COVER STORY
Reforms driving
COST
OPTIMISATION
in Logistics CARGOCONNECT CONNECT - OCTOBER 2017 16 CARGO
COVER STORY
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Logistics and supply chain is one of the most crucial sectors that are also highly unorganised. Impacting the economy in and out, logistics cost increasing through the course of years is a serious concern to ponder upon. India ranks 35th in the logistics performance index across all the countries globally. To understand the loopholes in the system of logistics which comprises of rail, road, air and ocean cargo supply chain, Sheena Sachdeva brings an exclusive story to highlight the need to decrease the logistics cost of the country.
OCTOBER 2017 - CARGOCONNECT
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COVER STORY
INSIDE UNDERSTANDING THE PROCESS OF LOGISTICS IN INDIA INFRASTRUCTURAL CHALLENGES GALORE OPTIMISATION TECHNIQUES IMPORTANCE OF LABOUR IN LOGISTICS DIGITISATION AFFECTING LOGISTICS COST
L
ogistics is one of the most pivotal pillars for functioning of an organisation. Further, it is a universally acknowledged fact that the cost of logistics is very high in India. Some estimates put it at about 13 per cent of GDP, which is higher than the US (9) and Germany (8). A study by Assocham-Resurgent India (2016) stated that the country can save $50 billion if logistics costs reduce from 14 per cent to 9 per cent of GDP. Reduced logistics costs would bring down prices of products also. But the question is why it is so high? Cost optimisation and efciency improvement in a logistics service providing organisation is a structured and scientic exercise, which requires a transformative approach towards business. Some of the organisations directly go for straight cost cutting without proper analysis in order to reduce final pricing or improve EBITA (Earnings before interest, tax, depreciation and amortisation), may get short term relief but in long term it creates problem in some way. For a logistics service provider nature of business is not centralised or concentrated within four walls. Logistics is a business of spread and reach. Due to which there are high chances of revenue leakages, poor efciency and cost controls. In a business transformation exercise for EBITDA improvement, organisations need to have a deep dive evaluation of both - revenue and cost stream.
GSTFICATION IN
Understanding the process of Logistics in India
LOGISTICS
Indian logistics sector has come a long way to its current growth state. But still the industry has various loopholes which need to be addressed. Logistics is one of the most important basic need industries require for their economic growth, as it is the management of the ow of products from the place of their origin to the place of their consumption, thus the industry also involves the integration of material handling, warehousing, packaging, transportation, shipping security, inventory management, supply chain management, procurement, and customs service. The global logistics industry mainly comprises a complex range of freight and cargo related transportation sectors, such as shipping, warehousing, courier, and road/rail/air freight. According to report from C and M Research, the total global logistics market reached a value of about $4 trillion in 2013, representing an almost 10 per cent of global GDP. The global transportation services market is fastest growing sector with more than 7 per cent year on year growth since 2011, now it is expected to generate a revenue of 3.8 per cent trillion in 2017. The US currently accounts for more than a 42 per cent of global transportation services sector. Over the next few years the global logistics market will see the growth in demand away from traditional Western economies to the emerging markets of China, India and other Asian countries.
