The logistics sector forms the backbone of an economy as it facilitates efficient and cost-effective movement of goods. India regrettably still loses around 14 per cent of its GDP due to inherent inefficiencies in the sector. The government has therefore set a target of bringing down the logistics cost to 10 per cent of GDP through a collaborative effort among the ministries involved.
To optimise logistics costs, a number of terminal operators have initiated mechanisation projects and upgraded the technologies being deployed in a bid to improve efficiency. Private container terminal operators at the major ports have developed warehousing facilities. In addition, value-added services such as customs clearance, container consolidation, hub-and-spoke services, etc., are also provided.
Current scenario
With the introduction of the direct port delivery/direct port entry scheme, the container freight station business has been facing turbulent times. The inland container depot (ICD) business though has remained largely unaffected by this move and is growing at a steady pace. In order to meet the changing logistics requirements, there is a need to re-engineer the present structure and maintain a fine balance to ensure growth in all the segments. To this end, the Ministry of Road Transport and Highways, the Ministry of Railways and the Ministry of Shipping are working towards the formulation of a multimodal logistics park policy. The policy aims to set up a dedicated authority for approval of such logistics parks, fixing time frames and identifying appropriate locations for construction. Further, the government has also introduced electronic negotiable warehouse receipts (e-NWRs) to enable smooth trading on various platforms such as commodity exchanges, electronic national agriculture markets and other electronic platforms. These e-NWRs save expenditure on logistics as the stocks can be traded through multiple buyers without physical movement of goods and can even be split for partial transfer or withdrawal. Commodity exchanges too are coming up in a big way and six such exchanges are already operational in the country.
The Sagarmala programme is one of the key drivers of warehousing demand in the port sector. It has envisaged an increase in port capacity from 1,400 million tonnes (mt) to 2,500 mt and aims to improve turnaround time at Indian ports to less than two days from the present four to five days. Through these initiatives, Sagarmala plans to save Rs 450 billion-Rs 550 billion in logistics costs annually.
A further impetus to warehousing demand will be provided by the National Civil Aviation Policy, 2016, which envisions an increase in air cargo volumes from the existing 4.63 mt to 10 mt by 2027. Also, the Land Authority of India is developing two new land ports, one at Moreh and the other at Dawki. In the next phase, the authority plans to convert 13 land customs stations into inland customs ports (ICPs). Five ICPs are already operational at Attari, Petrapole, Agartala, Raxaul and Jogbani.
Transport via waterways is recognised as one of the most economical, fuel-efficient and environment-friendly modes of transport. The Inland Waterways Authority of India has identified six inland waterways that span a total length of 4,503 km across 15 states to be developed as national waterways.
Also, with Indian Railways planning to complete the eastern and western dedicated freight corridors by 2021, container movement is expected to rise significantly. The Delhi-Mumbai industrial corridor is also expected to complement the upcoming rail and road infrastructure.
New warehousing requirements
The competitiveness of a port depends primarily on the quality of hinterland connectivity. Therefore, the development of efficient hinterland infrastructure is one of the most critical requirements of the port sector. There is a need to accelerate the setting up of dry ports which include ICDs, ICPs and airfreight stations. A huge demand exists for both bonded and general warehouses. For efficient utilisation of the available land, bulk storage (silos) facilities are also coming up. The government has laid down plans to construct silos with a total capacity of 100 trillion metric tonnes for storing foodgrains. In the coming years, the demand for liquid storage/ tank containers is also expected to pick up pace.
Free trade warehousing zones (FTWZs) is another segment which is expected to drive warehousing requirements for ports. FTWZs provide various value-added and ancillary services under one roof. The presence of support services such as quality transportation facilities and equipment helps small- and medium-scale traders save on capital investments by leasing equipment at the FTWZs. The ease of access to such services in one location is a major driver for growth. In addition, the cold storage segment is also likely to grow on account of the increased focus on enhancing storage facilities for food items, dairy products and pharmaceuticals.
The way forward
The transportation sectors are together creating a synergy in order to establish world-class warehousing and logistics infrastructure for reducing the associated costs. This will not only benefit end-users but will ultimately contribute to GDP growth. That said, the implementation challenges faced need to be tackled in a timely manner to capitalise on the huge opportunities available and thereby yield positive results.
Based on a presentation by S.C. Mudgerikar, Director, Marketing and Corporate Planning, Central Warehousing Corporation, at a recent India Infrastructure conference