There are many elements that can make "Make-in-India" thrive. A sound industrial policy is one of them, and logistics is certainly another. Right now, logistics costs in India are 13-14 per cent! How it can be brought down to 10 per cent or even below? ICR takes a look.
Logistics-moving goods and connecting producers with consumers-is a critical part of the modern economy. India’s logistics sector is highly defragmented and the aim is to reduce the logistics cost from the present 14 per cent of GDP to less than 10 per cent by 2022, according to an update from the Department of Commerce. India’s logistics sector is very complex with more than 20 government agencies, 40 partnering government agencies (PGAs), 37 export promotion councils, 500 certifications, 10,000 commodities, and 160 billion market size. It also involves 12 million employment base, 200 shipping agencies, 36 logistic services, 129 ICDs, 168 CFSs, 50 IT ecosystems and banks and insurance agencies. Further, 81 authorities and 500 certificates are required for EXIM.
India has been grappling with high logistics costs of 16-18 percent to start with making exports uncompetitive vis-a-vis China, which has lower logistic costs of 8-10 per cent, in the US and Europe it is 8-9 per cent while in Japan it is 11 per cent.
Completing the dedicated freight corridor (DFC) project will free up some of the existing railway network for passenger trains. As Procycon Mukherjee points out in his article, the existing rail network has been designed to move passengers and not freight. Therefore, it is need based to have such a kind of project DFC. Appropriate technology will be used to enable Indian railways to regain its market share of freight transport by creating additional capacity and guaranteeing efficient, reliable, safe and cheaper options for mobility to its users. This is one step in the direction of reducing logistic cost.
DFCs: Regaining market share
Currently, the Indian Railways has lost a significant portion of its goods business to the road sector and has hoped that it would be able regain market share once DFC is operational. Some of the positives of DFC, Indian Railways will run freight train at the maximum speed of 100 km/per hour against the current maximum speed of 75 kmph on tracks. The average speed of freight trains will also be increased from existing speed of 26 kmph on Indian Railways lines to 70 kmph on DFC.
The Dedicated Freight Corridor Corporation of India Limited (DFCCIL) is a public sector undertaking corporation run by the Government of India’s Ministry of Railways to undertake planning, development, and mobilisation of financial resources and construction, maintenance and operation of the DFCs. While the western DFC will cover 1,504 km from Jawaharlal Nehru Port Trust near Navi Mumbai to Dadri in Uttar Pradesh through Vadodara-Ahmedabad-Palanpur-Phulera-Rewari, the Eastern DFC covers 1,856 km from Ludhiana in Punjab to Dankuni, near Kolkata in West Bengal, and will traverse the states of Haryana, Uttar Pradesh, Bihar and Jharkhand. The Railways plan to complete more than 60-70 per cent of the work in the two corridors this financial year and make them fully operational by 2021.
The three new DFCs will cover 5,769 km. The preliminary engineering and traffic system study of these corridors has already been completed. After the cabinet approval, DFCCIL-a special purpose vehicle set up in 2006 under the railways ministry?will undertake a detailed project planning including plans for land acquisition. While the East-West Corridor (2,328km) will be built between Kolkata and Mumbai, the North-South Corridor (2,327 km) is planned between Delhi and Chennai and the East Coast Corridor (1,114 km) between Kharagpur and Vijaywada.
Inland waterways: Untapped potential
India is blessed with 7,551 km of coastline and about 14,500 km of navigable inland waterways. Yet this sector has remained neglected despite universal acceptance that transportation through waterways, both coastal and inland, is fuel efficient, environment friendly and more economical than rail and road. Of the navigable inland waterways, 4,503 km are national waterways, the development and maintenance of which is the responsibility of the Indian government and the remaining portion is with state governments.