FUTURE OF LOGISTICS INDUSTRY IN INDIA
18 CARGOCONNECT - OCTOBER 2017
LOGISTICS COSTS (% OF GDP) UNITED STATES
8.20% EUROPE
9.20% ASIA PACIFIC
13.50% SOUTH AMERICA
11.90% INDIA
13.00% Source: CIA, World Bank, Armstrong & Associates
COVER STORY
Logistics costs will go down with the help of multiple parameters like developing the ability to map demand accurately, undertaking infrastructure enhancements, developing technology tools, along with managing order visibility, quality of service, timely supply and timely delivery. Shrirang Bapat – General Manager - Marketing, United Parcel Service
New and comprehensive analysis of data on the current routing of goods in India has positioned the country to break through its freight transport gridlocks and logistics inefficiencies. With a growth rate of more than 7 per cent since 2014, India is the fastest growing major economy in the world. But as a share of its GDP, its logistics costs for moving freight are as high as 14 per cent of GDP, markedly more than the 8–10 per cent for most advanced economies. The gap arises from excess costs generated by inefciencies in the transport system, greater costs of storage and inventory and procedural delays. Closing that gap would give a major boost to India’s growth prospects. Studies of logistics
improvements in advanced economies have shown that, with sufciently detailed data on freight flows, targeted interventions in specic corridors and subsectors can enable transformational changes in freight logistics performance. Researchers and logistics experts from the World Bank and few Universities have assembled and modeled such data for India, identifying bottlenecks and opportunities for more strategic investment and collocation of activities to achieve production synergies and lower the costs of logistics and trade. • Labour costs associated with customer relations (where there is a return, there may be an unhappy customer who must
be appeased) • Customer service labor costs (identifying warranty eligibility, determining what return and credit rules apply in each individual case) • Transaction costs • Transport and shipping costs • Warehouse and storage costs Transportation services form a third of the cost of a logistics chain. Improving transportation would require the coordinated development of railways, roads and waterways. Roads carry about 60 per cent of the freight cargo in India. As Rail transportation is more energy efcient than road, movement of goods via the road-cum-rail mode could reduce
Logistics Performance Index PARAMETERS
INDIA
UNITED STATES
CHINA
Logistics Performance Index (LPI), 20141
Score: 3.08 (rank: 54/160)
Score: 3.92 (rank: 9/160)
Score: 3.53 (rank: 28/160)
Logistic cost as % of GDP
13%
8.5%
18%
Major challenges
63%
Auto components, Pharmaceuticals Cement, Textiles Inadequate road network Loss during transportation
● ●
Sources: Multiple sources (World Bank database, JLL Research, etc.)
20 CARGOCONNECT - OCTOBER 2017
18%
22%
29%
Transport Warehousing Others
Major industries driving the logistics sector
3%
8%
Different sectors’ share of the logistic cost
52% 67%
45%
Food processing and beverages e-commerce ●
High employee cost
Metals, Electronics, Cement Textiles High toll charges Shortage of trained manpower ●
●
COVER STORY
The logistics cost of the country is 13-14 per cent of the GDP. The indirect tax system in India is not only complex with various taxes applicable to an industry but also widely seen to be bungling and difficult. With the oncoming of GST, logistics cost will surely come down drastically.
Dr John Joseph, Director General, GST Intelligence
logistics costs considerably. UPS is one of the leading organisations across the world in logistics sectors. While dealing with the challenges specifically in India, Shrirang Bapat – General Manager Marketing, United Parcel Service informed, “Logistics costs will go down with the help of multiple parameters like developing the ability to map demand accurately, undertaking infrastructure enhancements, developing technology tools, along with managing order visibility, quality of service, timely supply and timely delivery.” Sumit Sharma, Co-Founder, GoBOLT as one of the startups in Logistics sector highlighted , “Demand is a problem in many of the developed countries, but managing that demand has been the biggest challenge in India. And so, the logistic sector is helping in managing the demand of supply chain, where it manages the ow of things from the initial stage to the nal stage of consumption in order to meet the requirement of the corporations. Increasing in the flows of transportation has been thus a fundamental component of modern changes in economic systems at the global, regional and local scales.” Vikram Mansukhani, Head – DIESL (3PL Division of TVS Logistics) opined, “Logistics professionals need to fundamentally be change-agents for the supply chain of their companies or their customers. Very often the way a logistics contract is drawn out, the ‘negotiation’ focuses primarily on the rupee per km/kg that is directly saved at the transaction level. The focus on looking at an end to end solution that is based on removal of constraints of all stakeholders in the supply chain is seldom given the attention it deserves. Another important consideration that is oft forgotten is to look at the entire 22 CARGOCONNECT - OCTOBER 2017
