Tackling India's nightmare: A new law to reduce cost, time of transportation

The proposed National Logistics Law aims to cut down the cost of logistics from 13-14% to 9-10% of the GDP, a figure similar to that of the USA. The logistic cost in the USA is even better than that of Europe (10%) and Japan (11%).

New Delhi: The ministry of commerce and industry is working on a new law to reduce the cost and time of transportation of commercial goods in the country with the aim to cut the overall logistics cost by one third, from 14-15% of the GDP to less than 10%, which is comparable to other advanced economies like the USA, Europe and Japan.

The proposed law, the National Logistics Law Efficiency and Advance Predictability Act, will streamline the inefficient and time-consuming logistics ecosystem in the country by replacing the existing Multimodal Transportation of Goods act of 1993 (the MMTG Act).

Pawan Agarwal, special secretary in logistics division of the ministry of commerce last week confirmed that the new law would clearly define the logistics sector and its various elements with a strong focus on digitization of the process.

“What the logistics sector is all about is not very clear. We need to clearly define what the logistics sector is and what are the various elements in it," Pawan Agarwal said in a webinar organized by the industry body PHD.

In February this year, commerce ministry released the draft of National Logistics Policy to address the logistics problems faced by trade and industry in the country that is detrimental to the country’s export competitiveness as well.

“An effective and efficient logistics ecosystem can be a key contributor to robust economic growth and most important accelerators of trade in the country,” said the draft policy adding that an efficient supply chain network has the potential to increase farmer’s income manifold, which can lead to a domino effect on the overall economy and reduce economic disparities across geographies.

The ministry said an efficient and reliable logistics network, a transparent and consistent cross border trade facilitation, will not only increase the export competitiveness. It will also attract foreign direct investment (FDI) in the country as any potential investors look at several factors including the logistic cost, cost and availability of power among other things before investing in a country.

National Logistic Law to cut down logistics cost by one third

The proposed National Logistics Law aims to cut down the cost of logistics from 13-14% to 9-10% of the GDP, a figure similar to that of the USA. The logistic cost in the USA is even better than that of Europe (10%) and Japan (11%).

India’s logistic problem stems from the fact it is heavily dependent on road movement, which is unorganized and costly. Road transportation accounts for 60% of the freight movement in the country, which is dependent on diesel guzzling trucks, an environment polluting mode of transport dependent on imported crude. Railways, which is a more cost-efficient mode, accounts for little over 30% of the total freight.

On the lines of advanced economies, the government aims to reduce the share of road transportation from 60% to just 25-30%, increase the share of railways from present 31% to 50-55% and increase the share of waterways from 9% to 20-25%.

Root cause of the problem: Lack of integrated approach

In India, several ministries and departments play different roles in managing the logistics value chain. These include Road Transport & Highways, Shipping, Railways, Civil Aviation, Commerce & Industry, Finance, Home Affairs and Department of Post. They all deal with various permissions, imposition of tax and levies and regulation of different aspects of supply chain.

In addition, a several other agencies like Central Drug Standard Control Organization (CDSCO), Food Safety and Standards Authority of India, Plant and Animal Quarantine Certification Service also provide relevant clearances and impact supply chain.

In contrast to India, countries like Germany, South Korea, Japan and even Malaysia have adopted a completely integrated approach. In some countries, an apex committee chaired by Prime Minister of the country, reviews and coordinates the progress of that country’s integrated logistics action plan. This apex committee finds ways to ensure seamless, multimodal and efficient logistics value chain in the country to make it globally competitive.

What is India’s Action Plan for improving logistics sector?

In India, the government has recognized that logistics is not only about the movement of goods but it should also include development of a world-class storage network in the country. The commerce ministry has prepared a harmonized list of infrastructure sub-sectors. These infra sub-sectors have been granted the status of infrastructure sector in November 2017, which will allow market participants to access long-term funds at concessional rates, including the ability to raise foreign funds.

New integrated approach for perishable commodities

India is world’s largest producer of fruits (92 million tonnes) and vegetables (178 million tonnes) but nearly one third of fruit production has been wasted due to lack of refrigerated logistics and quality storage infrastructure.

For example, the shelf life of apples stored in a controlled cold storage is 9-10 months as against the shelf life of just 3 months in a normal cold storage.

The proposed law will focus on strengthening the warehousing sector by focusing on creating specialized warehouses across the country to reduce the agri-wastage to just 4-5% of the production.

Identifying the best mode for each commodity

According to an assessment of the commerce ministry, the most economical mode of transport for iron for a distance of up to 400-500 kilometres is a slurry pipeline, which uses a mix of water and the ore where water is filtered out at the destination.

However, for the same iron ore, railways is the most economical mode of transportation if distance is between 400 and 1100 kilometres, and coastal shipping is the cheapest mode beyond 1100-1200 kilometres but for distance less than 400 kilometres, inland waterways will be most cost effective, even cheaper than a slurry pipeline.

It’s not just transportation & storage, entire ecosystem is needed

Similarly, it’s not just choosing the most economical mode of transportation but there is a need to develop an entire logistic ecosystem for an industry.

For example, the cement industry in the US is organized around more than 350 integrated railway terminals that provide infrastructure for storage and handling of cement bags, bulk cement and also provide value added service like blending of different grade of cements as per the demand.

Taking a cue from this approach, the government aims to develop 8-10 bulk terminals at institutional demand centres and bag handling terminals at additional 10-12 strategic locations in the country.

(Article by Krishnanand Tripathi)