COVER STORY

Reforms
driving COST
OPTIMISATION
in Logistics
16 CARGOCONNECT - OCTOBER 2017
 COVER STORY

100%

0%

Logistics and supply chain is one of the most crucial sectors that are also highly unorganised.
Impacting the economy in and out, logistics cost increasing through the course of years is
a serious concern to ponder upon. India ranks 35th in the logistics performance index
across all the countries globally. To understand the loopholes in the system of logistics
which comprises of rail, road, air and ocean cargo supply chain, Sheena Sachdeva brings
an exclusive story to highlight the need to decrease the logistics cost of the country.

OCTOBER 2017 - CARGOCONNECT 17

 COVER STORY

L
ogistics is one of the most pivotal pillars
for functioning of an organisation. Further,
INSIDE it is a universally acknowledged fact that
the cost of logistics is very high in India.
Some estimates put it at about 13 per cent
UNDERSTANDING THE of GDP, which is higher than the US (9)
and Germany (8). A study by Assocham-Resurgent India
PROCESS OF LOGISTICS (2016) stated that the country can save $50 billion if
IN INDIA logistics costs reduce from 14 per cent to 9 per cent of
GDP. Reduced logistics costs would bring down prices
of products also. But the question is why it is so high? LOGISTICS COSTS
INFRASTRUCTURAL Cost optimisation and efficiency improvement in a (% OF GDP)
CHALLENGES GALORE logistics service providing organisation is a structured
and scientific exercise, which requires a transformative
approach towards business. Some of the organisations UNITED STATES
OPTIMISATION
TECHNIQUES
directly go for straight cost cutting without proper
analysis in order to reduce final pricing or improve
8.20%
EBITA (Earnings before interest, tax, depreciation and
amortisation), may get short term relief but in long
IMPORTANCE OF term it creates problem in some way. For a logistics
LABOUR IN LOGISTICS service provider nature of business is not centralised or EUROPE
9.20%
concentrated within four walls. Logistics is a business of
spread and reach. Due to which there are high chances
DIGITISATION of revenue leakages, poor efficiency and cost controls.
AFFECTING LOGISTICS In a business transformation exercise for EBITDA
COST improvement, organisations need to have a deep dive
evaluation of both - revenue and cost stream.
ASIA PACIFIC
GSTFICATION IN
LOGISTICS
Understanding the process of Logistics in India
Indian logistics sector has come a long way to its current 13.50%
growth state. But still the industry has various loopholes
which need to be addressed. Logistics is one of the
FUTURE OF LOGISTICS most important basic need industries require for their
INDUSTRY IN INDIA economic growth, as it is the management of the flow SOUTH AMERICA
11.90%
of products from the place of their origin to the place
of their consumption, thus the industry also involves
the integration of material handling, warehousing,
packaging, transportation, shipping security, inventory
management, supply chain management, procurement,
and customs service.
The global logistics industry mainly comprises a INDIA
complex range of freight and cargo related transportation
sectors, such as shipping, warehousing, courier, and 13.00%
road/rail/air freight. According to report from C and M
Research, the total global logistics market reached a value
of about $4 trillion in 2013, representing an almost 10 per Source: CIA, World Bank, Armstrong
& Associates
cent of global GDP. The global transportation services
market is fastest growing sector with more than 7 per
cent year on year growth since 2011, now it is expected to
generate a revenue of 3.8 per cent trillion in 2017. The US
currently accounts for more than a 42 per cent of global
transportation services sector. Over the next few years
the global logistics market will see the growth in demand
away from traditional Western economies to the emerging
markets of China, India and other Asian countries.

18 CARGOCONNECT - OCTOBER 2017

 COVER STORY

Logistics costs will go down with the help of multiple parameters like
developing the ability to map demand accurately, undertaking infrastructure
enhancements, developing technology tools, along with managing order visibility,
quality of service, timely supply and timely delivery.

