly.
Globalization of business transactions, shift to just in time manufacturing and
inventory control methods and, growing requirement of industries of all types to
ship products quickly by air to distant customers are the key driving forces in the
development of Express Delivery Services. The Air Express industry worldwide is
both domestic and international. The main features of the Air Express industry
include: Speed of Service, Door-to-door Delivery including completion of all cross
border regulatory requirements, Tracking Systems, Proof of Delivery, Security and
Reliability and access to global connectivity to their customers.
Strong macroeconomic fundamentals, growth in retail driven by rising levels of
disposable income in the hands of more and more people, expansion in domestic air
28

Network by Indian Carriers, End to End solutions by Express Service Providers,

growth of new time sensitive verticals like Pharmaceuticals, Healthcare, Electronics,
wireless telephony, and Automotive Spares etc. are said to be the factors
responsible for the rapid growth of Domestic Air cargo logistics business. There are
in all, 500 plus Air Cargo Players in the Domestic Sector with 75 at National and
regional level providing direct and indirect employment of about a million on pan
India basis.10 The industry was valued at 20150 million rupees in 2007 2008. 82
comparison of air cargo infrastructure of cargo transported as belly cargo in
Domestic Airlines. Interline Cargo from International Line haul for Domestic
Carriage grew from a share of 4.78 comparison of air cargo infrastructure in 2007
2008 to 6.55 comparison of air cargo infrastructure in 2009 2010 of the total
Domestic Air Cargo business.
Ports
Indias ports serve as gateways to Indias international trade and facilitate 90
percent by volume and 70 percent by value of Indias external trade via maritime
traffic. The countrys long coastline spans across 7,500 kilometers (kms) with 13
major ports governed by the Centre and about 176 non-major ports, of which only
60 are operational, governed by respective state governments and union territories.
Of its major and non-major ports combined, 139 are along the west coast, while
the remaining 50 ports are along the east coast.
The Indian port market has witnessed significant growth over the last decade,
growing from 368 MMT in 200001 to 898 MMT in 201112 at a CAGR of 8.5
percent. Following a temporary deceleration in cargo traffic (at a CAGR of 6
percent) due to the global economic slowdown between 200708 and 201112
cargo traffic across Indias ports is expected to touch 1,304 MMT by 201617 at
an accelerated CAGR of 8 percent.19
Gujarat continues to be the leading maritime State, contributing 33 percent of total
port cargo traffic and 71 percent of the total non-major port cargo traffic.
Maharashtra, Andhra Pradesh and Tamil Nadu contributed 15 percent, 13 percent
and 11 percent respectively to total port cargo traffic and rely mainly on traffic from
major ports. Among the maritime states, Karnataka and Andhra Pradesh witnessed
29

the highest CAGRs in cargo traffic of 32 percent and 28 percent respectively during
the last decade.20
Given the pivotal role it plays in the economy, the Indian ports sector appears to be
well-poised for a long-term growth wave. Looking ahead, the key game changers
expected to drive growth in the port sector include fulfillment of Maritime Agenda
20102020, growth of non-major ports, increased containerization, and east coast
ports.
The Government of India (GoI)s ambition to replace the National Maritime
Development Programme (NMDP) with the more comprehensive Maritime Agenda
20102020 is in line with its objective to increase port capacity. It intends to
encourage private investment in both major and non-major ports and bring port
performance at par with international standards. Through this program, the GoI
plans to invest INR2,870 billion in generating total port capacity of 3,200 MMT and
cater to expected cargo traffic of 2,500 MMT by the end of 2020.
The public-private partnership (PPP) is expected to play an important role in the
ports sector, particularly in the development of non-major ports private
investment is expected to contribute 66 percent and 98 percent of total
investments in major and non-major ports, respectively. The development of two
new major ports, one each on east and west coasts, are expected to reduce the
above optimum capacity levels at existing ports.
Between 200708 and 201112, cargo traffic at non-major ports increased at a
CAGR of 13 percent over a CAGR of 2 percent at major ports; its share increased
from 28 percent to 39 percent, clocking 338 MMT in total traffic versus 560 MMT at
major ports. During this period, cargo-handling capacity at non-major ports also
witnessed higher growth than that at major ports. Capacity overruns at major
ports, aided by a substantial increase in the cargo traffic of fertilizers, building
material and coal, have resulted in significant investments in the development of
non-major ports. Under the Maritime Agenda, maritime States have set ambitious
targets to create additional capacity of 1,290 MMT at an estimated investment of
INR1680 billion between 201011 and 201920.
30

Growth of traffic at non-major ports over the past few years has been primarily led
by the development of ports in Gujarat, mainly the Mundra, Pipavav and Hazira
ports. These non-major ports are expected to cater to the northern regions cargo
traffic, thereby reducing the load on the JNPT and Mumbai ports. With the
emergence of ports at Dhamra, Gopalpur, Gangavaram, Kakinada, Machilipatanam,
Krishnapatnam, Kattupalli and Karaikal, the east coast is also expected to
contribute to the development of non-major ports.
While Indias ports sector has the potential for significant progress in future, certain
challenges may impede its journey to growth. Both the Centre and the States
should address such challenges to facilitate sector growth.
The issues faced by Ports are:

High turnaround times:

Data from Indian Ports Association shows that ports in India suffer from high
turnaround times for ships. JNPT, which is the premier port in India, has
more than 2 times the turnaround time of Colombo and Singapore ports
because of congestion on berths and slow evacuation of cargo which are
unloaded at the berths.

