Connections Transport & ICT Unlocking the Potential of Freight Logistics in India Bernard Aritua New, comprehensive analysis of data on the current routing of goods in India have positioned the country to break through its freight transport gridlocks and logistics inefficiencies. With a growth rate of more than 7% since 2014, India is the fastest growing major $50 billion economy in the world. But as a share of its GDP, its logistics costs for moving freight are as high as 14% percent of GDP, markedly more than the 8–10% for most advanced economies. The gap arises from excess The amount India could costs generated by inefficiencies in the transport save by reducing its system, greater costs of storage and inventory and logistics costs to 9% of procedural delays. Closing that gap would give a major GDP from the current 14% boost to India’s growth prospects. Studies of logistics improvements in advanced economies have shown that, with sufficiently detailed data on freight flows, targeted interventions in specific corridors and subsectors can enable transformational changes in freight logistics performance. Researchers and logistics experts from the World Bank and South Africa’s Stellenbosch University have assembled and modeled such data for India, identifying bottlenecks and opportunities for more strategic investment and collocation of activities to achieve production synergies and lower the costs of logistics and trade. Introduction inventory, and finished goods from point of origin to point of consumption. The ability to move goods seamlessly and cost effectively from centers of production to domestic India has made notable strides lately. In 2016, after and international markets is a key driver of growth a long period of decline, it improved from 54th to and jobs. High logistics costs mean that firms 35th among 160 countries analyzed in the Logistics are less competitive and consumer prices are Performance Index, prepared every two years unnecessarily high. At the national level, logistics by the World Bank. To accelerate such gains, the inefficiency means that the cost of achieving World Bank and Stellenbosch researchers have improvements in GDP is much higher than it should created a disaggregated model of freight flows for be. Logistics costs encompass expenses associated India to help policy makers better understand cost with the movement, storage, and documentation drivers and further address barriers to logistics of raw materials, intermediate goods, in-process performance. DECEMBER 2016 NOTE 2016 - 10 What the Data Show supply chain and understanding the flow of freight can point the way to collocation of primary and The model maps the supply and demand for all intermediate suppliers and ancillary services. commodities and goods and the consequent flows and logistics costs across India. The data uncover Maximizing use: The data will help exploit the full the answers to the following basic question for key capacity of new dedicated railways and inland wa- commodities in India. terways as part of a multimodal solution. Transport patterns will reveal the opportunities for optimiz- How much of what moved where and how? ing different modes and shifting freight that should • How much: in tons, TEUs (a container-ship naturally be on rail and waterways. measure), or ton-kilometers • What: all domestic and import or export freight Creating more efficient networks in the private • Where: origins and destinations and public spheres: Understanding detailed freight • How: by mode—rail, inland waterways, coastal flows is crucial for designing distribution and shipping, and roads storage networks for e-commerce, high-value manufacturing, and fast-moving consumer goods Decomposing freight flows provides evidence for industries. The public sector can better align com- decision making on a number of levels. plementary investments such as urban transport, • Total freight flows reveal bottlenecks on cor- housing, and social services. ridors or in last-mile connectivity. The data support infrastructure investment decisions, as Boosting the growth of micro, small, and medium- they have shown that 58% of freight transport size enterprises: The freight data can reveal the (in ton-kilometers) is in corridors, but those best areas in which to locate start-up incubators corridors receive only 40% of transport infra- and the points of freight agglomeration that allow structure spending. smaller businesses to ship at competitive rates. • Understanding freight flows allows data-based Siting “extended gates” for ports: With the data discussions with shippers, freight forwarders, developed on shipment patterns, India is in a strong and transport operators about addressing spe- position to solve the problem of congestion at its cific cost drivers. 12 major seaports with innovative solutions such as • Disaggregated flows help advance efforts to the creation of remote terminals known as extend- reduce greenhouse gas emissions by provid- ed gates. ing the data necessary to increase the share of Extended gates are usually inland terminals 20–200 freight moved by rail and waterways. km away from the port, at a site with sufficient India aims to reduce emissions by increasing the space for port services, including freight han- share of freight moved by rail from 35% to 45%, and dling, inspection, consolidation, documentation, reaching that goal depends on offering shippers, warehousing, and multimodal transport linkages. cargo owners, and freight forwarders proposals that Purpose-built waterways and rail shuttles convey are commercially viable from a logistics perspective. all goods between the extended gate and the port, The disaggregated freight flows are being used to which is essentially transformed into a “valve” for support the government in identifying freight suit- the quick transition of goods into and out of the hinterland. The results include greater urban mobil- able for rail and waterways and to make the busi- ity in port cities, reduced waiting time for ships, ness case to shippers and freight forwarders. and dramatic improvements in shipping capacity, How the Freight Flow Model Will efficiency, and function. Support Logistics Solutions Detailed knowledge of freight flows will assist in For more information on this topic: developing important solutions for India: Logistics Performance Index: http://lpi.worldbank.org/ Collocating: Warehousing and logistics clusters have Stellenbosch Univ. Dept. of Logistics: http://www.sun.ac.za/ english/faculty/economy/logistics to be optimally located. Knowing the nature of the Connections is a series of knowledge notes from the World Bank Group’s Transport & Information and Communication Technology (ICT) Global Practice. Covering projects, experiences, and front-line developments, the series is produced by Nancy Vandycke and Shokraneh Minovi. The notes are available at http://www.worldbank.org/transport/connections. DECEMBER 2016 NOTE 2016 - 10