Here’s why efficient logistics can be the backbone for economic progress

In 2021 the Indian government approved National Logistics Policy (NLP) framework for the logistics sector in India. Its objective was to improve efficiency in logistics services and human resources.  

The policy was designed to target the following – 

1. To reduce logistics cost in India to be comparable to global benchmarks by 2030. 
2. To be among top 25 countries in Logistics Performance Index (LPI) ranking by 2030. 
3. To create data driven decision support mechanism for an efficient logistics system. 

This article brings spotlight on LPI and proposes various steps India can take to achieve the target to be among the top 25 countries in LPI ranking by 2030.  

Logistics Performance Index 

The LPI was created by the World Bank (WB) to rank the member countries based on the performance of their logistics sector. The LPI helps the WB member countries to identify the short comings and the areas for improvement in their logistics sector. Based on the last published report in 2018, India’s overall LPI ranking was 44 out of 167 countries who participated in this survey.     

Table 1 (India’s LPI ranking) 

LPI Component	India’s Ranking
Customs	40
Infrastructure	52
International Shipments	44
Logistics Quality & Components	42
Tracking & Tracing	38
Timeliness	52

India’s overall global LPI ranking was 44 

Source: World Bank 

According to the economic survey of 2023, the logistics cost in India is in the range of 14-18 percent of GDP against the global benchmark of 8 percent. It is important to have a robust logistics infrastructure to reduce the cost of goods, improve value addition, promote employment, and increase export earnings. The gains from economic reforms launched by the government and the dream of Atma Nirbhar Bharat can be realized only if concrete steps are taken to improve the performance of logistics sector. 

LPI Components 

Following are the components of LPI- 

Customs 

Efficient customs and border management is important for the speedy clearance of cargo. To facilitate this, the customs procedures should be simple, predictable, and transparent. Delay in cargo clearance at customs check point, can lead to increase in inventory carrying cost, transportation cost, warehousing cost and interest charges for the shippers. The clearance of the cargo can be expedited by reducing the “dwell time”, which is the time between arrival of the cargo in the port and the time it leaves the port premises after completing all the clearance related formalities. Presently the National Single Window, e-Sanchit is operating in India for certain limited transactions. It needs further integration for import, export and transshipment documentation and declarations.  

Infrastructure 

In the economic survey of 2023, there was emphasis on the improvement of roads, railways, ports, airports, mass transport, waterways and logistics infrastructure. This is a positive development considering that road transport accounts for sixty percent of cargo movement in India. Similarly, the launch of Mission Raftar in August 2022 by the government to double the average speed of freight trains will help to speed up the movement of rail cargo. Railway freight charges should be reduced from current 4.44 US Cents per ton-km, one of the highest in the world.  

International Shipments  

This LPI component indicates ease of arranging competitively priced shipments. It assesses the frequency with which cargo reaches the consignee on time. Factors that impact the cost of services include freight charges, port charges warehousing charges and labor charges.  

Some of the important steps towards improving the LPI score under international shipments could be promoting low cost transportation mode, cargo consolidation, improving economies of scale, and improving cargo handling facilities. Digitization of documents and automation of port operations can reduce bureaucratic delays.  

Logistics Quality and Competence 

This LPI component measures the quality of service and competence of service providers.  

The dimensions of logistics service quality are customer orientation, order fulfilment, timeliness, information sharing and social responsibility. A significant number of people working in this sector lack the desired skills. Systematic training is required for truck drivers, forklift operators, crane operators, warehouse staff, port, and airport workers. India needs well trained professionals in network planning, inventory optimization, supply chain analysis and information technology to provide cutting edge solutions.

Tracking and Tracing 

Traceability can help the cargo owners to follow the movement of goods through specified stage(s) of production, processing, and distribution.  

A significant cost saving is possible through effective tracking and tracing facilities. Several benefits can be enjoyed by deploying suitable technology tools. For example, cloud technology enabled track and trace system with RFID, GPS tracking, and barcoding can help the shippers to meet their service level commitments. Applying big data can help to reduce the wastages in the supply chains by optimizing the cargo movements.  

Transparency in supply chains can lead to increased competitiveness of business, increased productivity, increased revenues, increased employment opportunities, optimization of manufacturing processes, and delivery of better customer service.  

Timeliness 

Timeliness indicates if the shipments reach the destination within the schedule. If the shipments are delayed, it has a cascading effect on the cost of goods. The cargo owner must bear higher inventory carrying cost, higher obsolescence cost, increased possibilities of theft and damages, penalties, and the loss of goodwill.  

In a recent article in The Financial Times, a person involved in Apple operations said “the process of expanding to India is slow in part because of logistics, tariffs and infrastructure”. The article further reported a lack of sense of urgency in India and slow response to the concerns raised. Hence to improve the timeliness, India must improve the logistics infrastructure and operations, and bring in a change in attitude towards timeliness. There is potential for India to increase FDI and to make India a manufacturing hub and replace China as the world’s factory. One of the pre-conditions for this to happen is to improve India’s logistics ecosystem.         

Views are personal. The author is Professor, Logistics & Supply Chain Management, SP Jain School of Global Management, Singapore.