Shrirang Bapat – General Manager - Marketing, United Parcel Service

New and comprehensive analysis of data
on the current routing of goods in India has
positioned the country to break through
its freight transport gridlocks and logistics
inefficiencies. With a growth rate of more
than 7 per cent since 2014, India is the fastest
growing major economy in the world. But
as a share of its GDP, its logistics costs for
moving freight are as high as 14 per cent of
GDP, markedly more than the 8–10 per cent
for most advanced economies. The gap arises
from excess costs generated by inefficiencies
in the transport system, greater costs of
storage and inventory and procedural delays.
Closing that gap would give a major boost to
India’s growth prospects. Studies of logistics
improvements in advanced economies have
shown that, with sufficiently detailed data
on freight flows, targeted interventions in
specific corridors and subsectors can enable
transformational changes in freight logistics
performance. Researchers and logistics
experts from the World Bank and few
Universities have assembled and modeled
such data for India, identifying bottlenecks
and opportunities for more strategic
investment and collocation of activities to
achieve production synergies and lower the
costs of logistics and trade.
• Labour costs associated with customer
relations (where there is a return, there
may be an unhappy customer who must
be appeased)
• Customer service labor costs (identifying
warranty eligibility, determining what
return and credit rules apply in each
individual case)
• Transaction costs
• Transport and shipping costs
• Warehouse and storage costs
Transportation services form a third
of the cost of a logistics chain. Improving
transportation would require the coordinated
development of railways, roads and waterways.
Roads carry about 60 per cent of the freight
cargo in India. As Rail transportation is more
energy efficient than road, movement of goods
via the road-cum-rail mode could reduce

Logistics Performance Index

PARAMETERS INDIA UNITED STATES CHINA

Logistics Performance Index

(LPI), 20141 Score: 3.08 (rank: 54/160) Score: 3.92 (rank: 9/160) Score: 3.53 (rank: 28/160)

Logistic cost as % of GDP 13% 8.5% 18%

Different sectors’ share of 8% 3%

18%
the logistic cost
22%
29% 52%
Transport 63% 67% 45%
Warehousing
Others

Major industries driving the Auto components, Pharmaceuticals Food processing and beverages Metals, Electronics, Cement
logistics sector Cement, Textiles e-commerce Textiles

Major challenges
● Inadequate road network ● High employee cost
● High toll charges
● Loss during transportation ● Shortage of trained manpower
Sources: Multiple sources (World Bank database, JLL Research, etc.)

