The future of Indian logistics depends considerably on the growth and vested interest in Multimodal Logistics Parks (MMLPs) that facilitates smooth, efficient, and seamless cargo movement. MMLPs are definitely more than just four-walled warehouses, smartly built, huge automated structures which conduct all key operations from assembling to manufacturing, storage and packaging to transporting. And looking at the current market scenario, adversely hit by the coronavirus pandemic, MMLPs are the only saviour facilitating numerous operations, all under one roof and helping maintain supply chain resilience by providing instantaneous connectivity to rail, sea, air, and road.
Ritika Arora Bhola
The central government has recently declared to develop 35 MMLPs in the country, which are not only expected to bring down the logistics costs to a great extent but also help the country’s economy revive in a big way, after major breakdown due to COVID-19.
As many as 36 ring roads in the country have been identified for logistics parks. These will be developed jointly by the National Highways Authority of India (NHAI), the National Highways Infrastructure Development Corporation (NHIDCL), and the respective state governments. According to the Centre, MMLPs will serve 50 per cent of the freight movements, enabling 10 per cent reduction in transportation costs and 12 per cent cut in CO2 emissions.
In the post pandemic world, companies will be keen to consider ‘ready to move facilities’ that are integrated with sustainable features and adaptable for automation, and as such would be a greater interest towards MMLPs, whose usage and adaptation unfortunately is at a nascent stage and no tangible interest has been witnessed for its development over the years until recently.
“Post-pandemic economic scenario clearly indicates significant transformation in logistics segment,” says Chandranath Dey, Head– Industrial Operations and Consulting at JLL India. “This change is necessary for smooth delivery system, controlling hygiene parameters, retaining customer’s reliability and value for money service to them. Increasing aversion trend in cross-border physical movement- railways/waterways/coastal shipping shall play a major role in moving shipments. For last-mile delivery, road might be useful for connecting to the final destination. As a result, multimodal logistics facility, primarily rail and road are going to play major role for consolidating cross-border shipments and last-mile connectivity.”
Practically notifying about some of the transformational changes the pandemic has brought, the researcher significantlyhighlights two key factors.
Modal shift in cargo movement: Road transportation has always been preferred option for India’s cargo movement with 57 per cent of all cargo movement through road. During the lockdown, however, when the mobility of goods across the country by road transportation was restricted by several checks, India’s logistics sector took to the alternate mode of transport– railways.
India has world’s largest rail network – a total length of 123,000 kms but only caters to 36 per cent of all goods transported through as compared to 47 per cent in China and 48 per cent in USA. The pandemic has catalysed the true potential of Railways as a mode of transport. A visible shift to railways is depicted below:
- Total freight loading by Indian Railways increased by 3.82 million tonnes (volume) and INR 25.9 crore (value) between April-August 2020.
- India successfully ran world’s first double-stack container train in high rise OE electrified section in June 2020 – an indication of achieving even higher efficiency in rail transportation in the future.
Change in consumer behaviour: Consumers are currently opting more of online shopping rather than stepping out for daily purchase and other need.
- Indian online grocery achieved 76 per cent jump (US$ 3.19 billion) in 2020 compared to previous year.
- E-commerce players are now aggressively reviewing their entire supply chain plan for ensuring delivery of their customer’s need and are partnering with the Indian Railways for pilot programme to carry out inter-city transport of e-commerce packages.
Taking into account India’s industrial and logistics real-estate industry that remained the most resilient asset class during the pandemic and which is likely to emerge quickest and strongest in 2021, Anshul Singhal, Managing Director and CEO, Welspun One Logistics Parks believes the whole gamut of logistics and warehousing will become more robust and seamless, offering more on-demand capabilities and access to a multi-channel experience.
“Many players promise faster deliveries making the last- mile delivery a critical aspect to enhancing customer experience. In such a case, multimodal logistics parks will be the way ahead. Providing a single hub for all logistics related services can provide not only economic benefits, but also help ramp up in terms of scale, if needed,” Singhal feels.
“This revolution is now in the process of revamping and remodeling the Warehousing and Logistics Industry completely,” says Abhijit Verma, Executive Director and CEO at Avigna Group. “The need for deeper market reach has definitely been highlighted and underlined by COVID-19 and the lockdown, though the push for resilient supply chains has been on-going in India in the recent past.”
“A network of well-connected, well-equipped, multimodal warehouses was something we had in mind even when conceptualising Avigna spaces. With digitisation and the growth of markets in tier II and III cities, almost every sector providing goods to an end-consumer needs to be well-placed at strategic locations in order to reach their users effectively,” adds Verma.
“We at Avigna are looking at forming a ‘golden circle’ of warehouses to make deep inroads into catchment areas around major cities in South India. Post-lockdown these remain key factors in our way forward,” Verma went on to inform.
On the same page, Aditya Vazirani, CEO, Robinsons Global Logistics Solutions puts down, “The need and requirements for warehousing services has increased and this will have a positive impact on the growth of multimodal logistics parks driving more companies to use 3PLs and companies to look at operating more strategically located warehouses closer to their customers. Multimodal logistics parks offer secure and modern spaces where services providers can utilise every cubic foot to provide cost effective solutions but also run operations 24×7 with an abundance of local resources in order to service the customers.”
