Freight logistics & Intermodal Transport: Implications for

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<ul><li><p>Institute for Studies in Industrial Development4, Institutional Area Phase II, Vasant Kunj, New Delhi - 110 070</p><p>Phone: +91 11 2676 4600 / 2689 1111; Fax: +91 11 2612 2448E-mail: info@isid.org.in; Website: http://isid.org.in</p><p>Institute for Studies in Industrial DevelopmentNew Delhi</p><p>175Working PaperDecember 2014</p><p>Arvind Kumar</p><p>FREIGHT LOGISTICS &amp; INTERMODAL TRANSPORTImplications for Competitiveness</p><p>About the Institute</p><p>The Institute for Studies in Industrial Development (ISID), successor to the Corporate Studies Group (CSG), is a national-level policy research organization in the public domain and is affiliated to the Indian Council of Social Science Research (ICSSR). Developing on the initial strength of studying Indias industrial regulations, ISID has gained varied expertise in the analysis of the issues thrown up by the changing policy environment. The Institutes research and academic activities are organized under the following broad thematic areas:</p><p>Industrialization: Land acquisition, special economic zones, encroachment of agricultural land, manufacturing sector, changing organized-unorganised sector relationship, rise of service economy in India, training and skill formation etc.; </p><p>Corporate Sector: With special emphasis on liberalization-induced changes in the structures of the sector, corporate governance, individual firms/groups, emerging patterns of internationalization, and of business-state interaction;</p><p>Trade, Investment and Technology: Trends and patterns of cross-border capital flows of goods and services, mergers &amp; acquisitions, inward and outward FDI etc. and their implications for Indias position in the international division of labour; </p><p>Regulatory Mechanism: Study of regulatory authorities in the light of Indias own and international experience, competition issues;</p><p>Employment: Trends and patterns in employment growth, non-farm employment, distributional issues, problems of migrant labour and the changes in workforce induced by economic and technological changes;</p><p>Public Health: Issues relating to healthcare financing, structure of health expenditure across states, corporatisation of health services, pharmaceutical industry, occupational health, environment, health communication;</p><p>Media Studies: Use of modern multimedia techniques for effective, wider and focused dissemination of social science research to promote public debates;</p><p>Other Issues: Educational policy and planning, role of civil societies in development processes etc.</p><p>ISID has developed databases on various aspects of the Indian economy, particularly concerning industry and the corporate sector. It has created On-line Indexes of 210 Indian Social Science Journals (OLI) and 18 daily English Newspapers. More than one million scanned images of Press Clippings on diverse social science subjects are available online to scholars and researchers. These databases have been widely acclaimed as valuable sources of information for researchers studying Indias socio-economic development.</p></li><li><p>FREIGHT LOGISTICS AND INTERMODAL TRANSPORT </p><p>Implications for Competitiveness </p><p>ArvindKumar</p><p>InstituteforStudiesinIndustrialDevelopment</p><p>4,InstitutionalArea,VasantKunjPhaseII,NewDelhi110070Phone:+911126764600/26891111;Fax:+911126122448</p><p>Email:info@isid.org.in;Website:http://isid.org.in</p><p>December2014 </p><p>ISIDWorkingPaper</p><p>175 </p></li><li><p> Institute for Studies in Industrial Development, 2014 </p><p>ISID Working Papers are meant to disseminate the tentative results and findings obtained from the ongoing research activities at the Institute and to attract comments and suggestions which may kindly be