20 CARGOCONNECT - OCTOBER 2017

 COVER STORY
The logistics cost of the country is 13-14 per cent of the GDP. The indirect tax
system in India is not only complex with various taxes applicable to an industry but
also widely seen to be bungling and difficult. With the oncoming of GST, logistics
cost will surely come down drastically.
Dr John Joseph, Director General, GST Intelligence
logistics costs considerably.
UPS is one of the leading organisations
across the world in logistics sectors. While
dealing with the challenges specifically in
India, Shrirang Bapat – General Manager -
Marketing, United Parcel Service informed,
“Logistics costs will go down with the help
of multiple parameters like developing
the ability to map demand accurately,
undertaking infrastructure enhancements,
developing technology tools, along with
managing order visibility, quality of service,
timely supply and timely delivery.”
Sumit Sharma, Co-Founder, GoBOLT
as one of the startups in Logistics sector
highlighted , “Demand is a problem in many
of the developed countries, but managing that
demand has been the biggest challenge in
India. And so, the logistic sector is helping in
managing the demand of supply chain, where
it manages the flow of things from the initial
stage to the final stage of consumption in order
to meet the requirement of the corporations.
Increasing in the flows of transportation
has been thus a fundamental component of
modern changes in economic systems at the
global, regional and local scales.”
Vikram Mansukhani, Head – DIESL
(3PL Division of TVS Logistics) opined,
“Logistics professionals need to fundamentally
be change-agents for the supply chain of
their companies or their customers. Very
often the way a logistics contract is drawn
out, the ‘negotiation’ focuses primarily on
the rupee per km/kg that is directly saved at
the transaction level. The focus on looking
at an end to end solution that is based on
removal of constraints of all stakeholders in
the supply chain is seldom given the attention
it deserves. Another important consideration
that is oft forgotten is to look at the entire
22 CARGOCONNECT - OCTOBER 2017
supply chain cost rather than just allowing the terminal on offers, as against the cost
the last mile to bear the brunt.” plus model currently in place. Secondly, the
Vijay Kumar, Chief Operating Officer, costs to the service provider and his users can
Express Industry Council of India added also be brought down if Air Freight Stations
few specific points in air logistics and are permitted to be opened. The reason why
how can cost be reduced in this vertical AFS have not taken off is due to high costs of
of logistics. He informs, “In air logistics transfer of import shipments from tarmac to
high costs are largely due to high cost of AFS and for export shipments from AFS to
infrastructure. Airport space infrastructure is aircrafts. Thirdly, in the case of international
express terminals, costs can be brought down
COST OF TRANSPORTATION if the airport operators provide space directly
to the express terminal operators both for
(` PER MT PER KM) common user and dedicated facilities.”
Huned Gandhi, Managing Director,
ROAD TRANSPORT Dachser India Private Limited, “Efficiency
2.28 in the transport chain and better road
infrastructure would certainly help. India
Source: CIA, World Bank, Armstrong & Associates
would also need to develop the waterways,
both inland and coastal, for the efficient
carriage of freight along with an increase of
RAIL TRANSPORT dedicated rail corridors to link major industrial
1.41
towns and cities to the ports. These measures
would certainly help to reduce logistics costs
and to make us competitive. The GST has been
a welcomed reform, as the time which is lost at
border check posts and octroi posts are now
being reduced, making the transportation of
WATERWAYS TRANSPORT goods more efficient and competitive.”
1.19 Vikash Khatri, Founder, Aviral Consulting
opined, “Logistics and supply chain is becoming
complex day by day on the other hand
competition is intensifying. In such scenario
prohibitively expensive. One of the ways this each organisation tries to innovate to improve
can be brought down is right at the tendering efficiency and reduce their cost of supply chain
stage instead of the airport operators setting a by way of redesigning the network, optimising
reserve price for royalty share and lease rents warehouses and transportation, alignment
and then the bidders bidding high on those, vendor base, introduction of automation and
it would have been better for the growth of technological tools etc.
the industry and the economy if the tender is
set based on the maximum TSP charges that Infrastructural challenges galore
can be levied by the prospective operator at Speaking of high logistics costs in India, we
 COVER STORY
Logistics professionals need to fundamentally be change-agents for the supply
chain of their companies or their customers. Very often the way a logistics contract
is drawn out, the “negotiation” focuses primarily on the rupee per km / kg that is
directly saved at the transaction level.
Vikram Mansukhani, Head – DIESL 3PL Division of TVS Logistics
have a few concerns which continue to keep of roads (3.83 million km after US’s 6.43
the logistics expenditure higher than global million km); National Highways form only
market standards. The first and foremost 2 per cent of the total roads by length and
concern is the inefficient infrastructure carry about 40 per cent of the traffic. About
which is in dire need of reform. This includes 80 per cent of the roads in India are village
our roads, railway network and but to roads. The road sector is significant to India’s
mention the air freight parcel management Transportation Segment as it accounts for
efficiency across airports. Our custom nearly 65 per cent of the freight and 85 per
clearance processes and duty structures are cent of the passenger traffic in the country.
also extremely complex and the warehousing This sub-segment is highly fragmented, with
industry is inching towards a transformation the truck operators owning less than five
only now with GST in place. Studies suggest trucks estimated to account for over 75 per
that annual logistics cost in India is valued cent of the truck fleet. It is estimated that
10 per cent of the
Transportation Warehousing market belongs to
Inventories Others (incl. losses) those with 6-10
trucks; 4 per cent
India 35% 9% 25% 31% to those with 11-
15 trucks; 3 per
cent belongs to
China 50% 25% 15% 10% those with 16-20
trucks; and only
4 per cent of fleet
US 49% 9% 24% 18% belongs to those
with more than
Source: KPMG Analysis 20 trucks. This
at INR 6,750 billion (US$ 135 billion) and it industry is also characterized by intense
is growing at 8-10 per cent annually as per competition which is the result of relatively
various researches. As said earlier, Logistics lower capital requirement, ease of obtaining
cost by value accounts for around 13 per cent driving licenses and permits. The small
of the GDP of India – this is much higher than operators are not in a position to perform
that in the US (9 per cent), Europe (10 per functions of aggregating, handling, delivering
cent) and Japan (11 per cent) but lower than of cargo and marketing. Besides, they do not
that in countries such as China (18 per cent) have the geographical reach and necessary
and Thailand (16 per cent). In particular, the infrastructure to tap business on a continuous
percentage-wise share of transport cost (an basis, and thus rely on brokers.
important constituent of total logistic cost The hub and spoke distribution system
incurred by a nation) by value of GDP has enables optimisation of costs and higher
been steadily increasing. revenues for the transport companies and
As per ENAM logistics research report, fleet operators. These transport companies
India has the world’s second-largest network generally have formal contracts with the
24 CARGOCONNECT - OCTOBER 2017
users, which is very rare in the case of
small operators. Warehouse lands which
have continued to be barely utilised in an
efficient way beyond plan storage spaces
are now reforming into structured and
properly planned infrastructure units which
are only now beginning to realise the value
of technology and more sensible scientific
approach towards efficiency enhancement
all of it is what reduces the side kicks and
undesirable shares in between which once
removed is bound to bring the overall logistic
expenditures down.
GST is expected to further enhance
the scene with removed tolls and multiple
document related bribes which were early
prevalent. However, this has yet to show its
full vigour in times to come. The outset of lead
times for truck movements have comfortably
reduced by about 15 – 20 per cent which in
turn means lesser fuel consumption and
better price point for customers.
Gurpreet Singh Gill, Regional Head,
Samsung SDS, informs about his perspective,
“The roads across India are being developed
gradually but from what I observe, the
pattern is slow compared to other countries
and that’s owing to multiple reasons. One, the
quality of construction material is not good
enough to have the road sustain for long,
hence by the time a road is constructed, some
part of it is already deteriorating. The average
truck speed and distance travelled per day is
nearly 1/4th which is much lesser than in
developed countries.”
Rail freight was always expected to be
what drives most economies in terms of cost
scalability and secure movement of cargo not
to forget the reduced carbon footprint. It is
now that finally few private rail operators
and also the government after continuous
 COVER STORY

