Opinion

Impact of logistics industry on economic growth amidst a pandemic

Updated on: Aug 27, 2021

India’s logistics sector has changed rapidly and is undergoing a digital transformation | Photo Credit: William_Potter

How digital transformation revived this $200-billion supply chain backbone of India

“Beware of little expenses, a small leak will sink a great ship.” An ordinary quote by Benjamin Franklin holds great relevance in the strategy that one follows for the economic growth of a country. India’s poor logistics traditionally has been the leak that reduces the competitiveness of our industries. India’s logistics cost is estimated to account somewhere between 13-14 per cent of the GDP. This compares poorly with the cost of 7-8 per cent for developed economies.

One of the key reasons for poor productivity is the lack of automation in logistics. India is a labour surplus and capital deficit country, thus it is much cheaper to deploy labour than to invest in say a forklift, conveyor belt system, or on hand-held computers. Despite the overall high logistics costs, service providers struggle to earn profits and are often replaced for the slightest cost differential. On a whole, there is a lack of a premium for technology-driven, automated logistics processes over traditional ones.

Low investment in tech

Investment in technology has been at a much lower level in India when compared to many developed nations. The pandemic increased business pressures, further eroding the investment capabilities of logistics companies. Paradoxically, given the success of India’s technology industry, logistics providers are unable to find technology resources such as data scientists, robotics specialists, operations research experts, etc.

But change is in the air and India’s logistics industry is becoming organised and technology-driven. Currently, India’s logistics sector is valued at $160 billion and employs over 22 million people directly. It is expected to grow at a CAGR of 10 per cent to $215 billion by 2022.

According to the reports published by Statista Research Department, the market value of warehousing by 3PL (Third Party Logistics) in India is estimated to reach almost $6 billion in the fiscal year 2025, from $2.1 billion in the fiscal year 2018. The surge is similar even in the transportation industry. The market value of transportation by 3PL is estimated to reach almost $12 billion in the fiscal year 2025, from $3.5 billion in the fiscal year 2018.

Infrastructure boom

India is also in the middle of an infrastructure building boom. The government’s National Highways Development Project aims to expand the country’s current expressway network of 2000 km and plans to add 18,637 km of greenfield expressways by 2022. The Bharatmala project is aiming to construct 83,677 km of highways by 2024.

But it is the Digital Transformation that is silently underway and will re-define Indian logistics over the next decade. There is now an entire generation of start-ups focussing on solving India-specific logistics issues deploying state-of-the-art technology.

Also, the government has pushed digitisation in a major way through initiatives such as E-way bills, Fasttag, E-invoicing, GPS-based toll, etc.

The falling cost of technology such as Cloud computing, GPS trackers, IoT sensors now enables even smaller logistics companies to modernise their systems. Even a newly started logistics company can avail itself of world-class technology at a very low monthly cost.

Logistics companies can easily integrate their systems with larger logistics companies or their customers to offer real-time visibility of inventory and shipments. This democratisation of technology of a large swathe of the logistics sector has the potential to leapfrog India’s logistics ahead of many peer economies and even developed economies.

Green logistics

One of the key trends for future growth will be the emergence of Green Logistics. With India targeting Net Zero emissions across sectors, Logistics companies will need to reduce their carbon footprint at the same time and grow rapidly. Digitisation will also help in many ways.

For example, India is introducing GPS enabled Toll to ensure zero wastage of fuel and resultant emissions across hundreds of Toll Plazas. Modern logistics parks are built with solar rooftops and sell carbon-free electricity rather than consuming it. E-commerce companies have committed to delivering 30 per cent of shipments using Electric Vehicles.

India is poised for massive growth in the logistics sector. Pandemic has accelerated the adoption of digital technologies and set the stage for the future. India needs a thriving and efficient logistics sector to achieve its growth targets, and digitisation is central to delivering the same.

The writer is CEO and Founder, WebXpress.

Published on August 27, 2021
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