15 January 2024 – The Indian Express

Indian Logistics Industry

• The logistics industry in India has experienced tremendous growth and scrutiny in the last few years. Metrics such as the Logistics Performance Index (LPI) have been used to monitor India’s progress. In 2023, it ranked 38th out of 139 countries, up from 54th in 2014.
• Organising, coordinating, storing, and moving different resources—people, inventory, raw materials, and equipment—between multiple places, such as production sites, consuming areas, distribution hubs, and other production sites is known as logistics.

The Logistics Performance Index (LPI): What is it?

About:

• The World Bank Group created the LPI, an interactive benchmarking tool. It assesses the structural elements that enable dependable supply chain connections as well as how simple it is to develop them.
• It assists nations in determining the possibilities and obstacles they encounter in their trade logistics performance as well as what they can do to enhance it.

Setting parameters:

The LPI uses six criteria to assess logistics performance, which are as follows:

• Customs demonstration
• Infrastructure calibre
• Shipment arrangements are simple.
• Quality of logistics services
• Monitoring and tracing of consignments
• Shipment timeliness
• From 2010 to 2018, the LPI was released every two years, with a pause in 2020 because to the Covid-19 pandemic. In 2023, the index methodology underwent a revision.
• For the first time, LPI 2023 analyses the pace of trade using metrics generated from large databases tracking shipments, enabling comparison across 139 countries.

What Has Caused India to Perform Better in the LPI Rankings?

PM Gati Shakti Proposal:

• A comprehensive National Master Plan for multimodal connectivity, the PM Gati Shakti programme was presented by the Indian government in 2021. By 2024–2025, the main goals are to lower logistical costs and promote economic growth.

National Logistics Policy 2022:

• The National Logistics Policy (NLP), introduced in 2022, is intended to support the Gati Shakti Initiative by guaranteeing prompt last-mile delivery, addressing transportation-related issues, reducing time and expenses for the manufacturing industry, and improving overall logistics sector efficiency.
• It aims to achieve a top 25 LPI ranking by reducing logistics costs to worldwide norms.

Development of Infrastructure and International Shipments:

• India’s infrastructure score has improved significantly, according to the LPI report; it went from 52nd in 2018 to 47th in 2023, a five-place jump.
• International shipments have improved as a result of government investments in hard and soft trade-related infrastructure, which links port gateways on both coasts to important interior economic hubs.

Technology’s Place in Improving Logistics:

• Technology is essential to India’s continuous attempts to improve the efficiency of its logistics system. A public-private cooperation has enabled the government to establish a platform for supply chain visibility.
• End-to-end supply chain tracking is made possible by NICDC Logistics Data Services Limited’s deployment of radio frequency identification tags, which significantly reduces delays.
• According to the survey, modernization and digitization are causing rising economies like India to overtake more developed nations.

Enhancement of Dwell Time:

• Dwell time, which is a measure of how long a ship or cargo stays at a particular port or terminal, demonstrates how India’s logistics performance has improved.
• With only 2.6 days, the nation has a remarkably short dwell time. Remarkably, from May to October 2022, the mean duration of container habitation in Singapore and India was three days.
• It outperformed developed nations like Germany (10 days) and the US (7 days).

What Problems Does India’s Logistics System Have?

India’s Logistics Costs:

• The Economic Survey 2022-23 estimates that logistics expenses in India range from 14-18% of GDP, greater than the worldwide norm of 8%.
• Previous studies from 2018 and 2020 show differences in the cost of logistics between ports and put the total cost of logistics in the Indian supply chain at over USD 400 billion, or 14% of GDP.

Methodological Difficulties in Logistics Cost Estimation:

• There are methodological issues with measuring logistics costs, especially when expressed as a proportion of GDP.
• There are discrepancies in the data because some sources report logistics costs as a proportion of GDP without providing any justification, whereas the Dun & Bradstreet approach computes operating expenses as a percentage of consignment value.