Inadequate depth at ports:

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 has not taken off:

Costal shipping in India is hampered by inadequate port and land side
infrastructure which hampers large scale use of it for freight movement.

Inter-sector coordination:
An integrated transport approach that promotes inter-sector coordination of
road, railways and shipping departments should be developed. This will
facilitate the rapid and efficient evacuation of cargo at ports due to seamless
hinterland connectivity via road and rail.

Development of mega-ports:

31

Ports with supportive, high-potential surroundings need to be developed into

mega ports that can derive the benefits of economies of scale. The GoI needs
to facilitate such projects through appropriate policies, incentives and fasttracking measures.

Improve capacity utilization:

More focus is needed on operational efficiency of ports which are potentially
limited by the hinterland. It would help such ports to be competitive with
larger ports and profitable at low traffic volumes.

Reduce focus on sub-optimal ports:

While multiple ports can provide customers with variety and create
competition in terms of pricing and customer service, the proliferation of
ports of sub-optimal scale must be avoided. Projects that are unviable
ultimately erode investor confidence, customer experience and the economy.
Thus, coordinated coastline planning and diligent approval of projects, not
only from an environmental but also a commercial/business standpoint, is
the need of the hour.

Enhancing port infrastructure:

Increased emphasis on upgrading both, seaside and landside infrastructure
to enhance draft and evacuation procedures would enable universal smoother
cargo flows from larger vessels. Improved level of mechanization via
upgrading

material-handling

equipments

and

enhanced

proper

IT

infrastructure should be build to ensure electronic flow of information among

various stakeholders.

7: Inland Waterways
Water as a mode of transportation holds significant importance in any economys
progress. Water as a mode of cargo movement contributes only 852 percent by
volume of the Indias cargo movement. Despite its potential as a cost-effective and
environment-friendly mode of transport, its share in the modal mix continues to lag
behind other developed countries. Domestic shipping offers significant advantages
over road and rail transport in terms of fuel and cost savings. Fuel consumption for
every ton-kilometer of freight shipped is only 15 percent of that by road and 54
32

percent of that by rail. Emissions are also far lower than that in rail or road
transport. From a cost perspective also, shipping costs 21 percent of road and 42
percent of that by rail.
Coastal shipping and inland waterways transportation (IWT), the two significant
modes of domestic shipping, both offer game-changing opportunities in the Indian
context especially to meet the demand for bulk transportation to nearby areas and
along the coast vis--vis other modes of transport.
Growing at 7.2 percent over the past five years, IWT cargo traffic was estimated at
79 MMT in 201112. India falls short in the share of IWT at 0.5 percent as
compared to China at 8.7 percent, the US at 8.3 percent and Europe at 7 percent.
The development of the Indian IWT landscape holds immense potential due to its
characteristic advantages over other modes of transportation, especially for bulk
movement.
India is home to 14,500 km of navigable inland waterways, of which 5,200 km (36
percent) of major rivers and 485 km (3 percent) of canals are conducive to the
movement of mechanized vessels. Among these navigable waterways, five National
Waterways (NWs) NWs 1, 2, 3, 4 and 5 spanning approximately 4,400 km
have been outlined as potential inland waterways at the Ganges and Brahmaputra
rivers, the West Coast Canal, the Godavari and Krishna rivers, and the East Coast
Canal, respectively. NW 6, which stretches across 121 km, has been proposed at
Barak River.
The key characteristics and operational aspects of NW 1, 2 and 3 which contribute
majorly to the IWT are discussed in the table below;
Table 7.1: Key characteristics and operational aspects
NW
NW1

Length
(km)
1620

Stretch
Allahabad to
Kolkata on the
Ganges River

Key Operational Aspects

River port being developed at Kolkata

and Haldia, capable of handling
containers, rail link to be provided by
2014
33

River port at Patna operational

River ports at Varanasi and Allahabad

proposed in Twelfth Five-Year Plan

Floating terminal at other locations

Night-navigation facilities available

Sufficient LAD 2.5 m up to Patna and

2.0 m up to Varanasi planned.

NW2

891

Sadiya to Dhubri
on Brahmaputra

Pandu to emerge as multimodal

transport hub, catering to the NorthEast, , broad gauge rail link planned

Dhubri River port planned by 2014

Night-navigation facilities available

Sufficient LAD 2.5 m upto Neamati

and 2.0 m upto Dibrugarh.

NW3

206

West Coast Canal

Eight river ports already commissioned,

from Kottapuram

one more at Alappuzha under

to Kollam

construction

Ro-Ro jetties at Willingdon and

Bolghatty operational

Night-navigation facilities available

Sufficient LAD 2.5 m planned across

entire stretch by 2013.

