The global logistics sector is undergoing a quiet revolution. The key benefits are reduced costs, quick arrivals and complete tracking of goods.
The new technologies like the Internet of Things (IoT) and people’s preference for buying even very heavy goods online are driving this change. The impact will be significant as the logistics sector currently is less automated, employs large workforce and accounts for 10-14 per cent of the GDP of most countries.
Logistics cost includes all expenses associated with taking a product from factory to consumer. These could be direct costs like transport cost or indirect costs like charges of freight forwarders or custom house agents. Logistics cost is significant and add on an average of 30 to 40 per cent to the cost of the goods.
This is why, while world trade is about $17 trillion, the global logistics sector has a turnover of $5 trillion.
The logistics revolution will also transform India’s ocean shipping and trucking sectors. We will discuss drivers of the revolution and steps India needs to take to benefit from these changes.
Technology — the key driver
Technology is the key driver of changes. A combination of the IOT, Block Chain, and Artificial Intelligence (AI) is making the journey of a ship or truck more secure and efficient.
IOT sensors provide a unique internet address to each device they are attached to.
They make fleet management secure and efficient by feeding location information into the global database. Data collated from thousands of such devices generate real-time weather and traffic advisory using AI tools.
Internet-connected sensors placed on the individual packets/consignments make tracking possible across the supply chain and ensure against pilferage and contamination. Satellite trackers do this even when there is no mobile coverage.
Blockchain technology allows everyone in the supply chain, from the factory manager to retail shop owner to view the condition of a packet during the journey of the ship/truck. IBM offers Food Trust Solution where data from the sensors can be uploaded on the blockchains. This can be seen by people in the chain and also verified independently.
Return of empty ships and trucks after delivery of goods increases the cost by about 30 per cent. Simple mobile apps have resolved the issue. Now customers and owners interface to strike a quick deal to ensure near-total use of space.
Changing business model
Firms move goods in two ways. Light packets up to say 50 kg move through the courier firms such as DHL, FedEx or Skypack. Courier firms do end-to-end job. They collect goods from a factory and deliver them to the consumer within one to three days in most locations globally.
But costs are high. For example, the price of sending a 50-kg packet from Delhi to Singapore exceeds the price of three passenger air tickets.
Now, compare the weight of three humans each with 30 kg free baggage with a 50-kg packet.
The high cost is the reason, firms choose to ship large or less urgent consignments by sea. It is cheap compared to the courier, but delivery takes more time because of complex shipping, customs procedures. And also as over 70 per cent of the logistics sector is in small, unorganised hands. Many small service providers coordinate to deliver a packet or container. Trucks often spend 6-12 hours covering the last mile at the port due to traffic or port procedures, resulting in missing of the ship. But this model is set to change. Many large firms are entering the cargo business to offer worldwide door-to-door delivery.
Shipping company Maersk plans to provide door-to-door service, use massive, fully automated ships and process only secured digital documents using blockchain technology — no paper.
But the major push comes from the online e-commerce firms like Alibaba and Amazon.
So far they focused on flying light packets. But as people’s preference for buying even bulky goods like foodgrains or steel online, the e-commerce firms have to use the ocean route to keep cost under control. But currently prevailing long delivery times of sea transport do not fit with fast-paced e-commerce delivery model.
Consumers are impatient and want global deliveries in quick time. So to cut the time, firms like Alibaba and Amazon plan to develop end-to-end supply chain for sea-based shipments also — to become the DHL of the sea.
What must India do?
While technology related changes will be driven by e-commerce and the shipping industry, the government must create an enabling environment to benefit from these.
And there are many areas for focus. For example, the World Bank ‘Doing Business’ report 2017 says that the average time taken in India for border compliance is 106 hours. Also, the variation in time for an export container moving from a factory to port ranges between 40-70 hours.
The uncertain delivery time increases inventory and freight costs. Incentivising the use of new tools will provide more certainty in cost and time of delivery.
The logistics revolution will lead to consolidation of business. It may spell tough times for small players. About 7.5 million jobs are estimated to disappear in the US alone in the next 10 years because of the e-commerce and logistics related changes.
The situation in India will be no different. Logistics service providers/CHAs/ small trucking and shipping firms must look to upgrade their skill for the new environment. India’s logistics costs are 40 per cent higher than in most developed countries.
A reduction will result in more competitive goods and services, resulting in more trade and commerce.
Changes in the logistics sector will deeply integrate India with global supply chains.
The author is an Indian Trade Service officer. Views are personal.