— Adarsh Hegde, Executive Director, Allcargo Logistics Ltd
Allcargo Logistics Ltd is a
leading multinational
company providing
specialised logistics
services across multimodal
transport operations,
container freight station
operations, and project and
engineering solutions.
Adarsh Hegde successfully
established container freight
stations in Chennai and
Mundra and is in the
process of setting up
similar facilities at other
locations. He discusses
India's logistics and supply
chain scenario with
Sandeep Menezes.
In what way has the rising supply
chain cost combined with
increasing consumption put more
pressure on logsitics services?
At Allcargo, we believe that increasing
consumption is actually a benefit
to the logistics sector; it indicates
that trading is active and stable.
However, what is adding to the
increase in cost of servicing is the
highly fragmented nature of the
industry, the inadequate infrastructure
and lack of institutional framework
across multimodal transport,
complex tax structure etc.
How do you see multimodal
transport evolving in India?
After the economic slump in 2008-
09, we saw increased trading activities.
Exports increased by 46 per
cent and imports by 36 per cent in
the April-June 2011 period. If the
government continues the thrust
and sticks to its commitment of
Vision 2020 for Railways and
NHDP, and Maritime Agenda
2010-20, then the future for multimodal
transport services is optimistic
for India.
Besides the trade, increased outsourcing
and VAT implementation
has also driven the Indian logistic
industry. Many multinational companies
are outsourcing their logistics
services as more and more companies
are venturing into the country
to source cost-effective raw
materials. These raw materials are
then transported to the company's
manufacturing hub for assembly
and complete formation.
In India, the transportation
costs are high because of the
way the supply chains are
designed vis-à-vis tax optimisation
and not transport optimisation.
With the federated tax structures
we have, every state has its own
framework. This has led to companies
optimising their supply chains
for tax optimisation instead of looking
at market optimisation. The
introduction of GST will hopefully
shift the focus to market-led optimisation,
which in turn will ensure
that businesses like warehousing
and distribution will be able to offer
much more value addition than it is
today. Managing the right logistics
will become a competitive advantage
in many industries.
You spoke of inadequate infrastructure
and lack of institutional
framework across multimodal
transport. Can you elaborate
on these two issues?
There are issues at two levels: one is
the poor infrastructure and other is
the lack of institutional structure for
multimodal transport.
Studies have shown that in India
the average logistics cost is about
10-11 per cent compared to developed
economies where it is 6-7 per
cent. This shows a clear room for
improvement and scope for making
us much more competitive. The
biggest challenge we have today is
the poor infrastructure to support
the growing demand. Take ports,
for example, the turnaround times
in Indian ports is two to five days for
a ship, compared to a global average
of a single day; this is clearly inefficiency in the system.
There are tremendous delays in
awarding port infrastructure contracts
because of environmental,
dredging or other issues which
have severely affected the whole
industry and trade. While the environmental
and dredging related
questions are valid to a certain
extent, the model of revenue share
is a big question of debate as a lot of
domestic and foreign terminal
operators and investors are finding
this unviable. The policies should
be framed wherein the transaction
cost ultimately should come down
but, in the current scenarios, even
the benefits derived from revenue
share are not passed onto the end
users, and there is no focus on
bringing down the transaction cost;
this makes the industry uncompetitive.
On the institutional structure,
while, individually, rail, road,
marine and air have policies, there
is no framework for integrated
transport services. Logistics is actually
a sector with linkages to shipping,
finance, commerce and trade,
transportation, aviation and railways.
The policy framework we
have today addresses each of these
areas through a different ministry
or policy making process.
For logistics as a sector to be successful,
grow and help the GDP
multiply, it is important to have consistency
in the policy across all of
these areas. There is an urgent
need for an independent agency
that can act as a single body or
authority to look into all the aspects
of policy framing, implementation
and other operational and regulatory
aspects of the whole logistics sector
in alignment with all the stakeholders
who are directly or indirectly
related to logistics sector, and
enable a uniform policy making
framework for the industry.
TRAI has been a successful model
for telecom, so a similar governing
body for logistics would be helpful
to look at faster and more real policies
and solutions for the industry.
Compared to other developed and
developing economies, the Indian
logistics industry is less competitive
owing to the disparate policy
process. We could learn from these
nations by taking references from
policies which are already implemented
successfully rather than
reinventing the wheel, frame the
same policies by customising it to
India context.
Low quality of existing warehousing
assets is resulting in
relatively poor return on investment
on account of commodity
pricing. How can this situation be
rectified?
Quality of warehousing assets in
India is not primarily an outcome of
poor returns on account of rising
input commodity prices and,
instead, is dependent on several
underlying factors.
Firstly, there is no strong governing
body that is setting and driving
standards on warehouse quality,
building norms, warehouse operations,
and health and safety codes.
The warehouse act of 2007 doesn't
address any of the core issues that
would drive standardisation and
quality in warehouse infrastructure.
The absence of such a policy
clearly creates no incentive for
warehouse users to comply and
hence today sensitivity to warehouse
quality is driven primarily by
the users own internal standards
if any.
If there was a robust policy aimed
at warehouse users and LSPs
backed by strong enforcement,
then users would automatically
drive the developers and LSPs to
provide warehouses that meet the
norms. This would then force LSPs,
manufacturers and developers to
employ the latest technologies and
focus on efficiency to counter the
increased costs on compliance.
Simultaneously, if the government
quickly rolled out GST and
other such policies which would
drive efficiency within the supply
chain it would counter the
increased costs and reduce the burden
to the end consumer.
What is your company's longterm
strategy in the Indian
logistics market?
At Allcargo, we have always differentiated
ourselves by offering superior
personalised services with consistency.
We have always invested
in high quality people who practice
organizational values and build
state of the art assets. And we have
laid great emphasis on building
strong business processes, centres
of excellence, governance mechanisms,
best practices for sustainability
and growth over the years.
Our business focus remains in the
areas of multimodal transport operations,
container freight stations
and inland container depots, and
project and engineering solutions.
We have made investments in our
shipping and warehousing & distribution
services in the last few years.
We continue to focus on our expertise
in each of these areas and look at
developing our newer offerings
more robustly in the future.