Indian logistics costs at global high

Quoting an industry report, Bhairavi Jain, executive director, Transmart, noted that logistics costs in India are estimated at over Rs 4.5 trillion, growing at a CAGR of 8 to 12 per cent.

Jain was speaking at an interactive seminar on logistics parks organised in New Delhi on May 23 by the CII Institute of Logistics, a centre of excellence established by the Confederation of Indian Industry. She said that logistics is estimated to cost India almost 13 per cent of its GDP, as compared to 11 per cent in Japan, 10 per cent in Europe, 9 per cent in the US and 17 per cent in China.

In her welcome address, Dr. Sarita Nagpal, deputy director general, CII, said that infrastructural development should go hand in hand with an improvement in logistics. She highlighted that the concept of logistics parks, which she said would usher in a revolution in the Indian logistics industry.

Around Rs 1.2 trillion is spent on warehousing alone. “If we add up inventory carrying and order processing costs, then India spends 57 per cent of its total logistics spend -- Rs 2.45 trillion on inventory management." she said. While road freight volumes have grown at almost six per cent per annum in the past decade, industry has grown at almost nine per cent per annum in the past 10 years.

Earlier speaking during the inaugural session of the seminar, Dr. C B S Venkataraman, IAS, Joint Director General of Shipping, Government of India, said India still has a long way to go in the field of logistics. He added that the existing high costs of logistics means that consumers and (in the case of the automotive industry, OEMs) are paying more and producers are getting a lower price for their goods. Briefly put, high logistics costs adversely affect a company’s profits. Nevertheless, it is not a lost cause; he said and assured the gathering, which comprised executives from various industries that he would convey the concerns highlighted during the session to the relevant ministries in the government.

Meanwhile, the Hyderabad-based Amarthi Consulting used the occasion to release its report titled, ‘The future of multi-modal logistics parks in India’. The study outlines how best India can improve the logistics industry to bring in a multiplier affect. It showcases the industry growth scenario, best practices, and looks at all the logistics players in India.

Ajay Chopra, CEO, Drive India Enterprise Solutions Ltd (DIESL), an associate company of Tata Industries and Tata International and one of the leading supply chain management organisations in the country, which provides warehousing and distribution solutions to both Tata and non-Tata companies, urged the government to accord industry status to the logistics industry in India. In his opinion, the Indian logistics market is slated to record an annual growth rate of around 8-10 per cent till 2015 and domestic logistics service providers should improve their logistics linkages if they are to benefit from this growth. If India is to match logistics operations in developed countries, the way ahead is through speedy development of logistics parks, well planned warehousing and IT initiatives. He also called for key policy initiatives for the industry – like exemption of excise duties, reduced delivery times, and improved support facilities, among other steps.

Logistics as an enabling force

Delivering the theme address, Sudhir Rangnekar, event chairman and the former director of SCI, stated that logistics should not just be perceived by companies as a means of reducing costs; instead, it is a strategic enabler designed to streamline workflow and ensure optimal inventory levels. While he acknowledged the fact that in recent year’s substantial improvement has been made in the sector in India and that the private sector has made much headway, nevertheless much needs to be done if Indian logistics are to match the best logistics standards in the world.

A case in point is the poor quality of roads in India, he said, referring to a World Bank report. While the size of some of our infrastructure looks impressive given that it has 63,000km of railway track, 128 airports, and 187 non-major and intermediary ports, the road network itself needs fast-paced development to keep up with growth in freight movement.