Optimising Freight Transport

Trends, initiatives and opportunities across key segments

The modal mix of freight traffic in India is highly skewed, leading to inefficiencies in freight transport. As per industry sources, around 71 per cent of the country’s freight is transported by road and only 17.5 per cent is transported by rail. The remaining 11.5 per cent is transported through waterways, airways and pipelines. The government has been pursuing a range of actions to improve the country’s logistics performance. Key government initiatives focus on the development of dedicated rail-based freight corridors, augmentation of capacity and improvement in the connectivity of coastal and inland water-based shipping, development of an extensive national highway network, and upgradation of air cargo infrastructure.

Railways

India has the fourth largest railway network in the world after the US, China and Russia. As of March 2020, the country’s rail track network stands at 68,155 km. In terms of running track km, the network increased from 94,270 km in 2017-18 to 99,235 km in 2019-20. While at present the Indian Railways’ (IR) network is congested and overutilised, leading to slower train speeds and loss of potential revenue, higher investments have been made in the past few years for capacity enhancement. There has been a significant increase in the number of new lines, and in the doubling and gauge conversion projects being undertaken by the railways. Further, markets such as the north-eastern region, which have remained underpenetrated for a long time, have started receiving the required attention.

Although the Covid-19 pandemic has led to large-scale disruption in passenger services, freight traffic has in fact witnessed an upsurge. This has been particularly supported by the growing need for transportation of essential commodities such as foodgrains. In light of the pandemic, IR has announced various freight concessions in short and long lead traffic to boost freight volumes. Besides, as part of the Covid-19 booster package, the Ministry of Finance has announced that IR will set up a Kisan Rail through public-private partnership arrangements, to build a seamless national cold supply chain for perishables, including milk, meat and fish. There would be refrigerated coaches in express and freight trains as well. Investments in the railway sector envisaged under the National Infrastructure Pipeline, coupled with the upcoming dedicated freight corridors and industrial corridors, are set to boost freight transport through rail. Meanwhile, the upcoming National Logistics Policy also aims to optimise the current multi-modal mix and increase the share of rail transport in the logistics sector.

Roads

India continues to have the second largest road network in the world. The network has grown from 5.47 million km in 2014-15 to around 6.39 million km in 2018-19. The length of national highways, accounting for 2.2 per cent of the total road network, has grown from over 50,000 km in 2001 to 137,625 km as on March 20, 2021. There has been significant impetus from the government for the development of road infrastructure in the country. The Bharatmala Pariyojana is an umbrella programme that focuses on optimising efficiency of road freight and passenger movement. Under Phase I, the programme aims to develop 34,800 km of national highways in the country by 2024-25. The government has also identified locations for the development of 35 multi-modal logistics parks (MMLPs) that will cater to key production and consumption centres, accounting for around 50 per cent of the country’s road freight. Currently, truck operations remain significantly lower, compared to pre-Covid levels, owing to a surge in petrol and diesel prices, coupled with an extreme shortage of drivers.

The road transportation sector in the country is highly fragmented, with the presence of a large number of unorganised small truck operators. However, a number of technology-driven Indian start-ups such as Rivigo, Blackbuck, GoBolt, etc., are making trucking more organised. Technology solutions, including fleet management systems, artificial intelligence, automation and machine learning are now disrupting the trucking industry in India. Meanwhile, the industry continues to suffer from the overuse of heavy trucks, leading to high costs, growing air pollution and increasing traffic deaths, especially from overloaded trucks.

Waterways

In the port sector, cargo growth is driven largely by the 3Cs – containers, crude and coal. The three commodities form about 75 per cent share of the total cargo. Over the past few years, containers have been reporting strong activity due to the thrust on increasing the level of containerisation at the Indian ports. Overall, capacity addition has picked up pace at major ports. During the five-year period from 2014-15 to 2018-19, about 581 million tonnes (mt) of capacity has been added by deepening of berths and terminals, mechanisation, and modernisation initiatives. At present, coastal shipping of cargo is largely restricted to the transportation of thermal coal, petroleum, oil and lubricants, and iron ore. However, there is also significant opportunity to transport commodities such as cotton, tiles, sugar, cement, automobiles, etc. The outbreak of Covid-19 has added a major blow to an already stressed maritime sector. The traffic handled at the major Indian ports was severely impacted due to the pandemic, but it has started recovering now.