NWs 4 and 5, declared in 2008, will span 1,078 km and 588 km, respectively and
are expected to be developed at INR15 billion and INR42 billion, respectively. Such
commercially viable stretches would be developed through the PPP route with
viability gap funding.
IWT is gradually showcasing its advantage over road and rail especially for bulk
transportation (coal and cement) and project-related over dimension cargo (ODC).
The following are among some flagship examples that partially or fully employ IWT
as a cost-effective transport option;
34

 Cement from Farakka to Nabadweep, Bhagalpur and Patna

Project cargo for planned hydel power projects in Arunachal Pradesh
Food grains from Kolkata to Tripura via Ashuganj and within Assam
Iron-ore shipments in the Goa region
Transportation of coal for National Thermal Power Station (NTPC) Farakka
project
Transportation of fly ash from West Bengal to Bangladesh
Coastal shipping is an important component in the development of domestic
industry and trade due to its environment-friendly, cost-effective and fuel-efficient
services. Increasing delays due to high road and rail congestion is driving
companies to transport their goods via coastal shipping. However, as compared to
other emerging and developed countries, Indias costal shipping potential remains
significantly underutilized.
An assessment of coastal cargo traffic by commodity indicates that petroleum, oil
and lubricants (POL), coal, and iron ore are the three major commodity categories
that account for the bulk of coastal cargo movement. In major ports, POL and coal
collectively comprise around 80 percent of the total coastal traffic handled. In the
non-major ports category, POL and iron ore collectively comprise roughly 70
percent of the total coastal traffic handled. In 201112, coastal cargo constituted
17 percent of total cargo at Indian ports and increased at a nominal CAGR of 4.5
percent to 160 MMT in 201112 over the past five years. In 201112, coastal traffic
at major ports accounted for 70 percent of total coastal cargo traffic and 1820
percent of the total cargo handled at major ports. Coastal traffic at non-major ports
comprised 14 percent of total cargo handled for the same period. Development of
coastal industries will provide port access, leading to usage of coastal shipping for
raw material and finished goods transportation.
While the coastal shipping of containerized cargo plays a relatively small role and is
limited to tiles, marble, white goods and chemicals, there is an increasing
opportunity to convert agricultural goods currently moving via bulk, break bulk or
rail to coastal mode, especially along the west coast.

35

Coastal shipping seems to be a feasible option for movement between most ports
on the west and east coasts. Some prominent coastal shipping routes include
Chennai to Chittagong/Yangon through Haldia/Kolkata, southbound cargo from
Pipavav/Mundra to Kochi and other ports, and inland and coastal movement in and
around Goa.
The enhancement of IWT and coastal shipping as an alternative mode for the
transportation of goods, especially bulk and ODC, would require concentrated
efforts at various levels:
Infrastructure and capacity
Incentivize ports to develop additional small berths for domestic cargo
as domestic ships currently waste 55 percent of total voyage time due
to port delays.
Increase vessel capacity to facilitate fewer vessel voyages and, thus,
help reduce port congestion.
Maintain draft along important inland waterways.
The development of domestic cargo corridors for last- and first-mile
connectivity with ports.
Policy initiatives
Allow the co-loading of domestic and EXIM cargo on coastal vessels;
currently excess capacity moves on international vessels between
Indian ports. While already allowed for Indian flag vessels, the decision
on foreign flag vessels is awaited.
Policies around subsidies for capital investments in coastal shipping
may be revisited, as has been done for the road, rail and airline
sectors.
The governance of IWT under a single body (e.g., IWAI, must be
centralized. Governance is currently under multiple authorities such as
the CIWTC, port authorities and state governments.

8: Containerization
Containerization is the use of containers to unitize cargo for transportation, supply
and

storage.

Container

logistics

thus

incorporates

supply,

transportation,
36

packaging, storage, and security together with visibility of container and its
contents into a distribution system from source to user.
Ports, railways, roads, warehouses, shipping & logistics companies, by virtue of
being the primary players dealing with containers are also the key contributors to
the development of container trade & infrastructure.
The advantages of containerization are well known throughout the industry. Few of
them are:

Effective handling of cargo (specially liquid cargo),

Minimal or no damage to goods,

Optimum utilization of storage & warehousing capacity,

Technology adoption due to mechanized handling required for handling

containers,

Skill development of workers for operating containers,

Reduction in transport time,

Door-to-door or end-to-end delivery of goods etc.

Additionally,

containers

enhance

the

effectiveness

of

overall

supply

chain

mechanism in the trade.

The abundant opportunities offered by containers lure various transport sector
players to promote the containerization drive. Government of India has taken
several initiatives & brought forth policies to increase the utilization of containers.
The EXIM container market in India has grown at a CAGR of 12 percent in the past
five years, as compared to the 810 percent growth that other commodities such as
POL, Iron ore and coal experienced during the same period. Growth in the container
market is expected to continue in the medium term as a result of rising
containerization levels and growth in trade. At 51 percent, the containerization level
in India continue to fall short of that in developed countries, which have achieved
significant levels of 7080 percent.
The following trends are expected to drive growth in containerized cargo:

37

Increasing containerization level for erstwhile break-bulk commodities like,

steel, cement, rice, sugar.

Healthy growth prospects for industries contributing to container cargo like,

textiles, food products, machinery, paper, scrap.

Development

of

dedicated

freight

corridors

(DFC)

and

Delhi-Mumbai

industrial corridor (DMIC) along the North West corridor are expected to
drive the demand for container logistics infrastructure.

Growing thrust on developing container terminals on the east and west

coasts of India.

Development of dedicated logistics parks for handling container and bulk

cargo.

Development of new terminals with facilities to handle deep draft vessels that
are operated by MLOs (Main Line Operators).