In air logistics high costs are largely due to high cost of infrastructure. Airport
space infrastructure is prohibitively expensive. One of the ways this can be brought
down is right at the tendering stage instead of the airport operators setting a
reserve price for royalty share and lease.

Vijay Kumar, Chief Operating Officer, Express Industry Council of India

push by the industry voices is realising that solution emphasis – part rail and part road by developing world class infrastructure to
rail freight has to be reduced and routing/ or in other cases part rail/road/ water all change the way world looks at Indian logistics
visibility must be optimised to improve combined as was adopted by few automotive infrastructure. It is good for the investor
the distribution map in India. This alone companies for moving their vehicles from up organisations as a private player and for the
will make significant impact. Costs should West to South for distribution. It’s great for government and Indian industries as a whole
come down for railway and the benefit must controlling cost and equally does well for too. “RoRo” trains have been run earlier by
be passed on to the industries which until reduced carbon footprint. The road transport the Railways with existing wagons on non-
now have been bearing over 60 per cent of and highways ministry is looking to raise INR electrified routes. However, the service cannot
their international logistic spend for ocean 15,000 crore from Employees’ Provident Fund be operated on electrified routes due to
exports/ import into dry ports across the Organisation (EPFO) to fund its ambitious insufficient clearance from overhead traction
country contributed by rail freight which we highway construction programme. The wires. With accelerated electrification being
in logistics terms call inland haulage. ministry plans to issue National Highways planned by the Railways, such services need
Authority of India (NHAI) to be run on electrified routes as well.
Container traffic as % of overall traffic bonds to the EPFO in three Thanks to the higher fuel efficiency of
70% 71% 73% tranches at an interest rate railway movement, a back of the envelope
of 8.3 per cent per annum. calculation suggests that if 45 trucks with a
50% 51% 51% 52% 53% 54%
The amount raised is gross weight of 40 tonnes each were moved
expected to be deployed by a train over 1,000 km, the total saving in
for highway expansion fuel costs would be INR3 lakh. Movement by
and bypass construction rail would be faster and the saving in lower
projects. transport and inventory costs would benefit
Speaking of Sagarmala, the consumer. The example is illustrative, but
the centre’s coastal points out the huge potential which exists.
connectivity project, To divert traffic from road to ‘road-rail-
Source: KPMG Analysis
Sagarmala, is not just an road’ mode, the Railways would have to
Optimisation Techniques opportunity for big companies like Adani take a number of steps in coordination with
Estimate of the modal movement of cargo Ports and Special Economic Zone, Essar, AP road operators and container companies. The
highlights that in India nearly 60.2 per cent of Moller, and J M Baxi, but also for behind- actions to be taken by the Railways could
the cargo is moved by road, 32.1 per cent by the-scenes contractors such as Louis Berger, include: (i) designing a suitable wagon for the
rail, and rest by the coastal shipping, airways Aaecom India, and CH2M Hill India. Port “Roll on Roll off” trains, which would move
and inland waterways. Improved transport development requires a lot of construction trucks on flat railway wagons on electrified
infrastructure, optimised warehouses work such as developing jetties, platforms, routes for a major part of their journey; (ii)
with more robotics and better warehouse and berths, and these create business for identifying routes where high- value and time-
management technology, simplified tax and such firms, according to a shipping ministry sensitive cargo can be moved efficiently; (iii)
duty structure, better technology adoption and official. Port infrastructure and ICD and rail providing advance information to the industry
enhancing the skill and competency level of operator companies have been gearing across about routes where additional capacity is
our labour should take Indian logistics forward the Sagarmala and that has definitely begin being created; and (iv) providing a guarantee
into the league of world leaders in logistics. making change to the way global industry about transit time for the consignment.
This brings the most efficient solution looks at Indian ports., these organizations The earning per tonne from a container is
of all and that is what few private players are definitely in for biz opportunity yet at higher for coal, which constitutes 50 per cent
have successfully done. It is multi-modal the same time are contributing immensely of the Railways’ freight traffic. In the last four

