A

PROJECT REPORT ON

“A STUDY OF LOGISTICS IN INDIA”

Submitted to

NMIMS GLOBAL ACCESS SCHOOL FOR CONTINUING EDUCATION

VILE PARLE (W), MUMBAI, MAHARASHTRA

Post-graduation diploma in management

In

Supply Chain Management

Submitted By: Rakesh Pandey

SAP ID: 77118847188

 ACKNOWLEDGEMENT

Any accomplishment requires the effort of many people and this work is not different. At present,
In Competitive and busy world whomever gives a time to support someone in their research or any
other work is appreciable. An accomplishment requires effort of many people and this project work
is not also different. I can’t express enough thanks to all my colleagues for their support and
encouragement throughout this project work.

I would like to thanks to my friend Mr. Ravi Shashtri (BDM in Hellmann) and my colleague Mr.
Dhiren Rai (Manager Import & Export) for sharing their knowledge and expertise in logistics as
without their support it would have been very difficult to get the deep industry knowlege and
complete my project report .

I am equally thankful to the Prof. Purva Shah whose video lecture on how to prepare project
reports which guided me in formatting and preparing this report.

Rakesh Pandey

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 Table of Contents
Chapter Description Page No.
Title
Acknowledgment 2

Table of Contents 3-4

List of Figures 5

List of Tables 5

Objective and Scope 6

Executive Summary 7

Methodology 8

1.0 An introduction to Logistic Industries in India 9-14

1.1 Introduction
1.2 History

1.3 Logistic in India

1.4 Evolution in Logistic Industries of India

2.0 The Logistics Infrastructure in India 15-29

2.1 Introduction

2.2 Logistic Infrastructure

2.2.1 Transport
[Link] Road Transport
[Link] Rail Transport

[Link] Water Transport

[Link] Air Transport

2.2.2 Logistics Parks and freight Village

2.2.3 Information and communication Infrastructure

3.0 Challenges and growth driver in logistic Industries in India 30-39

3.1 Introduction

3.2 Logistic Performance of India an Overview

3.2.1 Logistics Performance Index (LPI)

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 3.3 Challenges in Indian Logistics Industry
3.3.1 Transport Related Challenges

3.3.2 Issues of Port Sector

3.3.3 Poor Infrastructure

3.3.4 Lack of Skilled Labors and Latest Technology

3.3.5 Tax Structure & Policies Related Challenges

3.4 Main drivers and growth factors for Logistic Industries in India

3.4.1 Infrastructure Development

3.4.2 Policy And Regulatory Boost
3.4.3 Technology

3.4.4 Export Prospects

3.4.5 Strategic marketing

4.0 Bibliography 40

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 List of Figures
Figure no. Description Page no.

1.1 Orientation and Development of Logistics Industry 9

1.2 Percentage breakup of Indian Logistics GDP 11
1.3 Elements of Logistics Cost in India 12
1.4 Logistic Industry in India has evolved with 3 PL from 2PL and 1PL 13
players majorly in last 4 to 5 years
1.5 India’s Logistics Cost w.r.t. other developed countries 14
2.1 Logistics sector split across mode and industry 16
2.2 Distribution of India’s Transportation modes in Logistic Industries 17
2.3 Distribution of truck ownership 18
2.4 Total revenue earning and weightage material transported by 21
Indian Railway (2016-17 & 2017-2018)
2.5 Schematic layout of a door-to-door logistics chain (DB 22
Sc1henker Rail GmbH 2011)
2.6 Number of Ports in India (2008-2018) 23
2.7 Map of Sea Ports of India 24
2.8 Passenger traffic growth of International airports in India 26
2.9 Growth of Air Cargo Traffic in India 27
2.10 List of locations selected for MMLPs in India 28
3.1 LPI Score of India across the Years 30
3.2 Comparison of LPI Score of India with top performer Germany 31
3.3 Comparison of Mean Around time of India with top performers 33
3.4 Indian Warehousing Stock 36
3.5 Impact of GST on Indian Logistic Industries 38
3.6 India’s Digital Adoption Index 38

List of Tables
Figure no. Description Page no.

2.1 Targets vs achievements for road construction (National Highways) 18

2.2 The total length of India's road network by type of road and 20
administering authority.

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 OBJECTIVES

 A study of Logistic Industries in India

 To study the logistics Infrastructure in India
 To study challenges and growth driver for logistic Industries in India

SCOPE

The scope of this project is to study the logistic industries and logistics infrastructure in India and
efforts made by the government and private sectors for improvement.

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 EXECUTIVE SUMMARY

Logistic has a very big impact on the domestic and worldwide economy of any country. The role
and importance of logistic has been elevated in business environments. This report gives an
overview of logistics industry in India. The focus of the report is to study the logistic infrastructure
and the challenges for logistic Industries in India and what are the key factors which can help to
overcome the challenges and boost the Indian Logistic Industry. I have tried to provide the brief
study of Indian Logistic infrastructure and what steps are taken to improve them by the government
or private sectors.

I am beginning with an introduction to the logistics industry in India and the evolution of Logistic
Industries India. In Chapter 2, I am presenting the logistics infrastructure such as logistic parks
and information and communication infrastructure and the different modes of transportation in
India, and for each of them I am discussing the cargo statistics, current hindrance and the ongoing
initiatives to improve the respective infrastructure. Next in Chapter 3, I am discussing about the
growth factors of Logistic Industry in India in which the performance of Indian logistic industries
is briefed and compared with top performer of the world in logistic sector. The major challenges
Indian logistic Industry is facing in current scenario and the key factors with the help of suitable
figures and stats which can help to overcome those challenges and boost the logistic industries of
India along with the steps taken by the government of India to boost Indian Logistic performance.

