This week : Logistics
B-Gyan – The Business Interaction Committee of NITIE
presented a session on - Logistics Industry in India: Challenges & Entrepreneurship
Opportunities. Mr. Rajesh Pednekar , Head - Distribution, Pfizer Ltd and
also an Alumnus of NITIE, IM-1st Batch was the speaker who graced us with
his presence on 30th June, 2012. He spoke at length on the logistics
and supply chain sector deriving from his experience of more than 15 years in
the industry. The points that he stressed on have been listed below.
The Scenario in
Indian Logistics Industry -
The annual logistics cost in India is estimated to be 14% of
the GDP. To be exact it is USD 140 billion assuming the GDP of India to be USD
1.6 trillion. Out of this USD 140 billion logistics cost, almost 99% is
accounted for by the unorganized sector. By unorganised sector we mean owners
of less than 5 trucks who are affiliated to a broker or a transport company,
small warehouse operators, customs brokers, freight forwarders etc. Close to 1%, i.e. approximately USD 1.5 billion
is contributed by the organized sector. So, one can see that the logistics
industry in India is in a nascent stage. However, the industry is growing at a
fast pace and if India can bring down its logistics cost from 14% to 9% of the
GDP (which is currently the level in the US), savings to the tune of USD 50
billion will be added as surplus at the current GDP level, making Indian goods
more competitive in the global market. Moreover, growth in the logistics sector
would lead to improvements in service delivery and customer satisfaction
leading to growth in the export of Indian goods and also add to the potential
for creation of job opportunities.
Figure here shows logistics cost as a percentage of GDP for
different countries.
The Challenges faced
in Logistics Industry in India -
For any country, the annual logistics cost varies between 9%
and 20% of the GDP, the figure for the US being about 9%. In India as stated
earlier it stands at 14%. Logistics is a high-cost, low-margin business. The
organized players compete with unorganized players who don’t have to stick to
norms or pay taxes for that matter. The
organized sector that contributes slightly more than 1% of the logistics cost,
is highly fragmented. Existence of the differential sales tax structure also
brought in diseconomies of scale. Failure in implementation of a uniform VAT
structure across different states also compounds the problem. Indian Logistics
Services Providers (LSPs) have to pay numerous other taxes, octroi etc. and
face multiple check points and police inspection. High costs of operation and
delays involved in compliance with varying documentation requirements of
different states make the business unattractive. A study shows that on an
average a vehicle on Indian roads loses 24-48 hours in complying with paperwork
and formalities at different check posts en-route to a destination. Thus, it
can be noted that as a result freight cost is a major component of the cost of
a product in India. The unwillingness to outsource logistics on part of Indian
shippers may be attributed to scepticism about the possible benefits and also
about the perceived risk. Poor physical
and communications infrastructure is another deterrent to attracting
investments in the logistics sector. Road transportation accounts for more than
60% of inland transportation of goods, and highways that constitute 1.4% of the
total road network, carry 40% of the freight movement by roadways. Low penetration of IT and lack of proper
communications infrastructure also result in delays, and lack of visibility and
real-time tracking ability.
Entrepreneurship
Opportunities in Indian Logistics Industry -
Since logistics service can be provided without assets,
there is growing interest among entrepreneurs to venture into this business.
Indian shippers are gradually becoming more aware of the benefits of logistics
outsourcing. They are now realizing that customer service and delivery
performance are equally important as cost to remain competitive in this global
economy. The Indian economy is growing at over 9% for the last couple of years
(compared to the world GDP growth rate of 3%), which implies more outputs and
more demand for specialized logistics services). Hence there is an opportunity
to be tapped if we are ready beforehand. Plus there is a vast area to be
explored in warehousing as well.
Some Important
lessons that one can take –
If India is to compete with BRICS then it has to strengthen
its supply chain industry and logistics so that the actual benefit of a growing
manufacturing sector can be capitalised upon – Vivek Prakash, PGDIM-19 student
at NITIE.
There are plenty of opportunities waiting to be tapped in
the logistics sector. We can focus on improving Indian Railways as a carrier of
goods. Plus the modernisation of airports and freight terminals will attract
more entrepreneurial activity in this domain. Then we would need managers well
versed in logistics and supply chain that will get the maximum benefit out of
the improved scenario. – Rahul Kaushik, PGDIM – 19 Student at NITIE.
For more on the speaker one can visit his linked in profile:
http://in.linkedin.com/in/rajeshpednekar
Picture courtesy –
glslogistics.co.uk