supply chain cost rather than just allowing the last mile to bear the brunt.” Vijay Kumar, Chief Operating Ofcer, Express Industry Council of India added few specific points in air logistics and how can cost be reduced in this vertical of logistics. He informs, “In air logistics high costs are largely due to high cost of infrastructure. Airport space infrastructure is
COST OF TRANSPORTATION (` PER MT PER KM) ROAD TRANSPORT
2.28 RAIL TRANSPORT
1.41 WATERWAYS TRANSPORT
1.19
s e t a i c o s s A & g n o r t s m r A , k n a B d l r o W , A I C : e c r u o S
prohibitively expensive. One of the ways this can be brought down is right at the tendering stage instead of the airport operators setting a reserve price for royalty share and lease rents and then the bidders bidding high on those, it would have been better for the growth of the industry and the economy if the tender is set based on the maximum TSP charges that can be levied by the prospective operator at
the terminal on offers, as against the cost plus model currently in place. Secondly, the costs to the service provider and his users can also be brought down if Air Freight Stations are permitted to be opened. The reason why AFS have not taken off is due to high costs of transfer of import shipments from tarmac to AFS and for export shipments from AFS to aircrafts. Thirdly, in the case of international express terminals, costs can be brought down if the airport operators provide space directly to the express terminal operators both for common user and dedicated facilities.” Huned Gandhi, Managing Director, Dachser India Private Limited, “Efciency in the transport chain and better road infrastructure would certainly help. India would also need to develop the waterways, both inland and coastal, for the efficient carriage of freight along with an increase of dedicated rail corridors to link major industrial towns and cities to the ports. These measures would certainly help to reduce logistics costs and to make us competitive. The GST has been a welcomed reform, as the time which is lost at border check posts and octroi posts are now being reduced, making the transportation of goods more efcient and competitive.” Vikash Khatri, Founder, Aviral Consulting opined, “Logistics and supply chain is becoming complex day by day on the other hand competition is intensifying. In such scenario each organisation tries to innovate to improve efciency and reduce their cost of supply chain by way of redesigning the network, optimising warehouses and transportation, alignment vendor base, introduction of automation and technological tools etc.
Infrastructural challenges galore Speaking of high logistics costs in India, we
COVER STORY
Logistics professionals need to fundamentally be change-agents for the supply chain of their companies or their customers. Very often the way a logistics contract is drawn out, the “negotiation” focuses primarily on the rupee per km / kg that is directly saved at the transaction level. Vikram Mansukhani, Head – DIESL 3PL Division of TVS Logistics
have a few concerns which continue to keep the logistics expenditure higher than global market standards. The first and foremost concern is the inefficient infrastructure which is in dire need of reform. This includes our roads, railway network and but to mention the air freight parcel management efficiency across airports. Our custom clearance processes and duty structures are also extremely complex and the warehousing industry is inching towards a transformation only now with GST in place. Studies suggest that annual logistics cost in India is valued
of roads (3.83 million km after US’s 6.43 million km); National Highways form only 2 per cent of the total roads by length and carry about 40 per cent of the trafc. About 80 per cent of the roads in India are village roads. The road sector is signicant to India’s Transportation Segment as it accounts for nearly 65 per cent of the freight and 85 per cent of the passenger trafc in the country. This sub-segment is highly fragmented, with the truck operators owning less than five trucks estimated to account for over 75 per cent of the truck fleet. It is estimated that 10 per cent of the Transportation Warehousing market belongs to Inventories Others (incl. losses) those with 6-10 trucks; 4 per cent India 35% 9% 25% 31% to those with 1115 trucks; 3 per cent belongs to those with 16-20 China 50% 25% 15% 10% trucks; and only 4 per cent of eet belongs to those US 49% 9% 24% 18% with more than Source: KPMG Analysis 20 trucks. This at INR 6,750 billion (US$ 135 billion) and it industry is also characterized by intense is growing at 8-10 per cent annually as per competition which is the result of relatively various researches. As said earlier, Logistics lower capital requirement, ease of obtaining cost by value accounts for around 13 per cent driving licenses and permits. The small of the GDP of India – this is much higher than operators are not in a position to perform that in the US (9 per cent), Europe (10 per functions of aggregating, handling, delivering cent) and Japan (11 per cent) but lower than of cargo and marketing. Besides, they do not that in countries such as China (18 per cent) have the geographical reach and necessary and Thailand (16 per cent). In particular, the infrastructure to tap business on a continuous percentage-wise share of transport cost (an basis, and thus rely on brokers. The hub and spoke distribution system important constituent of total logistic cost incurred by a nation) by value of GDP has enables optimisation of costs and higher revenues for the transport companies and been steadily increasing. As per ENAM logistics research report, eet operators. These transport companies India has the world’s second-largest network generally have formal contracts with the 24 CARGOCONNECT - OCTOBER 2017
