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Seamless Logistics and Related infrastructure:
Challenges and The Way Forward
Logistics is defined as the management of flow of goods between the point of origin and the point of destination in order to meet the requirements of the customer. It encompasses the integration of information, transportation, inventory, warehousing, material handling, packaging, and even security.
India today is one of the fastest growing economies in the world. Over the past decade, it has grown at a CAGR of almost 7.5%. The growth has spurred improvements in infrastructure and helped significantly by increasing private sector participation. Many new ports, roads/highways, airports etc. have been built. India, in fact has the second highest road network in the world (3.3 million kms) after the US. Ambitious projects like the Golden quadrilateral linking the four metropolises of Delhi, Mumbai, Chennai and Kolkata have been planned and executed. In ports too, India has a wide network with 13 major ports and over 200 non-major ports. India is also served by more than 130 airports, as well as the world’s fourth largest rail network of approx. 63,000 kms.
However in spite of all these achievements, if we look at the overall scenario, India's is still lagging behind in its logistics infrastructure. It currently ranks 47th on the 2010 Global Logistics Performance Index calculated by the World Bank. Issues being faced by ports sector relate to the topics like:
- Coastal Shipping which has not yet been leveraged to its maximum and has tremendous untapped potential for becoming a solution to reduce the pressure on current rail and road infrastructure.
- Capacity Constraints being faced by major ports which are highly congested leading to delays and poor turnaround times. As per studies, capacity utilization at major ports during 2005-2010 was in the range of 91-97%. Moreover, the Maritime agenda 2020 spells that the average dwell time at major ports in India was 3.78 days compared to 0.5 days at international ports.
- Low levels of Mechanization has led to poor movement of cargo resulting in overall delay in the logistics chain ultimately increasing the total logistics cost. Average container moves in India are around 20-25/hr and crane rate is 60-70/hr compared to 25-30 and 100/hr respectively for international ports. Moreover, equipments available at many ports are outdated and need replacement.
- Unavailability of Specialized berths has raised yet another barrier for Indian ports. Even today ports in India continue to be dominated by multi-purpose berths, with their share being almost 60% in 2009-10 for major ports. The lack of specialized berths leads to low efficiency on account of higher pre-berthing detention times for vessels again pointing towards their contribution in increasing logistics cost.
- Lack of containerization of cargo leads to increase in time for transfer of cargo in various modes of transport. Container cargo represents only about 30% (by value) of India's external trade; which is something much lower when compared with the global containerized cargo average of 70-75%. Container cargo not only leads to cost savings, but due to ease of transfer between different modes of transportation also leads to time savings.
- Shallow Draft at most Indian ports lead to difficulty of ships being berthed directly at ports leading to slower unloading rate. World over, the trend of using increasingly larger ships in view of economies of scale while shallow draft at Indian ports hinders these large ships from coming to India.
- Low tonnage under national flag has led to increasing dependence on foreign carriers for India’s foreign trade which in turn leads to higher freight costs thus increasing overall sea logistics cost of the country.
- Last mile connectivity is yet not available to most of the ports of the country because of overall poor rail/road connections.
Apart from ports, logistics costs and connectivity are heavily dependent on Road and rail infrastructure. Hinterland connectivity from ports is still not up to international standards. If we look at four lane highways, India just has 7000km, while China has 34,000 km of 4-lane highways. Average truck speed in India is 30-40 kms/hr while it is between 60-80 km/hr in China. Overdependence on roads for freight carriage is yet another issue hampering the smooth logistics operations. Currently 65% of freight in India is carried by roads. This leads to congestion eventually leading to higher costs. Comparing the freight moved by roads in China, this figure is around 30% and in the US, it is around 37%.When we talk about rail connectivity; India doesn’t have a dedicated freight corridor for movement of freight. The same railway tracks are used for both passenger and freight. Again last mile connectivity is lacking for many ports.
The concept of Logistics Parks/Warehousing is not yet adequately developed. In India, approximately 80-85% of the warehouses and godowns are traditionally built with an approximate size of less than 10,000 sq ft used for storage with height of 3-4 meters having single user facilities with poor infrastructure. Most of them are fragmented unorganized warehouses leading to high pilferage and losses. Concept of multi-modal logistic parks currently exists in rarity. In comparison, warehousing companies in USA operate a single facility of 200,000 sq ft with excellent infrastructure and multi-modal connectivity.
