One of the fundamental problems with freight hauling in India is the apparent difficulty in decoding the logistical cacophony that exists across all levels in the industry. The Indian freight market is estimated to gross over $130 billion in revenue every year and touted to reach $300 billion by 2020 – all this with glaring inefficiencies across organizational hierarchies in the industry.
Being a developing economy with a burgeoning population, India has its fair share of problems with logistics. The country spends around 14.4% of its GDP on transportation logistics which is about 5% higher than what other developing countries like China spend, making it unsustainable over the long stretch.
Recently, the incumbent government introduced the historically significant Goods & Services Tax (GST) across the country, doing away with extremely complex inter-state tax laws. The GST is turning out to be favorable for the logistics companies since they can optimize operations and reduce overhead costs and improve margins.
A McKinsey report titled Building India – Transforming the Nation’s Logistics Infrastructure, advocates the need to create an infrastructure network that can take on the multi-fold growth of the freight industry in the next couple of years. The country needs a strong policy at the center that prioritizes infrastructure and technological investment, minimizing operational loss and creating a sustainable and energy efficient future in transportation.
Though India has the second largest road network in the world, traffic has been concentrated in certain pockets across the country and thus increasing the burden on such specific nodes. To dissipate this problem, the government needs to enhance connectivity by expanding on the existing state and national highways and increasing the number of lanes for easier interstate hauling.
Also to be noticed is the visible lack of cold storage infrastructure and refrigerated transport, with nearly 40% of the yearly produce going to waste. Fresh produce that is transported across the country is rarely hauled in cold storage and is subjected to the extreme summers, creating spoilage. Conditions have remained the same over decades, leaving a lot to improve upon. Positioning cold storage warehousing at lynchpin locations could prove to be a lifeline in modernizing the country’s freight industry outlook.
Integration of transportation networks and warehousing is another existential crisis faced by logistics companies across the country. Redundant regulations and massive red-tape bureaucracy make things worse, with it hindering transparency and significantly increasing transit and delivery times.
FreightWaves went ahead and spoke with fleet owners in South India about the situation on ground zero. Most of them contend that recruiting skilled and responsible drivers has been a major issue, especially since there are frequent instances of reckless driving amongst truckers and indifference to freight safety. Compounding this issue is the fact that the churn rates of drivers are at an all-time high, with the younger generation disillusioned at the hardship that they face in the role.
Bringing in technology that could track freight on the road would be a game-changer. Equipping trucks with ELD systems would go a long way in improving on-road situations, with freight safety and with improving transit times. Training truckers on regulatory interstate issues and giving them a healthy compensation with social security benefits would help retain them on the job.
To understand the operational structure of the freight industry in India, we would have to delve deeper into the many layers of the market held together by different players like the fleet companies, booking agents, brokers, transport operators, and the end users. In this, the pricing strategies are variable parameters – changing based on seasonal demand and regional competition.
Pricing strategies could either be a pre-established contract system or a spot pricing model. At present with the fluctuation of demand and erratic inflation rates, a lot of shippers prefer spot rates to contracts. But this opens up a whole new dilemma with price negotiations, where the brokers in the spot market hold sway. This greatly reduces transparency as shippers bear the brunt, with brokers charging exorbitant percentages on the loads as well as accepting bribes from middlemen on prime loading slots.
Digital freight management tools and marketplaces have sprung up in recent times, but are still in a nascent stage of adapting to a market that is sluggish on the uptake. A lot of fleet owners and truckers are not educated enough to understand cutting-edge technology and thus it would take a phenomenal effort to reach out to them. But change is visible in the industry and given some time, it would be the next big market to look out for in Asia.
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