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 company’s 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 don’t 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.
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. India’s current infrastructure is already overstretched and all highways and railway links along the Golden quadrilateral and the North- south-east–West 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 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.
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 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)
For full coverage of Union Budget 2017 click here.
Updated Date: Jan 26, 2017 15:48 PM