A fillip to middle-mile transport has benefits beyond ecommerce

There is a competitiveness gap of $180 billion in the logistics sector, which is expected to rise to $500 billion by 2030 if supply chain inefficiencies are not addressed

Updated: Apr 20, 2021 07:40:28 PM UTC
Image: Fayaz Kabli/ REUTERS

The increased thrust on infrastructure spending towards the improved road and railway infrastructure, highways, and economic corridors could not have come at a more opportune moment for logistics players. This special focus earlier this year in the union budget 2021-22 is reflective of the spurred growth momentum of e-commerce in the last quarter of 2020 and its impact on ancillary sectors. Players in the logistics sector are in a prime position to leverage this opportunity to strengthen multi-modal connectivity, enhance operational efficiency, and reduce delivery timelines.

With transportation accounting for a large part of the cost, this boost offers promise to multi-modal operators connecting the source of the package's origin with the delivery leg. As the heart of the logistics network, the middle mile ensures products are shipped and transported seamlessly to reach the customer on time. This multi-modal network comprises a combination of transport systems—planes, trains, trucks, and ships, to build a well-integrated supply chain that ensures connectivity, speed and economies of scale. Which, if not achieved, can cause a trickle-down effect on the last mile and deliveries thereby impacting the customer satisfaction index.

As today’s customers continue to expect greater visibility for time-critical deliveries, dependency on the middle mile increases further. Like in any industry, enhancing operational efficiencies at the get-go is key to ensure customer retention but this efficiency can only be given if the infrastructure is used optimally and at all times. While the budget provides a necessary stimulus to the middle mile, it is essential to acknowledge that a one-size-fits-all approach to logistics does not work in a country like India. With every region offering a different topography, adopting a combination of all available modes viz. air, rail, road, the sea will enable companies to maximise local capabilities and build resource-efficient transportation models. Organisations will also be able to offer curated solutions to India that match local topographies with customer needs and product life cycles. Different middle mile strategies will factor in contingencies for weather conditions, perishable items, and priority deliveries.

While e-commerce and logistics players have harmonised supply chain operations to suit local characteristics, some modes continue to be under-utilised due to infrastructure limitations. Not only does this increase costs for players but it also shoots up the opportunity cost for the entire industry. A report, by Arthur D. Little India in collaboration with CII, indicates that there is a competitiveness gap of $180 billion in the logistics sector, which is expected to rise to $500 billion by 2030 if supply chain inefficiencies are not addressed.

There is scope to mitigate this for a proportionate advantage by increasing the emphasis on modes that offer the lowest cost of transportation—waterways. With the cost of freight movement by water per tonne being 20 paise and the potential to use 60 percent of India’s water resources for beneficial purposes, there is an opportunity to build a well-integrated and cost-effective supply chain. As recognised by the government, optimal usage of these underutilised resources will enable the kind of speed and reliability that this industry needs regularly.

The strengthening of infrastructure will improve coverage and have a cascading effect on intermediaries to enhance usage frequency. A collaborative effort by the government, investors, entrepreneurs, infrastructure and logistics players will create a sustainable environment conducive to driving operational efficiency, which will achieve the desired results. Democratising the supply chain by leveraging inland waterways will not only make transit seamless but will also incentivise other connected industries, like shipping to bring down costs, making resources accessible to a larger audience.

A well-integrated supply chain and optimum usage of resources will significantly reduce the cost of transportation and be at par with other markets. By adopting a stronger multi-modal middle mile, India Inc. will be able to bring down its logistics cost. A cost reduction also paves the way for India to be a strong contender to become a Global Exporting Hub. With the creation of multi-modal hubs in Tumkur and Krishnapatnam already underway, the country is expanding its income potential through freight and job creation. With the continued investment in building a strong and interconnected infrastructure network, India will not only be an Atmanirbhar economy but also have enhanced customer experience, especially when e-commerce is the order of the day.

The writer is Director of Amazon Transportation, Amazon India

The thoughts and opinions shared here are of the author.

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