In the previous article, we saw India’s transportation spend is in fact increasing at a rapid pace and I had asked if this spend is efficient; i.e. all of it translating into economic value addition. I received excellent responses and insights from some of you. Thanks for sharing.
As mentioned in the previous article, India’s spend on transportation and logistics is about 14% of GDP. However in the developed economies this spend is about 8% of GDP. Moreover India is not a logistics hub like Singapore or Dubai, in which case the sector may contribute to a higher proportion of the GDP. So, India’s spend does seem to be highly inefficient. And if we account for the widespread geographies of countries such as US, the inefficiency scale can be much higher.
So, what could be the factors contributing to this high inefficient spend? Some factors I could think of – Choice of Transportation Mode, Poor Road Infrastructure, Poor Planning & Synchronization (high wait time, idle time), Less Automation & Technology Adoption, and Lack of Multi-modal connectivity. Let’s take a look at some of these factors in more detail:
Mode of Transport: The share of road, which is the least efficient among all modes of transport, in the overall freight transportation in India is extremely high at ~65% and share of rail is ~30 % and that of waterways is ~5%. To make matters worse, the share of rail has deteriorated from 89 % in 1950s to 30% in 2010’s. In China and US, the share of rail is almost 50%, the share of road is about 20% and 40% respectively. And waterways, which is the most efficient mode, contributes to over 30% of freight traffic in China. Also India doesn’t seem to have seamless connectivity among different modes of transportation to make multi-modal transportation work. And if we consider passenger movement, road carries almost 90% of the traffic.
Road Infrastructure: The quality of road infrastructure in India, on which ~65% of transportation happens, is poor. The country has only 18,000 KMs of 4 lane highways and about 40,000 KMs of 2 lane highways which is a miniscule percentage of the total road network of 2.5 million KMs in the country. And only 54% of the total road network is surfaced. Due to this poor road infrastructure, the average distance a commercial vehicle can cover in a day in India is around 250-400 KMs whereas in the developed countries it is almost 700-800 KMs per day.
Planning & Synchronization: I have been speaking to several players in the cargo transportation sector and these discussions reflected the poor planning and synchronization in the ecosystem. For eg, if a cargo is coming by ship to a particular port and it needs to be transported to another location by road, the local logistics handler of the incoming ship will call a few known transport agencies and inform them about the date and vehicles required. The agency in turn calls a few known transport brokers who have contact with truck owners and who know the location of available trucks. This manual process many a times causes delays in transporting the cargo, increases costs and also inefficiency. It is also quite possible that a truck travels empty from another location to pickup the cargo while there could be another truck that is available in the vicinity since there was no visibility to all the available trucks.
Technology Usage and Automation: Businesses do most of their transportation scheduling and planning manually instead of leveraging software solutions. As a result there could be instances where the decision making based on intuition rather than data / analytics may lead to increased transportation costs. As mentioned earlier, there is no visibility to the location of a truck since most trucks do not have a GPS device installed. Fleet managers manually chart the load allocation and routes instead of using software which may lead to inefficiency in case the planning done by the person is not optimal. Manual verification at toll gates, inter-state checkposts, port or industry entry/exit causes delays and increases the transportation time.
Similar issues plague the People side transportation. Lack of emphasis on Mass Transit Systems, high congestion due to poor infrastructure, low occupancy of personal vehicles etc. as a result of which the share of wallet that goes for transportation related expenses for individuals is high at about 20%. What’s happening in Delhi, Bangalore and other cities is a testimony to this and this may soon be the case in smaller cities and towns as well.
What is the impact of this high inefficient spend and also what can be some of the measures through which we can reduce this spend? I will explore these in my next post. In the meantime, if you have any thoughts or comments, please feel free to post.
NTDPC: India Transportation Report, Moving India to 2032
EY – Retailers Association of India: Movement of Goods in India
CII – KPMG: Logistics Game Changers