This report would help the beginners to study the Logistic Industries of India and what does the
LPI mean and what key points are considered while measuring LPI index of the countries. It will
also provide a support to the businesses entering in the logistic sector of India as in this report I
have explained the details of Logistic infrastructure and the major steps which India government
is taking to improve the logistic system of India.

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 PROJECT METHODOLOGY

The data used for the study had primary and secondary character. The Primary data was collected
through books and discussion with personal in the logistic sectors. The secondary data was
collected through research report of India Brand Equity Foundation (IBEF) and the research report
available on net from IIM. The procured data was analyzed by confirming to government reports
and supported with the help of graph and figures.

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Chapter 1:
An introduction to Logistic Industries in India
1.1 Introduction
Logistics is the movement of material or goods, information and funds from one business to
another business or from point of origin to the point of end consumer. Logistics is an important
part of the business economic system and is a major global economic activity. It encompasses
activities like freight transportation, warehousing, material handling, protective packaging,
inventory control, order processing, and marketing, forecasting and customer service.

Logistics is described as the wide range of activity about efficient and effective motion of finished
or semi-finished items from one of the business to the next and from manufacturers or retailers to
ultimately the final customers. The logistics task includes various logistics activities like freight
forwarding, warehousing, material handling, packaging, wrapping, inventory management, order
processing, forecasting, marketing, and client support.

Source: BTRE, Bureau of Transport and Regional Economics

Figure: 1.1 Orientation and Development of Logistics Industry

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1.2 History
Logistic and supply chain is might be a new term in today’s era but its history goes back to
thousands of years back as in those time also big buildings and structures were made in which
material used was brought from a distant location such as there are many temples of ancient time
in India in which stones were brought from different places in India. The inception (origin) of
logistics can be traced back to Roman and Greek times when their military commanders known as
‘Logistikas’ were allotted with the duty of providing services that were related to supply and
distribution of various resources. This was basically done to empower soldiers to effectively
change their location from one place to another, which could prove beneficial in deciding the
course and outcome of the war. Logistics was at first a military exercise, about getting munitions
and soldiers on the battlefront in time for fight, though it's currently viewed as a fundamental
component of the contemporary manufacturing procedure. The primary history of the development
of this is, the downturn of America in the 1951's triggered the market to pit value on goods
circulations. The articulation, logistics, was initially created with regards to armed force errands
in the late 18 and also mid-19 and this discharged the armed force logistics of World War II.

The logistics management in today’s world however, covers all the aspects of value chain
including an efficient integration of transportation, distribution, warehousing, reverse logistics,
value added services such as payment collection, packaging, documentation, customer brokerage
facilities, kitting, repair management, reconfiguration etc. The developments of state-of-the art IT
in recent years have further had remarkable implications for the logistics industry.

1.3 Logistics in India

India is being touted as the land of opportunity for logistics service providers all over the world.
The Indian logistics industry currently valued at an estimated US$ 160 billion as per Niti Aayog
of India. It has grown at a CAGR of over 16 per cent over the last five years and expected to
become worth US$215 Bn in the next two years. Various surveys have been conducted to estimate
the logistics activities as a percentage of whole production value, and it is found that between 12
and 20% of the final retail price of current consumer goods is associated with logistics cost. . The
logistics industry of India is currently estimated to be around US$ 160 billion which constitute
between 14.4% (In 2018) of the GDP of India. Whereas the European market for logistics industry
can be categorized as matured and crowded with several globally strong logistics players.

According to Indian brand Equity Foundation in 2017, the logistics sector absorbed 22 million
people. Employment is expected to surge to 40 million by 2020. In India, the logistics cost as a
percentage of its GDP stands at 14%. This cost is pretty high compared to the similar cost in the
US (9.5%), Germany (8%) and Japan (11%). Nevertheless, the country aims to bring down this
cost to less than 10% by 2022.

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 Figure: 1.2 Percentage breakup of Indian Logistics GDP

The transportation cost account for nearly 40% of total production cost. The total logistics cost for
any country can be broken into following parts:

a. Inventory Carrying Cost: The major cost components of inventory carrying cost are
interest charges, taxes, obsolescence, and depreciation, insurance and warehousing. In
India it varies from 28 to 32%, however the average is below30%.

b. Transportation Cost: The logistics cost as a percentage of its GDP stands at 14%
in which alone transportation cost is almost half i.e. 40%

c. Administrative Cost: This cost is attributable to logistics administration and it

accounts for around 5% of the total logistics costs.

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 Figure: 1.3 Elements of Logistics Cost in India

(Source: [Link]

Over the last decade, the logistics costs have come down from 15% to 9% in the US. Back in the
east, the strong presence of local players in Japan resulted in difficult market entry in this region.
However, the story is different in India as there are no dominant logistic service providers and 3PL
and PL service provider are still growing. Ninety eight per cent of sample firms according to a
survey have a contract with trucking companies for making dispatches and only 11 per cent own
their own fleet of trucks. While 36 per cent of these firms use third party logistics (3PL) service
providers for making dispatches, about 30 per cent use 3PL service providers for procuring their
material from their suppliers.

1.4 Evolution in Logistic Industries of India

The Indian logistics industry has come a long way from being a labour intensive during 60’s to the
present technology oriented system that provides wide range of logistics services. The concept of
3PL is a recent past culture in India. The industry has matured from being just a ‘transport service’
provider consisting of 1PL and 2PL players (i.e. haulers) to ‘on-contract logistics service’ provider
consisting of 3PL players. This is evident from the fact that companies in India currently outsource
an estimated 52% of their logistics requirements.

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Figure: 1.4 Logistic Industry in India has evolved with 3 PL from 2PL and 1PL players majorly in
last 4 to 5 years.