Value Added Services for logistics operations like 3PL (third party logistics) and 4PL (fourth party logistics) are yet under developed in the country. 3 PL share of logistics is 9-10% in India compared to 57% in USA. Inefficiencies of infrastructure in India costs the country around 11-13% of the GDP, while in emerging countries like Korea and China, due to adequate rail and port freight capacity, growing levels of containerization, established transportation along with 3PL /4PL services, the cost is around 10% of their GDP. However, in advanced countries like Europe, USA, it hangs as low as 7- 8% of the GDP. India’s logistics infrastructure is still lagging, resulting in comparative disadvantage of approx. $ 45Billion.
Requirements to overcome the issues :
To overcome all these difficulties, the need of the hour for India is developing a focused action plan with proper initiatives and strategies to build seamless logistical infrastructure ensuring door-to-door delivery for the customer in the fastest and most cost-efficient way.
Said it is that "The chain is only as strong as its weakest link". In terms of infrastructure, it can be derived that ports, rail, road, airports, logistics parks and services will have to be developed by viewing them as "an integrated whole", rather than as separate parts.
According to current trajectory, over USD 500 billion is likely to be spent on developing logistics infrastructure in the next decade. Current trends suggest that about half of this will be spent on roads, around 40% on rail, and the rest on waterways, mainly for ports. In order to build economical and environment friendly logistics infrastructure, this step is inevitable.
Ports
To overcome the issues related to the ports sector for creating seamless integrated logistics, following suggestions need to be implemented.
• Coastal Shipping : With India's long coastline of more than 7000 km, coastal shipping holds a lot of potential. If we look at the cost factor, rail transport costs approx. half of what it costs to transport by road and coastal shipping costs about half of that by rail. Thus, coastal shipping is not only a cost efficient mode of transportation, but it also aids in reduction of pollution caused by heavy vehicular movement and congestion. Development of twin ports with similar cargo handling facilities on the East & West Coast could be a first step in promoting coastal shipping. However, even though the idea was first discussed as far back as 2003, very little has been done so far in this regard.
• Capacity : Capacity of the existing ports has to be increased such that utilization rate for major ports is closer to 70% instead of the present figure of around 90%. Maritime agenda 2020 targets the capacity of major ports to reach 1328 million tons by 2016-17 (expected utilization rate of around 77%) and 1459 million tons (utilization rate of 83%) by 2020. These projected utilization figures are still on the higher side. However, if we look at the actual progress, against the capacity target of 741 million tons by 2011-12, current capacity (as of 31/10/11) is 672 million tons, with just 2 million tons capacity being added between April-October, 2011.
• Mechanization : 
A higher level of mechanization and technology is also a need of the hour. Because even at the end of 2009-10, over 66% of dry bulk cargo was handled by conventional means. Average turnaround and pre-berthing times at conventional berths at major ports stood at 7.9 days and 105.7 days as compared to corresponding figures of 5.38 days and 80.96 hours at mechanized berths. The figures themselves reiterate the need of mechanization at berths.
• Draft : Minimum draft of 14-17 meters is the requirement for catering to the modern day ships. But maintaining such depth entails higher spending on capital and maintenance dredging. However, the share of dredging as a percentage of total expenditure for major ports has actually declined from about 15% to 11% during the period of 2005-10. Further, the National Maritime Development Program (NMDP) envisaged a draft of 13-14m at all major ports by 2012. However, only 25 dredging projects were planned under the program. Out of these only 3 of these have been completed as of Oct. 2010.
• Specialized Terminals : Building more specialized terminals instead of just multi-purpose terminals is the trend of the day. However, in 2009-10, only four specialized berths were added at major ports. 2011, though has seen the commissioning of the first phase operations at International Container Transhipment Terminal at Vallarpadam, Solid cargo port terminal, Dahej, Coal terminal at Mundra and Bulk terminal at Hazira.
• Shipbuilding / Ownership : To increase annual tonnage addition, the promising industry of shipbuilding must be encouraged by setting up of cluster based shipyards, with shared resources for efficiencies of scale. Ownership of ships by Indian companies has to be encouraged by offering tax incentives to owners/ Indian lessor companies.
• Last Mile Connectivity : 4-lane road connectivity and double gauge rail connectivity is necessary for all important ports for reducing the overall logistics costs and making the goods reach the end consumers on time. Further, there is a need to prepare a comprehensive connectivity assessment report for each port to be compiled into a comprehensive connectivity plan. This plan can then be placed before the planning commission to be factored into the next five-year plan.