Managing logistics needs an innovative integration of international best practices and equipment, as well as comprehensive knowhow of local regulations, writes Adarsh Hegde.
One of the biggest challenges for our country is to sustain its economic growth and recover swiftly from the global uncertainty is to reduce the transaction cost of doing business. This key economic variable defines as to how easy or difficult it is to move products, materials, resources, equipment, projects etc, within or to/from India. It plays a crucial role in defining the strategy for any private as well as public enterprise to make its operations competitive.
In the gamut of our economic structure, there are key industries which will sustain India’s growth and productivity in the coming decades. These are power, oil and gas, engineering, petrochemicals, steel and infrastructure. Transaction costs for domestic as well as international companies operating in these vital sectors play a crucial role in efficiently managing and operationalising these projects. These sectors in turn fuel segments of the economy, ie, manufacturing specially for exports and imports, thus contributing to India’s competitiveness.
Government over the last decade has initiated major projects spanning roads, ports, economic zones etc, supported by various policies to address this challenge, but at its own pace. To overcome this challenge, many leading international as well as Indian companies across the sectors have realised the benefits of integrated logistics to reduce the much important transactional costs of their businesses. A case in point is, there is a paradigm shift in the way companies today leverage coastal shipping in India as a medium of transportation than the much congested road or the volume demanding rail network. The leaders in the key sectors mentioned above utilise global engineering expertise and equipment to move projects in the hinterland of India. International players specialising in these services are now operating in collaboration with Indian companies, thus bringing in the much needed technical knowhow in managing mega projects new to India. Thus, logistics management across industries in India today is driven by shift in perspective towards international practices customised to India, than anything else.
Better logistics management
For a private or a public enterprise to capitalise on the market opportunity of India, it will have to define its logistics value chain as one seamless function. The prevailing model of contracting with more than a dozen varied service providers, forwarders, transporters, warehousing services, etc, is what is driving up the transactional costs of operations. Globally, logistics integration has redefined operational costs, control and time management. In India, leading companies have already tuned their operations to embrace this philosophy. More and more companies across industries are looking at expertise from an integrated service provider, having the global engineering expertise, state-of-the-art equipment, exposure, international network and experience in India to lead their logistics.
Role of technology
Technology has to be seen holistically for understanding its value. In the entire value chain of logistics, especially in India, technology is useful for tracking, controlling and managing efficiency. But the role of technology is not limited to computers only. Technology also plays a crucial role in developing a world-class infrastructure to facilitate seamless movement of cargo. Managing the global expertise locally, through seamless processes, is also technology. The absorption of this aspect of technology will eventually define success or failure of companies, in terms of their operational efficiency while operating in India.
India vs international
Many of the international trading hubs, as in the likes of Singapore, Dubai, China, countries in Europe and even across the US, the infrastructure has always preceded policies. Thus logistics in those countries has always been for easier and better in terms of roads, connectivity to and from ports, rail, warehousing etc. Foreign players thus in their evolution, naturally focused their resources on technological and process-driven advancements in logistics. In India, infrastructure has always followed by policies or economic demand, mainly due to our unique demography and also socio-political regulations.
Thus, managing logistics in India is a different ball game all together. It needs an innovative integration of international best practices and equipment, as well as comprehensive knowhow of local regulations. The entire value chain needs to be efficiently managed to leverage the best of monetary as well as intellectual resources. The logistics model for India will eventually be a combination of varied aspects of movement. It could be coastal shipping over rail or road transportation, usage of international equipment to move heavy cargo from port to destination or vice versa, utilising better equipped CFS or ICDs located near the ports or rail terminals across India’s strategic locations for minimising the turnaround time. Most importantly, international best practices in developing innovative engineering and project logistics solutions, which will redefine their cost competitiveness and project implementation strategy across key sectors such as power, oil & gas, petrochemicals, alternative energy etc.
Proper logistics management
Movement of raw materials, plants, machinery, components, and finished products from their origin within the geography or to/from international hubs to its destination or the location of final consumption is the most important variable for creating cost competitiveness. Especially for an economy like India where logistics costs comprise 14 per cent of our GDP as compared to 8-9 per cent in developed economies, it has the most direct impact on the margin. Controlling and managing this crucial variable will directly impact a company’s performance not only in terms of profitability but also in terms of strategic business value. Projects will be implemented within set timelines from conception to implementation, while operations will not be affected due to non-availability to raw materials or spares.
Delays will be curtailed thus improving the cycle of revenue generation. Key infrastructure projects in hinterlands will not get delayed due to transportation challenges from port to the location. Thus integrated logistics management cuts across the value chain of any business, thus is one of the most important variables for sustaining competitiveness not only in costs but also in market share.
As one of the largest multinationals in the integrated logistics space spanning 89 countries, we see opportunity in the sector not only in India, but also across APAC, the Middle East, and African, European and the American continent. Various trade agreements between these regions and globalisation at an unprecedented scale has created the need for professional and integrated logistics. These opportunities will also come with local or regional challenges, which can be overcome through innovative use of technology, domain expertise, world-class infrastructure and processes.
India has ceased to be a market only for itself. Today, it is emerging as a preferred global trade hub. Historically, India’s embrace of global best practices have been more reactive than proactive. Today, the economic landscape is redrawn by international companies entering India, investing in key sectors, bringing in technical knowhow, thus demanding better quality and better managed processes. To compete and satisfy their need, Indian companies have no other option but to remould themselves to utilise the opportunity. The challenge to win the profitability race is to manage the critical function such as logistics efficiently which directly impacts the bottom line.
Logistics in India in coming years will be more integrated than just operate as silos. Due to integration benefits more and more companies will embrace its utility and tune their requirements accordingly.
The opportunity in India will drive professional and innovative companies from the logistics space to acquire international entities specialising in niche services, thus boosting India’s competitiveness and drastically reducing transactional costs of doing business in/through India. The booming economic trend will for sure need considerable support in terms of policy framework from the government. The most fundamental of all could be a dedicated ministry for logistics in India, to give the much needed attention to this sector.
The author is Executive Director, Allcargo Logistics.