Traditionally many manufacturing have contact of transport companies and some have their own
logistic system. As India is growing rapidly and many steps have been taken to increase
manufacturing in India and new technology, investment and expansion are on the way which is
helping to improve efficiencies as well as reduce costs. The Government as well as the business
industries of the country are collaborating to help the infrastructure of the country to make it
stronger. In the terms of infrastructure India is growing rapidly and road is the dominant mode of
transport which carries 65% of freight and 85% of passenger traffic. India has the 2nd largest road
network of 5.9 Million KM after the USA. Apart from road transport Indian Railways also play a
crucial role in transportation of India.

The present form of logistics industry in India is still in its infancy and is highly fragmented. There
are thousands of logistics companies, ranging from the international giants to the highly localised
small players in the country. As the logistics industry in India is in nascent stage and hence there
are a lot of logistics issues to be improved. As the global trade is increasing and henceforth the
competition, the companies are now realizing the quality services such as giving importance to the
customer’s requirement.

With compare to the other developed countries the asset or system management of logistic industry
in India is week and underdeveloped as compared to developed countries. The major restrictions
hindering the growth of logistics industry in India include the poor conditions of infrastructures
and transport vehicles, complexity of international trade documentation process and lack of IT
infrastructure, shortage of professionally competent logisticians and insufficient technological aids
and the lack of industry readiness. Apart from this, inadequate data collection and in-experienced
decision maker’s results in poor decision making and hence poor results. Also the resource

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utilization is poor in India as compared to developed countries. Due to these restrictions, the
logistics costs in India are higher than in the developed markets. It is estimated to be around 14%
of GDP, against 9% of GDP in the US (refer Fig 1.4).

Figure: 1.5 India’s Logistics Cost w.r.t. other developed countries

However we are still in initial stage of development in the comparison of logistics of the developed
companies. As we are in nascent stage thus there are many things to improve for example Indian
companies draw major attention on cost while selecting for the logistic services. We are still
undergoing development -owing to technology, investment and expansion which is helping to
improve efficiencies as well as in reducing costs. Despite the above problems India has made
substantial efforts in recent years to improve the logistic infrastructure. Two of the major initiative
taken by government for logistics growth are:

 The implementation of GST helping businesses to focus on real cost optimization in their
supply chain and hence lower transaction cost,” as per RS Subramanian, the India head of
DHL Express, the world’s biggest international express service provider by volume.

 The infrastructure status given to Logistic sector in which cold chain and warehousing
facility is also covered will attract more investment and competitive rates in the sector. It
will also help investor to get credit on competitive rate and for long time.

In the evolution of logistic industries in India technology can play a very important role as
companies has started making use of information technology, cloud services and data analysis.
The use of new technology is providing management solution to the logistic industries. Soon all
companies will focus on this disruptive technology of this domain.

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Chapter 2:
The logistics Infrastructure in India

2.1 Introduction
Infrastructure is very important for the logistics of any country and the transportation is the key
element of it. Adequate capacity and facility of transport infrastructure and services are important
factors which contribute towards the ability of the country to compete in the field of international
trade and attract foreign direct investments. It is very important for the country like India who have
big population and size to create a policy which encourage the competitive pricing and
coordination between alternative mode to provide integrated transport system so that the mobility
of goods and material at maximum efficiency and minimum cost.

India’s need for infrastructure creation in the logistics sector is striking. In just a decade India has
seen its economic size more than double to $ 1.37 trillion (2012) and total foreign merchandise
trade multiply from 20% of GDP (2000) to 42% of GDP (2012). This growth has been
accompanied with a phenomenal rise in the volume of freight traffic movement over the period.
However, logistics infrastructure and services in the country have arguably not developed at the
same pace to support and further this growth.

As for the large country like India with a landmass of 3.3 million square km, the Indian
infrastructure comprising roads, railways, seaports and airports is considered very poor as
compared with other developed and developing countries. The overall Indian infrastructure is rated
44th in comparison to other developing countries. This poor infrastructure results in inefficient
movement of goods and delay in the services therefore resulting in enormous amount of time along
with money. Such inefficient and unreliable transport system make the country’s export more
expensive.

2.2 Logistic Infrastructure

The Logistic infrastructure is the backbone of the Logistics System of any country. The concept
of "Logistic Infrastructure" (LI) in the global business practice is not that old. It expresses the
nature of a major element of the global economy, which is dynamically developing and is of utmost
importance for the success of the economy. Logistic Infrastructure includes transport, Logistics
parks and villages, Information and communication Infrastructure which are discussed below in
the contrast of our country India that how it is currently and how it’s improving.

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2.2.1 Transport: It comprises the infrastructure for passenger transport and freight transport.
This includes all physical traffics routes such road, railways, seaways and airways including their
controlling and handling facilities. The transport infrastructure include railway stations, airports
and seaports. The contribution from the movement of goods including freight transportation and
storage is about 90 per cent. Aggregate freight traffic is estimated at about 2-2.3 trillion tonne
kilometers. Road dominates the mode of freight transport mix and constitutes about 60 per cent of
the total freight traffic. The use of railways, inland waterways and coastal shipping is quite limited
in India (Fig. 2.1), and largely used only by the agriculture and coal [Link] and coastal
shipping account for about 32 per cent and 7 per cent, respectively, while the share of inland
waterways transportation and air is less than 1 per cent each (Refer: Fig.2.2).

Figure: 2.1 Logistics sector split across mode and industry

The three modes of Indian Transport are discussed in details below:

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[Link] Road Transport: Indian roads are the life line of Indian transport as it accounts for
80% of passenger traffic and 65% of freight movement in India. India has the 2nd largest road
network in the world with 5.9 Million KM of road after US which has 6.58 Million KM of road
network and around 9.8 Million trucks are currently operating on them. Despite having world’s
second largest road network, India still need to improve a lot in making the roadways more
efficient and which work is going on continually (Refer Table 2.1). As more than 70% of truck
owners have less than 5 truck which limits the pricing power of the transports (refer Fig 2.3).

