Multimodal Warehousing: How convergence and streamlining can change the game
Multimodal warehousing, or the movement and storage of cargo from origin to destination by several modes of transport and carriers under a single contract or bill of lading, has been around. Manufacturer-suppliers migrating to this mode as they grow is not new. However, with the government giving multimodal logistics a fresh focus in this year’s budget, the business sector has become hot cake for investment.
Union Finance Minister Nirmala Sitharaman said in this year’s budget that the government will award four public-private partnership (PPP) contracts for implementing multimodal logistics parks at four different locations in 2022-23. The move will be complemented by the one hundred dedicated cargo terminals under the PM Gati Shakti programme, to be launched in the next three years.
The plan for expressways, construction of 100 new cargo ports for multimodal logistics parks, along with urban metro systems expansion – will help spur the development of new storage and logistics facilities across the country. This will further help in lowering logistics costs. Moreover, the national highway network will be expanded by 25,000 kilometers this year, which will speed up road logistics transportation. The allocation of Rs. 20,000 crore to strengthen infrastructure projects will help to improve connectivity.
Need and scope
The Indian logistics sector has always struggled with high costs and low efficiency. India ranked 44 in the World Bank Logistics Performance Index 2018, which measures performance based on six metrics— customs, infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness.
The Economic Survey of 2017-18 stated that reducing the indirect logistics cost by 10% might result in a 5-8% growth in export. Currently, logistics costs about 14% of the Indian GDP, whereas the same is nearly 8-10% in the case of developed nations. According to the listed aims in the Budget, the government wants to reduce the logistics cost to 10% of the GDP in the next three years.
“At 13%–14% of India’s GDP, logistics costs are far higher than the benchmark of 7%–8%. Road freight cost at ₹1.9 per ton–kilometer (km) is almost double that in the United States, while the average speed of freight vehicles is about 50%–60% lower,” said a policy briefing issued by the Asian Development Bank (ADB), titled ‘Developing Multimodal Logistics Parks (MMLP) in India’.
ADB was the lead partner of the 2017 government programme to develop 35 MMLPs across the country. The ADB team conducted pre-feasibility studied to determine the viability of MMLPs in near Bengaluru, Karnataka, and Guwahati, Assam, and chart out the needed infrastructure, connectivity and regulatory changes.
Signs of change
The increased focus on multimodal warehousing and logistics has found takers among local and global investors. While COVID tested the existence of several industries, it turned out to be a boon for the sector. With demand from e-commerce and third-party logistics (3PL) players booming, real estate developers have also started to focus on the warehousing and logistics segment.
The Gujarat government and Adani Ports and Special Economic Zone Ltd (APSEZ) signed a memorandum of understanding (MoU) in January 202 to set up a 1,450-acre multi-modal logistics park close to the auto hub of Sanand.The expected investments in the park, expected to be launched in 2023, is ₹50,000 crore.
Ticket deals in the warehousing segment are tipped to have a compounded annual growth rate (CAGR) of 20% to 45.9 million sq ft in 2022-23 from 31.7 million sq ft in 2020–21, says data from global commercial real estate services company JLL.
All indicators point to the fact that MMLPs at strategic locations help optimise the cost of logistics in India and improve the competitiveness of the sector. The pandemic has highlighted the need for efficient and coordinated regionalisation of the supply chain.
THowever, India’s varied and challenging topography do play a role in determining, and often increasing, the cost. These are the major pain points to be addressed to establish an efficient MMLP ecosystem in the country.
Skewed modal transportation mix: Roads hog 60% of freight moves, with topographic challenges and slow speed killing the efficiency of the choice. Coastal movement and inland waterways remain unexplored, while rail transport is marginal despite being 45% cheaper per ton–km than road, thanks to regulatory hassles.
Underdeveloped material handling infrastructure: Building efficiencies on the go instead of planned and controlled installation, development, and regulation, has been the sector’s way for many decades. This highly unorganised and unplanned way of growth provides no value addition to the sector. Absence of logistics hubs to act as zones for freight consolidation and disaggregation results in higher point-to-point freight.
Inefficient fleet mix: The reliance on small and unorganised regional operators has brought in small and inefficient trucks. Freight cost for a 9 MT truck at ₹3.56 per ton–km is 2.5 times that for a 40 MT truck.
Fragmented institutional and governance structure:The fact that railways, the most cost-effective way, remains untapped paints a clear picture of the fragmented structure. A plethora of ministries, including Road Transport and Highways, Shipping, Railways, Civil Aviation, Commerce and Industry, Finance, Home Affairs, and even the Department of Posts are stakeholders in the mechanism. Integrating their decisions, actions, and follow-up processes is a daunting task.