The NCAER Report on Logistics Costs and Estimating Methodologies:

• A detailed estimation technique is provided by a December 2023 NCAER report on logistics costs in India.
• The paper includes a range of estimates from academic and commercial sector sources, indicating differences.
• According to the NCAER research, logistics costs in 2021-22 were anticipated between 7.8% and 8.9%, indicating a drop over time, with a temporary spike in 2017-18 and 2018-19.

Unbalanced Modal Mix:

• With 65% of goods transported by road, road transport makes up a large portion of India’s goods transportation modal mix. As a result, there is now more traffic, pollution, and rising logistics costs on the highways.

Rail Freight Share Loss:

• Because road transport is more convenient, trains, which are more economical, are losing freight share to more adaptable modes.
• The Indian Railways confront a number of infrastructure-related issues, including inadequate terminal facilities, poor shed and warehouse upkeep, an erratic supply of waggons, and a lack of all-weather routes because a sizable portion of the nation is inaccessible to railways.

Tax & Warehousing Inconsistencies:

• Warehouses allow logistics companies to store items and transport them closer to customers as demand arises. This is why most of them choose to use warehouses. It facilitates a shorter transit time.

What Position Do India’s States Hold in the Logistics Industry?

Logistics Driven by the State:

• States have an impact on logistics, and according to perceptions, the Ministry of Commerce & Industry’s Logistics Ease Across Different States (LEADS) study divides states into achievers, fast movers, and aspirers.
• 75% of the world’s export cargo comes from coastal states like Andhra Pradesh, Gujarat, Karnataka, and Tamil Nadu, which perform better than Goa, Odisha, and West Bengal.

Logistics Policies at the State Level:

• The majority of states have state-level logistics policies, Goa included, as does Odisha. But West Bengal, the least developed state along the coast, doesn’t have a logistics strategy.
• In order to boost productivity and draw in investments, the LEADS 2023 report recommends that West Bengal create a State Logistics Master Plan and State Logistics Policy.

Differences in Performance Between States:

• Although overall, India’s logistics performance has improved over time, there are differences between the states.
• A few states have underperformed, which highlights the necessity of continual efforts to improve state-level logistics efficiency.

State Categorization and the LEADS 2023 Report:

• States are divided into coastal, landlocked, northeast, and union territories in the LEADS 2023 study, which offers a detailed perspective on logistics performance.
• States with average performance are represented by those classified as fast movers, underscoring the significance of nomenclature in recognising varying degrees of accomplishment.

What steps can be taken going forward to enhance India’s logistics industry?

Using Cutting-Edge Technologies:

• The adoption of technology-enabled solutions, including blockchain, big data, cloud computing, and digital twins, has expanded globally as a result of recent supply chain disruptions and growing concerns about sustainability.
• Even while adoption is still quite low in India, the government has introduced a number of digital solutions, like E-Logs and ICEGATE, that have sped up the movement of products, decreased inefficiencies, and increased transparency.

Emphasis on Ecological Transportation:

• Although more work has to be done, India’s shipping and logistics industry is progressively adhering to national and international laws governing sustainable practices.
• Leading international benchmarks such the Emissions Trading System, Carbon Intensity Rating, and Energy Efficiency Existing Ship Index must be met by the industry.

Getting Investments and Interest from Investors:

• The main funder and advocate of infrastructure development has been the Indian government. However, more work needs to be done to include business and industry.
• One such lever that is anticipated to generate investment of INR 50 lakh crore (about US$650 billion) is the National Infrastructure Pipeline (NIP).
• Even though most projects to develop transport infrastructure are permitted to accept 100% FDI, significant work will be required to achieve the intended results.

Way Forward:

• India’s logistics industry is ripe for expansion, and the government is working to foster a climate that would support this growth with various programmes and legislation. Online commerce has brought about a paradigm shift in logistics patterns, opening up new opportunities such as last mile, middle mile, on-demand, and hyperlocal delivery models. The industry is predicted to keep developing and adapting to shifting market conditions, and technology developments will be vital in determining the direction the industry takes in the future.