Figure: 2.2 Distribution of India’s Transportation modes in Logistic Industries.

(Source: [Link])

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 Source: Edelweiss report on Indian Logistics

Fig 2.3 Distribution of truck ownership

Table 2.1: Targets vs achievements for road construction (National Highways)

% achievement
Year Target (km) Constructed (km)
(constructed/ target)
2014-15 6,300 4,410 70%
2015-16 10,950 6,061 55%
2016-17 15,000 8,231 55%
2017-18 15,000 9,829 66%
2018-19 15,000 10,824 72%
Sources: Economic Survey 2018-19; PRS

The Indian road network is administered by various government authorities, given India's federal
form of government. There different types of roads as below:

 Expressway: Expressways are high-speed roads that are four- or more lanes, and are
access controlled where entrance and exit is controlled by the use of ramps that are

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 incorporated into the design of the expressway. Most of the existing expressways in India
are toll roads (Refer Table 2.2).

 National Highways: National highways are highways connecting major cities through-
out the country and are at-grade roads. National Highways are designated with NH,
followed by the highway number (Refer Table 2.2).

 State Highways: State highways are highways connecting major cities through-out a
state and are also at-grade roads. They also connect with National Highways or state
highways of neighboring states. State Highways are designated with SH, followed by the
highway number and preceded by state code (Refer Table 2.2).

 Other PWD Roads: These roads connect the rural areas town centers to the major district
roads of higher importance. They provide the facilities for the transportation of the raw
material.

 Rural Roads: These are low traffic volume roads located in forested and rangeland
settings that serve residential, recreational and resource management uses.

 Urban Roads: These roads are used for national statistics is all major and minor
roads within an urban area with a population of 10,000.

 Project Roads: These are the road which are currently in process of making.
Government of India has initiated “Bharatmala Project” under which national highways
are to be constructed connecting all the major cities of India.

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 Table 2.2: The total length of India's road network by type of road and administering
authority.

Length Length
Category Managing Authority
(KM) (Share)

Expressways Ministry of Road Transport and Highways 1643 0.03%

National highways Ministry of Road Transport and Highways 142,126 2.52%

State highways Public works department of state/union territory 176,166 3.12%

Other PWD roads Public works department of state/union territory 561,940 9.95%

Rural roads Panchayats and PMGSY 3,935,337 69.70%

Urban roads Municipal corporations and municipalities 509,730 9.03%

Various government departments of states/union territories,

Project roads 319,109 5.65%
and SAIL, NMDC and BRO

Total 5,646,051 100%

[Link] Rail Transport: Introduced in 1853, Indian Railways (IR) which is among the
world’s largest rail networks. The Indian Railways route length network is spread over 1,23,236
km, with 13,452 passenger trains and 9,141 freight trains from 7,349 stations plying 23 million
travelers and 3 million tonnes (MT) of freight daily.

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Source: Indian Railway’s Annual Report & Accounts 2016-17

Figure: 2.4 Total revenue earning and weightage material transported by Indian Railway
(2016-17 & 2017-2018)

Total freight earnings (including ‘Other Goods Earnings’ such as wharfage, demurrage, etc.) in
the first nine months (April-December) of 2017-18 stood at `81,427.77 crore which shows an
increase of `6,232.61 crore (8.29%) over the earnings in the corresponding period of the previous
year.

From the above figure 2.4 it is clear that most of the railways transportation is of coal and steel
materials. There should be a reason that only few industries use railways freight carrier and those
industries are heavy material industries and the raw material or these industries are at distant place
transporting goods to a distant location.

The route of door to door service of logistic company DB Schenker using rail network is shown in
the figure 2.5. However, the services offered at rail ports go much beyond the mere storage and
transshipment of goods. Goods also need to be prepared for on-carriage and distribution
throughout the region. This involves services such as picking, inventory management, quality
checks, clearing, and delivery or collection of the goods to the region or from the region.

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Figure: 2.5 Schematic layout of a door-to-door logistics chain (DB Schenker Rail GmbH
2011)

India has high stakes in rail infrastructure and freight. Of all the freight moved through IR, it is
estimated that over 70% of them are produced or marketed by government-owned agencies. The
containerized freight movement by rail in India is provided by Container Corporation of India Ltd
(CONCOR). Incorporated in 1998 CONCOR provides multi-modal logistics support for the
country’s domestic trade and commerce, with 44 out of 51 of the CONCOR terminals are linked
by rail network. Railways are considered a relatively cheaper mode of transport and are used
mainly for transporting bulk traffics over long distances. About 89% of its freight traffic is
contributed by major commodities such as coal, fertilizers, cement, petroleum products, food grain,
finished steel, iron ore and raw material to steel plants. The balance 11% is other commodities
moving in bulk and containers.

The Government of India is going to come up with a ‘National Rail Plan’ which will enable the
country to integrate its rail network with other modes of transport and develop a multi-modal
transportation network. Dedicated Freight Corridor Corp. of India Ltd (DFCCIL), is already
building the first two freight corridors—Eastern Freight Corridor from Ludhiana to Dankuni
(1,856km) and Western Freight Corridor from Dadri to Jawaharlal Nehru Port (1,504km)—at a
total cost of Rs 81,000 crore (US$ 11.59 billion).

