Interactive Seminar on Logistics Parks
“World Class Logistics Parks for India”
22 May 2009, India Habitat Centre, New Delhi

Summary of Proceedings

INAUGURAL SESSION

Stating that infrastructure and logistics are two faces of the same coin, Ms Sarita Nagpal, Deputy Director General, CII, said in her opening remarks that the concept of logistics parks is relatively new to India.

To take the concept forward, Mr Sudhir Rangnekar, Event Chairman, Former Director SCI & Former MD & Group CEO, Sical Logistics Ltd, said in his address that the logistics industry requires leaders who can think up future and work backwards. As such, the Indian logistics infrastructure stacks up good numbers. The country has the second largest network of roads (3.83 million km after US’s 6.43 million km), the second largest rail network (63,000 km), 128 airports, 12 major ports, 1 corporate port and 187 non-major ports. But, this infrastructure counts for little in terms of quality.

The industry has attracted only limited private investments, that too more recently following privatisation. As a result, the Indian logistics industry accounts for a mere 2% ($100 billion) of the $5,000-billion global logistics industry.

Further, owing to general inefficiencies, logistics is a high-cost activity in India (13% of GDP) compared to 8-9% of GDP in the US.

Pointing to a few more areas of concern, Mr Rangnekar said the industry is hampered by high transaction costs, more time taken in processing exim containers (12-13 days compared to 3-5 days in France and Denmark), excess documentation (an average 11 documents compared to 2-3 in France and Singapore), and high cost of handling exim containers ($2,600-3,000 compared to $440-450 in Malaysia and Singapore).

Investment in the logistics infrastructure has been raised from $201 billion under the 10th Plan to $492 billion under the 11th Plan, but the question of quality merits close attention, Mr Rangnekar said.

India ranks 39th in the World Bank logistics performance index that covers 150 countries. Mr Rangnekar said in the Indian context, the inefficiencies in the logistics industry stem from (i) a fragmented market (ii) multiple taxes (iii) physical infrastructure bottlenecks (iv) archaic labour laws, and (v) state-centred policies.

Highlighting the infrastructural bottlenecks, Mr Rangnekar said that national highways that form 2% of the total roads carry 40% of the traffic. 80% of the roads are in effect ‘village roads’.

Yet, the domestic logistics industry is growing at 8-10% per annum and is expected to reach a size of $385 billion by 2015, he said.

Commenting on the warehousing segment which makes up 20% of the logistics industry, he said it is dominated by small players with limited capacity. This segment is expected to grow from $20 billion now to $55 billion by 2011, constituting then about 35% of the total logistics industry in India.

Referring to the topic of the seminar, Mr Rangnekar said 110 logistics parks are slated to come up across the country in the next five years, covering 3,500 acres at an estimated cost of about $ 1 billion. Thus about 45 million sq feet of additional warehousing space is expected to be developed across the country. This will be aided by privatisation of ports, opening of dedicated freight corridors, roads development, improved and enhanced ports handling, etc.

The anticipated growth of organised retail (currently 6% of total retail compared to 85% in the US) will also spur this industry, he said. Also, outsourcing of logistics to 3PLs will also act as a key industry growth driver.

Logistics has a multiplier effect on the entire economy. Mr Rangnekar said a 0.5% cost reduction in logistics will effect an additional 2% growth in trade and 40% increase in the range of products exported.

Mr Rangnekar identified four logistics hubs in the country:

• Established hubs: Mumbai, Kolkata and Chennai
• Emerging hubs: Gurgaon, Vizag, Nagpur and Indore
• Promising hubs: Jamshetpur, Alwar, Ahmedabad, Bangalore and Ambala
• Nascent hub: Kochi.

He urged the Government to improve transport connectivity, strengthen the competitive and regulatory environment, grant industry status to the segment, and create skilled workforce for logistics business.

He concluded by saying that logistics should be viewed as ‘strategic enabler’ and not only from the view point of cost reduction.

Mr Ajay Chopra, CEO, Drive (India) Enterprise Solutions. Ltd, a TATA enterprise, in his address said his group has been at the forefront of the growth of this industry.

Referring to the lack of trained manpower in logistics, he said there are no specialised courses on logistics on offer in India.

Pointing to some of the key constraints, he said the average speed of commercial vehicular movement in India is a mere 20 miles/hour compared to 60 miles/hour in the West.

Referring to the growth drivers, he listed introduction of VAT and phasing out of CST, outsourcing activities, rise in FDI, greater organised retail, higher exports and imports, and greater logistics linkages as key enabling factors.