During the past three to four years, national waterways have started garnering the much-required attention from the government as an important sector to improve the country’s logistics sector. An interministerial committee has been constituted for augmenting coastal shipping of coal and other commodities/products. The ministry has also allowed relaxation under Section 407 of the Merchant Shipping Act, 1958, for coastal movement of exim transshipment containers and empty containers. As part of the National Perspective Plan prepared under the Sagarmala Programme, seven MMLPs have been proposed, one each in Madhya Pradesh, Chhattisgarh, Rajasthan, Odisha, Telangana, Uttarakhand and West Bengal.

Air cargo    

Between 2016-17 and 2019-20, airfreight traffic grew at a compound annual growth rate of 3 per cent, reaching 3.3 mt in 2019-20. Of the total traffic in 2019-20, international and domestic traffic accounted for shares of 60 per cent and 40 per cent respectively. Segment-wise, e-commerce, pharmaceuticals and perishables businesses have contributed to the growth in airfreight in the past few years. The Airports Authority of India has already set up a dedicated express courier terminal in Chennai. However, due to the Covid-19-induced restrictions, the total cargo traffic declined by 25 per cent in 2020-21. Domestic cargo traffic declined to 0.95 mt, marking a decline of 28 per cent in 2020-21. International cargo traffic stood at 1.52 mt in the same year.

Most airports have not allotted enough resources in cargo handling. Therefore, even with enough space, the entire logistics of cargo continue to be woefully inadequate and poorly managed at the airports. Various initiatives have been taken by the government to reduce the dwell time of cargo at Indian airports, in line with global standards. Besides, the government might soon announce a programme to provide viability gap funding for cargo flights connecting hinterlands to major urban hubs. The government has also introduced dedicated airfreight corridors to boost air cargo traffic. In light of the Covid-19 pandemic, the government has launched schemes such as Lifeline UDAN for the distribution of PPE and safety kits and Krishi UDAN to ensure adequate supply of perishables in the country.

Meanwhile, the Covid-19 pandemic has also opened up opportunities in the air cargo segment. Due to lack of adequate infrastructure such as cold chain and temperature-controlled cargo supply chain, there is significant potential for airports to boost their temperature-controlled cargo handling infrastructure, in order to ensure smooth vaccine supply across the country. Some of the key airports have started upgrading their cargo handling infrastructure to reap the benefits of this opportunity. A few airlines have also started freighter services to augment cargo handling capacity and support long-haul transportation.

The way forward

Logistics costs in India are high, accounting for 14 per cent of GDP. As per a report by the Federation of Indian Chambers of Commerce and Industry, India can reach its goal of reducing logistics costs to 10 per cent of GDP by moving freight to the rail segment and optimising truck use. The Ministry of Railways has recently come out with a National Rail Plan to develop capacity and infrastructure and enhance the share of rail freight to 45 per cent. It is expected to bring about a favourable change in the modal mix of freight transport and enhance logistics efficiency in the country. Apart from this, there is a need for a continued focus on the development of expressways and national highways to reduce the travel time between cities. The 1,352 km access-controlled eight-lane Delhi-Mumbai expressway is already coming up as an alternative to the 1,440 km existing route along NH-48 (one of the busiest freight routes, carrying 15 per cent of the country’s total freight traffic). As far as air cargo is concerned, the rise of e-commerce in Tier II and Tier III cities has led to the need for better infrastructure and more capacity to process both international and domestic cargo in Tier II and Tier III airports. Besides, in order to reduce the dependenc on road transport, the development of inland waterways as an alternative mode of transport needs be expedited.

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