[Link] Water Transport: Water has been an efficient means of transportation from the early
ages. Historically, societies and cities began settling always close to water sources due to their
strategic locations and economic benefits. It has now developed into a complex network of ports
along the coasts as well as inland and transformed into a world system for transportation. Water
transport in India has played a significant role in the country's economy and is indispensable to
foreign trade. India has the 9th largest waterway network in the world. It has the largest carrying
capacity of any form of transport and is most suitable for carrying bulky goods over long distances.
It is one of the cheapest modes of transport in India, as it takes advantage of natural track and does
not require huge capital investment in construction and maintenance except in the case of canals.

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India has 14500 km of inland waterways. Out of which only 5685 km are navigable by mechanized
vessels. Freight transport by waterways is highly under-utilized in India with the total cargo moved
(in tonne kilometers) by inland waterways being 0.1 percent of the total inland traffic in India.

India has a coastline spanning 7516.6 kilometres, forming one of the biggest peninsulas in the
world. According to the Ministry of Shipping, around 95 per cent of India's trading by volume and
70 per cent by value is done through maritime transport. It is serviced by more than 200 ports out
of which 12 are major ports (11 Government-owned and one private) and 205 notified minor and
intermediate ports (refer fig. 2.7). India's West Coast ports handles almost 70% of traffic.

Source: [Link]

Fig. 2.6 Number of Ports in India (2008-2018)

The major ports had a capacity of 1,514.09 million tonnes per annum by FY19P. The Maritime
Agenda 2010-20 has a 2020 target of 3,130 MT of port capacity. During FY19, cargo traffic at
major ports in the country was reported at 699.05 million tonnes (MT). Cargo traffic handled stood
at 585.72 million tonnes in 2019 (till Jan 2020). Cargo traffic at non-major ports was estimated at
529.6 million tonnes FY18 and grew at 10 per cent CAGR between FY07-18 and 447.21 million
tonnes in FY20P (up to Dec 19). The capacity addition at ports is expected to grow at a CAGR of
5-6 per cent till 2022, thereby adding 275-325 MT of capacity.

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The Indian government plans to develop 10 coastal economic regions as part of plans to revive the
country’s Sagarmala (string of ports) project under which vision is to reduce logistics cost for
EXIM and domestic trade with minimal infrastructure investment. This includes:

 Reducing cost of transporting domestic cargo through optimizing modal mix

 Lowering logistics cost of bulk commodities by locating future industrial capacities near
the coast
 Improving export competitiveness by developing port proximate discrete manufacturing
clusters
 Optimizing time/cost of EXIM container movement

Source: [Link]

Fig. 2.7 Map of Sea Ports of India

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Under this Sagarmala Programme, the government has envisioned a total of 189 projects for
modernization of ports involving an investment of Rs 1.42 trillion (US$ 22 billion) by the year
2035

The zones would be converted into manufacturing hubs, supported by port modernization projects,
and could span 300–500 km of the coastline. The government is also looking to develop the inland
waterway sector as an alternative to road and rail routes to transport goods to the nation’s ports
and hopes to attract private investment in the sector.

[Link] Air Transport: It plays a vital role in the economic development of India and
provides critical capabilities to the modern economy with ability to move passengers or cargo to
quickly and reliably over great distances. The founding father of the Indian aviation industry was
JRD Tata who started Tata Airlines in the year 1932. Post-independence, the government acquired
a majority stake in the airlines and rechristened it as Air India. Airports in India are managed by
Airport Authority of India (AAI), under the central Government. The national carrier has lost
ground over the years and has faced stiff competition from a host of other private airlines such as
Jet Airways, Spice Jet and IndiGo.

Domestic Cargo Transport service providers and Custom House Agents are the key players in the
entire Air Cargo supply chain. Thus the Air Cargo industry presents a wide variety of service
providers coming together to move goods both domestically and internationally. India have 486
total airports, airstrips, flying schools and military bases are available in the country in which 123
airports with scheduled commercial flights including some with dual civilian and army use and 34
international airports.

The total freight tonnage handled at the Indian airports was 3.56 million metric tons in the financial
year 2019. This was the highest volume handled over the last six financial years with a growth rate
of 7.5% and targeted to grow at 12.5% a year to reach the national target of 10m tonnes by 2027.
Aircraft movement grew at a CAGR of 9.56 per cent from 1.60 million in FY16 to 2.59 million in
FY20. During FY16-FY20, domestic aircraft movement increased at a CAGR of 9.83 per cent and
international aircraft movement expanded at a CAGR of 3.57 per cent. India’s domestic and
international aircraft movements grew to reach 2,155 thousand and 433 thousand during FY20,
respectively.

The Major International cargo airports-Mumbai, Chennai, Bangalore, Trichy, Hyderabad, Delhi,
Coimbatore, Cochin and Major domestic cargo airports are in Ahmedabad, Goa, Lucknow,
Visakhapatnam, Madurai in addition to the above (Refer Fig. 2.8 International airports in India).

India’s air traffic growth has increased about 50% in 2015-2016 from last ten years 20017-2008
as shown in the figure 2.7. Airports of Delhi and Mumbai are the busiest airport of India which are
also among the world’s busiest airports. The aviation of India is low on volume but high on value

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as most of the cargo delivery material are from pharmaceutical sector. Yet India’s aviation sector
need to be more efficient and more infrastructure is required. As of November 2019, 680 airplanes
were in-service in the fleet of scheduled Indian operators. Due to rise in demand in air travel, India
will need 2,380 new commercial airplanes by 2038. India is expected to have the largest number
of aircrafts flying by its scheduled airlines latest by December 2019. India plans to open 100
additional airports by 2024. As on October 2019, 55 AAI (Airports Authority of India) airports
were declared as single-use plastic free airport terminals.

