The current technology challenges that logistics companies face currently

Technology that acts as an enabler and a medium of integrating, communicating

and bringing about overall efficiencies is utterly lacking in adoption in this sector.
While few of the organised player have been implementing technology solutions
within their network, the majority of players are devoid of technology.

Technology adoption is driven by two primary factors--increasing internal

efficiency which is the operational aspect and increasing external business
responsiveness dependent on a complete supply chain based on business
strategy and long term planning. Technology can bridge the business vision with
real-time operational activities of business.

This sector is generally perceived to be reluctant in investing in IT. Several

factors like the unorganised and fragmented nature of the sector, lack of
regulatory compulsions and the view of the business leaders on IT as an expense
rather than an investment are said to have contributed to the low penetration of
IT in this sector.

Some of the other factors that act as barriers to smooth IT adoption in

transportation and logistics sector are as follows:

Unavailability of a perfect fit system: The transportation and logistics operations

are quite complex and needs specific functionalities in the IT systems. Fitment of
an off the shelf product that satisfies the end-to-end needs of this sector is still
questionable. Base ERP products, available in the market require high levels of
customisation and implementation time, thereby increasing costs.

Technology costs and affordability: The transportation and logistics industry has
perceived technology and solutions as expensive and at times unaffordable.
Since the companies have evolved with their unique legacy processes, their IT
system or applications need to be customised to the companys requirements.
This results in tremendous increase in end product cost.

Low allocation to IT in the budget: Most warehousing firms do not have a formal
IT budgeting process and hence dont plan for their IT investments. Majority of
the logistics market comprises small and medium-scale players who due to
increased competition in the sector work on wafer thin margins. This results in
little or no allocation to IT in their budgets.

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Limited IT benefits perceived: Most logistics firms are managed by small
entrepreneurs who do not have a good understanding of IT and its benefits.

Restricted support from end customers: Transportation and logistics companies

have been wary of the fact though their customers desire real time information,
online tracking of consignment and faster resolution of their grievances with IT
intervention / e-ticketing systems, they are unwilling to pay for these
investments in IT. Players find it difficult to manage these expectations and
maintain costs, resulting in their reluctance to spend in IT.

Skilled resources: This sector in India lacks skilled talent that has IT and logistics
knowledge. These resources are required to run and maintain the application so
that the intended benefits that the application provides can be realised. Very few
logistics sector employees undergo IT training during the course of their
employment.

Standard business processes: Standardised business processes are not defined

across all internal and external functions. This causes high levels of individual
customisation in systems. Transformation of such business processes becomes
difficult because the systems are not flexible enough to incorporate the changes
within a reasonable time and cost.

Cultural barriers: Traditionally transportation and logistics businesses have been

operated by unskilled or semi-skilled resources. This makes it difficult for the
employees to accept change and transform their organisation through IT
intrusion

A 2.5 times increase in the freight traffic in the next decade will put high
pressure on the logistics infrastructure. Even if you take the current growth rate
of 7.5 percent, the freight traffic is expected to double by 2020. Indias current
infrastructure is already overstretched and all highways and railway links along
the Golden quadrilateral and the North- south-eastWest are already congested.
Many of the large ports and airports are operating at near high utilisation rates.

Even the planned increase of 2.3 percent of GDP in the twelfth 5 year plan also
has increased the capacity by 20 percent which falls grossly short of matching up
the infrastructural needs of logistics. Therefore a systemic focused allocation or

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sops in the Budget 2017 is necessary and vital to keep up the pace of growth in
logistics infrastructure and mitigate the challenges to keep up pace with growth.

Crystal gazing - Key expectations from the budget

1) Roadmap or indicators on what the government proposes to action to

implement the already passed GST bill: The most anticipated change agent of
unifying India as a single market place and ushering in simplified tax reforms has
been the GST bill. Ever since the current government came in, the industry has
been waiting anticipatedly for this bill to be passed. We saw the bill being passed
by the parliament in CY2016, however the rollout of the bill has been delayed
due State Central differences and other undecided issues. Any indication or
steps being implemented by the government to pave way for rollout of this
revolutionary bill will set course for calibration by the industry.

2) Allocation to build high density dedicated freight corridors, logistics parks, rail
and road connectors, enhancing freight corridors on railways, new multimodal
networks: Budgetary allocation to build effective connectors to the national
highways, the golden quadrilateral network, and planning network of freight
corridors and logistics parks will bring in efficiencies and build on the average
productivity to effectively reduce logistics cost enhance output.

3) Allocation for coastal shipping, sea and air logistics corridors, which will
eventually reduce the overall logistics cost: India has a good resource of river
network and a large coast line, However it was only in the last few years that the
potential of harnessing these resources for transportation and logistics was
explored. Better infrastructure and connectivity infrastructure along these
networks will reduce the logistics cost and increase adoption. Most of the airports
in India connecting main cities are seeing increased connection by air operators,
this potential of harnessing connectivity and building adequate infrastructure to
leverage needs to be factored in the budgetary allocation.

