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Technological Innovations in the

Indian Logistics Industry: The Case
of Freight Handling
ARTICLE JANUARY 2009

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Technological Innovations
in the Indian Logistics Industry:
The Case of Freight Handling
Kolluru Srinivas* and Kolluru Krishna**

For any industry, use of Information Technology (IT) and innovation is

necessary in order to stay ahead in the competition. The logistics industry
is a classic example of the birth and development of a vital new service-based
industry. The industry has been transformed from the business concept
of transportation to that of serving the entire logistical needs. The challenges
of the modern technology-driven competition, globalization of manufacturing,
shorter product life cycles, increasingly sophisticated customers needs
and greater integration of technologies compelled the logistics industry
to develop innovative strategies and processes. The main objective of this
paper is to present a brief insight into the various cost saving technologies
that were adopted by the Indian logistics industry (road, railways, ports and
aviation) for improving the services. The paper gives a brief picture of
the logistics industry in India. It also gives a brief literature survey on the
topic. The paper also describes the recently used technologies and some
of the innovations that have taken place in all the major transportation
chains (road, rail, marine and aviation) and their benefits.

Overview of Indian Logistics Industry

A Brief Background
The Indian economy has been growing at an average rate of over 8% over the last few years.
The economy has posted a growth rate of 9.0% in 2007-08. Similarly, the manufacturing
sector has registered a growth rate of 8.2%, which is acting as a major growth driver for
the logistics industry. The major logistics functions of the industry include transportation,
warehousing, freight forwarding, etc. Spending on the logistics industry in India is estimated
* Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent,
New Delhi, India. E-mail: ksrinivas@imi.edu
** Research Associate, International Management Institute (IMI), Qutab Institutional Area, Tara Crescent,
New Delhi, India. E-mail: kolluru007@gmail.com
114
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The IUP Journal of Infrastructure, Vol. VII, Nos. 3 & 4, 2009

around 13% of Gross Domestic Product (GDP), which is estimated at Rs. 4,068.63 bn in
2007-08.1 However, Indias spending on logistics is much higher than that of the developed
economies like the US (9.5%), Japan (10.5%) and Germany (10%). Figure 1 provides a brief
picture of Indias spending on logistics over the last few years.
Figure 1: Spending on Logistics in India
4,500
4,000
3,500
Rs. (bn)

3,000
2,500
2,000
1,500
1,000
500
0
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
Years
Source: MOSPI, PIB, Government of India

From the cost component point of view,

transportation accounts for about 35% of the
total logistics costs followed by inventories
(25%), losses (14%), packaging (11%), handling
and warehousing (9%) and customers and
shopping (6%).2

Reasons for High Spending

and Government Initiatives
The reasons for this huge spending can be
attributed to lack of efficient infrastructure
facilities, lack of implementation of Information
Technology (IT) in logistics and delay checking
points on the highways3 which invariably
increases the transportation costs. Another major
reason could be the regulatory obstacles, which
not only increases the cost of service, but also
1
2
3

Table 1: Spending on Infrastructure

from 2005-06 to 2011-12E
(Rs. bn)
Roads

1,520

Power

4,812

Railways

1,100

Telecom

1,226

Aviation

370

Ports

800

Oil and Gas

2,210

Urban Infrastructure

1,974

Total

13,973
Source: Edelweiss Research

Ministry of Statistics and Program Implementation (MOSPI), Government of India.

Edelweiss Research.
As per the estimate of the Planning Commission, Government of India, the economic cost of such delay is at a
minimum of Rs. 3,200 cr and a maximum of Rs. 4,300 cr for the year 2004 which progressively goes up to
Rs. 60,168 cr by 2017.

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

115

results in frequent delays and thereby higher logistics costs. To overcome this situation, the
Government of India has taken initiatives to improve the infrastructure in the country by
spending around Rs. 14 tn across the sectors (Table 1).