Source: [Link]

Figure 2.8 Passenger traffic growth of International airports in India

AAI plans to invest Rs 25,000 crore (US$ 3.58 billion) in next the five years to augment facilities
and infrastructure at airports. It has opened the airport sector to private participation as six airports
across major cities are being developed under the PPP (public private partnership) model.
Investment to the tune of Rs 42,000-45,000 crore (US$ 6-6.5 billion) is expected in India’s airport
infrastructure between FY18-23. Under Union Budget 2020-21, the Government has introduced
Krishi Udan scheme on both domestic and international route to help farmers in transporting
agricultural products and improving their product value.

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Source: AAI

Fig. 2.9 Growth of Air Cargo Traffic in India

2.2.2 Logistics Parks and freight Village: Logistic parks can be described as Industrial areas or
defined areas for activities relating to transport, logistics and the distribution of goods which can
be regional, national and/or international transit, and carried out by various operators. A logistics
park is an area where several logistics properties are concentrated in close proximity. The
individual properties may differ with regard to their type and size as well as to their tenancy and
ownership relations. The main purpose of a logistics park is the realization of synergies through
the common use of infrastructural facilities such as gas stations, forklift truck fleets, workshops,
offices etc. A freight village represents a specific logistic zone in the sense that it has a high
orientation towards services such as hotels, convention centers and office space for third party
logistics providers. They thus have a wide variety of potential settings, but are often found within
logistics parks.

Many stakeholders in the country like MoRTH, CONCOR, DMICDC, state governments, etc. are
independently planning the development of multi model logistic parks (MMLPs). There is a need
to ensure that these MMLPs are developed at the right locations with appropriate value added
services, mechanization, technology adoption etc. for effectively driving the logistics efficiency in
the country and ensuring duplication of facilities at the same location is minimized,” stated the
draft National Logistics Policy. The government of India has identified the 35 location where
MMPLs are to be setup in which Ludhiana, Patiala, Hisar and Amritsar are one of the location
selected in North Region, Similarly, Patna, Guwahati, Kolkata etc. from East region, Surat,
Ahmedabad, Mumbai, Vadodara etc. from West region and Coimbatore, Chennai and Vijaywara
etc. are from the south region of India. A detail graphic representation of logistic parks selected in
India as the four regions is shown in the figure 2.9.

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Warehouses may be used as central warehouses, regional warehouses, production warehouses, or
distribution warehouses. Their purpose is the storage of goods, and they serve as a link between
procurement and distribution.

Source: MMLP policy Document, Edelweiss Research

Fig. 2.10 List of locations selected for MMLPs in India

2.2.3 Information and communication Infrastructure: Along with transport infrastructure,

an efficient information and communication infrastructure is very important for the development
of logistics concepts and for the performance of logistics processes. This infrastructure is mainly

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based on telecommunication infrastructure and can be set up by using different networks (landline,
mobile telephony, radio network, microwave radio relay), which depends on the services offered
(GSM, UMTS) and on the data transfer. There is, however, a tendency towards the development
of a uniform network infrastructure through which all services can be offered and utilized. This
network infrastructure is based on the Internet Protocol (IP) which replaces the circuit-switched
networks with a packet-switched network infrastructure.

This information and communication is rapidly growing industry in India. The growth in this
industry is triggered by an increase in the revenue generated from both landline and mobile facility.
The number of internet and broadband subscribers, over the years, has been growing steadily in
the country. India has the world's second-largest Internet user-base with 661.94 million broadband
internet subscribers in the country. As of 31 December 2018, India had a population of 130 crore
people (1.3 billion), 123 crore (1.23 billion) Aadhaar digital biometric identity cards, 121 crore
(1.21 billion) mobile phones, 44.6 crore (446 million) smartphones, 56 crore (560 million or 43%
of total population) internet users up from 481 million people (35% of the country's total
population) in December 2017, and 51 per cent growth in e-commerce.

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Chapter 3:
Challenges and growth driver in logistic Industries in India
3.1 Introduction
The logistics industry is considered a crucial sector to boost international trade as a consequence
of digitalization and globalization. The logistics and freight industry is evolving rapidly and
regarded as the backbone of the economy in India as it ensures quick, efficient and economical
transport of goods across India and many commercial sectors rely on it. The growth rate of logistics
in India has shown tremendous improvement in the last decade, starting from scratch and reaching
a level where the Indian logistics industry is competing with the top dogs of the most affluent
countries. The technological improvement providing combined operating model in the logistic
industry of India. The growth of the logistics companies in Chennai and other popular towns
contributes to the growth of the logistics sector which in turn increases the competitiveness among
the different nations and therefore, it becomes a vital element of economic development and
growth of the country.

3.2 Logistic Performance of India Overview

The recent logistic industries in India include inbound and outbound sectors of the production and
services supply chain. Lately it has received ample attention from the private businesses and policy
makers of India. With the implementation of advanced technology and refined policies control of
the goods movement and logistic system of India has improved a lot and still moving ahead. Over
world logistics performance index has improved a lot in past 6 years as being on 54th position in
2014 and jumping to the 35th position in 2016 logistic performance index has improved a lot.
Recently the LPI of India has dropped to 44th position in 2018. I have described below what does
LPI mean, how it is measured and where does India stand.

Source: [Link]

Fig. 3.1 LPI Score of India across the Years

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3.2.1 Logistics Performance Index (LPI): It ranks countries on the basis of six dimensions
of trade -- including customs performance, infrastructure quality, and timeliness of shipments. The
data used in the ranking comes from a survey of logistics professionals who are asked questions
about the foreign countries in which they operate.

