India's transportation industry is enormous and growing. It is worth around $160 billion and is projected to grow to $215 billion in the next two years according to an economic survey. This is an industry that provides employment to more than 20 million people and it's only getting started. However, there does remain a problem with this growing industry that could possibly be preventing it from unlocking India's true potential as an economic powerhouse. That problem is unorganized and highly fragmented logistics.
One issue is within the trucking industry. In India, the trucking business is highly unorganized and does not have any standards in regards to industry practices. Only 10% of Indian truck operators own a fleet exceeding 25 trucks, and most drivers own single trucks and rely on third parties to handle their orders. This poses a problem to businesses entering the Indian market, "there are a ton of small trucking companies in India and there are no big players who control most of the market, which would offer cost advantages of scale," said Agam Berry, co-founder of Quantified Commerce, a company focused on building e-commerce brands in India, "this obviously poses a problem for companies because the cost of transportation is high."
There are other inefficiencies when it comes to India's logistics. India spends around 13% of its GDP on logistics, which is higher than the United States, Europe, and Japan. While more spending would seem like would mean improved logistics, inefficiency is actually what causes the increased spending. "There are several reasons for the high spend on logistics in our country," said Vikas Anand, Managing Director of DHL Supply Chain India, "the condition of roads, the road network itself and vehicles that are not fuel-efficient add to the supply chain cost."
There are other aspects of the transportation industry in India posing big problems for businesses. The Indian rail network, while the fourth largest in the world, has some issues that pose problems business and contribute to the country's fragmented logistics. The Indian railway suffers from a lack of manpower. 16% of posts lie vacant across India's rail industry. And while the rail system is only behind the United States, Russia, and China in terms of size, it incurs huge losses every year. Many of India's regions aren't viable for railways, which is another problem that the railroads in India face.
Transportation issues aren't the only ones contributing to India's logistics problems. Warehousing presents works in conjunction to compound the problems that plague the already shakey trucking and railway issues. "Multiple warehouses exist creating several points of stock transfers, leading to inefficient distribution channels," said Anand. Some companies that own their own warehouses are able to circumvent this problem. "We have warehouses in four cities, with plans to have them in forty by the end of the year," said Berry.
The government is stepping up to solve the logistics problem. In June of 2017 Indian Prime Minister Narendra Modi launched the Goods and Services Tax. This revolutionary new tax would ensure that movement between states becomes cheaper by eliminating small border taxes. This would aid businesses which produce bulk goods and allow for companies to get over the high costs that are incurred as a result of fragmented logistics.
But while this historic new tax will greatly relieve the logistics problem many businesses in India face, it will still take time for the logistics problem to be solved completely. However, some companies are finding ways to fix the logistics problems internally. Quantified Commerce's Agam Berry said, "we are looking into owning our own trucks, which would eliminate a lot of the costs and problems India's fragmented logistics present."
With the government taking steps to fix India's fragmented logistics through tax reform, and companies like Quantified Commerce taking an active approach to countering the problems that fragmented logistics present, it seems like businesses in India may be able to get around the issues of fragmented logistics, and it seems like those logistics may soon become more cohesive.