Achieving cost coherence
In the past, many noble policy initiatives have been mooted by various governments to bring down logistics cost, however those policies lose steam with change of government.
While recently sharing the plans to develop a network of 35 MMLPs across the country, the Centre was seeking to transform the abysmal scenario wherein logistics accounts for about 18 per cent of the total product cost in India, as against 8-12 per cent in China and 12 per cent in Europe.
“Multiple initiatives to improve logistics efficiency are already underway, including building of economic corridors apart from multimodal logistics parks with an aim to minimise the loss of time and risk of pilferage and damage to the cargo at transhipment points,” says Abhijit Malkani, Country Head- ESR India. “Another advantage of MMLPs is the ability to transport goods door-to-door under a single document. With growth in B2C e-commerce, the logistics sector will witness a great surge in volumes, the demand of reliability and competitiveness will also be very high. Therefore, airports and city or township authorities are keen to develop air cargo multimodal hubs and modern automated warehouses to optimise time and processes and increase efficiency.”
Dey presents exclusive statistics and information to introspect the overall distribution of logistics cost from the manufacturer / importer to a consumer.
|Logistics Cost Heads||% of total cost||Remarks|
|Transportation||50%||Transportation comprises of the largest piece of the logistics cost. Thus, any attempt to shift to a mode which reduces the cost of transportation, would bring down the overall logistics cost significantly. Multimodal logistics parks endeavours to do that by providing a rendezvous of different modes (rail and road primarily).|
Source: Exchange, Inc (Logistics Cost and Service Report with modifications by JLL)
According to the JLL Research, multimodal connectivity has significant inherent opportunity to achieve optimisation in per unit logistics cost and efficient material handling. MMLPs bring the combination of road and rail– the two most important modal transport modes which comprise 90 per cent of the countries cargo movement. The following illustration indicates impact on logistics cost on multimodal connectivity based on assumption of 5,000 tonnes cargo to travelling a distance of 1,000 km.
|Illustration of 5,000 tonne cargo to be transported by 1,000 km distance in Rail & Road|
|Modes||Transport Unit||Transportation Cost (In Rs. Million)||Transportation Time (in Hrs.)||No of Unit|
|Note: Rakes (train), a line of coupled freight wagons (excluding the locomotive) that typically move together|
Dey continues, “Multimodal logistics facilities work to achieve 45 per cent of cost savings and 50 per cent of travel time savings. In addition, railways can achieve significant reduction of human intervention and modal transport units for travelling 1,000 km distance. The only concern points for achieving the desired result are achieving the desired volume of cargo for single shipment.”
Post-lockdown, the Indian logistics and supply chain industry is truly expected to grow at a massive pace, even as post-COVID recovery with increased manufacturing and exports are on the cards, say experts around the world.
Currently, however, the Indian logistics sector is burdened with high freight costs, that amount up-to 13 per cent of the GDP. The MMLP initiative by the government is an excellent step to reduce these costs, through an integrated effort of technology intervention, and development of infrastructure and processes. But, there needs to be 100 per cent implementation of plans and policies and investments in required infrastructure and processes.
Framework to accelerate than reshape
MMLPs are definitely expected to help the industry change from point-to-point freight movement to the hub-and-spoke model followed by developed economies. Most notably, multinational logistics companies have expressed confidence in the current policy regime leading to steady inflow of foreign investments.
“Government’s latest initiative will account for 50 per cent of the road freight in the country, which is aimed at improving the country’s logistics sector by lowering overall freight costs, reducing pollution and congestion, as well as cutting warehousing costs. Additionally, the government has offered a thrust by giving infrastructure status to the logistics sector,” says Malkani. “Besides, Make in India, development of multimodal transport networks, and initiatives to set up projects such as Delhi-Mumbai Industrial Corridor (DMIC), Amritsar-Delhi-Kolkata Industrial Corridor (ADKIC) have attracted interest in the asset class. Further, policies such as the introduction of agriculture reforms bill aiming to enable farmers to engage with agri-business firms, processors, wholesalers, exporters or large retailers for farm services and sale of future farming produce, leading to boost in demand for storage facilities in key states in India is a welcome development.”
MMLPs are a strategic initiative to achieve real benefits of multimodal connectivity for the country, says Dey. “Hub-and-spoke model for creating similar logistics infrastructure is certainly a logical development structure to transport bulk cargo; suitable matching infrastructure and support facilities, e.g. material handling equipment, storage facility (both dry/cold), transport network, skilled manpower, etc. will enable seamless last-mile connectivity.”