Freight Handling Scenario

Cargo traffic handled at major Indian ports has seen double-digit growth over the last
few years, i.e., 10.38% in 2005-06 and 11.35% in 2004-05. Similarly, the freight carried
by railways also grew by 10.7% in 2005-06 and freight carried by road registered a
growth rate of about 10% in 2005-06 over the previous years. It has been observed that
since 2001-02, cargo traffic (both domestic and international) at all Indian airports has been
growing rapidly. Domestic air cargo traffic has been growing at a Compounded Annual
Growth Rate (CAGR) of 12.57% from 2001-02 to 2006-07, whereas international air cargo
traffic has also registered a CAGR of 13% during the same period (Table 2).
Table 2: Cargo Handling Scenario
Year

Cargo Handled at Ports

(mn tons)

Rail Freight
(bn tons km)

Road Freight
(bn tons km)

Air Cargo
(mn tons)

2001-02

287.60

492.50

515

854

2002-03

313.50

518.74

545

979

2003-04

344.50

557.39

595

1,068

2004-05

383.70

602.10

646

1,281

2005-06

423.40

666.50

706

1,404

2006-07

463.80

726.00

763

1,553

Source: Indian Ports Association, Ministry of Railways, Planning Commission,

Airport Authority of India

Review of Literature
With reduced trade barriers and the advent of advanced information technologies, new
opportunities and global markets have become available for service providers in the logistics
industry. As organizations globalize to access new markets and achieve higher production
and sourcing efficiencies, logistics play an important role in moving materials, products,
and services through supply chains.
The concept of innovation is regarded in most organizations as an effective tool to
create and sustain competitive advantages. The logistics function is an area that is
increasingly seeking ways of adding value through innovation (Soosay and Hyland, 2004).
It has transformed from the business concept of transportation to that of serving the entire
logistical needs of customers. The service component offers a very good change of gaining
sustainable competitive advantage in the hypercompetitive global market. Conversely,
poor service or a reluctance to innovate offers a fairly good change of losing customers
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The IUP Journal of Infrastructure, Vol. VII, Nos. 3 & 4, 2009

(Chapman et al., 2002; and Esper et al., 2007). Chapman et al. (2002) also found that
the advances in technology and communication have compelled this industry to strive
permanently for new products and solutions.
Several other studies that explored improving influence of innovation on logistics industry
on a widely varied spectrum of improvement areas like, quality of service production and
delivery (Parasuraman and Grewal, 2000); research and development cost-efficiency
(Rao, 2001); transaction costs (Garicano and Kaplan, 2001); productivity, inventory and
demand management (Kaplan and Sawhney, 2000); increased customization capabilities
(Yingli and Laiwani, 2007); supply chain and relationships (Hyland et al., 2003; Kaltoft
et al. 2007; and Yingli and Laiwani, 2007).
Hence, logistics organizations must constantly seek new knowledge, think for the
customer, anticipate and innovate services to meet customers evolving needs.

Recently Used Technologies and Innovations

Need of Innovation in Logistics
One of the most challenging aspects of understanding innovation in logistics management
lies in the accepted wisdom that every product has its own unique value chain. Thus, innovation
is primarily a pull phenomenon for service providers in the logistics industry.4 The competition
among industries to manage global supply chains cost effectively, created an opportunity
Figure 2: Indian Logistics Industry Structure
Logistics Industry

Key Transportations
Service Providers

Airlines

Shippers

Road
Carriers

Infrastructure
Providers

Railways Airports

Independent
Logistics Service
Providers

Ports

Support Services

Roads

C&F
Agents

Railways

Warehousing
and Distribution
Agents

3PL

4PL

Multiple
Service
Providers

Note: 3PL Third Party Logistics; 4PL Fourth Party Logistics; C&F Agents Clearing and Forwarding
Agents.
Source: Industry Sources, 2007
4

John Seely Brown and John Hagel III define pull and push systems in the context of innovation as follows:
Push systems contrast starkly with pull ones, particularly in their view of demand: the former treat it as
foreseeable, the latter as highly uncertain. This difference in a basic premise leads to fundamentally different

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

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for innovations. Innovation in logistics could improve internal efficiency within a logistics
organization or could help serve customers better. The purpose of this paper is to understand
the need of innovation in the logistics industry, therefore, we begin with a classification
of the industry (Figure 2).

