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Infrastructure development is a critical enabler to economic growth. Logistics infrastructure, covering the road, rail, waterways and air network of a country, is the backbone on which the nation marches ahead. Although the urgency to develop Indias logistics infrastructure has been realized in the past decade, the task at hand is daunting. Indias logistics infrastructure is insufficient; ill equipped and ill designed to support the expected growth rates of 7 to 8 per cent over the next decade. This expected 2.5-fold growth in freight traffic would further increase the pressure on Indias infrastructure. India has the opportunity to address this issue. Over two-thirds of the infrastructure network capacity of the future has not yet been built. Learning from the past and adopting global best practices, India should pursue a logistics infrastructure strategy that minimizes investment, maximizes cost efficiency, reduces losses for users and is energy efficient. This will need India to build its freight infrastructure in a manner that creates an integrated network across modes and prioritizes high-return programs. In particular, India needs to increase its use of rail, and realize the potential of its waterways. For example, in the normal course, Indias rail share in freight would decline to 25 per cent from the current 36 per cent. This is relative to almost 50 per cent rail share in China and the US, similar continental sized nations.
To meet these objectives, the infrastructure can be divided into the four modes of transport used in India i.e. Roads, Rails, Ports and Airports. The various objectives, reforms, challenges and way outs can be studied under each.
Roads:
The most important mode of transportation in India is Road, and this dominance arises from decades of poor supporting infrastructure development on the coastal, pipeline and air transportation side. Despite having one of the worlds largest rail networks, Indias share of cargo transported by rail has declined steadily from over 85 percent in the 1950s to around 30 percent presently. It is due to the poor quality of service (including last mile access solutions), driven largely by the historic monopoly of the government in this vital mode of transportation, as well as massive investments in road highway projects over the past six decades which have enabled trucks to reach hitherto unconnected parts.
Despite the recent privatization of the container rail industry, road transportation continues to grow and gain share from rail albeit at a slower pace.
Ports:
Ports provide an interface between the ocean transport and land-based transport. Indias port infrastructure constitutes of 12 major ports (Kandla, Mumbai, Jawaharlal Nehru, Mormugoa, New Mangalore, Cochin, Tuticorin, Chennai, Ennore, Vishakhapatnam (Vizag), Paradip and Kolkata including Haldia and around 187 non-major ports. Of the non-major ports, only around 48 are operational; rest is only fishing harbors. Development needs: Indias port infrastructure constitutes 11 major ports, 1 corporate port &187 non-major ports. Of the non-major ports, only around 48 are operational; rest are only fishing harbors. Around 7 of the 12 major Indian ports are operating at more than 100 per cent capacity, as against an optimum range of 70-80 per cent utilization. Further, available data show a drastic decline in augmented capacities at major ports during the last four years. While there was a 14.8 per cent increase to 456.2 Million MT in major port capacity during 2005-06, the year 2006-07 saw capacity additions decline to 10.6 per cent.
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During 2007-08, new capacity additions were limited to 5.4 per cent and they are projected to further decline to 4.4 per cent in 2008-09.
Opportunities: On the positive side, with the Government encouraging private participation in port development, non-major ports have begun contributing significantly to the economy. The relative share of non-major ports has grown from 26 per cent to 28 per cent in the four years since 2004-05. While the total capacity of non-major ports in 2008-09 is estimated at 228.3 Million MT, the corresponding total cargo handled was 220 Million MT. The new Governments ambitious agenda to award 6 concessions for ports and initiate for 20 others through PPP totaling to more than Rs. 3300 crore, within a span of 3 months, is being regarded as a welcome move. Players with ports as their core business can now invest in strengthening their back-end and soft infrastructure such as connectivity linkages and alliances as well as initiatives for productivity improvements, service augmentation and customer development. Foreign and private equity investments in Indian ports in recent times reflect a strong faith in Indias port sector and suggest the inflow of more such funds in the forthcoming period.