The success, Dey says, will rely on parallel development and start of operations at all parts or at least at a regional level in the country. For achieving the same, central and state governments should create a common platform to resolve various interlinked compliance process/regulatory requirements. Some of the key issues, which should be appropriately addressed, include:
- Land identification (both location and size) near to consumption and multimodal handling points
- Compliance to dedicated Railway siding
- External infrastructure primarily connecting last-mile road network
- Availability of storage space within/nearby area
- Innovative funding arrangement for attracting private investment
- Regulatory support for various compliance and approvals including traffic plan
According to Singhal, on the policy front, there have been multiple reforms introduced towards the rigorous development of the sector. Further, focus by the government on manufacturing in India sits well with the global sentiment of manufacturers, as India is expected to become a potential destination of investments due to the on-going trade war. The government has also opened their land banks and clusters of development across the highways which are going to benefit the industrial and warehousing sector at large.
However, Singhal says, while supply is dependent on how the state government provides amenities; some states are at an advanced stage while others are on the back foot, resulting in a parity of difference. The policy impetus needs to be equalised across all the states to prove beneficial to a pan-India player which will in the end translate to a scale proposition.
He stresses, “The government can also look at certain relaxations in regulatory approvals to fast-track the pace of construction and provide tax rebates that will aid in building Grade ‘A’ facilities and vice versa. Even though warehousing has got an infrastructure status, there needs to be clarity on how it is possible to procure funding from infrastructure funding agencies at good rates and longer terms. To help bring down costs, the government should consider granting an industry status to the sector pan-India.”
“The government is keen to push for conclusive land titling as it will facilitate easy access to land with clear titles in and around tier I and II cities to develop modern and sustainable logistics parks, besides enabling transparent real-estate transactions and land acquisition for infrastructure development,” says an optimistic Malkani. “Further, development of freight corridors will make it cheaper, faster, and more reliable to move goods between the industrial heartland in the north and ports on the eastern and western coasts. Development of port infrastructure to enable large scale freight movements and digitalisation will play an important role in the efficiency and performance in freight management and port operations. Through the National Logistics Policy, the Centre is adequately focussing on development of fully integrated logistics network with modern technology and automation.”
Of a similar opinion, Vazirani says, “With MMLPs, which is going to be headed by the Ministry of Road Transport and Highways (MoRTH) under its Logistics Efficiency Enhancement Program (LEEP), the government has been taking the right steps. Apart from these initiatives, strong industry support and apt regulatory framework, which is in the making, will go a long way in making the objective a success.”
Era of the hub economy
Prime Minister Narendra Modi had pitched India as a key player in the global supply chain at the virtual meeting of the US-India Strategic Partnership Forum in September. Multimodal Logistic Parks can be critical in realizing the vision of transforming India’s logistic landscape as the strategic single location feature of these parks makes them a more viable option. Hence, multimodal parks can help India develop a world-class logistics sector to realize its enormous economic potential.
Modi said at the virtual meeting that the coronavirus pandemic has shown the world that the decision on developing global supply chains should be based on not only on costs. “They should also be based on trust along with affordability. Companies are also now looking for reliability and policy stability. India has all of these qualities,” Modi said.
Modi’s message to investors presenting India as destination they cannot ignore comes at a time many multinational corporations are exploring a China plus one strategy for developing their value chain, to de-risk any disruption in the future. Modi also said that because of the advantages India is enjoying, the country is becoming one of the leading destinations for foreign investment.
Among the advantages India offers to investors are transparent and predictable tax regime, a tax system that encourages and supports honest tax payers and a bankruptcy code that reduced the risks in the financial system. “India has political stability, policy continuity and commitment to democracy. And our labour reforms will reduce compliance burden for employers and provide social security protection to workers,” Modi said.
JLL and Invest India whitepaper titled ‘Great Places for Manufacturing in India’ drives an investor through the entire investment route to understand the advantages of India, find out which location in India should they consider, incentives and how to ground the investments in the country.
“To achieve manufacturing success, logistics is going to be one of the key enablers. India’s strengths in the logistics and infrastructure sector need to be harnessed,” says Dey. “Connecting macro level strengths needs special attention to maintain continuity at micro level. For examples, one packaged dairy product requires to be transported from its production to consumption point at a constant environmental specification. For that, an appropriate cold chain system for transportation and storage with adequate logistics management information support needs to be maintained. Modern MMLP facilities with pan-India footprint, advanced material handling mechanism, technological intervention, skilled manpower, and planned transport infrastructure can create this seamless movement leading to minimum loss and maximum profit.”
On a positive note, Malkani says, “We do believe that India has the potential to become the next manufacturing hub in the near future with the implementation of right policies. Increasing demand of multimodal logistics parks and infrastructural push around the initiative are likely to lead to a spur in demand for new warehouse space development as well as increase the demand for existing warehouses. These initiatives have a long gestation period and need a lot of infrastructure development for its sustenance. Hence, it would take time for the impact of these changes to be visible.”
“India has one of the youngest populations in the world, with more than 50 per cent of its people being below the age of 25 years and more than 65 per cent of the population being below the age of 35,” says Vazirani. “This, coupled with supportive government push on Vocal for Local, Make in India, Digital India, skill up-gradation and transformations in the education policy to focus on vocational training, etc. is aiding the country to grow by leaps and bounds. And, manufacturing and logistics is going to be an important growth lever in this journey.”