Using waterways for transporting people and goods is nothing new for India. Until about 100 years ago, the Ganga River was a busy waterway that was used for the movement of commodities such as tea, jute, and spices. But with the coming of the railways, this watercourse fell into disuse. At present, according to a World Bank report, India’s freight movement traverses mainly on roads (65 per cent). Railways come next (27 per cent); waterways account for just (0.5 per cent) of the movement. The freight movement on waterways across countries is also much higher in the West and China than in India: In the US, it’s about 8.3 per cent; in Europe 7 per cent; and in China it is 8.7 per cent. There are several reasons why the Centre is so enthusiastic about the waterways project. According to the World Bank, which is financing the National Waterway Project, the cost to transport one tonne of freight over one km for highways is Rs 2.28. It is Rs 1.41 for railways and Rs 1.19 for waterways. Second, its greener means less polluting.
"As per RITES Report of 2014 on "Integrated National Waterways Transportation Grid", one litre of fuel moves 24 tonne km by road, 95 tonne km on rail and 215 tonne km on inland water transport. Third, ferrying goods via waterways is faster than on congested road and rail networks, which slows the movement of cargo, adding to uncertainties, and increasing the costs of trade. Fourth is the pollution cost of traffic bottlenecks.
While there are several positives of the waterways project, any infrastructure development will have environmental costs, and those must be taken into account while evaluating the benefits of the project. This is because while the main infrastructure [waterway] is naturally available in this case, it needs to be "trained, maintained and upgraded" to ensure that the movement of cargo carriers is possible.
One important aspect of this "training" a waterway is dredging, which is required to ensure that the required water depth is maintained everywhere for the goods carriers to pass.
India has six national waterways: the Allahabad-Haldia stretch of the Ganga river (running through Uttar Pradesh and West Bengal); the Dhubri-Sadiya stretch of the Brahmaputra (Assam); the Kottappuram-Kollam stretch of the West Coast canal along with the Udyogamandal and Champakkara canals (Kerala); the Kakinada-Puducherry stretch along with the designated stretches of the Godavari and Krishna rivers (Andhra Pradesh, Puducherry); the designated stretches of the East Coast canal, the Brahmani river and the Mahanadi delta (Odisha); and the Lakhipur-Bhanga stretch of the Barak river (southern Assam). Ships that can travel freely through sea and river channels were first freed from a few provisions of the Merchant Shipping Act in 2011. Incidentally Merchant Shipping Act regulates the movement of ships in the river and in sea. This relaxation is now being significantly expanded to cover more ships. The changes in the Act on river-sea vessels were aimed at reducing the costs of constructing and operating vessels to encourage coastal shipping, inland water transport and trade. It was also designed to encourage the upgradation of existing inland vessels for coastal operations.
A seamless integration of river-sea trade using coastal ships is expected to provide an alternative means of quick discharge and dispersal of cargo from mother ships docking at big ports and their onward movement by sea to various smaller ports along the coast as well as inland locations. As ships built under the river-sea vessel regulations require very little depth to dock, they can load and unload cargo at smaller ports, which is not possible for bigger ships.
The Sagarmala programme is an initiative by the Ministry of Shipping to promote port-led development in the country through harnessing India’s 7,500 km long coastline, 14,500 km of potentially navigable waterways and strategic location on key international maritime trade routes. Sagarmala’s vision can have a potentially transformative impact on India’s logistics competitiveness and the wider economy.
Road transport and hurdles
There has been a significant increase in the commercial vehicles on the road in the recent times. Increase in commercial vehicles is a reflection of increasing demand for the movement of goods. According to surveys by the Indian Foundation of Transport Research and Training, one in every three trucks in the country is overloaded and they are to blame for 50 per cent of road accidents. In 2011, overloaded trucks accounted for 20 per cent of road accidents and in 2013, around 38,370 people were killed because of these overloaded vehicles.
Most trucks are found overloaded by 25-50 per cent. Senior fellow and coordinator of the Indian Foundation of Transport Research and Training (IFTRT), SP Singh, said: "When a truck is overloaded by 10 per cent, it’s steering and brake control is reduced by 50 and 40 per cent, respectively. Overloading also reduces the productive life of the road by 80 per cent and the productive life of the truck by 30 per cent."