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PSA also has a stake in ABG Kandla Container Terminal, which is the concessionaire for Kandla Port. Dragados & Gammon collaborating to develop the Mumbai Offshore Container Terminal is yet another case of foreign investment. The concept of port-based SEZs is fast catching up amongst Indian investors ever since the successful launch of Mundra Port SEZ. It establishes that credible port infrastructure is no more value adding, but imperative for development of globally competitive hubs of economic activity and thereby promoting international trade.
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Rails:
Indian Railways is the 5th largest network in the world. The only nations ahead of India in terms of the Railway infrastructure are the United States, Russia, Canada and China. The total length of Indian Railway is around 63,327 kms out of which 41% is electrified. The Railways in India provide the principal mode of transportation for freight and passengers. The growth of Indian Railways in the 155 years of its existence is phenomenal. It has played a crucial role in the economic, industrial and social development of the country. The Railways record for about 2.30% of the GDP and employs approx. 1.5 million people directly. Indian Railways run over 63,273 km, of which 28.6% is electrified with a fleet of 8,330 locomotive units, 53,555 coaches and 2,04,034 wagons as on March, 2008. The freight segment accounts for about 70% of the revenue. The freight capacity has increased from 521 mn tons in 2003 to 779 mn tons in 2009. In India, the most significant way of transportation is Road (~62%). This supremacy arises on account of poor infrastructure growth in other ways of transport such as air (< 1%), coastal, pipeline etc. India is having world largest rail network, yet Indias contribution of cargo transported by rail has decelerate from 85 percent in 1950 to ~ 30 percent in 2010. This is on account of miserable quality of services as well as huge investment in road highway projects over the past six decades. There are a total of 17 zones divided in accordance with various administration jurisdictions.
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Indian Government, realizing the business potential for the container rail operations and its strategic importance to the Indian companies, invited the players to take a stake in the container rail operations. Privatization of container rail operation enticed 16 players. According to the Indian Railways, private players would serve to: Increase Indian Railways market share of container traffic Provide incremental capacity to cater to the exponentially growing containerized traffic in India Ensure speedy clearance of export/ import of containerized traffic domestic traffic on Indian Railways Improve quality of service to customers containerized
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for Rs 10 crores
Features of Rail Freight Operations Capital Intensive industry: Players have to invest into creation of an asset base comprising of rakes, terminals (ICDs/ rail sidings), containers, container handling equipment, etc. Higher utilization and turnaround time: the average turnaround time in the domestic freight typically stands at 3-4 trips (to and fro) in a month per rake, while turnaround times for EXIM is around 7-8 trips (to and fro). 15 Group 3 Date: 21.12.2012
Development needs The existing railway network is crippled by capacity constraints and is inadequate to meet the potential demand of cargo transportation. The ambitious project of railway freight corridor should address the capacity constraint. The work for the dedicated freight corridor (DFC) ( which has been renamed as Diamond Freight Corridor in the recent Rail Budget) , envisages construction of dedicated freight lines along the eastern and western sides of India covering 2,739 km . Once commissioned, the DFC along with the feeder routes will ensure the availability of sufficient capacity in the face of rising demand. It is expected to increase average speeds to over 100 kmph, reduce transit time by half and also reduce the cost of operations. The project is expected to reach completion by 2016-17. Challenges of Rail Transport: In comparison with countries like USA, Russia and China, the cost of transport per tonne per kilometer in India is very high almost three times that of China. The railways have the potential to bring down the freight cost to greater extent with favorable commercial characteristics, dense and long-distance freight lines and strong flows of bulk products. The slow pace of progress in network expansion and modernization of existing facilities in the rail segment coupled with poor customer service has resulted diversion of freight traffic even bulk items such as steel and cement to the road sector. The market share of Indian Railways in total freight traffic has been falling consistently. Some of the reasons for that are highlighted below. As per the white paper published by the Rail Ministry , its average lead of freight traffic, its asset utilization figures like NTKM (Net Tonne Kilometer) per wagon day, its manpower productivity etc. are much lower compared to countries like China, Russia and USA. While there has been some effort on the part of government to augment the Rolling Stock, there also has been significant emphasis on better utilization of the existing ones. It is commonly known that IT can be leveraged to improve the utilization of existing stock. This has failed to happen in India. A pilot project is being carried out to improve the Central and Zonal computer systems the implementation of the project however is still to see light. Freight trains travel on the same tracks as passenger trains at an average speed of 25 kilometers per hour causing considerable delays in transportation. Of course there are many other challenges
