For a nation of the size in terms of landscape and economy of India, logistics plays a very crucial role in its economic development. India ranked 44 in the World bank’s Logistics Performance Indicator (LPI), 9 places lower from its 2016 rank of 35.
Albeit a critical cost driver for all product sectors, there is only sluggish growth in the sector. The logistics cost in India is estimated to be 13%-14% of the GDP compared to USA, Europe, Japan where it is 9%,10%,11% respectively.
In Germany, it accounts for just 8% of the GDP. Germany is now the world leader in the logistics industry ranked 1 in the LPI for 3 consecutive years. The market share of Germany accounts for about 25% of the total of Europe’s logistics market.
Lessons from Germany
The main takeaways for the Indian logistics industry from Germany are:
1. Deployment of the finest transportation infrastructure. The highway network density of Germany is twice the average of Europe.
2. Germany has put in place Freight villages that provide:
• Support services such as cargo delivery points
• Connectivity to the long-distance network without getting enmeshed into the local delivery points.
3. Paper-based inventory is replaced with speech-based inventory picking.
4. Radiofrequency identification reader antennae installed at strategic locations are used to track carts or trolleys, as they travel between the receiving dock and storage areas.
5. Automated image-based scanning of products at inventory centres to have better inventory control.
Bottlenecks in the Indian Logistics Industry
The Indian logistics industry is plagued by low-quality infrastructure facilities such as fleets, storage facilities etc. While a nation like Germany, which is 9 times smaller than India and with population density half that of India spends 1.22 Lakhs Crores on logistics, the budget allocation of India for the whole of the Transport Sector in the year 2020 is just 1.69 Lakhs Crores.
2. Lack of skilled manpower
The industry needs labour with specialized skillsets such as warehouse management, quality control, truck driving etc. to name a few. Given that more than 90% of the sector is unorganized, there is barely any attention given to nurturing the skilled workforce.
The cumbersome paper works of getting the goods transported after complying with several regulatory requirements such as E-way bills under GST etc. hampers the movement of goods. IT systems and EDI (Electronic Data Interchange) facilities are inadequate to foster the functioning of the industry.
4. Inefficient Intermodal Mix
Deploying an optimal mix of transportation mode in such a way that it could reduce the end cost of transportation to the consumers is a necessity for the development of the industry. In India, the mix is skewed with 60% of the transportation happening through roads, which has proven to be inefficient. There is a dire need for proper coordination between the central and state government in facilitating a proper inter-modal mix of transportation and this calls for a separate ministry or a body (such as Central Water Commission in the case of water resources) to administer the logistics industry.
If we break down the LPI in terms of scores of the individual parameters, the major areas where the performance lags are Infrastructure and Customs clearance process.
If the aforesaid loopholes could be plugged, India could witness a major fillip in the overall economic development of the nation.