Logistics account for 15-25% of cost of goods in India compared to 10-15% in the West. However, the Indian logistics industry is bordering the level of emerging logistics markets, he reckoned.

Dr C B S Venkataramana, Joint Director General of Shipping, Government of India, in his inaugural address said cost and quality are both concern areas for the Indian logistics industry. High cost of logistics negatively impacts all stakeholders – customers, suppliers, and service providers. Modern logistics is the mantra for addressing the constraints, he said.

Providing a gamut of definitions of logistics and logistics park, Dr Venkataramana said that India has a long way to go in terms of establishing world class logistics parks. Government should create the necessary infrastructure as well as a level playing field for Indian private logistics players, he said.

Dr Venkataramana also released a research paper on the future of multi-modal practices in India prepared by Amarthi Consulting.

SESSION I: BUILDING WORLD-CLASS LOGISTICS PARKS
The Indian logistics industry has boarded a high growth trajectory aided by rapid domestic GDP growth and rise in organised retail. Stating this, Mr Sanjay Upendram, CEO, Amarthi Consulting, said in his opening remarks that the domestic logistics industry, though a strategic enabler, is hampered by limited capacity.

Transportation itself points to the capacity constraints, with roads bearing the bulk of the freight movement. The challenge lies in building multi-modal transport logistics, he said.

Listing the general inefficiencies, such as fragmented industry, rail traffic congestion, sub-optimal supply chain network (owing to lopsided tax sops offered by certain states), lack of efficient transportation, procedural delays and poor service standards, Mr Upendram said that the resulting high cost of operations is causing an estimated loss of $50 billion to the national economy.

For logistics parks to gain traction, he urged the Government to push for more freight corridors and integrated multi-modal transportation networks.

With regard to ‘Emergence of SEZs as Logistics Hubs’, Mr Ramesh Subramaniam, President, Sri City Pvt Ltd, said that 70% of the SEZs in the country are IT-focused and sized between 25 to 50 acres. Sri City has acquired 6,000 acres.

Listing the advantages of a 600-acre logistics park within Sri City, he said that:

• 300 companies are setting operations within the park, and many of their customers are situated within 3-4 km radius
• Manufacturing companies are taking just 15 acres and leaving logistics activity to logistics park
• Companies are shifting production to logistics park
• Co-located firms will enjoy 7-8% cost savings
• Duty free movement will be possible between SEZs
• Infrastructure can accommodate even 50-wheel vehicles
• Provision for centralised warehousing.

Mr Manoj Akhouri, Group General Manager, Concor India, while speaking on the concept of ‘multimodal logistics hubs’ said that demand for logistics has increased with increased share of manufacturing in the national GDP. The essential components of a logistics park are (i) suitable location (ii) rail terminal (iii) air cargo complex (iv) intermediate container terminal (v) warehousing (temperature controlled and ambient) (vi) value added logistics services (vii) food processing zones (viii) open stocking yards, (ix) ancillary production, etc.
Logistics park also create community and economic benefits, such as, (i) reduced pollution (ii) single window clearances (iii) greater industrialisation (iv) focused environment management and (v) greater use of environment-friendly rail systems.

To achieve this, Mr Akhouri said that the logistics players should engage in detailed location strategy studies.

He noted the emergence of logistics hubs along the dedicated freight corridors within 300 km of each other.

Mr Akhouri said that PPP was the preferred route for building logistics parks. Government should facilitate this by easing land acquisition norms, broadbase basic infrastructure, provide tax incentives, promote industry clusters, etc. And, the nodal agencies should promote inter-modal transportation.

Above all, there is a need for a master plan for logistics parks in the country, he said.

Speaking on the role of large scale logistics parks, Ms Bhairavi Jani, CEO, Transmart, said that Indian logistics parks need to match the scale of dedicated logistics parks such as in Shanghai.

She hoped that India@75 would be a world class supply chain powerhouse, aided by large production and consumption bases, efficient unit economics of service providers, IT capabilities and proven accounting norms.

India also enjoys a time zone advantage, being located between the global producers and consumers. But, the show-stoppers are:

• Financial constraints: need long-term investment commitments from government and private players alike for over 15-30 years
• Land acquisition: need to enforce land reforms and also earmark land for logistics parks
• Poor operations: the large manpower base needs to be integrated with standard processes and technologies
• Outdated skillsets: need for skills training and certification in logistics. This could be achieved with distance learning modules which are market-based.