Surface Transportation (Roadways and Railways)

Recently, in India, the major thrust of the surface transport sector (both road transport and
rail transport) is on Research and Development (R&D). The major reason is to build a
comparable and sustainable road infrastructure in the country. In this context, the sector has
been improving designs, using modern construction techniques, introducing improved
material, coming up with better and appropriate specifications and using new technologies.
An outlay of Rs. 60 mn has been provided for road transport R&D in 2006-07. On the same
lines, the railway network continues upgrading its systems to take advantage of the latest
features and technological applications. In this context, close attention is paid to
maintenance, quality control and cost efficiency as these factors play an important integral
role in the efficient operation of the Indian Railways. The allotted total IT budget of Center
for Railway Information Systems (CRIS) for the year 2006-07 is Rs. 3,500 mn, where the
focus was on upgrading the existing
Table 3: Focused Areas by the Railways
technology and infrastructure and
implementing newer tools and
Web-enabled services.
techniques for building IT
infrastructure in Indian Railways Building an IT application that can reflect the existing
business performance.
(Table 3). Table 4 describes the
recently used technologies in the Shift towards data mining from data warehousing.
transport chains.
Table 4: Recently Used Technologies in Surface, Marine and Aviation Sectors
Road Transport Sector

Use of geo-synthetics in improving the performance of

pavement overlays.

Introduction of Geographical Information Systems (GIS) based

National Highways Information System (NHIS) to overcome the
traffic and transportation problems.

Road Information System (RIS)5 for Golden Quadrilateral (GQ)

project. The RIS comprises of computerized time-series.

design principles. For instance, instead of dealing with uncertainty by tightening controls, as push systems
would, pull models address immediate needs by expanding opportunities for local participantsemployees
and customers aliketo use their creativity. To exploit the opportunities that uncertainty presents, pull models
help people come together and innovate by drawing on a growing array of specialized and distributed
resources (www.McKinseyquarterly.com).
RIS has several components, which can be categorized into two groups, that is, core system and support
modules. The core system comprises of Locational Referencing System, Asset Management System, Pavement
Management System, Environmental Management System, Traffic Management System and Performance
Monitoring System. On the other hand, Support Modules are Security and Access Control Module and System
Information Module (Information available at www.nhai.org).

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Table 4 (Cont.)
database on the national highways information like traffic
analysis, pavement condition, road inventory and asset
condition.
Indian Railways

Marine Sector

Aviation Sector

Freight Operation Information System (FOIS), for controlling

and monitoring the multifarious activities in freight operations.

Rake Management System (RMS) for handling commercial

transactions.

RMS to track and manage freight wagons, freight-class

locomotives and other operations of the freight system.

Implementation of Terminal Management System (TMS) to

provide information on freight at the freight terminals, status of
the train and expected time of arrival and cost of the freight to
the customers.

With an emphasis on cost reduction and to ensure optimum

capacity utilization, there has been an increase in horizontal
integration among the shipping liners.6

Use of IT like Internet services to improve supply chain

process, enhance cooperation between freight carriers and
their customers by enabling communication and eliminating
the heavy procedures and regulations.7

Vessel Traffic Management System (VTMS) to provide effective

guidance on navigation of ships, which is already installed at
Mumbai, JNPT, Kolkata, New Mangalore and Mormugao ports.

Computerization of container handling operations like managing

container traffic, major ports connectivity, etc.

Implementation of Radio Frequency Identification system for

identifying the movement of ships wirelessly using radio
waves.

Air Traffic Management (ATM) to modernize air traffic control

services. Under the ATM, the following services are to be
provided such as, Air Route Surveillance Radars, Monopulse
Secondary Surveillance Radars, Airport Surveillance Radars,
Airport Surface Detection Equipment, Radar Data Processing
Systems, Flight Data Processing Systems, Automatic Message
Switching Systems, Automatic Self Briefing Systems, 12 VORs.