addressed to the author(s). </p></li><li><p>CONTENTS </p><p>Abstract 11. Introduction 22. LogisticsCost,StructureandFreightFlows 3</p><p> LogisticsCosts/GDPRatio 43. MarketConditionsforLogisticsDevelopment 74. StructureofLogisticServiceProviders 8</p><p> IntegratedTransportandLogisticsServices 105. StructureandCompositionofFreightFlows 11</p><p>CompositionofFreightFlowshasImplicationsforLogisticCosts 13TransportEfficiencyandCosts:ImplicationsforLogistics 13</p><p>6. TimeCostofTransport 16 CostofDetentiononInterstateCheckPosts 177. RoleofMultiAxleVehicle(MAV) 188. EfficiencyofIndiasPortSector 199. DraftandVesselsize 2010. CargoEvacuationbyTransportModes 2011. HubandSpoke 21 12. DevelopmentofIntermodalTransportandKeyIssues 2113. NeedforanAlternativetoPureRoadTransport 2214. TrendsinIndiasIntermodalTransport 23</p><p>EconomiesofIMT 24ProblemsinIntermodalTransport 25BarrierstoIntermodalTransport 26</p><p>15. ConceptofDryPort 2716. ContainerFreightStations(CFS)/InlandContainerDepots(ICD) 29</p><p>NumberandGeographicalspreadofICDs/CFS 29PricingandStructureofCFS 30</p><p>17. Conclusion:NeedforaCoordinatedApproachtoIMT 32References 33</p></li><li><p>ListofBox(s)Box1 CategoriesofLogisticServiceProviders 9Box2 BenefitsofIntermodalTransport 24ListofFigure(s) Figure1 TheRelationshipbetweentheLPIandtheLevelofLogisticsCosts 7Figure2 ElementsofLogisticCostinIndia 14ListofTable(s) Table1 India:StructureofLogisticsSectorinTermsofGDP 5Table2 LogisticsPerformanceIndex(LPI):Scores 6Table3 TradingAcrossBorders 7Table4 LevelofInventoryHoldinginManufacturingSector 10Table5 ModalSplit:InterregionalFreightFlows 11Table6 ModalMix(BTKM):Rail,RoadandWaterborne 12Table7 FreightYieldsinMajorEconomies 12Table8 LogisticsCostfortheMovementof20FeetTEU 15Table9. TransitTimeforVariousTripLengths 17Table10 MajorPorts:SelectEfficiencyIndicators 20Table11 NumberofContainersEximandDomesticHandledbyCONCOR 23Table12 InlandContainerHandlingFacilitiesinRepublicofKorea 31</p></li><li><p>FREIGHTLOGISTICSANDINTERMODALTRANSPORTImplicationsforCompetitiveness</p><p>ArvindKumar*</p><p>[Abstract:Indiasplacementbehindmanyofitslogisticscomparatorsraisesconcernsonthestateofpreparednessofthecountrytoprovidethedesirablelogisticsenablingenvironmenttoserveaneconomywhichisexpectedtogrowintherangeof8percentto9percentoverthemediumterm.Inadequatelogisticsinfrastructureandsupplychainproceduresmaybecomeaseriousbottleneckinpreventingtimelydeliveryofgoodsandgeneralcargotothemainports.The focusof thispaper is to (a) lookat the statusof Indias transport sectorand logisticssystem and how it functions, and (b) offer recommendations on how to improve Indiaslogistics system. The regional distribution of gains from reform is an important issue.Transportdistanceswithin Indiaareconsiderableandwithoutcosteffective transportationand logistics,thegains fromtradecouldbedistributedunevenlyacrossdifferentregionsofIndia.Forinstance,goodsproducedintheWesternorSouthernregionsofIndiadestinedforuse/consumptionintheEasternorNorthEastregionstobecosteffectivecouldusetransportcombination of rail, road, inlandwaterways or coastal shipping. Thiswould help reducedependence on road transport. Lack of an integrated transport policy and skewed freightmodalstructurecanpenalizeindustrialproducts.TheappropriationofFDIbyafewStatesintheWesternandSouthernregionsreflectstosomeextenthightransportcostsinotherregionsof the country.Thedifferent levels of infrastructure amongst thevarious regions arewellrecognizedasasourceofvariationinregionalperformance.Transportefficiencyislow.Thecostofrailandcoastalshippinginthecountryishigherthanmanyeconomies.Eventheroadcostsandtransittimeacrossdifferentmodesarehighandunpredictable.Partly,itisbecauseof the differing average speeds ofmovement across the variousmodesRail, Road, andCoastalShipsarelowerthanthoseinmoreefficienteconomies.Theothertypeofefficienciesarisedue tohigh turnaround time of