Ms Jani urged Government to identify the logistics points and give land for PPPs to build logistics parks. With consolidation of industry, she said the carbon footprints will also reduce.

Look 15 years hence, she said to her industry peer group companies.

Mr K S Shashidhar, Business Head – Science Park, Marg Ltd, while speaking on the role of infrastructure planning and financing said there is only limited capital flowing into the Indian logistics industry. Besides, only 15% of the industry is organised.

According to him, the key growth drivers would be: (i) a new tax regime (ii) increased external trade (iii) higher organised retail (iv) more outsourcing and (v) huge infrastructure development.

He called for a national logistics strategy, uniform service standards, and setting up of logistics parks in SEZs.

In the interactive session, Mr Chandramouli said that CII is in the process of identifying vocational institutes to conduct courses on logistics. Efforts are also underway to train rural workers so as to prevent large-scale migration to cities.

Citing land acquisition as a major showstopper for logistics parks, one participant said Government should look to provide sustainable income to farmers who sell out their land. To this, Ms Jani said her company has involved villagers as shareholders in their rural engagements in a market-sustainable manner.

SESSION 2 : IMPACT OF LOGISTICS PARKS ON INDUSTRY
AND SUPPLY CHAIN IN INDIA

Supply chain is a closed loop system that comprises the production/procurement node, process node and consumption node. The nodes are connected by logistics. Stating this, Mr Manish Tripathi, Head of Logistics, ILFS – Infrastructure Development Corporation, said these nodes need not function as stand-alones but can come together in a hybrid form, such as, in a logistics park.

Talking about his company’s experience in setting up a logistics park (IFC, Dwarka on NH8), he said the major challenges were commercial. For logistics parks to come up seamlessly, the development needs to be master-planned. So, just as land is earmarked for industrial, commercial and residential purposes, land needs to be earmarked for logistics activities too.

Further, the cargo at airport requires to be properly warehoused. Currently, such warehousing is being done by illegal operators in the proximity of airports. To avert this, he recommended that land should also be earmarked for warehousing. In the absence of modern warehousing practices, there are regular slippages to the extent of 15-25% of cargo business. ILFS-IDC is looking to set up a free trade warehousing zone which will prepare cargo at the airports (in this case, DIAL).

At the national level, Mr Tripathi called for 15,000-20,000 acres to be assigned for warehousing.

He also underlined the opportunity of setting up agri-logistics parks, especially in light of the APMC Act having been amended. His company is setting up one such park in Jamnagar, Gujarat.

Mr Tripathi also spoke about rural logistics hubs that function on the lines of a ‘hub and spoke model’. Given the importance of agriculture, such hubs would need to be promoted in a major way, he said, adding that currently 65-70% of agricultural produce moves on bullock carts.

At the macro level, to make logistics parks viable, he called for (i) master planning, (ii) unrestricted traffic flow between states, (iii) multi-modal parks, and (iv) development of parks by specialised infrastructure service providers (and not by the logistics operators themselves).

Mr Tripathi also raised the issue of whether logistics operators are in a position to invest upwards of Rs 1,000 in logistics parks that mandate project cost of Rs 4,500 crore. “Nobody looks at project financing in this area,” he said. Government therefore needs to play a key role in creating the necessary conditions for logistics parks to come up, he added.

Mr Tripathi recommended the creation of an SPV, aligned to a National Logistics Development Programme, comprising senior bureaucrats that could look into logistics master planning, priority sector lending, regularisation issues, etc.

Mr Sanjay Upendram, CEO, Amarthi Consulting, said a complex domestic supply chain mechanism meant that most products are fatigued before they reach consumers in India. A logistics park could facilitate the co-location of value added service providers. Even final assembly could happen within the park, he said.

Further, with CST being phased out, warehousing could be consolidated, he added.

Logistics parks will give economies of scale to its users such as FMCG companies that run a large number of distribution centres. Besides, the manufacturing and distribution centres too could be located in close proximity or linked up with efficient freight movement.

A logistics park would thus facilitate (i) economies of scale, scope and co-location, (ii) efficiency in transportation by way of integrated, multi-modal access, (iii) light manufacturing activities, (iv) co-location of value added service providers, and (v) reduced inventory.

Mr N P Tripathi, Head of Operations, SC Johnson, while providing a user perspective, said that delivery of the end-deliverables matters more than any cost advantage. Stating the key logistics problems that users face, he listed the following: (i) inbound costs (1-3% of net sales), (ii) outbound costs (2-7% of net sales), (iii) poor transportation, (iv) lopsided fiscal sops by state governments that distort manufacturing and warehousing activities, (v) inventory pile-ups of 35-50 days, and (vi) fragmented JIT suppliers.

