The automotive industry, which provides the infrastructure backbone for logistics, needs a consistent supply of products to meet various end-use applications like suspension, transmission, and chassis components. Of course, the quality, cost, and delivery expectations are quite high in this sector. So, a mutually beneficial relationship exists between logistics players and automobile producers on one hand and steel metal suppliers and steel products on the other.
Market participants in logistics
Market participants in the country’s logistics sector demonstrate a varying breadth of capabilities such as full/part truckload providers (e.g., VRL) and express parcel transporters (e.g., GATI). The logistics landscape also includes shippers of cross-border air and sea freight (like Gateway Distriparks) as well as supply chain service providers (like DHL). Then there are businesses like the Container Corporation that focus on rail freight.
What is holding back the sector?
The logistics sector in India is highly fragmented. Most drivers own single trucks; 85% of truck operators own less than 20 trucks. The vast majority of trucks in India
are either 2-axle or 3-axle carriers with a load-carrying capacity of 28 tons at the most. Organised logistics providers account for less than 4% of the market and their services hardly ever extend beyond the top cities and special economic zones. Some of India’s e-commerce majors boast sprawling and tech-savvy warehouses, located on large parcels of land outside big cities. That said, 9 out of 10 warehouses in India are smaller than 10,000 sq ft.
India’s logistics spend is reckoned to be around 13% of the GDP (nearly $400 billion), a major drag on the economy. The country’s logistics costs compare rather unfavourably with the global average of nearly 8%. Transport expenses are significantly lower in the US and Europe because of supply chain efficiencies achieved by embracing smart techniques and a well-integrated technology infrastructure. By contrast, a large number of logistics operators in India make do with siloed systems that do not communicate so well with each other.
New holistic approach to logistics
The holistic national logistics policy (NLP) announced by the Indian government in December 2019, aims to overcome challenges bedevilling smooth cargo movement in the country. Among other things, NLP is expected to create the right environment that will help providers reduce their logistics costs by up to 8% of the GDP in five years’. The much-awaited policy puts emphasis on redesigning logistics processes and converting information held in analog format to digital. This will ensure more openness in terms of operations, enable continuous tracking of logistics metrics, and improve knowledge sharing across the sector.
Smart technologies at work
The “holistic logistics ecosystem” envisioned by the government and industry is going to be powered by a host of smart techniques. For instance, the geotagging feature can be applied to warehouses, cold storage facilities, refrigerated trucks/vans, and delivery persons. This generates streams of data, which, in turn, will help in easily tracking the movement of goods, location of warehouses, and availability of storage space on a map.
All this data is fed into a centralised database and anyone can access the same through an app on a need basis. Besides, using advanced camera systems to automatically capture and process goods-related data at warehouses and logistics companies will certainly drive employee efficiency and ensure cost savings. Furthermore, statistical algorithms can be run on past data as well as data continuously generated by different sources in the logistics ecosystem to predict future trends and streamline operations.
Multimodal logistics parks
The government plans to develop multi-modal logistics parks in 15 locations across the country for seamless cargo movement involving different modes of transport. Such parks will comprise container freight stations for sea cargo, inland container depots linked by rail to nearby gateway ports, and freight terminals at ports for processing shipments. This arrangement will decongest ports, eliminate chokepoints, and improve overall connectivity while lowering freight costs.
The NLP hopes to improve trade competitiveness, create more jobs, and help the country emerge as a major logistics hub. However, a lot depends on how soon the sector can be digital-ready. Tapping private investment and initiative to develop contemporary warehouses, freight terminals, and smart logistics networks is key to the success of NLP. Alongside, policymakers and industry stakeholders must continue to pursue the cause for holistic logistics with steely determination.
Steel industry as a key enabler of “holistic logistics”
India’s logistics market is on an upward trajectory. The sector is considered key to realising India’s aspiration to become a $5-trillion economy over the next few years. Steel products and steel metal suppliers will likely see significant traction in the market. Downstream MSMEs are also expected to contribute significantly to the country’s economic boom. Preferential pricing, just-in-time supplies, and other initiatives will help MSMEs get a head-start in the market. Besides, these businesses might require training, development, and hand-holding services from time to time. Mindful of this, MSMEs often prefer to work with upstream steel suppliers who are willing to devote sufficient bandwidth to them.
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