Inefficiencies, poor infrastructure plague logistics sector

India’s ranking slipped to 46th in the 2012 World Bank’s Logistics Performance Index, which measures logistics efficiency and is now recognised globally.

Five years ago, India was ranked 39. The drop in ranking is a matter of concern for the country, which is expecting a lot of foreign investment across sectors that require an efficient logistics system.

A country’s ability to trade globally depends on its traders’ access to global freight and logistics networks. And the efficiency of a country’s supply chain (in cost, time and reliability) depends on specific features of its domestic economy (logistics performance).

Better overall logistics performance and trade facilitation are strongly associated with trade expansion, export diversification, attractiveness to foreign direct investment and economic growth, says the World Bank. Based on a global survey of freight forwarders and express carriers, the Index is a benchmarking tool developed by the World Bank that measures performance along the logistics supply chain within a country.

Allowing for comparisons across 155 countries, the Index helps countries identify challenges and opportunities and improve their performance. The World Bank conducts the survey every two years.

‘weaknesses’

Expressing concern on the low ranking, the Union Shipping Minister, Mr G.K. Vasan, recently in Chennai, said that it “reflects some weaknesses in our logistics system.” Logistics cost in India is high at 13-14 per cent of GDP compared with 7-8 per cent in developed countries.

India is emerging as one of the world’s leading consumer markets. It expects to sustain strong growth over the coming years and strives to become one of the top three economies in the world by the middle of the century. The logistics sector plays a major role in supporting this cause and the connectivity and convenience in operations is key for sustaining global trade growth.

Mr Vasan said that infrastructure development was essential for the growth of an economy. Logistics infrastructure covering road, rail, waterways and air network is the backbone of the economy. An ideal situation would be to have adequate infrastructure capacity riding on which the various modes could form a logistics chain for seamless flow of goods and services. “The current situation offers us a springboard from which the Indian logistics industry can take a giant leap,” he said.

Several complexities

Mr Vishwas Udgirkar, Senior Director, Deloitte India, said the low ranking is matter of concern. In the era of globalisation, Indian products will lose the competitive edge if not backed by efficient logistics support.

Despite holding promise, the logistics sector in India remains mired in several complexities which could hold it back. These include significant inefficiencies in transport, poor condition of storage infrastructure, a complex tax structure, low rate of technology adoption and poor skills of the logistics professionals. There is still no multimodal solution. Warehousing is still considered as a real-estate than a logistics service. Pending resolution of the Goods and Service Tax has hampered the warehousing industry. Optimisation by pooling of infrastructure has just started, but has a long way, he says.

exim volumes

According to Mr Srinath Manda, Program Manager, Transportation and Logistics Practice, Frost and Sullivan — South Asia, Middle East and North Africa, the situation becomes more of a concern when India’s performance is evaluated along with frequently compared economies of China, Russia and Brazil — together commonly referred to as BRIC. Each of the other nations has enhanced its rank, while India has declined.

China improved its rank from 30 in 2007 to 26 in 2012; Brazil from 61 to 45; and Russia from 99 to 95.

A detailed evaluation of the performance by category reveals that India’s ratings on logistics infrastructure, international shipments, logistics quality and competence declined significantly. This indicates that the scale and pace of development of logistics infrastructure has seriously lagged behind the required pace and standards, and that growth in international trade shipments has also been below the desired/expected levels. Severe congestion at major seaports resulting in significant delays in cargo clearance as well as vessel turnaround times may also be a reason for slower growth of export-import (EXIM) volumes.

Solution

Above all, it also indicates that improvement in quality standards of logistics services and competence of the country’s logistics sector participants is lagging behind when compared with global standards, he said.

India needs an accelerated development of logistics infrastructure; focused measures to push up EXIM volumes by the Government and serious initiatives to improve competencies and quality of services by logistics sector participants are the need of the hour to avert this decline on global logistics performance, said Mr Manda. The government needs to bring about rapid development of national highways, dedicated rail freight corridors, cargo capacity and capability to accommodate larger ships at sea ports. The Government should also work together with various industrial consortiums to enhance business scenario and EXIM competence of our industries. Logistics service providers need to improve their competencies by investing in infrastructure and technology, gaining skill sets, and adopting best practices from developed logistics markets, he said.

According to Mr Udgirkar of Deloitte, there is a need to create an environment to graduate the Indian logistics market to provide value propositions in logistics solutions. Also, the capability of the Indian logistics industry to provide such solutions should be increased.

The Government and other regulatory mechanisms need to provide an enabling environment for value propositions in logistics services, he said.

> raja.simhan@thehindu.co.in

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