He said that if the logistics parks are located close to their potential markets, the distortion caused by uneven fiscal sops could be neutralised. He expected the FMCG companies to be big users of logistics parks in the future.

Mr Arif Siddiqui, Director, Coign Consulting, focused attention on the quality of buildings in a logistics park. “In a plan everything looks beautiful, but it is the elevation that speaks of character,” he said, adding that the functionality and use of buildings will determine the quality of a logistics park.

Buildings are part of supply chain and not logistics. They are not meant to be archeological marvels and are to be designed to facilitate supply chain management and not logistics, he said.

He therefore emphasised that the logistics operators should be involved in the design aspect of the buildings and physical infrastructure.

Pointing to the inefficiencies that exist in the supply chain that links up human capital, network, technology and infrastructure, he said the country could make significant savings by improving the supply chain mechanisms. As of now, logistics cost run up to 13.28% of GDP which could be brought down to 8.5-9.0% of GDP, he said.

Ms Bhairavi Jani, CEO, Transmart, chaired the session.

SESSION III: BEST PRACTICES AND CHALLENGES IN LOGISTICS

The efficacy of logistics parks in India lies in their meeting the actual requirements of customers. Mr Sudhir Rangnekar, Former Director SCI & former MD & Group CEO, Sical Logistics Ltd, said in his opening remarks that efficient handling of local customer requirements more than cost savings will determine the success of logistics parks in the country. A ‘cut-and-paste’ approach based on western practices will not work, he said.

Mr Mayur Suchak. Managing Director, Magus Consulting, said the key issues to be addressed are: (i) land acquisition practices, (ii) approvals, (iii) zoning, (iv) investor approach, (v) user expectations (vi) design, and (vii) development.
He said there is a general lack of user understanding of infrastructure specifications and services offered by a logistics park. Citing some of the initiatives taken by his company to address the land acquisition issues, he said that to overcome the issue of fragmented ownership of land, Magus Consulting (i) engaged local facilitators and a legal team, (ii) jointly interacted with concerned farmers, (iii) introduced joint venture initiatives to protect the livelihood of the sellers, and (iv) structured a robust acquisition process.

Further, to address the land title possession issues, the company carried out comprehensive title search (with 1957 as base year), procured land approvals from local authorities and put in place robust documentation of all land records and agreements.

Mr Suchak said in the absence of experienced service providers, Magus Consulting appointed industrial design and engineering firms to undertake the infrastructure development. In this, inputs from the local logistics experts were also obtained.
With regard to standard practices, he said it would be advisable to adapt global best practices to local needs. “What we need are world class logistics parks, made by Indians, for Indians”.

As for project management, Magus Consulting deputes its inhouse teams for project monitoring and appoints local contractors to undertake the development activities under the supervision of an overall contractor.

Magus Consulting has also undertaken efforts to educate investors on the opportunities in the logistics parks space. For this, the company developed 78 differentiating points. Also, given that users are highly price-sensitive, the company has also taken up customer awareness building with regard to the different services that logistics parks offer.

The challenge lies in aligning cost, rentals and sales value to counter illegal warehousing, he said.

Mr Jasjit Sethi, CEO, TCI Supply Chain Solutions, in his presentation on global best practices said to attain global standards, Indian logistics parks should seek (i) integration of services, (ii) promote common usage, and (iii) focus on infrastructure instead of realty.

He said that single-modal logistics parks have no competitive edge. He said the focus ought to be on developing multi-modal parks.

While logistics parks are B2B oriented, there is also scope for B2C activities, he said. For instance, some part of the park could be earmarked for retail interface, he said.

Mr Sethi emphasised that promoters should look at logistics parks as long-term plays. The presence of real estate investment trusts (REITs) would have facilitated this.

To the users, he said, “Take your GMPs to the warehouses”.

Mr Sethi urged Government to consider setting up a Council of Logistics, with a common ministry, earmark 20% of industrial area for logistics parks, promote logistics parks near cities and streamline land use for this.

He cautioned the entrepreneurs to take measured steps in setting up logistics parks in the country instead of following a trend.

Mr Rangnekar observed that a logistics ministry may not be feasible but Government could consider giving the logistics industry formal ‘industry status’.