Source: [Link]

Fig. 3.2 Comparison of LPI Score of India with top performer Germany

The LPI score of any country indicates that how much a country have a better logistic system
which includes the government rules and policies for customs, availability of the transport services
whether air, rail, road or sea ways. India is currently of the 44 th position in logistic performance
which has improved in recent 5-6 years (ref. Fig. 3.1) whereas the Germany with LPI index score
of 4.2 is on the top of the list. Here a comparison of LPI index of India and Germany is shown in
the figure 3.2.

The components analyzed in the International LPI were chosen based on recent theoretical and
empirical research and on the practical experience of logistics professionals involved in
international freight forwarding. They are:

• The efficiency of customs and border management clearance (“Customs”).

• The quality of trade and transport infrastructure (Infrastructure”).

• The ease of arranging competitively priced shipments (Ease of arranging shipments”).

• The competence and quality of logistics services—trucking, forwarding, and customs brokerage
(“Quality of logistics services”).

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• The ability to track and trace consignments (“Tracking and tracing”).

• The frequency with which shipments reach consignees within scheduled or expected delivery
times (“Timeliness”).

The LPI uses standard statistical techniques to aggregate the data into a single indicator that can
be used for cross-country comparisons. LPI surveys are used to generate a “big picture” to better
indicate countries’ logistics performance.

3.3 Challenges in Indian Logistics Industry: Indian Logistic industry has

improved a lot in recent years but as per its large market size, rapidly growing economy and
population it has still got a lot to achieve. Of late, inadequate logistics infrastructure and traditional
practices created bottlenecks in the growth of the Indian economy. But the latest logistics
management procedure has the ability to overcome the difficulties at the same time offering
cutting-edge competitiveness in the long run. The manufacturing businesses ensure that their
products reach the end customer quickly, and thus, they outsource their logistical operations to
logistics service providers. Here we are going to study the challenges faced by the Indian Logistic
Industries.

3.3.1 Transport Related Challenges: Transport plays a crucial role in the performance of
the logistic companies in any sector. Transport in India have developed a lot in recent years
but still it has many limitations. One of the major limitation in transport is the lack of
integration in its network. Transport integration is an organizational process through which
the planning and delivery of elements of transport system are brought together across
modes, sectors, operators and institutions with the aim of increasing the net environmental
and societal benefits.

The roads are terrible at internal parts of the country while the Ghats are prone to accidents and
landslides. Traffic congestions, multiple checkpoints, and toll stations are also issues where
Logistics companies lose out on a lot of time and money.

The rail tariffs are high in India and congested network of Indian Railway also causes time delay
in the delivery of the goods, which are making a negative impact on the logistic industries of India.

Shipping goods from point A to B takes the longest time among all of the possible modes of
transport. If the seas are kind, the ship may dock on time at the port. Unfortunately, understaffed
ports, overstuffed berths and delayed evacuation of cargo cause the logistics companies to suffer
without a fault.

3.3.2 Issues of Port Sector: Ports function as major hubs of international trade and
accordingly, they are regarded as primary catalysts of local economic development in an
era of globalization. Approximately 90% of the international cargo is transported through
ships. In India only 7.4% of total transport. Indian ports are plug with the lack of capacity

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 and low productivity. The high turnover time and pre berthing time, and freight costs make
Indian ports less competitive.

Fig. 3.3 Comparison of Mean Around time of India with top performers.

High turnaround times- Data from Indian ports association shows that ports in India suffer from
high turnaround times for ships. JNPT, the premiere port in India, has more than two times the
turnaround time of Colombo and Singapore ports because of congestion on berths and slow
evacuation of cargos unloaded at berths (Refer Fig. 3.3).

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3.3.3 Poor Infrastructure: Logistics infrastructure, covering the road, rail, waterways and air
network of a country, is the backbone on which the nation marches ahead. The
infrastructure is as much important as the transport services, in India the condition on
infrastructure is not that good. The warehousing facilities in India is bad as lots of container
damages in there due to pest-infested warehouses, lack of storage space, damage due to
leakages, and more. The Governments use the biggest warehouses to store grains, which
leaves very little space for cargo storage.

Most facilities have issues of inadequate parking, lack of available land for expansion etc.

Many of the older facilities today are located within city boundaries restricting day movement of
trucks.

State of cold storages is poor- Despite the significant requirement of cold storages from the retail
sector, pharmaceutical and chemical sector and the farm sector, where it is estimated that up to
40% of the fruits and vegetables grown in India gets wasted, receptor needs to grow much faster
to meet the needs.

3.3.4 Lack of Skilled Labors and Latest Technology: There is a serious lack of latest
technology, skilled personnel and specialists in the Logistics sector in India. The laborers
are under-skilled, over-worked and lack of desired skill-set to make the process more
efficient. Companies also compromise on the training of their logistics staff and also their
payments to save their capital. Eventually, these companies face problems like high labor
turnover, increased training costs and under-performing human resources.

Logistics technology issues too often bring businesses to a halt. In a study by Compuware, almost
half of respondents (48%) reported that technology problems happen anywhere from a few times
a week to every day. Seventy-five percent reported that the frequency of technology failures is
staying the same or increasing. IT infrastructure of India lacks regular updates in technology.
Poorly architected infrastructure and incorrect implementation causing desktops, networks, and
servers to fail.

3.3.5 Tax Structure & Policies Related Challenges: A complicated tax regime places
several challenges on the logistics industry. Payment of multiple state and Centre taxes
results in:

1. Considerable loss of time in transit for road freight in order to pay such taxes.

2. Fragmentation of warehousing space especially for low margin products thereby providing a
disincentive to create a large integrated warehousing space. A uniform tax structure to be
introduced through the GST is being highlighted as the panacea for the existing situation. If
implemented in spirit GST will enable logistics services to be provided without consideration for
ex boundaries.

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Challenges in the form of bureaucratic hurdles, land acquisition problems, poor funding,
environmental compliance, and policy disconnect between the federal and state governments
remaining a big problem in Indian Logistic Industries.