Ports are the primary influence to the containerization movement. The major cargo
commodities that get containerized are garments, electronic goods, agro products,
cotton yarn, machinery/parts, granite products, leather products and jute products.
Indian ports have also been seeing many break bulk cargoes like rice, maize, glass,
granite, sugar, soya, cement and flowers now moving in containers. Even iron ore
has been successfully exported from Chennai in containers.
The following chart provides a glimpse of the container traffic handled at the major
ports in the past,

38

Container Traffic at Major Ports

120
100
80
60
40
20
0
2005-06

2006-07

2007-08

2008-09

2009-10

2010-11

Container Traffic at Major Ports

Fig. 8.1: Container traffic at major ports

West Coast Ports

The share of upper west ports in total container traffic has declined over the years
from 70 percent in 2007 to 63 percent in 2011 with development of Chennai
cluster. The reduction in share of upper west ports is expected to continue further.
East Coast Ports

With their contribution to Indias total trade expected to increase from 23 percent in
2010 to 34 percent in 2014, east coasts ports situated along the 2,630-km-long
eastern coastline that stretches from West Bengal to Tamil Nadu are expected to
significantly drive growth in the ports sector. Through the Maritime Agenda 2010
2020, the GoI plans to create additional port capacity of 900 MMT and invest
INR1,126 billion to boost cargo-handling capacity at ports along the east coast.
Non-major ports are expected to contribute 57 percent of total investments in eastcoast ports and 46 percent to total capacity added in east-coast ports.24
East coast ports which are closer to iron ore/coal deposits and power, steel or
fertilizer plants have traditionally handled bulk commodities, as opposed to west
coast ports, which mainly handle POL and container cargo. Container handling
39

capacity along east coast ports in India is expected to increase from 2 million TEUs
in 2009 (20 percent of Indias total container handling capacity) to 10.8 million TEU
by 2020 (33 percent of Indias total container handling capacity).25
Historically, ports along west coast have dominated cargo traffic due to their
proximity to Indias major consumption centers and industrial belt of northwest
India. With Chinas emergence as Indias leading trade partner, Indias Look East
policy and overcapacity at west coast ports, east coast ports present significant
development opportunities.
It has been reiterated for quite some time that better connectivity of the hinterland
and the ports is the key to achieving the set ambitious growth targets for the
development of the ports and related infrastructure and thereby achieve the desired
economic development.
Various

ways

Development

and
of

means

have

supporting

been

adapted

infrastructure

for

like

achieving
CFS/ICDs,

these

goals.

warehouses,

mechanization of the ports, smooth data flow system and containerization

initiatives are quite a few of them.
The CFSs/ICDs function as dry ports or substitute arm which act in the capacity of
the ports to reduce the congestion at the seaports. Connectivity of railways is one
of the key to success of the containerization movement.
Indian Government, realizing the business potential for the container rail operations
and its strategic importance to the Indian companies, invited the players to take a
stake in the container rail operations. Privatization of container rail operation
enticed 16 players. According to the Indian Railways, private players would serve
to:

Increase Indian Railways market share of container traffic

Provide

incremental

capacity

to

cater

to

the

exponentially

growing

containerized traffic in India

Ensure speedy clearance of export/ import of containerized traffic

Substantially increase containerized domestic traffic on Indian Railways

Improve quality of service to customers

40

These players offered integrated value added logistics solutions with last mile
connectivity to ports with a possible modal shift from road to railways. Most private
players expect a return of above 15% for investing in a business line so as to justify
the investment decisions and cater to their financing plans. Utilization and efficiency
along with lower turnaround time are extremely critical to generate returns of
higher required returns.
Indian Railway has set up categories and recommended fees structure for these
privatized railway operators according to their areas of operations and needs.
Indian Railways has given licenses to private players, which allows them to offer
container train movement by rail. The private players can either take an all India
license for Rs 50 crores or a route-specific license for Rs 10 crores.
Container Freight Stations (CFS) and Inland Container Depots (ICD) form a key
part of the logistics industry infrastructure. CFSs are also termed as Dry Ports in
Western Countries. A CFS/ICD/Dry Port is a common user facility with public
authority status equipped with fixed installations and offering services for handling
and temporary storage of import/export laden and empty containers carried under
customs control. Transshipment of cargo can also take place from such stations.
In terms of functions there is no particular distinction between a CFS and an ICD.
Both cater to the transit facilities offering containerization of break bulk cargo and
vice-versa. These are served by rail and road transport.
ICDs are generally located in the interiors or outside the port towns of
country, distant from the ports. CFS on the other hand are off-dock facility
located near the port area. CFS are largely expected to deal with break bulk
cargo originating / terminating in the immediate hinterland of port. They also
deal with rail borne traffic to and from inland locations
Considering the requirements of the Customs Act, and need to introduce
clarity in nomenclature, all containers terminal facilities in the hinterland are
designated as "ICDs".
The primary functions of ICD/CFS may be summed up as under:
a) Receipt and delivery of cargo.
41

b) Stuffing and stripping of containers.

c) Transit operations by rail/road to and from serving ports.
d) Customs clearance.
e) Consolidation and desegregation of LCL cargo.
f) Temporary storage of cargo and containers.
g) Reworking of containers.
h) Maintenance and repair of container units.
The benefits as envisaged from an ICD/CFS are:

Concentration points for long distance cargoes and its unitisation.

Service as a transit facility.

Customs clearance facility available near the centres of production and

consumption

Reduced level of demurrage and pilferage.

