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October 04 , 2016

Logistics will play a key role in Make in India

The logistics sector has benefited immensely from the emergence of organised retail, increase in foreign trade, and the Make in India campaign that is aimed at turning the country into a manufacturing hub. Shashi Kiran Shetty, founder & chairman of Allcargo Logistics Ltd tells Ateeq Shaikh that the growth in online shopping, which has so far helped logistics, is set to accelerate in the coming years and will put significant pressure on the sector. This will mean significant investment in technology, quality of people, delivery network to manage small infrastructure, says Shetty. He also discusses the challenges faced by logistics companies due to lack of proper infrastructure, which increases the logistics cost in the country to around 10-15% as compared to 3-4% for other countries. But Shetty believes that India still has a big opportunity. The implementation of GST will open up a plethora of opportunities for the logistics players and make inland transport more cost effective.

 

Q) What are the strengths and weaknesses of third party logistics (3PL)?

A. To list out, strengths are the improving end-consumer services provided. Secondly, third party logistics immensely helps companies in reducing their capital investment and among the last points, it improves the overall efficiency. The disadvantages are the need to share confidential information with the 3PL service provider and difficult to establish a cost-effective partnership.

 

Q) With e-commerce sector mushrooming, how has the logistics changed in the country and how much has it has contributed to the overall industry growth? How do you see the sector evolving in the coming years?

A. India's e-commerce market is likely to touch $38-billion mark in 2016, a massive jump over the $23 billion revenues clocked by the industry in 2015. E-commerce will contribute to 70% of their total revenue. Online shopping is picking up fast in all the major cities. With increasing penetration of the Internet and mobile commerce, online shopping is expected to penetrate into tier 2 and tier 3 markets. This growing demand will put significant pressure on logistics - to ensure that the right product is delivered in the shortest time at the lowest possible cost. This will mean significant investment in technology, quality of people, delivery network to manage small infrastructure (good quality warehouses). Logistics companies need to create operating models, infrastructure which can scale up during seasons and scale down during non-seasons.

 

Q) In India, the overall logistics costs remain high as compared to global standards. What are the reasons? How can the costs be reduced? What measures are needed from the industry players as well as from the government?

A. As a country, we are facing trade deficit as China is our largest trading partner and their economy is not doing well. India has been facing its ripple effects. But, we are bracing up and are well placed to meet domestic demands as well as demand from the other countries. In fact, logistics will play an important role in Make in India. India's poor infrastructure has been a challenge. But the new government is addressing it with new initiatives. The results will take some time to show. GST will also help as stoppage and fuel consumption should help in removing bottlenecks.

 

Q) Despite various initiatives like Make In India, law reforms, ease of doing business, developing waterways, dedicated freight corridor, etc, the manufacturing sector is still struggling. How has it impacted the logistics industry?

A. The Indian logistics sector has benefited immensely from the emergence of organised retail, increase in foreign trade and India becoming the manufacturing hub. However, it continues to face challenges due to lack of proper infrastructure which is one of the major deterrents to its growth. The infrastructural bottlenecks increase the logistics cost of the country to around 10-15% compared to other countries where it is only 3-4%. Besides, the lack of trained human resources is another challenge for the sector. Saying that, with the current impetus of the government, we believe that India still has a big opportunity compared to other countries.

 

Q) How will Goods & Services Tax change the dynamics of the logistics industry?

A. At the moment, a majority of India's logistics challenges are related to wastage of time, fuel and investments due to multi-level taxation, regulations, policies and approval mechanism between different states. Today, from a business perspective, each state is a different country when it comes to moving EXIM (export/import) cargo or any other product within India. The implementation of GST will not only bring efficiencies across all the businesses but will also open up a plethora of opportunities for logistics players like us. For logistics players like us, the introduction of GST would allow us to aggregate state-based warehouses into large, regional warehouses that offer cost and operational efficiencies in big markets. As logistical inefficiencies and primary transport costs reduce, the hub and spoke model will proliferate, improving service levels. This will make inland transport more cost effective. GST is expected to facilitate removal of check posts at state borders, which will cut travel time and aid faster road freight.

 

Q) What kind of growth is anticipated with the implementation of GST?

A. The key verticals benefiting from GST would be our vertical of contract logistics and logistics park that is Avvashya CCI and our logistics park project at Jhajjar. With the GST becoming reality, we expect to substantially improve the efficiencies in our contract logistics business segment and transportation & equipment business in terms of transportation turnaround time, lesser number of check post and operational expenses rationalisation, fewer number of warehouses by the companies, keeping in mind purely the commercial thing rather than the taxes of the different states.

 

Q) With the changing scenario in the logistics sector in India, what will be the share for logistics for each mode of transport - road, rail, air, and inland waterways by 2020?

A. Many research reports claim numbers. Given the current fragmented state of logistics, it is difficult to comment on the exact percentage. However, with the government announcing various initiatives in almost every sector, we are confident that each of the segments will witness significant growth opportunities in the coming years.