26 CARGOCONNECT - OCTOBER 2017

 COVER STORY

Efficiency in the transport chain and better road infrastructure would certainly
help. India would also need to develop the waterways, both inland and coastal, for
the efficient carriage of freight along with an increase of dedicated rail corridors to
link major industrial towns and cities to the ports.

Huned Gandhi, Managing Director, DACHSER India Private Limited

years, the earning per tonne from container
traffic has grown at a CAGR of 8.3 per cent
as compared to 3.8 per cent from coal. This
is a pointer to the higher revenue which can
be earned from moving high-value and time-
sensitive cargo. However, compared to a
container or “RoRo” train, a coal train carries
1.5 to 2 times the volume of cargo, yielding
higher revenue per train.
India cold chain market size
350
300
23
250 20
Value in INR Billion
use of fossil fuels and increasing the share of as well considering the nature of business.
renewable sources in power generation, the However, Vehicle Hiring cost for most of the
earlier traffic projections of most of the DFCs LSP is a challenge, as market price of hiring keep
are likely to undergo a downward revision. on changing and vehicles are required across the
The Dedicated Freight Corridor geography based on customer requirement.
Corporation of India (DFCCIL) should
plan to develop logistics parks as points Importance of Labour in Logistics
for aggregation/disaggregation of cargo for Labour in India is considered to be among
movement by DFC. Logistics parks planned the cheapest in the world. However the
by the Ministry of Road safety standards, regulations and compliance
Transport and Highways adherence for logistics industry is also
33 would also be ideal among the lower ranks. Even countries
35
29 points for interface of such as the likes of Bangladesh have been
26 30 cargo between road and surpassing India over the last few years
rail modes. in both labour quality and quantity with
25

Capacity in MMT

These parks should price competitiveness which is reflected

200 20
ideally be developed in the rapid shift of business volumes for
150 15 along the alignments of manufacturing to our neighbor especially
10
the DFCs and corridors skill based enterprise like retail and textile.
100
identified by the GDP and inflation are inversely
50 5
Railways for movement proportional to the rise in labour prices.
115 134 175 228 298
0 0 of containers and “RoRo” Current situation of Indian economy with
2010 2011 2012 2013 2014
trains. Cargo moved respect to labour standards and cost of
Value (INR Billion) Capacity (MMT) by inland waterway living does not look too great. Also the lack
transportation (IWT) of skilled labour has been a problem forever.
Source: National Summit on Cold Chain; Associated Chambers of Commerce and Industry of India would provide similar Keeping such circumstances in mind, I feel
(ASSOCHAM) & Tech Sci Research
opportunities. it is imperative to drive the shift towards
To increase volume of cargo carried per A container train from Delhi to Mumbai efficient automation and machine utilisation.
container train, the Railways has already travelling on DFC could cover the distance Another aspect is the fact that labour across
announced a pilot project for running double- in 24 hours. A truck would take minimum factories, warehouses, trucking industry have
stack low-height containers (6 feet 4 inches of three days. The Railways could provide a different understanding of business from
tall, instead of the normal 8.5 or 9.5 feet) on transit guarantees at least for the traffic their limited exposure to the overall supply
electrified routes which would increase the moving on the DFCs. This would create chain. The truck drivers’ interest is to stay
cargo carried by 55 per cent. Similarly, heavier customer confidence and a substantial on the long for long days to ensure better
trailer trucks could be carried on railway volume of road traffic could migrate to “road- wages. The labour in the factory is keen to
wagons. Routes for running these trains rail-road mode”. do more hours of shift and get higher wages.
would have to be identified and advertised. Vikash Khatri added, “For a Supply chain Likewise warehouse employees would prefer
The Dedicated Freight Corridors (DFC) company infrastructure cost may be Capex to undertake daily activity in such a manner
of the Railways was designed mainly for or Opex. Selecting a right mix is the first step so as to ensure their daily wages/monthly pay
heavy haul cargo such as coal. With the of the process. Most of the LSP go for opex packages are supplemented by beyond duty
Government’s present emphasis on reducing in major categories and that is recommended hour compensations. The concepts of trade