No Customs required at gateway ports.

Issuance of through bill of lading by shipping lines, hereby resuming full

liability of shipments.

Reduced overall level of empty container movement.

Competitive transport cost.

Reduced inventory cost.

Increased trade flows.

The CFS/ICDs investments are lucrative investment avenues as they provide, high
margins in comparison with other logistics activities while the entry barriers and
overall development scope far more exceeds the other logistics services lines of
business. The following table analyzes the above discussed point.
The operations of the ICDs/CFSs revolve around the following centers of activity:

Rail siding: The containers are loaded on and unloaded from rail wagons at
the siding through overhead cranes and / or other lifting equipments.

Container Yard: Container yard occupies the largest area in the ICD.CFS. It
is stacking area were the export containers are aggregated prior to dispatch
to port, import containers are stored till Customs clearance and where
42

empties await onward movement. Likewise, some stacking areas are

earmarked for keeping special containers such as refrigerated, hazardous,
overweight/over-length, etc.

Warehouse: A covered space/shed where export cargo is received and

import cargo stored/delivered; containers are stuffed/stripped or reworked;
LCL exports are consolidated and import LCLs are unpacked; and cargo is
physically examined by Customs. Export and import consignments are
generally handled either at separate areas in a warehouse or in different
nominated warehouses/sheds.

Gate Complex: The gate complex regulates the entry and exit of road
vehicles carrying cargo and containers through the terminal. It is place where
documentation, security and container inspection procedures are undertaken.

The CFS & ICDs are amongst the most rapidly growing segments of logistics
industry in India. The increasing container traffic at ports needs the support
infrastructure which can accommodate the traffic volumes of the containers. CFS &
ICDs provide a safe investment segment with lot of returns. CFS / ICDs being the
supporting infrastructure for the port development and port traffic fall under the
direct trade segment of the ports. Thereby this is also a lucrative sector for
investing the reserve funds and acquiring stake in the development of support
infrastructure by ports.
Table 8.1: State wise number of Registered CFS and ICDs
State/UT

Number of registered
CFS and ICD

Andhra Pradesh

13

Bihar

Chandigarh

Chattisgarh

Goa

Gujarat

33

Haryana

Himachal Pradesh

1
43

Jharkhand

J&K

Karnataka

Kerala

11

Maharashtra

48

Madhya Pradesh

Orissa

Pondicherry

Punjab

Rajasthan

10

Tamil Nadu

60

Uttar Pradesh

18

West Bengal

11

Total

247
Source: Ministry of Commerce, GOI website

9: Warehousing
Any analysis of Indias logistics landscape would perhaps be incomplete without
considering warehousing. In recent times, the Indian warehousing segment in India
has evolved significantly, resulting in a gradual metamorphosis from the traditional
concept of godowns to modern formats. Further, interest and traction in the
potential advantages that free-trade warehousing zones (FTWZs) offer has
increased.
From the opportunity perspective, the demand for warehousing services in India
was estimated at approximately INR 245270 billion in 2012. The market consists
of industrial and agricultural warehousing, with both segments expected to witness
a significant evolution in their shares (by value) over the next five years. The share
of the industrial segment, which includes both bulk and non-bulk commodities, is
expected to increase from about 86 percent in 201011 to around 90 percent in
201516. This is likely to be at the cost of a corresponding decrease in the share of
agricultural warehousing.
44

In contrast to the industrial warehousing segment, which is highly fragmented, the

agricultural warehousing segment is dominated to the extent of two-thirds by
government entities. These include the Food Corporation of India, the Central
Warehousing Corporation and all State Warehousing Corporations. This trend is
likely to vary relatively less in the next few years. The demand for industrial
warehousing space is estimated to have grown from around 391 million sq. ft. in
2010 to 476 million sq. ft. in 2013, at a CAGR of 6.8 percent.
Among the analyzed sectors, the highest growth is expected from engineering
goods, and IT, electronics and telecommunications sectors, estimated to grow at
CAGRs of about 8.6 and 8.2 percent, respectively, during 201013. The other
analyzed sectors are estimated to witness growth in the range of 5.7 to 7.1
percent.
The share of modern warehousing is anticipated to grow from 15 percent (62
million sq. ft.) in 2010 to 30 percent (178 million sq. ft.) by 2015. This sharp
growth is expected to be driven by rising domestic and EXIM freight volumes,
increased outsourcing to 3PL players, strengthened investment in infrastructure,
organized retail and the impending implementation of Goods and Services Tax
(GST).
However, several challenges may hamper the warehousing sectors wider growth
potential. High price sensitivity among customers and infrastructure issues tend to
limit the ability of service providers to offer world-class services; their usually
underdeveloped capabilities to offer industry-specific solutions, the asset-heavy
nature of their business, the need for substantial capital and concerns related to
land acquisition make operations increasingly difficult.
Apart from the significance of location in the modern warehousing era, industry
stakeholders need to be wary of two crucial aspects customers key buying
criteria and critical service factors. Price sensitivity, strategic location and
manpower availability rank as leading buying criteria; however, service providers
need

to

offer

high-quality,

industry-specific

value-added

solutions,

skilled

manpower both management and operational and IT/technology solutions

such as ERP, put-to-light, and GPS. Focus must also be on developing strong
45

relationships with customers, as well as facilitating long-term contracts and, thus,

regular and predictable volumes.
While the full potential of FTWZs in the Indian context is still at a premature stage
and remains largely unexplored, the concept has been time-tested across multiple
geographies with significant success. As a concept, FTWZs offers significant valueaddition opportunities to multiple industries by virtue of being deemed foreign
territory.
In addition to the poor transportation infrastructure the storage infrastructure in
India also needs significant improvement.