users, which is very rare in the case of small operators. Warehouse lands which have continued to be barely utilised in an efficient way beyond plan storage spaces are now reforming into structured and properly planned infrastructure units which are only now beginning to realise the value of technology and more sensible scientific approach towards efficiency enhancement all of it is what reduces the side kicks and undesirable shares in between which once removed is bound to bring the overall logistic expenditures down. GST is expected to further enhance the scene with removed tolls and multiple document related bribes which were early prevalent. However, this has yet to show its full vigour in times to come. The outset of lead times for truck movements have comfortably reduced by about 15 – 20 per cent which in turn means lesser fuel consumption and better price point for customers. Gurpreet Singh Gill, Regional Head, Samsung SDS, informs about his perspective, “The roads across India are being developed gradually but from what I observe, the pattern is slow compared to other countries and that’s owing to multiple reasons. One, the quality of construction material is not good enough to have the road sustain for long, hence by the time a road is constructed, some part of it is already deteriorating. The average truck speed and distance travelled per day is nearly 1/4th which is much lesser than in developed countries.” Rail freight was always expected to be what drives most economies in terms of cost scalability and secure movement of cargo not to forget the reduced carbon footprint. It is now that nally few private rail operators and also the government after continuous
COVER STORY
In air logistics high costs are largely due to high cost of infrastructure. Airport space infrastructure is prohibitively expensive. One of the ways this can be brought down is right at the tendering stage instead of the airport operators setting a reserve price for royalty share and lease. Vijay Kumar, Chief Operating Officer, Express Industry Council of India
solution emphasis – part rail and part road or in other cases part rail/road/ water all combined as was adopted by few automotive companies for moving their vehicles from up West to South for distribution. It’s great for controlling cost and equally does well for reduced carbon footprint. The road transport and highways ministry is looking to raise INR 15,000 crore from Employees’ Provident Fund Organisation (EPFO) to fund its ambitious highway construction programme. The ministry plans to issue National Highways Authority of India (NHAI) Container traffic as % of overall traffic bonds to the EPFO in three 70% 71% 73% tranches at an interest rate of 8.3 per cent per annum. 54% 50% 51% 51% 52% 53% The amount raised is expected to be deployed for highway expansion and bypass construction projects. Speaking of Sagarmala, the centre’s coastal connectivity project, Source: KPMG Analysis Sagarmala, is not just an opportunity for big companies like Adani Optimisation Techniques Estimate of the modal movement of cargo Ports and Special Economic Zone, Essar, AP highlights that in India nearly 60.2 per cent of Moller, and J M Baxi, but also for behindthe cargo is moved by road, 32.1 per cent by the-scenes contractors such as Louis Berger, rail, and rest by the coastal shipping, airways Aaecom India, and CH2M Hill India. Port and inland waterways. Improved transport development requires a lot of construction infrastructure, optimised warehouses work such as developing jetties, platforms, with more robotics and better warehouse and berths, and these create business for management technology, simplified tax and such rms, according to a shipping ministry duty structure, better technology adoption and ofcial. Port infrastructure and ICD and rail enhancing the skill and competency level of operator companies have been gearing across our labour should take Indian logistics forward the Sagarmala and that has denitely begin making change to the way global industry into the league of world leaders in logistics. This brings the most efficient solution looks at Indian ports., these organizations of all and that is what few private players are definitely in for biz opportunity yet at have successfully done. It is multi-modal the same time are contributing immensely push by the industry voices is realising that rail freight has to be reduced and routing/ visibility must be optimised to improve the distribution map in India. This alone will make signicant impact. Costs should come down for railway and the benet must be passed on to the industries which until now have been bearing over 60 per cent of their international logistic spend for ocean exports/ import into dry ports across the country contributed by rail freight which we in logistics terms call inland haulage.
