The next decade or so will see India becoming efficient in managing its logistics cost as the need for world class logistics increases with the expected growth in the economy, says Thomas Tieber, CEO-South Asia, DHL Global Forwarding, in an interview with Sumantra Das.
Which are the factors responsible for high-cost logistics in India? What things should get priority to bring Indian logistics sector at par with global standard?
The cost of logistics in India is much higher compared to that in mature markets. According to a KPMG report, the logistics business is at around 13-14 per cent of GDP in India, compared to 9.5 per cent in the US and 7.15 per cent in Europe. Several factors are responsible for these high costs; railways, roads, ports, airlines and warehouses are the major players in the $125 billion logistics space. The unorganised sector accounts for a majority of this business, comprising truck owners, warehouse operators and freight forwarders.
Additionally, higher fuel costs, delays at clearance points and unproductive documentation add to inefficiencies. Most of these issues are being addressed and over the years, a lot of efforts have been put into improving the efficiency of logistics in India to curb the spiralling costs associated with it. DHL on its part has been working closely with various authorities to present its own point of view on how Indian logistics can be brought 'up to speed' with the rest of the world. The next decade or so will see India becoming efficient in managing its logistics cost as the need for world class logistics increases with the expected growth in the economy.
In a detailed report titled 'Building India: Transforming the nation's logistics infrastructure', McKinsey & Company has suggested drawing up a National Integrated Logistics Policy (NILP) which will target a greater share of rail, reduce economic waste and improve energy efficiency. No doubt, implementing this would be a complex task given the multiple stakeholders within the central and state governments, but with immense benefits to the country.
Do you think despite the growth of the retail sector, integrated value-added services and reverse logistics have not yet been explored for big supply chains in India?
In a market like India, we see new opportunities emerging as a result of the dynamic changes in the business environment here. In retail, for example, the industry in India is poised for some rapid growth and changes. With the share of organised retail increasing we see an increase in global sourcing of various commodities. The Indian 3PL market is set to grow tremendously in the next 5-7 years, spearheading the growth of the logistics market. As Indian industries strive to achieve efficient logistics and supply chains to cope with the competitive pressures and market demands, the 3PL service providers, who own the expertise and infrastructure to efficiently manage logistics are proving to offer suitable solutions for their needs, resulting in a huge growth of Indian 3PL market.
Automation and the use of technology are not affordable for small logistics service providers. Given this situation, what would be the way out? Can only bigger players survive in long run?
Small logistics service providers will have to evolve according to the needs of the industry. Adoption of newer technologies will only help smaller logistics service providers to integrate large supply chains and provide value by becoming the last mile connectors for larger logistics service providers. The larger players in the industry have an edge but smaller providers are very much needed and help in creating value at the lower end of the supply chain.
Why is loading and unloading inefficient in our ports? How much is the Transport and Logistics (T&L) industry losing by way of slow turnarounds?
It is not just loading/unloading, but several inadequacies which are constraining India's growth by adversely impacting user industries. For example, India's exports could be rendered less competitive on account of higher transit times and lower reliability.
The logistics industry in India is highly fragmented and unorganised. The current infrastructure in India is already overstrained. Many large ports are already operating at very high utilisation rates. India's logistics network is not equipped to manage a two-and-a-half fold increase in freight traffic expected by 2020.
The Indian government has, in the last decade, substantially increased its outlay in building logistics infrastructure, initiating several major projects. However, with most of the country's network being built prior to Independence, it is inundated by inadequate planning which has resulted in the shortfalls we see today. India's logistics infrastructure delivery is characterised by high costs and low service levels compared to other countries which make it lag behind its global peers.
However, there is a growing demand for world-class logistics services and with the gradual improvement in infrastructure, India can adopt best-in-class practices and be far more competitive in the global market.
Being a global leader, how will you describe the present condition of India's intermodal logistics modes for transport networking and distribution?
India's transportation is a legacy of colonial rule. As a result, India's logistics infrastructure is not adequately equipped to meet the rapidly rising freight traffic, changing consumption patterns and increasing numbers of manufacturing centres. Additionally, India's economic growth will only put greater pressure on an already strained network.
There is a definite interest in investing in this industry with logistics having been identified as a key enabler of the India growth story. It is important that the current skewed utilisation of transportation which is adding to inflating costs, be corrected to arrive at the best possible selection of transportation modes in order to facilitate the smooth movement of cargo and reduce congestion. There is an urgent need to improve the prevailing infrastructure; the average distance covered by a truck in India is 200 km, which is half of international standards. At Indian sea ports, on an average, ships handle 18 containers every hour, compared to 28 internationally.
Do you think warehousing and rail-road interfacing are major issues concerning sustainability and transport costs?
In India, road has become the dominant mode of transport. However, to meet the demands of growing freight traffic, a shift to more economically a well as environmentally suitable modes is essential, ie, waterways and rail. It is also important to use the right modes of transport. This balanced modal approach would lead to lower transportation costs, achieve greater efficiency and be more environment-friendly. Developing last-mile infrastructure and multimodal logistics parks would undoubtedly be the way forward to ensure objectives of infrastructure development are not only met but will open up several new opportunities for industry as well.
As a concept, Free Trade Warehousing Zones (FTWZ) offer significant value-addition opportunities to multiple industries by virtue of being deemed foreign territory. DHL Global Forwarding was the first global logistics company to operate a facility within the FTWZ that offers customers the benefits of a duty-free zone with high quality infrastructure. Our FTZ facility in Tamilnadu spanning a total land area of over 260,000 sq ft is strategically located along the main freight and industrial axis with close proximity to ports, major roads and rail services. It is widely believed by industry experts that with excellent infrastructure, mechanisation and regulatory incentives, the FTWZ model offers significant potential to save costs in the overall supply chain.
Is lack of specialised training and education hampering country's logistics growth?
Demand for requisite skills is increasing at a very rapid pace, as the economy and trade continue to develop. Currently there is an acute talent shortage and these skills need to be developed through internal on-the-job training programmes, reinforced by certification courses which should be developed with the involvement of industry.
DHL has just recently conducted Scope 2013 in association with IIT Bombay where it engaged with students from leading B-schools across India and Dubai. Such events will help in engaging with the alumni and get bright students interested in a career in the logistics industry.