railwaywagons/trucks ,pre berthingdetention time,container/bulkhandlingratesofequipmentattheports,inadequaterailinfrastructure.Logistic deficienciesmust be tackled by policymakers in order to successfullymove itsindustriesupthevaluechain.Otherwise,withthedispersalofmanufacturingactivitiesintothe interiors and further away from its seaports, Indias already high logistics costwill</p><p> * (IES Retd), Former Senior Adviser (Transport Research), Ministry of Road Transport and</p><p>Highways; and,Member, TariffAuthority forMajor Ports,Ministry of Shipping.An earlierversion of thepaperwaspresented in theNationalConference on Indias Industrialization:HowtoovercometheStagnation?organisedbytheISID,duringDecember1921,2013.</p></li><li><p>2</p><p>escalatefurther,puttingthecountryatacompetitivedisadvantage.LogisticscostinIndiaiscomparatively high, and is estimated to be around 11 per cent of the nationalGDP andinventoryholdings fororganizedmanufacturingcomprisearound18percentof thevalueaddedoftheorganizedmanufacturing.Areductioninlogisticscostsbyevenonepercentagepointwill result innoteworthy savings annually.Besides, significant benefits can also bereaped through the multiplier effect of having a better logistics infrastructure, thusaccelerating Indias economicgrowth.Transportand logistics scene in the country revealsthat despite substantial improvement of national highway network and addition to portcapacity,thegapbetweenIndiaandEastAsiancountriesinthedomainoflogisticsefficiencypersistswhichprovidesimmensescopeforimprovement.Indias transportmodalmix isheavily skewed towards road freightwith all its attendantnegative externalities. This provides ample scope for rebalancing the modal mix to cutlogisticscosts.Definingandenforcingrules formultimodaltransportoperationswhich fostercompetition,promoting the standardizationof equipmentand electronicdata interchange formats,andestablishing an effective conflict resolution mechanism would help promote multimodaltransport. Important constraints impeding costeffective transport options and reducedlogisticscostsincludemissinginfrastructureandoutdatedinterstatecheckposts.Therearetwomainreasonswhymultimodaltransport(MMT)needstobeakeyelementofanystrategy in India.One,MMT impacts internationalcompetitivenessofgoodsexportedandregionaldevelopmentwithinthecountry.Inthebackdropoflowerlevelsofimporttariffsonmanufacturedgoodsindevelopedcountrymarkets,hightransportcostshaveemergedasasortofsignificantnontariffbarrier.Second,lowertransportcostsformanybulkcargoescanonlybeachievedbyreducingtheroleofroadtransportthroughbetteruseandcombinationofrail,inlandwaterwaysand/orcoastalshipping.Thispaperisamodestattemptataddressingaverycomplexproblem.Itdoesnotaimatbeingexhaustive,whichwouldbequitechallenginginthebackdropofinfiniteregulationsandthefederal structure of the Indian economy. The main focus is to identify areas that havecontributedtowardsmanyofthepresentproblemsandconstraintswhichhavedistortedthemodal mix in the transport sector, and to recommend options for addressing theseconstraints.]</p><p>1. IntroductionMovementofgoods requiresatransportchain,which isaseriesof logisticalactivitiesthatorganizesmodesand terminals, suchas railway,maritime,and road transportationsystems,forcontinuityalongthesupplychain.Transportterminalport,railorairportisthekey infrastructurewhere thephysical flows are reconciledwith the requirementsofsupplychainmanagement.They also facilitatemovementsof containers efficiently fromship to truck to rail.Facilitiessuchasdistributioncentresoftenplayasignificant role insupplychainmanagementnotwhentheyactasmorethanbuffers(warehousing),butasactiveelementsinthephysicalflows.Freightterminalshavebecomeimportanttradeandlogisticsplatformswhose levelofactivitynotonly reflects the intensityof infrastructure</p></li><li><p>3</p><p>utilization, but also the logistical capabilities to support its operations. In the light ofintense global competition, supplychain efficiency remains one of the few strategiesavailable to promote competitiveness.Global production networks are enhancedwhensupportedbyefficientlogistics.Productionnetworksneedsufficienttransportcapacityaswellastheabilitytomanagetheseflowstoinsurereliabilityandtimeliness.