28 CARGOCONNECT - OCTOBER 2017

 COVER STORY

Logistics and supply chain is becoming complex day by day on the other hand
competition is intensifying. In such scenario each organisation tries to innovate
to improve efficiency and reduce their cost of supply chain by way of redesigning
the network, optimising warehouses and transportation, alignment vendor base,
introduction of automation and technological tools etc.

Vikash Khatri, Founder, Aviral Consulting

Unions and local unions of truckers and labour
at different regional levels is another challenge.
All of the above constitute towards a huge loss
of time, energy and eventually money for the
organisation. First and foremost the projects
have to be brought from paper to practice
in a faster time bound responsible manner.
Education, sanitation and well being of the
labor involved in the industry of logistics
“Our industry uses technology in a big way,
both at our customer facing operations as well
as at our ground and air hubs. Technology
enables us to optimise efficiencies. Express
Delivery Service providers are among the
largest employment providers.”
Sanjiv Edward, Head Cargo, Delhi
International Airport (P) Limited, with
immense experience and knowledge adds,
Given are few points that give
brief about the logistics process
across the country:
1. Decrease in Costly Errors: Logistics
automation features such as integration of
commodities via ERP system and access
to address book, as well as automatic
storage and entry of fuel surcharges and
accessories. These kinds of manual data
entry errors will lead to increased logistics

Cost efficiency for different costs such as having to pay twice or paying
a higher freight rate due to entering an
modes of transport incorrect commodity freight classification.
2. Availability of Transportation mode
120 choice and Real Time Freight Rates:
105 To combat rising transportation costs,
100 the logistics automation features in TMS
80
80 makes it easy for users around the country
per litre of fuel

to execute policies that deliver immediate

60
40
25
20
0
Inland Water Rail Road
Source: Multiple sources (NITI Aayog, Govt. of India, JLL Research and REIS, etc.)
have to be paid heed. It may sound like a bit “Since decades, technology has played its
of an investment but it has vital gains to offer pivotal role in shaping the logistics industry.
to industries in return and may help to wipe a Simultaneously, several studies have also
few vices and make our logistics infrastructure revealed that industries across the world,
more efficient. Eventually it’s the people who including logistics industry, are still facing
run business from top to bottom. Machines, the challenge of replacing 100 per cent manual
technology and better roads alone can’t do labour by technology.
about half as much. Yes, technology can play a prominent role
in replacing the manual labour in logistics
Digitisation Affecting Logistics Cost industry and can also prove to be a cutting
With the utilisation of technology, logistics edge solution by transforming its overall
cost can be curbed. Kumar from EICI opined, Transport Management System (TMS).”
freight savings.
3. Increased Customer Service: With
logistics automation features in TMS
such as real time freight tracking, auto
pick-up, proper insurance and freight
accounting built to custom specifications,
customer are empowered to know exactly
how much the freight will cost and when
the freight will arrive at its destination
through automatic notifications.
4. Access to Real Time Freight Data and
Analysis: By accessing the real time freight
data and the ability to run reports, a better
business decisions can be taken based on
the trends and history.
5. Organisational Control: Technology
empowers to have strong control over freight
management, freight costs, and risk, by using
the TMS’ rules engine, which is based on
optimised plans and routing guides.
In short, the strategic use of technology
can prove to be an enabler not only in

30 CARGOCONNECT - OCTOBER 2017

 COVER STORY

The roads across India are being developed gradually but from what I observe
the pattern is slow compared to other countries and that’s owing to multiple
reasons. One, the quality of construction material is not good enough to have the
road sustain for long.