State of ICD/CFS is poor:

The ICD/CFS infrastructure available for Export-Import (EXIM) trade is
inadequate. The land requirement for setting up ICD/CFS at an appropriate
place is difficult to come by as several hurdles have to be cleared in the
consolidation of land. As a result many logistics companies with an interest in
setting up ICD/CFSs eventually fail to do so, mostly on account of lack of
land availability at an appropriate place.
While it is difficult to set up a facility, at the same time, the existing facilities
themselves are plagued with several issues;
Many of the older facilities today are located within city boundaries
restricting day movement of trucks
The approach roads to the facilities are poor making evacuation of
cargo difficult
Most facilities have issues of inadequate parking, lack of available land
for expansion, paving etc.

State of warehousing is poor:

Various estimates put warehousing costs to be between 20-25% of the total
logistics cost. Despite this the state of warehousing in India is largely dismal.
On the warehousing front 80-85% of warehouses are traditional with sizes of
less than 10,000 square feet. Most of these warehouses are not leak proof,
equipped with security systems, racking facilities and other facilities. Majority
of

the

operators

of

these

warehouses are

also

small

to

mid-sized
46

entrepreneurs with limited investment capacity. The only really large

warehousing owners are government agencies including Central Warehousing
Corporation and State Warehousing Corporations, but the focus of a
significant majority of the government warehouses is food grain storage.

State of cold storages is poor:

Despite the significant requirement of cold storages from the retail sector,
pharmaceutical and chemical sector and the farm sector, where it is
estimated that up to 40 percent of the fruits and vegetables grown in India
gets wasted, the sector needs to grow much faster to meet the needs.
Estimates on cold chain facilities in India put the number of cold storages at
around 5400 with a capacity of 24 million metric tons. Nearly 60 percent of
these facilities are meant for storage of potato. Also with the poor electricity
condition in the country the cost of operating such facilities is very high. With
government intervention and various sops the situation is slowly improving
but many challenges remain.

Multimodal Logistics parks yet to take off:

With

emerging

requirements

of

integrated

logistics,

provision

of

transportation hub, value addition etc. large logistics parks were sought to be
developed. However as with other areas the number of such facilities
continues to remain much less than the requirement. Consolidation of large
land parcels is a significant issue hampering their development. Other issues
include the lack of recognition of the concept of Logistics Park by state
government thereby obtaining permission for setting up one cumbersome.
9.2: Tax structure related challenges
A complicated tax regime is in place which places several challenges on the logistics
industry. Payment of multiple state and central taxes results in:
Considerable loss of time in transit for road freight in order to pay such taxes
Fragmentation of warehousing space especially for low margin products
thereby providing a disincentive to create large integrated warehousing
spaces

47

A uniform tax structure to be introduced through the GST is being highlighted as a

panacea for the existing situation. GST will enable logistics in providing services
without consideration for tax boundaries if it is implemented properly. The
introduction of GST is supposed to be certain. But logistic industry is skeptic about
its final shape as there are the deep divisions between several state governments
and the central government on this issue.
To eradicate the above mentioned constraints, following measures could be
considered by the policymakers and private players. The recommendations are,
Implementation of GST:
The existing landscape of fragmented, unorganized small godowns will likely
undergo significant reorganization with the rollout of the much overdue
uniform GST. The development of large hubs in key locations, coupled with
smaller spoke warehouses closer to production and consumption centers, are
expected emerge following the rollout. This change in legacy tax structure is
expected to be the largest driver of modern warehousing infrastructure in the
nation. While several companies have initiated the consolidation and
rationalization of existing warehouse networks, confirmed rollout dates have
yet to be declared.
Skill development:
The availability of skilled manpower both management and operational
will likely be a constraint as the sector continues to evolve rapidly amid
changing regulation and the entry of global retailers and service providers.
By 2015, it is estimated that India will need approximately 30,00035,000
warehouse managers alone. Government, policy makers and private sectors
players must take cognizance of this and develop a collaborative approach to
set up training infrastructure and incentives in the form of job opportunities
for qualified personnel.51
Development of new storage models and networks:
The emergence of next-generation storage models such as multi-modal
logistics parks (MMLPs), mega food parks (MFPs) and FTWZs must be aligned
with the development of key infrastructure projects related to port, highway,
48

and rail projects such as the GQ project, the NSEW project and the DFC
project to facilitate cohesive network development.
IT adoption:
The rapid transformation of physical infrastructure for storage would be
incomplete without the adoption of supporting IT. Technology is expected to
constitute the backbone of a strong and efficient modern warehouse that
encourages accuracy, inventory tracking and lowered operational costs.
Today, the market offers multiple forms of warehouse-management systems,
and service providers can select off-the-shelf solutions that best suit their
level of complexity.
In recent years, the Indian warehousing segment has progressed significantly.
Value-added services now being offered within the larger periphery of warehouses
have overcome the conventional definition of storage. Applications of inventory
management on a just-in-time (JIT) basis, concepts like vendor managed inventory
(VMI), value addition in the reverse logistics leg of products for repair,
remanufacture or recycling, bonded warehousing and processes such as sorting,
grading, bar coding, MRP tagging, packaging, repackaging, quality checking and
cross-docking are becoming increasingly common. From a service provider
perspective, warehousing has begun to evolve from a pure-play traditional service
providers domain to a range of hi-end 3PL and 4PL players.
However, there still remains scope for the wider industry to re-visit their
warehousing approach. Perhaps, the onset of GST, with its potential to revamp the
national warehousing network, could be considered the single largest industry-wide
opportunity to consider smart warehousing as a cost-saving opportunity across the
supply chain rather than a standalone necessity for goods storage.

