Indian logistics industry suffers from capacity fragmentation and labor shortage

 (Photo: Unsplash)
(Photo: Unsplash)

The Indian logistics industry is in the middle of a technological evolution. Quite like its Western counterparts and its rival across the border, the Indian logistics sector has been witnessing a multitude of changes ever since it woke up to the reality of e-commerce a decade back. The industry is now grappling with the idea of increasing visibility and traceability, while also looking at building freight capacity as volume growth explodes across the country.

“The Indian logistics industry has evolved over the years, from being hardcore transporters to now bringing in real value-added services,” said Naval Sabharwal, the Global Supply Chain Head at Ramco, a logistics tech major from India. “The pressing problem that the industry faces now and is likely to face in the near future is the capacity fragmentation across the country. Relegating that capacity and optimizing them is one of the biggest challenges that the industry is facing at the back end.”

While capacity crunch and fragmentation are sizeable issues to improve on, highlighting customer inventory and providing visibility to it is a prominent problem at the front end. Sabharwal pointed out that there is a dearth of quality in the industry’s human resources, and believed innovative changes in the ecosystem would help attract talent.

As with most of the developing countries, India spends an estimated 14% of its GDP on logistics and freight movement – a number that the government is steadfast on reducing to a more manageable 10%. Sabharwal contended that one of the primary causes for the spending was the taxation structure, that is going through a major revamp under the Modi government. The recently enforced Goods and Services Tax (GST) is a significant measure to mellow the problem, as it removes the complex state and central taxation layers that existed before, replacing it with a single tax structure.

In spite of the GST being implemented, Sabharwal insisted that the supply chain transition would take time and it would be a few more years before the GST benefits get rubbed off on the industry. Though the taxation alignment has been nearly perfected, aligning businesses and the movement of inventory is still open-ended.

“Another limitation is the lack of capacity visibility. We have capacity created around the country, but it is so fragmented that the largest companies will not be even 1% of the whole industry,” Sabharwal said. The lack of consolidation has led to under-utilization of resources, automatically pushing the operational costs up. India has a lot at stake with regard to improving the efficiency of the logistics industry and needs to ponder on a concrete strategy, and should get back to the drawing board if necessary.

The Indian government does work its part in regulating the logistics sector. Sabharwal asserted that the Indian laws did subscribe to the kind of control that exists in the U.S. and Europe, but enforcement has generally been a problem. The execution side of the supply chain does not have enough people on board for micromanaging processes.

India struggles with an unemployment problem, where there is an apparent mismatch in the number of people graduating every year to the number of jobs available. “The ones that already are in this line of work are now driven to the edge. We have a very large population, and that is putting a lot of pressure on the government,” said Sabharwal.

But technology is breaching barriers and making the logistics ecosystem a more favorable environment to work in. India is witnessing a boom in digital freight marketplaces, which are currently focussed on the last-mile side – driven not just by the big e-commerce players, but by smaller home delivery startups that cater to a broad Indian middle-class audience.

Drivers are getting tech-savvy, who Sabharwal mentioned having taken to smartphones like “fish to water.” They have recognized the impact of technology, and are now using it not just for auditing, but also to get loads. Then again, the freight industry at large is still entrenched in conservative practices, which need to up their game.

Sabharwal predicted a significant consolidation in the sector over the next 3-4 years, as larger players like DHL and startups like Rivigo bring in both technology and more capacity into the equation. Right now, the market is competitive from the rate perspective, but the same cannot be said from the service side of things. The situation could change in the future, as with more capacity, the quality of services would be expected to gain center stage, leading to a more efficient logistics ecosystem.

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Vishnu Rajamanickam, Staff Writer

Vishnu writes editorial commentary on cutting-edge technology within the freight industry, profiles startups, and brings in perspective from industry frontrunners and thought leaders in the freight space. In his spare time, he writes neo-noir poetry, blogs about travel & living, and loves to debate about international politics. He hopes to settle down in a village and grow his own food at some point in time. But for now, he is happy to live with his wife in the middle of a German metropolitan.

One Comment

  1. Great post Vishnu.

    While companies like DHL and Rivigo are playing a part in bringing technology to logistics, they are effectively doing so for less than 0.1% of the over 6 million M&HCVs plying India’s roads.

    On the other hand, there are several online freight marketplaces, like FR8 (backed by Omnivore Partners), FreightBazaar and Emiza (backed by Mayfield VC), that are making technology accessible to the 95% of assets and transporters in the country. (Disclosure: all three use the Numadic platform)

    With telematics penetration under 20% of the market, determining visibility needs several clever tricks that rely on the nature of movement in India. India needs technology, but its intermediaries aren’t going anywhere anytime soon.