Apart from facing such challenges the Indian logistic industries is also facing huge competition
from the global logistic industries. As the challenges in the Indian logistic industry are mostly
internal and some are external therefore by careful management, planning and realistic goal-
setting, they can be overcome to be able to thrive, succeed and compete in the Indian economy
with the international counterparts. The major improvement and growth factors for the
improvement of logistic industries in India is discussed further.

3.4 Main drivers and growth factors for Logistic Industries in India
India has become the prime destination for logistics service providers all over the world. The
demand for logistics services in India has being largely driven by the growth of the economy. India
is today waking up to the dream of tech-driven integrated logistics. Over the past couple of years,
structural reforms have drastically enhanced the logistics efficiency in India. For instance, Indian
warehouses are now equipped with everything from IOT-devices to automated sorters and
handlers, which considerably decrease the turnaround time in in-house logistics operations. India
is also experiencing a big retail boom as the buying capacity of the middle and upper middle
segment of the population have scaled new heights. Many large MNCs from the retail industry are
planning to set up operation in India and large local retailers are also planning to expand their
operations. The drivers and growth factors which can help in boosting the Indian Logistic
Industries can be:

3.4.1 Infrastructure Development: The Indian Government keeps reaffirming its aim to
improve the logistics industry in India by making attempts to modernize the functionality
starting with the infrastructure development. With prominent stress being laid on fortifying
and fastening the Indian logistics paradigm, new and enhanced logistics centers and
warehouses are being charted around eminent ports. Logistic parts and tailor-made spaces
are proving to be beneficial at the same. According to reports, the major ports of India are
presenting affirmative growth indicators as nine important ports of the country have
handled 3.11 percent more traffic from April 2018 to January 2019 as compared to its
corresponding period of the previous year. Its further development depends upon its soft
infrastructure like education, training and policy framework as much as the hard
infrastructure. Growth of international goods transportation as the ecommerce continues to
thrive. International cooperation is also required to make logistics sector grow.
Warehousing absorption is gradually increasing in the tier II cities as well. The key cities
include Guwahati, Lucknow, Jaipur, Indore, Nagpur, Hosur, Coimbatore, etc. The demand
in these cities is primarily driven by e-commerce, 3PL & FMCG occupiers

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 Fig. 3.4 Indian Warehousing Stock

3.4.2 Policy And Regulatory Boost: Key reform measures and policy interventions like
the unveiling of the Goods and Services Tax, (GST), relaxed FDI regulations and granting of infra
status has boosted the core competencies of the Indian logistics industry. GST was a game-changer
for Indian logistics. It laid the foundation for the setting up of large format multi-modal logistics
parks along with key consumption and industrial centers which can function as freight aggregation
and distribution hubs.

With the implementation of GST, the logistics companies, which are currently forced to set up
many small warehouses across multiple cities can set up just a few, big warehouses region and
different model for freight movement from the warehouses to the different manufacturing plants,
wholesale outlets and retail outlets. Utilization of sources have been increased post GST
implementation (Ref. Fig. 3.5)

3.4.3 Technology: In today’s fast-paced world, information technology is playing a crucial role
in development and change according to the changing needs. GST has entailed a new set of
compliance requirements for which companies had to adopt new ERP accounting systems and
inventory management systems to remain compliant during all stages. The adoption of the
technology enable tracking of shipments, dynamic route management, integrating wallets for cash-
on-delivery and other areas. For example: Blue Dart, owned by Deutsche Post DHL, was among
the first to introduce GPS-enabled trucks on longer routes as well as a dynamic routing facility for
its city vehicles. This has increased the overall efficiency of its fleet, which delivers 250 million
shipments a year. An automatic sorting and routing facility at warehouses earlier which was carried
out manually by courier delivery staff. orts all packages and creates the most effective route

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schedule, freeing up 45 minutes per person every day, leaving them with more time to be out on
the field.

Source: CGN global

Fig. 3.5 Impact of GST on Indian Logistic Industries

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 Source: [Link]
technology-to-transform-a-connected-nation
Fig. 3.6 India’s Digital Adoption Index

The biggest thing which tech is bringing in is the visibility to know the bottlenecks, which
enables us how to fix it. The potential to fix existing inefficiencies has also attracted firms
from abroad. India is adopting digital technology very fast and it is the 2 nd fastest digital
adopter among 17 major digital economies (Refer Fig. 3.6).

3.4.4 Export Prospects: With unconventional industries and prominent brands gaining
access to Indian markets and establishing production facilities here, both domestic
consumption and foreign exports are receiving an encouragement at present. The ongoing
rift between China and the US has created an opportunity for India to plug the international
supply chain gap created by Chinese export shortfall. The government is also
simultaneously improving its manufacturing standards with policies like ‘Zero Defect,
Zero Effect’ to aptly position India in the global scenario. All these factors will help Indian
Logistic Industry

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3.4.5 Strategic marketing: Armed with brilliant market stratification and comprehensive
cultural research, the country has boosted its bilateral trade prospects. Recent events such
as ‘Howdy Modi’ in the US and the global business forum, where PM Modi beseeched the
international business goliaths to invest in India and optimize the existing technological
talent, have greatly added to the staggering FDI inflows of $405.64 billion in the week up
to March 15, 2019.

While the Indian logistics industry was once considered to be a service provider, now it is
classified as an end to end solutions provider for multiple sectors of the industrial realm. In
2020, the worth of the logistics industry will expand to roughly $250 Billion due to the key
areas bringing a substantial improvement to operations and overall management. Apart from
improving global rankings, it is safe to say that anticipating the Indian logistics industry to
become the dominant industry in the country.

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 BIBLIOGRAPHY

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