10. Logistics Policies

The strong relationship between growth in international trade and logistics
infrastructure is widely acknowledged. Growth in trade induced requirement for
supporting infrastructure while availability of infrastructure at competitive rates
49

promotes trade and improve global competitiveness of the country. Availability of

infrastructure is also a key determinant of foreign direct investment (FDI) inflows.
In developing countries like India an efficient logistics infrastructure can reduce cost
of transportation which in turn can contribute directly to global competitiveness of
the country. Efficient logistics industry acts as an economic catalyst by opening up
new market opportunities, moving products and services with speed and efficiency.
Logistics is the key foundation upon which other economic sectors depend and
consumer demands are met. Some key facts would represent the condition of
Logistics Sectors more prominently.
1. Indias nominal GDP could grow from USD 1.8 trillion currently to USD 3.6
trillion by 2020 at an annual growth rate of 9 percent whereas by 2030,
Indias crude steel production is expected to increase by a factor of 4 and the
demand for cement in the country is expected to double by 2030.
2. Agricultural output is expected to increase from 207 million metric tonnes
(MMT) to 295 MMT by 2020 whereas the Indian textiles industry is expected
to triple from USD 78 billion currently to US$220 billion by 2020 which will
increase the share of organized retail from 5 percent currently to 24 percent
by 2020.
3. Indias industrial energy consumption is expected to double by 2020. In this
scenario, the country will need to mine 2 billion tonnes of coal by 2030 and
transport 75 percent of mined coal. Further, around 30 percent of total
transported coal will have to be imported through ports.
4. Overall export-import (EXIM) cargo at Indian ports is projected to increase to
around 2,800 MMT by 2020 from approximately 890 MMT currently.
5. Finished consumer goods, both imported and those produced in India, will
have to be transported to the countrys middle-class consumers, which, by
2030, are expected to increase fourfold from the current middle class
population of 160 million.
Recently, the logistics industry has drawn much attention of both industries and
policy makers. From policy makers viewpoint, one of the major issues is the
development of logistics infrastructure. So far, the growth of logistic infrastructure
50

has been geographically quite widespread as well as strategic. Construction of the

golden quadrilateral is a unique example. It links the key industrial, consumption
and trans-shipment centres. However, some imminent weaknesses need be
addressed. However, movement beyond the golden quadrilateral is indispensable to
bring goods from upcountry production sources to main shipment centres. More
expansion of expressway is highly needed otherwise vehicle turnover will raise,
which in turn will push the operating cost and reduce efficiency. National and state
highways have been upgraded but they are far behind the actual requirement.
Moreover, the pricing of the toll on these expressways especially for cargo traffic
has also been a disincentive to its usage.
Other major policy issue related to logistics industry is the transport policy.
Liberalisation in 1990s has brought changes in the role of government in transport
sector. Gradually government has changed its role from a direct provider to a
facilitator. Private participation has been encouraged, and for that purpose various
measures have been taken. One measure is public-private partnership (PPP). The
private sector is allowed to charge users and avail of tax concessions. Measures are
taken to streamline customs and excise procedures, implement Electronic Data
Interchange (EDI) systems and liberalise the regulatory regime to facilitate private
investment. As a result of these measures, private/foreign participation in the
Indian transport and logistics sector has increased.
According to the World Banks Global Logistics Report 2007, rank of India is 39
among 150 countries in terms of logistics performance with its future potential. So,
India needs an integrated infrastructure and logistics policy to keep up the growth
of its gross domestic product. The major countries to where India exports are the
United States, the United Arab Emirates, China, Singapore and Great Britain. The
major countries from where India imports are China, the United States,
Switzerland, the United Arab Emirates and Belgium.
The Indian government always has an objective to encourage growth of exports.
Keeping this objective in mind the government realized in the early 1990s the
benefits