Mr Umesh Bhanot, Vice President, Adani Logistics Ltd, in his presentation on privatisation of container train operations, noted that the first container arrived in the country in 1981. CONCOR led the container business in the period 1988-2004. With privatisation of container trains in 2005-06, 14 companies signed up concessional agreements. Now, there are 254 container train operations in the country.

However, the key concern areas for the operators are: (i) long transit time, (ii) 60% punitive payment for flat haulage, and (iii) impact on smaller operators.

Adani Logistics has developed three Greenfield logistics parks, at Patli, Kishangarh and Sahnewal.

Mr Bhanot called for the setting up of a centre for total logistics solutions. He also underlined the need for inter-ministerial committees that could fast-track logistics parks development. In this, the role of state governments need to be defined, as most state governments are oblivious of the provisions for logistics parks, he observed.

Mr Bhanot emphasised the role of government in promoting the concept of logistics parks.

He called for a coordinated approach between the various agencies involved in developing logistics parks. Citing a case of fragmented approach, he said the NCR alone has six separate customs commissionerates that pursue their own revenue targets independent of each other.

SESSSION IV: CHANGING ROLE OF VALUE ADDED PLAYER
IN LOGISTIC PARKS

3PL and 4PL players have not made a major dent in the logistics business in India yet. Mr Jasjit Sethi, CEO, TCI Supply Chain Solutions, attributed this to the limited range of logistics outsourcing that happens within the country. 3PLs account for only 6% of the total domestic logistics market.

Mr Ram Mantravadi, CEO, Aqua Management Consulting Group, in his presentation said 3PLs in India possess the capacity, infrastructure and service capabilities to meet market needs. 4PLs will come into play when there is a need to align the capabilities and capacity with ‘on demand’.

He said that users will progressively demand the integration of logistics infrastructure. Value added services will also reach an inflexion point soon, leading to the setting up of value added service capability centres. 3PLs will play make a major role in such a scenario, he reckoned. But, users need to be aware of the capabilities of 3PLs, he added.

The service providers in turn will graduate to the level of solutions providers, he observed.

Noting that 50% of logistics business in Europe is outsourced, he said there is a strong case for outsourcing in India too. Each user will have to evaluate its own outsourcing requirements.

4PLs function as knowledge partners. They offer operational capabilities, technology and process management capabilities.

4PLs interact widely with 3PLs. They manage different 3PLs and get the best logistics solutions for their clients. Importantly, they possess the “knowledge to orchestrate the logistics eco-system,” he said.

4PLs facilitate cost savings, provide greater access to resources, manage funds better, reduce inventory and transaction costs, share risks and align growth strategy with the users.

Mr Mantravadi said in the coming times 3PLs will manage infrastructure, and 4PLs, user expectations.

Mr Sunil Kumar, Director, Oracle, said that IT can be best used in logistics to (i) retain clients, (ii) improve service quality, (iii) improve operational efficiency, and (iv) adhere to compliances and security requirements.

In short, IT enables the service provider to improve the customers’ businesses.

Technology also enables the operators to know their customers better. For this, customer relationship management (CRM) systems can be deployed.

Mr Kumar said the IT applications should be robust and provide alerts to the operators on key issues to be addressed. With proper application of technology, operators could obtain significant cost savings, he said.

He said that importantly IT applications have to align to business needs, and not the other way around.

Mr Sugato Chandra, Executive Director, M J Logistic Services Ltd, said the success of any 3PL is contingent on answering three fundamental questions: what, where and how. Talking about his company’s experience in setting up a logistics centre at Palwal, said that value added players had a role particularly in storing and moving goods.

The question of ‘how’ was based on several factors, such as, how to build a world class logistics park, how to obtain clear land titles, how to do the master planning that involved detailed development plan, sizing and location of main warehouses, traffic circulation, handling equipment installation, etc. All this was simulated in virtual warehouse before the real activities were undertaken by the company.

Mr Chandra urged the promoters of logistics centres to invest in warehouse management systems (WMS). The WMS in turn should be flexible to be of use to a 3PL.

Talking about his Palwal centre, Mr Chandra said it is the first ready to move logistics centre in north India. The facility meets the IS Code for Seismic Zone IV, has rainwater harvesting facility, CFC-free cold storages, freezers and chillers, and a host of other facilities to meet the specific warehousing needs of different industries.

He concluded by saying that though government has a role in promoting logistics centres, the onus is on entrepreneurs to create the modern facilities to draw users. Users will in due course make a right assessment of the advantages of using modern logistics facilities.