26 CARGOCONNECT - OCTOBER 2017
by developing world class infrastructure to change the way world looks at Indian logistics infrastructure. It is good for the investor organisations as a private player and for the government and Indian industries as a whole too. “RoRo” trains have been run earlier by the Railways with existing wagons on nonelectried routes. However, the service cannot be operated on electrified routes due to insufcient clearance from overhead traction wires. With accelerated electrication being planned by the Railways, such services need to be run on electried routes as well. Thanks to the higher fuel efficiency of railway movement, a back of the envelope calculation suggests that if 45 trucks with a gross weight of 40 tonnes each were moved by a train over 1,000 km, the total saving in fuel costs would be INR3 lakh. Movement by rail would be faster and the saving in lower transport and inventory costs would benet the consumer. The example is illustrative, but points out the huge potential which exists. To divert traffic from road to ‘road-railroad’ mode, the Railways would have to take a number of steps in coordination with road operators and container companies. The actions to be taken by the Railways could include: (i) designing a suitable wagon for the “Roll on Roll off” trains, which would move trucks on at railway wagons on electried routes for a major part of their journey; (ii) identifying routes where high- value and timesensitive cargo can be moved efciently; (iii) providing advance information to the industry about routes where additional capacity is being created; and (iv) providing a guarantee about transit time for the consignment. The earning per tonne from a container is higher for coal, which constitutes 50 per cent of the Railways’ freight trafc. In the last four
COVER STORY
Efficiency in the transport chain and better road infrastructure would certainly help. India would also need to develop the waterways, both inland and coastal, for the efficient carriage of freight along with an increase of dedicated rail corridors to link major industrial towns and cities to the ports. Huned Gandhi, Managing Director, DACHSER India Private Limited
years, the earning per tonne from container trafc has grown at a CAGR of 8.3 per cent as compared to 3.8 per cent from coal. This is a pointer to the higher revenue which can be earned from moving high-value and timesensitive cargo. However, compared to a container or “RoRo” train, a coal train carries 1.5 to 2 times the volume of cargo, yielding higher revenue per train.
use of fossil fuels and increasing the share of renewable sources in power generation, the earlier trafc projections of most of the DFCs are likely to undergo a downward revision. The Dedicated Fre ight Corridor Corporation of India (DFCCIL) should plan to develop logistics parks as points for aggregation/disaggregation of cargo for movement by DFC. Logistics parks planned by the Ministry of Road India cold chain market size Transport and Highways would also be ideal 33 35 350 points for interface of 29 30 cargo between road and 26 300 23 25 T rail modes. n 250 20 o i l M These parks should l i M B 20 i n 200 R ideally be developed y N t I i c n 15 a along the alignments of i 150 p e a u l C the DFCs and corridors a 10 V100 identified by the 5 50 Railways for movement 115 134 175 228 298 of containers and “RoRo” 0 0 2010 2011 2012 2013 2014 trains. Cargo moved by inland waterway Capacity (MMT) Value (INR Billion) transportation (IWT) Source: National Summit on Cold Chain; Associated Chambers of Commerce and Industry of India would provide similar (ASSOCHAM) & Tech Sci Research opportunities. To increase volume of cargo carried per A container train from Delhi to Mumbai container train, the Railways has already travelling on DFC could cover the distance announced a pilot project for running double- in 24 hours. A truck would take minimum stack low-height containers (6 feet 4 inches of three days. The Railways could provide tall, instead of the normal 8.5 or 9.5 feet) on transit guarantees at least for the traffic electried routes which would increase the moving on the DFCs. This would create cargo carried by 55 per cent. Similarly, heavier customer confidence and a substantial trailer trucks could be carried on railway volume of road trafc could migrate to “roadwagons. Routes for running these trains rail-road mode”. Vikash Khatri added, “For a Supply chain would have to be identied and advertised. The Dedicated Freight Corridors (DFC) company infrastructure cost may be Capex of the Railways was designed mainly for or Opex. Selecting a right mix is the rst step heavy haul cargo such as coal. With the of the process. Most of the LSP go for opex Government’s present emphasis on reducing in major categories and that is recommended 28 CARGOCONNECT - OCTOBER 2017
as well considering the nature of business. However, Vehicle Hiring cost for most of the LSP is a challenge, as market price of hiring keep on changing and vehicles are required across the geography based on customer requirement.
