(Part 01) The Problem: Why Logistics is Costly and Complex in India?

If you are one of the person who is directly or indirectly connected to Logistics or associated segments of business, you must have experienced some or the other problems or challenges while executing any Logistics work in India.

Although Logistics expertise is all about overcoming challenges and associated complexities, but this expertise doesn’t work sometimes in country like India, as many factors are beyond the control of Logistics Service Provider (LSP).

Some of the major reasons of high Logistics cost and complexity related to India are as follows.

(1) Presence of Industrial clusters across India:

Majority of big-logistics companies are either providing their services (not outsourcing) in Metropolitan (20 to 30 cities) or Special Economic Zones (SEZ’s) only to cater Indian MNC’s or overseas companies, who are either having their presence or they are either procuring or supplying to customer present in these zones.

But, if we go beyond MNC’s, SEZ’s and Metropolitan areas, there is huge industrial segment present across Indian towns & rural areas, which basically comes under MSME (Micro, Small & Medium Enterprises) and provide various niche services & products to people/industries across India and overseas market.

These MSME are majorly served by Regional Transport Companies (RTC’s), as they have their own specific requirements and business needs to compete with other MSME’s & International suppliers. To fulfill their customization requirements RTC’s charge premium towards their services to MSME’s, as they have minimum to zero competition within market. Whatsoever competition is there, it’s either killed or some sort of local influence is applied to ensure minimum competition.

Ultimately, Logistics cost of these MSME’s rises many fold till products reach their final destination. In many cases, Logistics cost is almost 20-30% of inventory value (if we consider various indirect factors also).

(2) Corruption & Comfort:

Corruption and associated comfort is one the major reason of high Logistics cost in India, as both Industry and Logistics companies preferred this mode of partnership to generate the income which doesn’t come into formal economy.

Corruption starts from procurement till final deliveries within India and overseas markets. At top level corruption is in millions and at a bottom level corruption is of even USD 2 per order.

Along with corruption, there comes the comfort which both Industry and Logistics companies enjoy with each other due to their association. Sometimes you will observe that, Logistics company owner is the relative or friend of shipper/consignee.

Due to this association, good Logistics companies are either not able to get business or they have to work as an alternative service provider only. In this entire situation, overall service levels fall below international levels, as everyone makes certain compromises along the supply-chain. 

(3) Size of country:

India has an area of 3.287 million km² and Logistics get further complicated due to different state laws and rules of 29 states and 07 union territories. Every Indian state is a country in itself with different culture and business ethics/practices. So, one solution doesn’t fit all.

Considering the size, any Logistics service at local level is not an easy task, unless you know each and every business dynamics at grass root level. Most of the big-Logistics companies prefer local tie-ups, as they don’t want to get involved and make their operations complex.

In the end, due to multiple levels of service providers within supply-chain, overall cost of the logistic activities increases drastically. Along with cost, service levels also deteriorate, as local operators are not so customer and system oriented. 

(4) Traditional ways of working:

There is no doubt that, India is advancing and growing at a very good speed, which is one of the best in world. But, if we see various parameters of different international agencies, ease of starting and doing business in India is one of the worst in world. Why??

In India, we still follow the various traditional ways of doing business, which doesn’t fit in world economy. These ways of doing business gets further complicated due to various bureaucratic hurdles, which are not only present in Government organizations, but traditional Indian business companies and MNC’s also. On the name of culture and traditions, these business practices continue to run from one generation to another generation.

What we saw in recent episodes of TATA and Infosys saga is just the tip-of-iceberg. We have these kinds of internal tussles within every organization across India.

Ultimately, Logistics becomes the part of this culture, which inspite of best intentions drags the Logistics cost to higher levels (read: uncompetitive in international market).

(5) Too much political Involvement:

Politics is a way of life, when it comes to Logistics and associated business practices within India. You perform any Logistics activity in India, one or the other means of political involvement will be always there.

At local level; you have labor unions, recovery agents, brokers, illegal toll booths, illegal parking lots, petrol pumps etc. which are all controlled by local politicians to generate black-money.

At state level; you have flying squads, state police, excise/tax officials, highway theft etc. which is all controlled by politicians.

At Ports and Airports; you have CFS (Container Freight Station) operations, port/terminal operations, container movements, equipment rental, labor unions etc. which is all controlled by politicians and their cronies only.

Due to too much political involvement, overall Logistics cost increases manifold and makes the entire Logistics highly complex, which ultimately makes Indian produced goods uncompetitive in International market.     

If someone wants to enter Indian Logistics market or venture into any business activity, they need to understand the local dynamics well in advance. For this, multiple visits to understand grassroots is must, as such critical business decisions can’t be made in AC cubicles. Whosoever has done this have made fortunes here in India.

Note: In Part-2 of this article, I will cover the steps which organizations can take to ensure best of Logistics operations within India.