Gurpreet Singh Gill, Regional Head - Supply Chain and Logistics Solutions, Samsung SDS

Total Investment Proposed in 12th Five Year Plan - USD 892 Bn*
I
nv

12th Plan target- 1,000 Investment of about INR

-U

New schemes for

km of expressway; 9.14 trillion is proposed
SD 146

roads in Rural &

10,000 km of NH; 19,200 during the 12th Five Year
ROADWAYS North East areas
km of road up gradation Plan
B

In
v-

Daily carrying Increase Rail Attracted FDI Investment of INR

U S D 1 0 2.9

30 Mn passengers freight share by worth INR 6.43 trillion

in over 19,000 2% till end of 349.4 billion till during 12th Five
RAILWAYS trains 12th Plan May, 2014 Year Plan
Bn

In
v-

Increase port 100% FDI in

Capital Dredging Investment of INR
U S D 3 1.6

cargo handling construction &

of 14 m by end of 1.97 trillion during
Capacity to 3200 maintenance of
SEA PORTS 12th Plan 12th Five Year Plan
MT by 2020 ports & harbours
B

I
nv

AAI targets to USD 81 Bn Investment of

100% FDI for
- USD 14 B

bring 250 investment to INR 877 billion

greenfield
operational Metro upgrade non-metro during 12th Five
airport
AIRPORT airport till 2020 airports Year Plan
n

In
v

Investment of
-U

6th Largest in the Energy generation Further planned

INR 18.2 trillion
S D 2 9 1.

world in Power capacity (Sept, to add 88.5 GW

Generation declared during 12th
2013) - 228.7 GW by 2017
POWER Five Year Plan
2

Bn

reducing the labour cost but also the efficiency and eliminating wastage. point A to point B means depending on the
operational cost in logistics industry in Bapat from United Parcel Service further relative technological advancement in that
India. At the same time, it will also provide added, “There are a few things that cannot country either at point A or B – depending
an impetus to the industry by enhancing its change, for example, moving a package from on that labour maybe replaced by technology

32 CARGOCONNECT - OCTOBER 2017

 COVER STORY
tools.” In scenarios, which involve manual
checks or decision making, machines may
not replace humans. Gandhi from Dascher
informed, “The heart of logistics remains the
physical movement and storage of goods.
People who help to complete these tasks
will always be the determining factor. New
technology is used to work more productively.”
Mansukhani from DIESL thinks,
“Technology needs to be perceived as an
enabler of discipline, scalability and clearly
Cum. Grade A & B Warehouse space in 8 Primary Locations
120.0
100.0
Grade A & B Warehousing Space in Mn sqft
80.0
60.0
37
40.0
20.0
0.0
2010
defined accountability rather than just as
a replacement for manual labour. In my
view, technology can only be deployed after
a thorough study of the existing process
having been at a mature stage of deployment
and acceptance.”
GSTfication in Logistics
The historical tax reform, GST has brought
shackles in the logistics industry as it is the
most affected industry. Kumar from EICI
added, “GST should be a game changer for
decrease in transaction costs. We have already
seen efficiencies in some states with removal
of check posts. However the introduction of
34 CARGOCONNECT - OCTOBER 2017
Technology can play a prominent role in replacing the manual labour in the
logistics industry and can also prove to be a cutting-edge solution by transforming
its overall Transport Management System (TMS).
Sanjiv Edward, Head Cargo Business, Delhi International Airport (P) Limited
e-waybill would be a dampener. That will
increase transaction costs due to operational
inefficiencies that would set in as well as
substantial compliance costs. Transaction
costs in logistics could be brought down if
there is minimum documentation that GST
and Customs authorities demand.”
Edward from GMR said “It is a universally
acknowledged fact that logistics cost in India
is very high. Logistics cost are 25 per cent
in the case of Agri produce, and 13 per cent
116
97
79
63
53
45
2011 2012 2013 2014 2015E 2016E
on an average for Electronic items, which
further goes up for Pharma, Biotech and other
produces, while the global average logistic
cost is only 6-7 per cent. As per market
research, the current wastage of produce
caused by inefficient logistics system in India
is equal to 4.3 per cent of its total GDP.”
Mansukhani said, “With GST being
implemented and state borders being
dissolved to a large extent, the time is ripe for
Indian logistics to fast track usage of inland
waterways to tremendously bring down the
cost of inland haulage. This mode is not only
cost effective but would also tremendously
bring down the pollution levels caused by
traditional on land transportation.”
Dr John Joseph, Director General, GST
Intelligence seems quite optimistic. He said,
“The logistics cost of the country 13-14 per
cent of the GDP. With the oncoming of GST,
logistics cost will surely come down drastically.”
The indirect tax system in India is not only
complex with various taxes applicable to an
industry but also widely seen to be bungling
and difficult. Another aspect of the system is
that taxes are non-creditable moreover due
to restriction in the law or because there is
no compatibility between central and state
levies. In addition to this, a result of multiple
applicable levies, the charge engaged in the
making of goods, sale of goods and provision
of services has to fulfill with payment,
reporting and review required under such
special tax authorities. The GST system has
put down to renovate the present indirect
tax rule with the purpose of addressing the
above-mentioned issues.
For many who think GST has increased
the cost of every item today, should know
that the recent GST has brought the cost of
logistic sector fall down by 5-10 per cent. For
the first time, the logistic sector has got the
right platform, where they are appreciated
and supported for the cost conscious market.
Future of Logistics Industry in India
Logistics industry of India must look at
newer avenues to have a sustained growth.
Long term solution to be worked upon for
development of integrated multi-model
logistics zones to compete with World’s
major logistics market like Hong Kong,
Singapore, Dubai etc and gain a foothold by
focusing on the following points:
1. Localising Logistics Zones in an area
as close as possible to economic and
industrial activities and with convenient
 COVER STORY