But small-time operators and middlemen who run the majority of the country’s trucks consider overloading a necessary evil. Part of the problem is the industry’s skewed ownership pattern that makes accountability difficult. The problem lay in the lack of implementation of the Motor Vehicles Act. As an example, Singh mentioned the over 260 computerised weighbridges which has not stopped trucks in the capital from getting overloaded.
Around 5,000 cargo operators control the freight movement and only in about 2-3 per cent of the cases do customers access the truck owners directly to book for their goods. S Sriram, the professor of Transport Economics at Mumbai University, attributed the ownership structure to low capital requirements, easily available truck driving licenses, and easy availability of freight. He said the operators regularly loaded their trucks beyond the permissible axle load to maximise each vehicle’s earnings and the consignors of bulk commodities, like fertilisers, steel and cement, overloaded the vehicles in order to get freight service.
It’s a fact that when a truck is overloaded, the control on the steering and brake are reduced. In addition, frequent overloading reduces the productive life of the truck as well as the life of the road. In order to reduce the overloading of trucks and accidents, the Government has taken some major steps. For instance, a high penalty has been proposed in the Road Transport and Safety Bill for those who fail to comply with the new rules, with a suspension of permits for one month upon the first offense and a cancellation of permits if the offense is repeated. But these measurements are not enough to solve the problem as the truck owners or operators are still continuing to load their trucks beyond the permissible axle load to maximise each vehicle’s earnings.
Similarly, the consignors of bulk commodities like fertilizers, steel, and cement, overload the vehicles in order to save on the freight cost. Considering the trip economics, they are willing to pay higher prices to enter the city. In fact, there are a few states that have almost legalised overloading by issuing formal permits; illicit payments mostly clear the way for the vehicles. While there are weighing stations on the highways, it is surprising that many states or cities in India don’t even have check-posts to stop overloaded trucks from entering into the city or a dedicate area such as bridges. So, it appears that the main solution to overloading may lie in the proper implementation and enforcement of the Motor Vehicles Act.
In order to curb overloading, government or transport officers should more aggressively follow the Motor Vehicles Act and take strict actions against the rules violators. With such enforcement of the regulation, we can expect to see lower accidents, a lesser number of casualties and less damage on the Indian roads. All these will lead to higher productivity of the transport companies and that of the logistics sector.
Another problem which is often encountered by the truck operators is so called local truck owners not allowing "outside" truck operators to load consignment at few locations where local truck associations are very strong and classify themselves as local v/s outside. This results in the returning the truck empty after unloading the goods. It leads to waste of fuel and increase in transport cost. Turnaround time of truck is another pain point for easy truck movement. Normally at any factory gate you will find number of trucks parked in hundreds waiting to receive their load. Many factories call the trucks on ad-hoc basis, whereas very few have a system of first in and first out. Use of technology will only improve the scene.
After introduction of GST, crossing the border of a state has become little easy, yet at many places authorities still insist on paper documents creating stoppages to make quick money. Ministry can think of creating flying squads to arrest such harassments.
Rivigo experiment
India needs one million new truck drivers every year for the next 10 years to support the ecosystem and achieve our GDP growth aspiration. It is estimated that India will have 480 drivers for every 1,000 trucks on the road by 2022. The problem is not in the truck driver’s income or skill gaps but is deep-rooted in his terrible lifestyle away from his family. Long periods of absence leading to social disrespect, stigma and a risk perception of the job which makes their families push them to quit their job. Truck drivers play a vital role in freight transportation industry but unfortunately, drivers don’t get their fair share of economic growth. At Rivigo, a start up logistic company is working relentlessly to build a system that strives to improve their socio-economic conditions through couple of measures. It follows relay models that helps over 95 per cent of the pilots (drivers) get back home every day and spend quality time with their families. Rivigo has been an innovator and trend setter in logistics.
This supply demand gap has put pressure on the logistics companies. Every transporter or logistics company cites recruitment and retention of truck drivers as the biggest growth inhibitor for them. This has been also being highlighted in the draft National Logistics Policy council in their latest report.