</p><p>Freightlogisticssystemismuchmorethanmerelytransportinfrastructure;itinvolvessubsectoraltransportoperatorsandmultimodaltransportoperators.Afreightlogisticssystemalso consists of the following components:warehousing services, inland terminals, andintermodal transfer terminals that facilitate the transfer of freight from one mode toanother. Inaddition, it involvesgovernmentagenciessuchascustomsandrevenue,andotherserviceswhichareinchargeofverifyingifallthedocumentsrequiredforexportingandimportingcomplieswiththelaw.</p><p>Freightlogisticsisthesourcing,purchasing,packaging,transport,storageanddeliveryoffreightaround Indiaand theworld.An efficientand effective freight logistics system isessentialtothecompetitivenessofthenationaleconomy.Itisakeytoachievingeconomicandefficiencyobjectives.Logisticsisavitalvalueaddedservicetothebusinesscommunityand an essential enablerofdomestic andglobal trade.Efficient logistics services extendmarket reach by giving manufacturers access to a wider range of raw materials andsuppliesfromdifferentsources. </p><p>Logisticscanbeunderstoodastheprocessofplanning,implementing,andcontrollingtheefficient, cost effective flow and storageof rawmaterials, inprocess inventory, finishedgoods and related information from point of origin to point of consumption for thepurpose ofmeeting customer requirements(USCouncil of SupplyChainManagementProfessionals, Council of Logistics Management). Freight logistics involves differentphysical and economic activities, which are more commonly categorized as: 1) CoreLogistics Services: linehaul transport, pickup and distribution, storage,loading/unloading, stuffing/stripping, load consolidation; 2) Value Adding Services:packaging,qualitycontrol,product testing/repair,assembly, installation, informationandinventory control; and, 3) Support Services: equipment hiring/leasing, equipmentmaintenance, sanitary services, security services, trade insurance and finance.As such,logistics is one of themost important aspects for accessingmarkets, affecting both thevolumeandvalueofinternationallytradedgoods.Thefocusofthispaperisontransportinfrastructure.</p><p>2. LogisticsCost,StructureandFreightFlowsToday, logistics costs are amore important component of total trade costs than tariffbarriers.The gradual unilateral tariff reduction implemented in recent years by a largenumberofcountries,togetherwithfreetradeagreements,broughtaboutanincreaseintherelative share of logistics costs in total trade costs. Both physical and regulatory orinstitutional shortcomings in the transport sector translate into high logistics and</p></li><li><p>4</p><p>transportation costs that constrain development and competitiveness of the economy.These costs often overshadow traditional trade barriers. This situation has at least twoconsequences:(a)itisdetrimentaltotheparticipationofthecountryinworldtradesinceitmakesproducers less competitive andpushesup thepricesof tradedgoods; and, (b) iterodesthecapacitytoboostfactorproductivity.</p><p>The purchasing power parity (PPP) adjusted benchmark of transportation costs bymodewiththeUSshowsthatIndiaslogisticsinfrastructureisinefficient.Forinstance,railandcoastalshippingcostsinIndiaareapproximately70percenthigherthanthoseintheUS.Likewise,roadcostsinIndiaarehigherbyabout30percent.Thisnotonlyresults in higher prices and lower competitiveness, but also hampers economicgrowth..poorlogisticsinfrastructurecoststheeconomyanextraUSD45billionor4.3per cent ofGDP each year.Twothirds of...</p></li></ul>

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