Horizontal integration has various forms such as operational arrangements on vessel sharing, slot sharing,
consortia and strategic alliances. Consortia are agreements between liner shipping companies to operate jointly
in services like technical, operational, or commercial coordination. Strategic alliances are emerged to provide
combined services on various routes to shipping lines. In addition, these alliances were formed to increase
efficiency and ensure better utilization of vessels through numerous arrangements.
In many developed countries, port information systems have been transformed into integrated logistics information
systems through interconnected efforts with other logistics-related information systems. Some of the examples
are INTIS at the Port of Rotterdam, ADEMAR at the Port of Le Havre, DAKOSY at the Port of Hamburg, SEAGH
at the Port of Antwerp, and FCP80 at the Port of Felixstowe. Generally, the IT systems facilitate electronic
submissions and clearance of shipping information.

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

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Table 4 (Cont.)
DVORs with Remote Monitoring and Maintenance facility
colocated with High Power DMEs for uni-directional airways.

Communication, Navigation and Surveillance (CNS) to facilitate

and support systems for air navigation. The CNS discharges
the services like coordination among all concerned agencies
and organizations, preparation of estimates, invitation of
tenders, evaluation of technical and commercial bids,
placement of orders of equipment and its subsequent
installations, etc.

Electronic Data Interchange (EDI) to know latest information

and status of export/import cargo via Internet.

Flight Data Processing System (FDPS) to achieve improved

automation of air traffic services.

Automatic Dependence System (ADS) for enhancing the

surveillance over Indian air space.

There are also few other technologies that were proposed to

be taken up for the development of the Civil Aviation Sector
in the country, such as:

IT-based system to assess vehicular traffic volume for

airport public access.

LED-based airport lighting and display technology.

Intelligent digital surveillance.

Integration techniques for information.

Information dissemination and online payments through

Internet.

Radio frequency-based identification techniques.

Wireless information technologies.

Smart card technology.

Common use IT systems.

Online simulation of terminal congestion.

Electronic perimeter
prevention.

Explosive detection technology.

Satellite-based CNS/ATM systems.

security

system

and

intrusion

Marine and Air Transport Sectors

Over the years it has been observed that around 90% of Indias external trade is moving
by sea. With the economy growing at a rate of over 8% and positioning itself as manufacturing
outsourcing base, new technologies are needed to be developed in the light of the emerging
scenario in the Maritime industry. On similar lines, the air transport sector in India is also
growing fastly and adopting new technologies for delivering qualitative services.
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Innovations in Road Transport Sector

Over the last few years, India is experiencing the problem of traffic congestion owing to
growth in vehicle population, which is growing at a rate of 8-9% per annum. To overcome
the problem, the Government of India has come out with an ambitious program, i.e.,
Jawahar Lal Nehru National Urban Renewal Mission (JNNURM) for improvement of urban
transport infrastructure in the country.
Generally, investments in the transport infrastructure, particularly in the highways,
were being made by the Central or State governments in India.8 But as an innovative tool,
now the Central as well as State governments are attracted towards the private sector owing
to the managerial efficiency and consumer responsiveness. In this context, the government
has laid down certain comprehensive policy guidelines for private sector participation in the
road transport sector. On the policy guidelines front, the government has announced several
incentives such as tax exemptions, duty free import of road building equipments and
machinery, etc. As a result of the governments initiative to involve the private sector in
the infrastructure projects, the National Highway Development Program (NHDP) Phase III
to Phase VII were taken up on the basis of Public Private Partnership (PPP) on Build, Operate
and Transfer (BOT) mode or Annuity mode.

Innovations by Indian Railways

As an experiment, by leasing out catering and parcel services, the Indian Railways
(IR) has reduced catering and parcel losses of about Rs. 10 bn in 2005-06. The Railways
has also enhanced wagon capacity by attracting private investments in the wagon
investment schemes and siding liberalization schemes.
While retaining the core activity of train operations, the IR awarded licenses to private
parties for running container trains, which is likely to attract investment in wagons
and construction of terminals in the coming years.
The IR also plans to explore more PPP schemes with an aim to modernizing metro
and mini metro stations with world-class passenger amenities, development of agro
retail outlets and supply chains, construction of multimodal logistic parks, warehouses
and budget hotels, expansion of network and increase in production capacity.
The IR also constituted a PPP Cell to develop the policy framework to provide
non-discriminatory level playing field to investors, prepare the bankable documents
and set up a procedure for awarding partnerships through the open tendering system.