Relay trucking model
The solution to curb the unprecedented shortage of truck drivers in India is clear -to make truck driving a regular day job using relay trucking. Relay trucking is an operating model innovation where drivers change over after every few hundred kilometres of driving through a network of change-over stops called "relay pit-stops" and then get rostered back to their home base to return to their families every single day. Relay Trucking is better service, more efficient and "Human."
Rivigo has been transforming the sector with their global-first driver relay model and cutting-edge technology to consistently provide unparalleled delivery times and reliability to clients. They are solving the challenges of the logistics industry using technology – be it problems like fuel analytics, route planning, human behaviour analysis or pure-drudgery elimination tasks like auto-alert systems and intelligent decision systems. Their technology obsession has resulted in simple, intuitive technology products gaining quick and easy adoption by the trucking ecosystem stakeholders.
Post demonetisation of high value currency, the logistics industry is grappling with cash shortage which has affected fleet operations across the nation and has crippled the Indian highways. Fleet owners have come to a bottleneck and cash shortage is threatening delivery of goods to consumers and businesses. 90 per cent of trucking spend and 40-50 per cent of the non-trucking logistics spend is rendered in cash.
About 85 per cent of the fleet owners who own less than five trucks spend hard cash towards diesel purchase, which comprises 45-50 per cent of the cost of trucking. Toll charges, which amount to 10-15 per cent of trucking cost and other overheads such as driver wages and vehicle maintenance, are also disbursed in cash. Only EMIs and replacement capex including tyre-related expenses are done to an extent through digital modes such as bank transfers and cheque payments. Overall, road logistics cash spend is estimated to be $100 to $110 billion or Rs 650,000 to 750,000 crore which would easily add up to 40 per cent of the cash in circulation in our economy. This is assuming the multiplier effect of currency that applies both ways, that is, the drivers who now get paid through digital modes will largely continue to spend through digital modes (also enabled by the current push towards cashless economy) Operations in the trucking sector can be made entirely cashless through the use of E-POD to get direct payment transfers from customers, automated bank transfers with the breakthrough same day settlement for brokers, integrated payment solutions with fuel companies for dealer payments and toll payments can be achieved through NHAI initiative on FASTag through RFID tags and wallet solutions. Also, fleet owners can remunerate truck driver wages, reimbursements and incentive payments directly through the Jandhan accounts.
Apart from digitisation and faster turnaround of trucks, cashless trucking economy will bring significant second order benefits. It will ensure less inefficacy owing to proper accounting of cash-related wastages (fuel, toll payments), eliminating instances of kerosene mixing by drivers and poor quality roads" usage to avoid toll cash, which also directly leads to the poor health of the fleet and poses a safety hazard. On the other hand, drivers will face less harassment from RTO and sales tax officers on highways and check posts. It will also improve road safety and adherence to regulations as it is a level playing field for non-compliant and compliant fleet owners, ending overloading and violation of safety norms. Truck drivers, loaders and all the large skill pools can be brought into the mainstream economy and will qualify for loans from financial institutions. Furthermore, it will also ensure employers and contractors pay minimum wages to workers in this sector. Lack of in-hand cash will reduce instances of substance abuse (including alcohol) and negatively impact the commercial sex worker trade on the highways which often leads to contraction of HIV amongst truck drivers.
There is short term pain to the sector due to lack of cash but in the long term, it can turn around the sector completely by making it efficient and safer and contribute significantly in making India cashless.
Now coming to cement specific, where subject is little different. In cement around 30 per cent cost is incurred on logistics, which is substantially higher than the general industry norms. There is enough scope to bring it down and companies like Shree Cement are setting an example. Cement plants need to make extensive use of technology to bring down the cost. In many places cement plant uses a mixed model of railways and road for dispatch of cement but there are few locations like Gagal (Burmana) where only road movement is possible since rail head is absent. Many of the hurdles explained above are quite pronounced in cement industry and need to be tackled on war footing. Taking advantage of present economic slowdown, there can’t be better time to undertake such initiatives.
– VIKAS DAMLE
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