Logistics: Our Achilles Heel

In late September, a noted economist’s column in The Economic Times mentioned some fascinating facts about what is happening at our seaports. It was heartening to learn that, as per a 2023 study by the World Bank, nine Indian container ports were among the top 100 in the world! Vishakhapatnam, largely handling bulk commodities but with a small container section, had improved so dramatically that in one year its rank improved from 117 to the heartening 19th position in the world as our best port. Mundra in Gujarat came second with its world rank going up from 47 to 28. No mean feat, considering that port delays have been our Achilles heel for a very long time; we are all aware that till the late 1980s waiting time for ships to unload their cargo at Bombay used to be a painful 28 days.

I remember attending ‒ as a guest of honour ‒ ‘India Week 2009’ in Hamburg, at the invitation of IGEP (Institute of Global Economic Partnership) where several meetings were held to discuss ‘logistics costs in India vis-à-vis those in Europe’ and I had to cut a sorry figure because even 18 years after the liberalisation of our economy, we were still near the bottom as far as logistics costs ‒ as a percentage of GDP ‒ was concerned and Germany stood among the top rankers. If I remember correctly, our costs were around 15 per cent against nine per cent in Europe.

Various studies have shown that our high cost of logistics is the main reason for our not being competitive in exports. The Economic Survey 22-23 pegged our logistics cost at 14-18 per cent of GDP against the global benchmark of 8-10 per cent. We did make an improvement from the shameful 54th position on a global index to 38 in 2023 but that’s very slow and unless we can get up to being amongst the top 25, we will continue to suffer on the exports front and domestic consumers will keep paying higher prices for almost everything. An Indian Express report in January 2024 estimated our logistics costs at $400 B i.e. around 14 per cent of GDP against 8-10 per cent in the USA and Europe and nine per cent in China.

Surprisingly an NCAER report came up with the startling figure of the logistics cost in India being between 7.8 per cent to 8.9 per cent but Minister Gadkari mentioned in August that this figure was grossly underestimated and in reality “we are running around 16%”; at the same time, he predicted that the figure will come down to nine per cent by April 2025?? All these different figures are confusing and perhaps there’s lack of clarity on what all goes into the ‘cost of logistics’. Yet we are all aware that our costs are high - it takes us too long to move the raw materials and other inputs to the factories and the same tardy story is repeated for distributing finished goods locally or getting them to a port for exports. Then there are the inefficiencies at port handling and higher turnaround time for ships.

There is indeed progress on various fronts if we look at the ‘28-days-waiting at Bombay port in 1988 due perhaps to strong unions’. As a World Bank expert found, “the fastest way to unload a ship at Bombay port was to pay the unionised workers to stay at home and hire private workers to do the job”. There was a time when our ports were amongst the best in developing countries but our socialist policies ruined the system. In 2023, Vizag achieved a turnaround time of about 21 hours for the ships. Private ports have brought in major changes; faster highways and dedicated freight trains have reduced the time for movement of goods between ports and factories all over the country; foreign port handlers like Dubai World, Maersk, Singapore Port Authority as well as scores of local parties have transformed the scene and many of our ports are now world class.

Our median turnaround time is now down to 0.9 days and our rank on some international indices has shot up to 22 in the year 2023. With huge container ports like Mundra ‒ India’s first private port and largest container facility ‒ that handled an eye-popping 155 million tonnes of cargo in 2022-23, approximately a third of the country’s total container traffic. Being a deep draft, all-weather port, with state-of-the-art infrastructure with 10 terminals and 24 berths and beefing up of other large ports, dedicated freight trains, and forever expanding network of highways and national expressways, we should soon be able to bring down our ‘logistics’ costs and get a competitive edge in the world.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the publication.