of

multimodal

transport

and

in

the

year

1993

the

Multimodal

Transportation of Goods Act was enacted. According to this Act multi-modal

51

transportation can only be carried out by a company registered as a multi-modal

transport operator. The Act was introduced to expedite exports by assuring
exporters a sense of security in transporting their goods. Multi-modal transportation
reduces logistics costs of exporter and makes products more competitive in the
international market. The Act was again amended in year 2000 to give more
protection to shippers. The Association of Multimodal Transport Operators of India
have proposed further several amendments to this Act and has estimated that
these proposed amendments would bring down transit time for transport of goods
by forty to fifty percent.
This is to be mentioned in this context that multiple bodies are responsible to
govern logistics industry in India. The transportation regulations for logistics are
governed by the Ministry of Shipping, Road Transport and Highways. Procurement
of Raw Materials is handled by the Export Import Act of India, 1998. Ministry of
Commerce and Industry, the authoritative body, implemented the EXIM Policy that
also covers regulations towards Bonded Warehousing.
Other important policy towards logistics is Private Freight Terminals (PFT) Policy.
This policy aims to stimulate construction of privately owned freight terminals on
private land for dealing with break bulk goods, parcel traffic and containers. This
PPP model was suggested as goods sheds of Indian Railways are not in very good
condition. Under this policy, Private Freight Terminals are expected to provide
goods handling, warehousing and other associated logistics services to rail users
and facilitate expansion of the 3PL sector.
Many other logistics policy has been proposed or in action to boost trade. For
example, Coastal Shipping Policy has been proposed to boost coastal trade and
various support services with special focus on coastal ships, River Sea Vessels
(RSV), Inland Vessels (IV) and Cross trade compatible vessels. This proposed policy
will be implemented through infrastructure development, financial incentives
including subsidies, and solving manpower issues.
In India there is no absolute cabotage (meaning navigation in coastal waters)
policy. What followed for cabotage are the sections 406 and 407 of the Merchant
52

Shipping Act, 1958. According to this Act foreign ships have to take a licence for
plying on the coastline of the country. Coastal shipping thus had to be carried out
only by Indian ships or ships chartered by Indian citizens. Due to this and several
other reasons, a considerable part of Indian transhipment cargo was getting
diverted to Colombo, Singapore & Jebel Ali Ports. The policy has been relaxed
recently, and the first International Container Trans-shipment Terminal (ICTT) in
India has been set up at Vallarpadam, Cochin. It allows containers arriving there to
be shipped to other Indian ports. This policy change is expected to aid in growth of
traffic at there and more importantly, reduce diversion of Indian cargo traffic to
ports in other countries.
Another logistics policy to permit Operators to move container trains on Indian
Railways has been formulated. It permits rail linking of Inland Container Depots
(ICD) by private parties other than CONCOR and to allow them to move container
trains on the same lines as CONCOR for both international and domestic traffic. The
private players would own the trains and Indian Railway would provide the engine
and crew. This policy brought in investments of around 20000 million rupees. But
this policy has some restrictions on private players. They are allowed to carry only
certain commodities like coal, coke, some minerals.
Some action plans that could change the outlook are:

Regulatory Changes: According to a report of Fitch, this sector is not going to

see any regulatory or market changes in 2012. Implementation of the GST,
deregulation of diesel prices or formal notification to allow 51% FDI in multibrand retail would be positive for the outlook of the larger players in the
industry. These would be able to absorb the reduction in margins that may
be seen initially, as they would make investments to alter their operations to
take advantage of the changes.

Growth in the Logistics Sector: Growth the logistics industry in 2012 coupled
the fact that operating expenses are not likely to increase significantly would
be positive for the credit metrics of companies. Despite the recent economic
slowdown in the quarter ending September 2011, Fitch believes the Indian
logistics industry will sustain its growth momentum in the coming years,
53

particularly on the back of retail, automotive and food processing industries.

The Indian governments decision to allow 51% FDI in multi-brand retail once
formally made operational, would boost growth in this business as well.
Industry estimates suggest that the logistics industry is expected to grow at
15-20% a year to reach around USD350bn by 2015 from its current size of
around USD80bn.

Evolving requirements of trade: It is anticipated that the surge in trade will

demand enhanced sophistication in logistics infrastructure and services
across modes. As international standards are introduced in a competitive,
service-oriented environment, existing infrastructure will likely become
obsolete.
Growth in the domestic manufacturing and retail segments has given
impetus to the demand for efficient warehouse-management services.
However, warehousing continues to see little investment. Current
spending on organized warehousing in India constitutes 9 percent of
total logistics spending, as against 25 percent in the USA.
Existing small warehouses need to be replaced by large, modern
warehouses that incorporate global standards such as tall designs,
modular racking systems, palletization, and the use of automation and
IT.
The growth of niche industries will likely necessitate value-added
services such as cold-chain warehousing, packaging and track-andtrace services.
Existing infrastructure needs to be upgraded to increase throughput.
For example, average containers handled per ship per hour is 18 in
India as compared to 28 internationally. Further, the average distance
traveled per truck per day is 200 kilometers, which is half the
international standard.
Trade would require commodity- and geography-specific storage and
transportation

assets.

Without

these,

the

industrys

investment

potential in other parts of the economy is likely to face roadblocks.

54

BIBLIOGRAPHY
Babu, N. S. C. (2007), Presentation at The 6th AFIT Plenary Conference Program,
October 22-23, Tokyo, Japan
Deloitte (2012), Intermodal and Multimodal Logistics Knowledge Paper
Ebtc (2010), Non-Tariff Barriers in the Transport and Logistics Sectors: India
India Juris (2012), Logistics and Multimodal Transport: Laws and Foreign
Investment in India
Mehrotra, V. (2003), An Economic Cost Benefit Analysis of Internal and External
Warehouses in Food Retail Industry, MIT
Pankaj Chandra, Nimit Jain, The Logistics Sector in India: Overview and Challenges,
W.P. No.2007-03-07, March 2007
Sanyal, S (2006), A Guide to Global Logistics and Freight Forwarding, Hindu
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Tungatkar, S. (2011), Indian Logistics Industry, November
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International Journal of Physical

Distribution and Logistics Management

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