Demand is a problem in many of the developed countries, but managing those

demand has been the biggest challenge in India. And so, the logistic sector is helping
in managing the demand of supply chain, where it manages the flow of things from
the initial stage to the final stage of consumption in order to meet the requirement of
the corporations.

Sumit Sharma, Co-Founder, GoBOLT

BEFORE GST IMPLEMENTATION AFTER GST IMPLEMENTATION

Manufacturer in State X (SP = C + P = 100) Manufacturer in State X (SP = C + P = 100)

D
Sale Through Small Sale to Multiple States through Single
Direct Sale
owned WH in State Z Big Regional Warehouse

A State X
+ VAT B State Y
+ CST C + VAT + GST

X Y Z DISTRIBUTORS Y Z

SP = 104 + P - ITC = 110 SP = 104 + P = 114 SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110

+ VAT + VAT + VAT + VAT + VAT

X1 Y1 Z1 RETAILER Y1 Z1

SP = 114.4 +P-ITC = 120 SP = 118.56+P-ITC = 124 SP = 114.4 +P-ITC = 120 SP = 104 + P - ITC = 110 SP = 104 + P - ITC = 110

+ VAT + VAT + VAT + VAT + VAT

X2 Y2 Z2 CONSUMER Y2 Z2
FP = 124.8 FP = 128.96 FP = 124.8 FP = 124.8 FP = 124.8

Above Flow chart shows 3 supply chain scenarios. A: Sale to distributor in
the same state as of manufacturing | B: Sale to distributor in state other than
state of manufacturing and C: Sale to distributor in state other than state of
manufacturing but via Manufacturer’s small warehouse in the distributor’s
state. FP to the consumer is maximum in Case B due to application of CST.
In order to reduce FP, manufacturer sells the product through owned
small warehouses in the state of sale which will result into multiple small
warehouses across country.
After implementation of GST, warehousing
structure is expected to Restructure. Case D shows
sale of the product to multiple states through a
single Big Regional Warehouse without increasing
FP to the consumer. This will eliminate presence
of multiple state warehouses which will further
optimize operational cost by implementing state of
the art technologies and modern equipments in WH

Abbreviations and assumptions: VAT = Value-added tax (4%); CST = Central sales tax (4%); GST = Goods and services tax (4%); ITC
= Input tax credit; SP = Selling price; FP = Final price; C = Cost (INR 90); P = Profit (INR 10) | Note: The cases shown above use the
same VAT and CST tax percentage across different states in order to explain the concept. Taxes vary across different Indian states.
Application of the type of taxes at different levels of sale is shown at each level. The current Indian taxation system does not allow
tax collected under CST to be adjusted against subsequent tax collected under VAT, as taxes under CST go to the central account and
taxes collected under VAT go to the states’ accounts.

Railway and Highway transportations.
2. Consolidation of warehousing will
provide impetus to the industry.
3. More focus needed on safety/OSHA, which
is required in Indian Logistics Industry.
4. The use of IT and ITES including Robotics
Technology with strategic mindset can
play a remarkable role in giving new shape
to Indian logistics industry. Digitised
automation can lead to sustained TMS
(Transport Management System), WES
(Warehouse Execution System) and WCS
(Warehouse Control System).
5. To save cost, preventive maintenance to
be made as an integral part of logistics
operations as the reactive maintenance/fixes
do not work always and remain costly affairs.
6. Labours’ skill to be upgraded through
various strategic training and skill
development programme.
7. Creation of regional consortium between
buyers, suppliers and forwarder will
finally lead to strong base of integrated
logistics networking in the country.

36 CARGOCONNECT - OCTOBER 2017