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The Railways are also carrying the additional burden of sixth pay commission recommendations. The Railways have to pay Rs.6,600 crore in arrears alone to the employees besides the increased salary burden of about Rs. 7,000 crore in the F.Y 09-10. About 60% of the arrears on account of pay commission has to be paid in 2009-10. This has coincided with the economic slowdown which has affected earning. In two years, the Railways have to pay Rs. 28,000 crore towards salary and arrears. The two factors have led to an increased operating ratio of 92.5%. Some of the other challenges facing the Railways are professionalizing its cadre, giving up tradition of hierarchies which its departments signify, bonding the various depts. into a cohesive unit flexible to cope up with the fast changing environment, cutting cost, yielding economies, reducing tariffs and benchmarking performance with comparable systems abroad. The logistic sector would be greatly benefitted and achieve higher efficiency if the Indian Railways is successful in implementing its plans for improved speed of freight trains, upgradation of rolling stock, improved signaling and communication, setting up additional container depots and rationalization of the freight rates to remove distortions. Restructuring and corporatization of the railways will go a long way in meeting the formidable challenges of the future Railways see scope for greater logistics play/Opportunities & Future Planning: Indian railways, slowly but surely, is in the process of integrating its various systems and service components to play a dominant role in the logistics and supply chain business in the country. The leading passenger and cargo mover is undoubtedly the best-suited Indian entity for the job as it has the necessary wherewithal at its disposal. The world's fifth largest railway network, the railways has 114,500 km of total track over a route of 65,000 km and 7,500 stations. It roughly carry over 30 million passengers and 2.8 million tonnes of freight on a daily basis. The world's second largest commercial or utility employer, with more than 1.36 million employees, the organization can boast of having a rolling stock of over 240,000 freight wagons, 60,000 coaches and 9,000 locomotives. According to a senior railway officer, the railways also have 4.2 lakh hectares of land, 2300 goods sheds, dedicated parcel services and freight services.
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The rail container policy announced in January 2006 allows private companies to undertake container transportation by rail. As many as 16 licenses have been issued for operating container trains. In the recent budget announcement, it was indicated that the Railways were working out the details of a premium service for movement of containers with assured transit periods for time-sensitive cargo. Permission has also been provided to container train operators to access private sidings to help attract piecemeal traffic that are at present not being carried by railways. The railways have also chalked out plans for a freight related revamp in partnership with the private sector. The partnership involves redevelopment of dilapidated goods sheds and freight
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Conclusion:
The logistics industry will continue to be the focal point of strategy formulation, operational excellence and information technology to make maximum contribution in value creation for customers. Globalization, consolidation, technology advancements and outsourcing have only led to growth in the logistics services market and this industry will continue to evolve in the coming years. With logistic services getting more complex and value added services becoming an important component of logistics service proposition there is a need for efficient supply chain management and tracking software. Technology not only helps to deliver quality services to the customer but also helps companies to integrate and consolidate their supply chains on a real time basis. The challenge today faced by the industry is standardization and adoption of technology infrastructure. Apart from the various challenges highlighted, the biggest challenge is to form an integrated network in order to minimize the overall cost. However, with continued efforts towards investment in infrastructure, these challenges can help improve efficiencies. Building logistics infrastructure and integrating different modes of transport into a seamless network is critical. Businesses are bound to benefit from an enhanced logistics industry
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References:
1. www.pwc.com/India 2. McKinsey & Company Building India 3. Deloitte - Logistics and infrastructure, Exploring opportunities 4. Transportation and Logistics 2030 5. KPMG Logistics in India 6. DEssence consulting Study of Logistics in India 7. http://logisticsmanagementandsupplychainmanagement.wordpress.com/2007/05/23/impa ct-of-transportation-infrastructure-on-logistics-in-india/
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