4) Establishing road and rail connectivity along with effective policy with SAARC
(friendly) countries: Traditionally there were historic transportation routes across
these countries. A network of road connectivity already exists, however these
need to be augmented and necessary policy decisions need to be made to ease
movement across few of the neighbouring counties in order to increase trade
and reduce current complexities and the time taken for shipment.

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5) National road networks: A complex geography like India needs a good array of
efficient roads. Between the 11th and 12th five year plan we have seen that the
number of kms constructed per day has definitely increased from 7-8km/day to
about 20-22km/day. However this has to scale upwards of 35-40 Km/day for a
meaningful change in our country. Good road networks will provide efficient, low
breakdown and fast transportation of goods.

6) Build support infrastructure along these national freight corridors: Support

infrastructures to sustain movement of people and goods have to be built across
all transportation networks. Restrooms, food stalls, recreation centres, fuel
stations, hospitals, service centres, etc. are needed for the development of the
sector.

7) Allocation and development of logistics parks: While the government has

announced 15 logistical parks, the parks are expected to serve four key
functions: freight aggregation and distribution, multimodal freight movement,
storage and warehousing, and value-added services such as custom clearances.
It has the potential to bring down the costs by 10-15%. Acquisition of land
required will be key for the transportation ministry. About an estimated 35
thousand crores would be required to rollout. It is expected that the budget will
allocate the required budgets for this project.

8) Emphasis on skill development through NSDC for logistics: Dearth of skilled

manpower- Drivers, forklift operators, packers, binners, loaders, supervisors etc
is a huge impediment that the industry is facing today. A concerted plan needs to
be implemented under the NSDC ministry to ensure that the resources are
available and therefore adequate allocation needs to be made.

9) Subsidies on adoption of technologies in logistics: In order to keep pace with

the growth and the new requirements, it is important that technologies are
embraced by stakeholders across various departments viz, vehicles, tracking,
warehousing, packing, material handling, management systems, etc. In order to
meet up with the growth requirements. Also collaborative and platform
ecosystems that encompasses the entire ecosystem of stakeholders needs to be
encourage to get optimal benefit. Either new startups could be given benefits to
undertake developments or subsidies could be rolled out for adoption and
participation.

10) An appropriate tax system for rental costs which is currently subject to
service tax and TDS at higher rates:The finance ministry could rationalize the

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service tax and TDS application on warehouse rental costs which has been a
bone of contention for some time.

(The writer is co-founder and CEO, ValueShipr)

http://economictimes.indiatimes.com/small-biz/startups/demonetisation-blocks-
the-last-mile-for-logistics-startups/articleshow/57263387.cms

http://economictimes.indiatimes.com/industry/services/retail/e-commerce-to-
drive-logistics-sector-growth-report/articleshow/47344731.cms

Strategic Insight on the Indian Logistics Industry

2016 - Opportunity to Improve Logistics
Efficiency Due to Poor Transportation
Infrastructure - Research and Markets
Indian Logistics Industry is expected to grow at a CAGR of 8.6
percent between 2015 and 2020, which grew at a CAGR of 9.7
percent during 2010-2015. Transportation and Communication
accounted for 7.0 percent of the nation's GDP in 2015,
accounting for around US $130.44 billion. The key drivers of
this growth are infrastructure investment associated with ports,
airports, and other logistics development plans, domestic
demand growth and increasing trade.

The Indian logistics industry is fragmented and under

developed. Logistics costs are relatively high due to poor
physical and communication infrastructure; high dwell time at
ports; low levels of containerization; and a multi-layered tax
system contributing to significant delays at border crossing
points.

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Development of transportation and logistics-related
infrastructure such as dedicated freight corridors, logistics
parks, free trade warehousing zones, and container freight
stations are expected to improve efficiency. Government reform
initiatives, promotion of manufacturing and trade, improving
investment climate are expected to transform the industry and
drive growth between 2016 and 2020.

Economic reforms, trade cooperation, improved transportation

infrastructure, and industrial growth is ushering in increasing
opportunities for the logistics service providers (LSPs) in India.
Presently, the Indian logistics industry is witnessing
development and expansion of its existing infrastructure,
emergence of e-commerce specific logistics solutions, has a
strong focus on manufacturing, but also has a large presence of
unorganized service providers.

Key trends observed in the Indian logistics industry are:

Government initiatives to promote the manufacturing sector

and exports are likely to increase the demand for logistics
functions. Trade with Asia, Europe, and North America are likely
to remain major drivers for freight forwarding and
transportation companies in the region.

Major investments by both public and private sectors in the

last five years on infrastructure, technology upgrades and
expansion of sea and airport facilities, and dedicated logistics
corridor in the rail network are expected to strengthen the
Indian logistics infrastructure.

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 The booming e-commerce market in India is bringing in new
opportunities for LSPs. The evolving business model(s) in this
space focuses on containing logistics and delivery costs.

The expected implementation of nationwide uniform GST is

likely to transform the distribution structure of majority of
industries as it eliminates the need for dedicated warehouses
for each individual administrative region.