Importance of Labour in Logistics Labour in India is considered to be among the cheapest in the world. However the safety standards, regulations and compliance adherence for logistics industry is also among the lower ranks. Even countries such as the likes of Bangladesh have been surpassing India over the last few years in both labour quality and quantity with price competitiveness which is reflected in the rapid shift of business volumes for manufacturing to our neighbor especially skill based enterprise like retail and textile. GDP and inflation are inversely proportional to the rise in labour prices. Current situation of Indian economy with respect to labour standards and cost of living does not look too great. Also the lack of skilled labour has been a problem forever. Keeping such circumstances in mind, I feel it is imperative to drive the shift towards efcient automation and machine utilisation. Another aspect is the fact that labour across factories, warehouses, trucking industry have a different understanding of business from their limited exposure to the overall supply chain. The truck drivers’ interest is to stay on the long for long days to ensure better wages. The labour in the factory is keen to do more hours of shift and get higher wages. Likewise warehouse employees would prefer to undertake daily activity in such a manner so as to ensure their daily wages/monthly pay packages are supplemented by beyond duty hour compensations. The concepts of trade
COVER STORY
Logistics and supply chain is becoming complex day by day on the other hand competition is intensifying. In such scenario each organisation tries to innovate to improve efficiency and reduce their cost of supply chain by way of redesigning the network, optimising warehouses and transportation, alignment vendor base, introduction of automation and technological tools etc. Vikash Khatri, Founder, Aviral Consulting
Unions and local unions of truckers and labour at different regional levels is another challenge. All of the above constitute towards a huge loss of time, energy and eventually money for the organisation. First and foremost the projects have to be brought from paper to practice in a faster time bound responsible manner. Education, sanitation and well being of the labor involved in the industry of logistics
“Our industry uses technology in a big way, both at our customer facing operations as well as at our ground and air hubs. Technology enables us to optimise efciencies. Express Delivery Service providers are among the largest employment providers.” Sanjiv Edward, Head Cargo, Delhi International Airport (P) Limited , with immense experience and knowledge adds,
Cost efficiency for different modes of transport 120
105
100 l e u f f o e r t i l r e p
80
80 60 40
25
20 0
Inland Water
Rail
Road
Source: Multiple sources (NITI Aayog, Govt. of India, JLL Research and REIS, etc.) have to be paid heed. It may sound like a bit of an investment but it has vital gains to offer to industries in return and may help to wipe a few vices and make our logistics infrastructure more efcient. Eventually it’s the people who run business from top to bottom. Machines, technology and better roads alone can’t do about half as much.
Digitisation Affecting Logistics Cost With the utilisation of technology, logistics cost can be curbed. Kumar from EICI opined, 30 CARGOCONNECT - OCTOBER 2017
“Since decades, technology has played its pivotal role in shaping the logistics industry. Simultaneously, several studies have also revealed that industries across the world, including logistics industry, are still facing the challenge of replacing 100 per cent manual labour by technology. Yes, technology can play a prominent role in replacing the manual labour in logistics industry and can also prove to be a cutting edge solution by transforming its overall Transport Management System (TMS).”
Given are few points that give brief about the logistics process across the country: 1. Decrease in Costly Errors: Logistics automation features such as integration of commodities via ERP system and access to address book, as well as automatic storage and entry of fuel surcharges and accessories. These kinds of manual data entry errors will lead to increased logistics costs such as having to pay twice or paying a higher freight rate due to entering an incorrect commodity freight classication. 2. Availability of Transportation mode choice and Real Time Freight Rates: To combat rising transportation costs, the logistics automation features in TMS makes it easy for users around the country to execute policies that deliver immediate freight savings. 3. Increased Customer Service: With logistics automation features in TMS such as real time freight tracking, auto pick-up, proper insurance and freight accounting built to custom specications, customer are empowered to know exactly how much the freight will cost and when the freight will arrive at its destination through automatic notications. 4. Access to Real Time Freight Data and Analysis: By accessing the real time freight data and the ability to run reports, a better business decisions can be taken based on the trends and history. 5. Organisational Control: Technology empowers to have strong control over freight management, freight costs, and risk, by using the TMS’ rules engine, which is based on optimised plans and routing guides. In short, the strategic use of technology can prove to be an enabler not only in
COVER STORY
The roads across India are being developed gradually but from what I observe the pattern is slow compared to other countries and that’s owing to multiple reasons. One, the quality of construction material is not good enough to have the road sustain for long. Gurpreet Singh Gill, Regional Head - Supply Chain and Logistics S olutions, Samsung SDS
Total Investment Proposed in 12th Five Year Plan - USD 892 Bn* I n
v -
U S
D
1
4 ROADWAYS 6 B n
12th Plan target- 1,000
Investment of about INR 9.14 trillion is proposed during the 12th Five Year Plan
New schemes for roads in Rural & North East areas
km of expressway; 10,000 km of NH; 19,200 km of road up gradation
I n
v -
U S D
1
0
2
RAILWAYS 9 B .