Innovations in the Marine Transport Sector

Radio Frequency Identification (RFID) system is commonly used to describe a system which
transmits the identity of an object wirelessly, using radio waves. RFID consists of various
components such as tags, tag readers, edge servers, middleware and application software.
8

The main reason is due to the requirement of huge volume of resources, long gestation period, uncertain returns
and various externalities associated with the projects.

Technological Innovations in the Indian Logistics Industry: The Case of Freight Handling

121

RFID is nowadays extensively used in the retail and logistics sectors as a replacement for
Universal Product Codes (UPC) or EAN Article Number Code, barcodes, having number
of important advantages over the barcode technology. RFID is generally costlier than
barcode and may for that reason, not be able to replace the barcode fully, but definitely
it is more advantageous than barcode which is having a higher storage capacity. It is
expected that almost all of our major ports will sooner or later implement RFID technology
in all shipments.

Innovations by Aviation Sector

Electronic Data Interchange (EDI) is a standard format for exchanging business data. It is
the inter-organizational exchange of business documentation in structured, machine-processable
form over computer communication networks. In India, the EDI implementation agencies
are Ministry of Civil Aviation and Airport Authority of India.
Automation of cargo processing activities and online data capturing was introduced
in 1999 at four metro airports, viz., Delhi, Mumbai, Kolkata and Chennai.
The Airport Authority of India (AAI) is assisting automation of cargo processing
activities at three non-metro airports such as, Bangalore, Hyderabad and
Thiruvananthapuram.

Benefits from EDI

Availability of latest information on status of import/export cargo to the trader
via Internet.
Drastic reduction in human power deployment by the agencies at the cargo terminal
for processing of their consignments, which will ultimately reduce the transaction
cost of import as well as exported cargo.
Information on the AAI charges that are applicable for a particular consignment
at any given time via Internet.
Availability of information on the regulatory and the facilitating agencies, cargo
handling systems and procedures, facilities available, AAI-prescribed charges/rates,
dos and donts, etc.

Conclusion
Logistics, an extension of physical distribution management, usually pertain to the
management of the materials and information stream of business, down through a distribution
channel, to the end customers. In the Indian context, the scope and role of logistics have
changed dramatically over the years. Logistics used to have a supportive role to primary
functions such as marketing and manufacturing. But now the industry expanded to cover
warehousing and transportation activities, purchasing, distribution, inventory management,
packaging, manufacturing, and even customer service. More importantly, logistics management
has evolved from passive, cost-absorbing function to that of strategic factor that provides
unique competitive advantage. The global marketplace has compelled every industry to
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The IUP Journal of Infrastructure, Vol. VII, Nos. 3 & 4, 2009

transform itself into a truly customer-oriented, service-focused enterprise, irrespective of the

products and services it sells.
To stay ahead in the modern global marketplace, organizations must constantly look for
innovative strategies to improve their competitiveness. As organizations globalize to access
new markets and achieve higher production and sourcing efficiencies, logistics play an
important role in moving materials, products, and services through supply chains. It is evident
from the paper that logistics organizations that are willing to sustain their position in the
market, will have to conform and adopt innovations of the information era. Especially,
logistics service providers have to adopt and creatively deploy up-to-date technology, because
logistics industry strongly depends on information for efficient operations. Logistics
technologies refer to the hardware, software, and network design required to facilitate
processing and exchange. It includes related components in the supply chain, such as satellite
transmissions, web-based ordering, EDI, bar coding, systems for order entry, order processing,
vehicle routing and scheduling, inventory replenishments, automated storage, and retrieval
systems, etc. The correct implementation of technologies can be a significant source of
competitive advantage to the service providers.

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