In today’s Finshots, we explain the new policy for the logistics sector and the challenges faced by the industry

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The Story

Those veggies you see at the supermarket. That car you just test-drove last weekend. The clothes you are about to order online. They’re all ready and stocked up thanks to the modern marvel of logistics. Lumbering trucks, long trains, massive ships, and booming planes carrying cargo — they’re the bedrock of this world.

But the logistics business is extremely complicated, especially in India. It’s a $160 billion industry, but one that isn’t very streamlined. There are 20 government agencies, 40 government partner agencies, 36 logistics services, 129 inland container depots, 168 container freight stations, and a lot of other intermediaries in between. Needless to say, things don’t always go smoothly. And when things don’t go smoothly, it gets expensive to deal with it.

If the logistical cost involved in moving a product from Point A to Point B adds up to ₹100, you could attribute about ₹12 to customs, paperwork, and administration costs.

And this is a bit too much. So the objective was to cut it down. Make it cheaper. Institute an overarching policy to achieve this grand objective.

And on Saturday evening, Prime Minister Narendra Modi did just that. He unveiled a spanking new National Logistics Plan in a bid to cut the cost of logistics — from 13–14% of the GDP to around 8%.

Bring it in line with global standards.

How’s this going to work, you ask?

Okay, the focus is on digitization. Creating a platform to get everyone together. We are talking freight companies, ministries, businesses —all in one place. Think of it as a one-stop shop for everything logistics.

Like tracking. Suppose a truck heads to a factory to pick up something. They get there only to find the product isn’t ready. Or a cargo arriving at a port. They’re there waiting for someone to unload the goods. But nobody has any information on what to do with it. This is valuable time wasted. But if everyone could easily track real-time movements, these inefficiencies would disappear and we could save money.

And then there’s paperwork for clearance. They keep going back and forth between agencies. However, if everything were digitized and available online, “paper-pushing” becomes faster. Scan, view, stamp, and do whatever is needed to get a move on.

There’s also this plan to set up massive logistic parks. They’ll have warehousing facilities and effective distribution — all under one roof. It could help people quickly track spare capacity in warehouses. Store their products when needed. And then move them whenever needed using transport that’s readily available.

It’s a win-win for everyone.

At the launch, the PM even said, “We want our logistics to move at the speed as the cheetah.” And you can’t fault him for his cheetah reference. He’d just released 8 African cheetahs into the Kuno National Park. So that would’ve definitely been on the top of his mind.

But the question is — can we?

Well, it’s complicated. See, we’ve always known that our logistics sector needed work. In the past 5 years, we’ve pumped in nearly ₹15 lakh crores to improve roads, rail, ports and airports — critical links for logistics. But digitization alone cannot solve our problem.

We need infrastructure. Basic infrastructure.

Let’s start with roadways — the Bharatmala Project

Launched in 2015, the project was intended to create a massive network of highways across India. But the progress hasn’t been great. It was due to be completed by FY22. But now we’ve revised the deadline to FY28! A six-year delay. Right now, it’s only 23% ready and the costs have soared by nearly 100% when compared to the first estimate.

Then there are the waterways — the Sagarmala Project.

The idea was to modernize ports and develop the inland waterways. There were a total of 802 projects in the pipeline and they are set to be completed by 2035. However, only 181 projects are up and running as of today. Connectivity to ports has been another issue. We had 98 road-to-port connectivity projects in the pipeline. Only 13 have been completed so far.

Why are things moving so slowly you ask ? Well it seems the many ministries aren’t coordinating all too well.

Then there are the railways — the Dedicated Freight Corridor (DFC).

Way back in 2006, India embarked on a project that would lay dedicated railway tracks for cargo along the length and breadth of the country. Goods would be transported at 70kmph instead of 25kmph. And freight capacity would double to 13,000 tonnes.

But what’s happened?

Take the Eastern and Western lines of the DFC. The initial deadline for completion was 2017. But we’ve delayed it 5 times already. And now, the hope is that we can wrap it up by 2024. Delays lead to costs too and the estimate of ₹28,000 crores has soared to a whopping ₹1.24 lakh crores now.

And there’s one final thing — the choice of transport.

You see, thee logistics sector is heavily dependent on roads. The congested roadways have a 65% share (compared to 25% globally) while railways and waterways only account for around 35%. Unfortunately, moving things along the roadways is expensive - ₹2.2 per tonne-kilometre on roads versus ₹1.4 for rail and ₹0.7 for waterways.

So yeah, the National Logistics Plan is definitely a welcome introduction. But if we truly intended to overhaul the logistics sector in India, then we definitely need to focus on basic infrastructure.

Maybe then, we can move like a cheetah!

Until then...

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