Daily carrying 30 Mn passengers in over 19,000 trains
Increase Rail freight share by 2% till end of
Attracted FDI worth INR 349.4 billion till
12 Plan
May, 2014
th
Investment of INR 6.43 trillion
during 12th Five Year Plan
n
I n
v -
U S D
3
1 . 6
SEA PORTS B n
Increase port cargo handling Capacity to 3200 MT by 2020
Capital Dredging of 14 m by end of 12th Plan
100% FDI in construction & maintenance of ports & harbours
Investment of INR 1.97 trillion during 12th Five Year Plan
I n
v -
U
S
D 1 4
AIRPORT B n
AAI targets to bring 250 operational Metro
airport till 2020
USD 81 Bn
100% FDI for
investment to upgrade non-metro airports
greenfield airport
Investment of INR 877 billion
during 12th Five Year Plan
I n
v
-
U S D 2
POWER
9 1
. 2 B
6th Largest in the
world in Power Generation
Energy generation capacity (Sept, 2013) - 228.7 GW
Further planned to add 88.5 GW by 2017
Investment of INR 18.2 trillion
declared during 12 th Five Year Plan
n
reducing the labour cost but also the operational cost in logistics industry in India. At the same time, it will also provide an impetus to the industry by enhancing its 32 CARGOCONNECT - OCTOBER 2017
efciency and eliminating wastage. Bapat from United Parcel Service further added, “There are a few things that cannot change, for example, moving a package from
point A to point B means depending on the relative technological advancement in that country either at point A or B – depending on that labour maybe replaced by technology
COVER STORY
Technology can play a prominent role in replacing the manual labour in the logistics industry and can also prove to be a cutting-edge solution by transforming its overall Transport Management System (TMS).
Sanjiv Edward, Head Cargo Business, Delhi International Airport (P) Limited
tools.” In scenarios, which involve manual checks or decision making, machines may not replace humans. Gandhi from Dascher informed, “The heart of logistics remains the physical movement and storage of goods. People who help to complete these tasks will always be the determining factor. New technology is used to work more productively.” Mansukhani from DIESL thinks, “Technology needs to be perceived as an enabler of discipline, scalability and clearly
e-waybill would be a dampener. That will increase transaction costs due to operational inefficiencies that would set in as well as substantial compliance costs. Transaction costs in logistics could be brought down if there is minimum documentation that GST and Customs authorities demand.” Edward from GMR said “It is a universally acknowledged fact that logistics cost in India is very high. Logistics cost are 25 per cent in the case of Agri produce, and 13 per cent
Cum. Grade A & B Warehouse space in 8 Primary Locations 120.0
t f q 100.0 s n M n i e c 80.0 a p S g n i s 60.0 u o h e r a W B 40.0 & A e d a r 20.0 G
116 97 79 63 37
45
53
0.0 2010
2011
2012
defined accountability rather than just as a replacement for manual labour. In my view, technology can only be deployed after a thorough study of the existing process having been at a mature stage of deployment and acceptance.”
GSTfication in Logistics The historical tax reform, GST has brought shackles in the logistics industry as it is the most affected industry. Kumar from EICI added, “GST should be a game changer for decrease in transaction costs. We have already seen efciencies in some states with removal of check posts. However the introduction of 34 CARGOCONNECT - OCTOBER 2017
2013
2014
2015E
2016E
on an average for Electronic items, which further goes up for Pharma, Biotech and other produces, while the global average logistic cost is only 6-7 per cent. As per market research, the current wastage of produce caused by inefcient logistics system in India is equal to 4.3 per cent of its total GDP.” Mansukhani said, “With GST being implemented and state borders being dissolved to a large extent, the time is ripe for Indian logistics to fast track usage of inland waterways to tremendously bring down the cost of inland haulage. This mode is not only cost effective but would also tremendously bring down the pollution levels caused by
traditional on land transportation.” Dr John Joseph, Director General, GST Intelligence seems quite optimistic. He said, “The logistics cost of the country 13-14 per cent of the GDP. With the oncoming of GST, logistics cost will surely come down drastically.” The indirect tax system in India is not only complex with various taxes applicable to an industry but also widely seen to be bungling and difcult. Another aspect of the system is that taxes are non-creditable moreover due to restriction in the law or because there is no compatibility between central and state levies. In addition to this, a result of multiple applicable levies, the charge engaged in the making of goods, sale of goods and provision of services has to fulfill with payment, reporting and review required under such special tax authorities. The GST system has put down to renovate the present indirect tax rule with the purpose of addressing the above-mentioned issues. For many who think GST has increased the cost of every item today, should know that the recent GST has brought the cost of logistic sector fall down by 5-10 per cent. For the rst time, the logistic sector has got the right platform, where they are appreciated and supported for the cost conscious market.
Future of Logistics Industry in India Logistics industry of India must look at newer avenues to have a sustained growth. Long term solution to be worked upon for development of integrated multi-model logistics zones to compete with World’s major logistics market like Hong Kong, Singapore, Dubai etc and gain a foothold by focusing on the following points: 1. Localising Logistics Zones in an area as close as possible to economic and industrial activities and with convenient
COVER STORY
Demand is a problem in many of the developed countries, but managing those demand has been the biggest challenge in India. And so, the logistic sector is helping in managing the demand of supply chain, where it manages the flow of things from the initial stage to the final stage of consumption in order to meet the requirement of the corporations. Sumit Sharma, Co-Founder, GoBOLT
BEFORE GST IMPLEMENTATION
AFTER GST IMPLEMENTATION
Manufacturer in State X (SP = C + P = 100)
Manufacturer in State X (SP = C + P = 100)
Sale Through Small owned WH in State Z
Direct Sale
A
State X + VAT
B
State Y + CST
C
+ VAT
X
Y
Z
SP = 104 + P - ITC = 110
SP = 104 + P = 114
SP = 104 + P - ITC = 110
+ VAT
+ VAT
+ VAT
X1
Y1
Z1
+ GST DISTRIBUTORS
+ VAT
RETAILER
X2
Y2
Z2
FP = 128.96
FP = 124.8
Z
+ VAT
+ VAT
Y1
Z1
SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110
+ VAT
FP = 124.8
Y
SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110
SP = 114.4 +P-ITC = 120 SP = 118.56+P-ITC = 124 SP = 114.4 +P-ITC = 120 + VAT
Sale to Multiple States through Single Big Regional Warehouse
D
+ VAT CONSUMER
Above Flow chart shows 3 supply chain scenarios. A: Sale to distributor in the same state as of manufacturing | B: Sale to distributor in state other than state of manufacturing and C: Sale to distributor in state other than state of manufacturing but via Manufacturer’s small warehouse in the distributor’s state. FP to the consumer is maximum in Case B due to application of CST. In order to reduce FP, manufacturer sells the product through owned small warehouses in the state of sale which will result into multiple small warehouses across country.
+ VAT
Y2
Z2
FP = 124.8
FP = 124.8
After implementation of GST, warehousing structure is expected to Restructure. Case D shows sale of the product to multiple states through a single Big Regional Warehouse without increasing FP to the consumer. This will eliminate presence of multiple state warehouses which will further optimize operational cost by implementing state of the art technologies and modern equipments in WH
Abbreviations and assumptions: VAT = Value-added tax (4%); CST = Central sales tax (4%); GST = Goods and services tax (4%); ITC = Input tax credit; SP = Selling price; FP = Final price; C = Cost (INR 90); P = Profit (INR 10) | Note: The cases shown above use the same VAT and CST tax percentage across different states in order to explain the concept. Taxes vary across different Indian states. Application of the type of taxes at different levels of sale is shown at each level. The current Indian taxation system does not allow tax collected under CST to be adjusted against subsequent tax collected under VAT, as taxes under CST go to the central account and taxes collected under VAT go to the states’ accounts.
Railway and Highway transportations. 2. Consolidation of warehousing will provide impetus to the industry. 3. More focus needed on safety/OSHA, which is required in Indian Logistics Industry. 4. The use of IT and ITES including Robotics Technology with strategic mindset can play a remarkable role in giving new shape 36 CARGOCONNECT - OCTOBER 2017
to Indian logistics industry. Digitised automation can lead to sustained TMS (Transport Management System), WES (Warehouse Execution System) and WCS (Warehouse Control System). 5. To save cost, preventive maintenance to be made as an integral part of logistics operations as the reactive maintenance/xes
do not work always and remain costly affairs. 6. Labours’ skill to be upgraded through various strategic training and skill development program me. 7. Creation of regional consortium between buyers, suppliers and forwarder will finally lead to strong base of integrated logistics networking in the country.
